Culture checklist: one firm, eight boxes, 10 successful years

Building and maintaining a healthy culture in the long run is a difficult task that some investing institutions shut down. But an organization in North America that we would call Alpha Investment Management, and its storytelling.

The obvious starting point is Alpha’s commercial success. If the Alpha team had built a strong, healthy culture while losing clients, resources and profits, their story would have been less than compelling. But from 2010 to the present, a difficult time for many active managers, Alpha’s assets have increased sevenfold and its performance has more than tripled, from 74 to 218. 20 to 60 employees.

Imitation is the highest form of flattery, and we have heard from many Alpha competitors who said that Alpha is a firm they wanted to imitate.

So what is the explanation of this record?

Alpha has a lot to do with origins and make-up. The firm was founded in the 1970s, but its current president found the 2004 real culture story.

The motivation for the defined shift was friction between the firm’s second and third generations. The former took real risks and created an ongoing enterprise. But “young Turks,” as they call themselves, now work long hours and establish a strong track record for investment performance, wealth growth and client satisfaction.

Alpha Classic was fighting the dilemma that many private companies face as they grow up: the old watchdog and the next generation struggling and wrestling with fairness, decision authority, inheritance and ownership.

As tensions escalated, two junior partners – young Turks – reached out to us at Focus Consulting Group (FCG) so we could help. A series of convenient meetings – really discussed – during which both sides debated and resolved difficult issues. When the dust settles, they reach an agreement and the younger generation begins to take the lead in Alpha.

This was an important first step in the Alpha culture journey. The young Turks agreed that as soon as they took charge of Alpha they would give top priority to culture. They continue to practice with FCG the values ​​and behaviors that define that culture, the purchasing power from employees, and the alpha mentality.

Alpha has improved so much that it has earned us the nickname “Focus Elite,” which recognizes the distinctly powerful cultured entities measured by our Culture Diagnostics. Alpha has joined eight other selected organizations that together represent about 5% of the FCG database.

Let's all learn how to fish.  .  .  To sustain long-term economic growth

What were the key steps in Alpha’s successful cultural evolution? We have identified eight elements, all of which are addressed in alpha.

In the table below this culture checklist lists the items and the percentage of companies that have done it. To be sure, the sample may be a bit skewed because the respondents are all from “culture-friendly” organizations that work with FCG.

A chart illustrating the results of the Culture Checklist
Source: Focus Consulting Group (FCG)

Even among these “culture-friendly” investment leaders, as measured by the top factor, “senior teams that are committed to good culture,” there is a significant deficit in achieving checklist items. For example, only 38% of companies have a culture plan. Alpha was diligent in enlisting outside help: his team did not assume that he had the internal skills to implement culture change management.

So what is Alpha’s progress in culture from 2010 to 2020? Tell the story of four things and how Alpha addressed them:

1. Key values ​​and core behaviors

In keeping with the practice of culture measurement, Alpha has conducted a regular culture survey since 2010. The results of their values ​​and behaviors, shown in the following chart, show steady improvement over time in both core values ​​and core behaviors:

Behavior and price: Annual comparison

Charts illustrating values ​​and behavior: Annual comparisons
Source: Focus Consulting Group (FCG)

How did the Alpha team reinforce these values ​​and behavioral practices? They shine a big spotlight on them. Employees have created a book called “Value in Action” to bring their values ​​and behavior to life. In the book, employees across the firm describe important moments in the firm’s history that demonstrate the power of values ​​and emphasize that they are much more than the words of a page. FCG created 20 short videos for each of their new staff members that describe the key behaviors that Alpha encourages its staff to practice.

Perhaps most importantly, Alpha has linked cultural behavior to rewards. Accepting culture and being a good corporate citizen brought a reward. Many investment firms promote culture but it does not bind with an enthusiasm. Which is contrary to human nature. We respond to incentives.

The strategic review of ownership options in Alpha led to a retreat in the 2018 sample. As the firm was arguing about these options internally, the word leaked out and created understandable uncertainty among employees. So, the “think long term” value is hurt because employees were wondering if management is practicing it.

How did the leadership respond? With immediate openness and transparency. They also rejected an acquisition offer because employee and leadership value the organization’s independence, client feedback and strong culture, all of which can be mixed in the acquisition.

2. Reasons for success

Alpha values ​​and behavior scores were high at the beginning of the 10-year period under review, the reasons for their success lagged behind. And as shown in the table below, the organization has made significant progress in this area over the past decade.

Reasons for success: Annual comparison

Chart illustrates the results of the vote for the reasons for success: Annual comparison
Source: Focus Consulting Group (FCG)

Alpha’s commitment to continuous improvement helps explain many of these changes. In 2010, for example, only 39% of Alpha employees agreed with the statement that “we have an ownership mentality.”

Not satisfied with such a low score, Alpha has worked to increase leadership ownership where it is today, or three times its 2010 level. Such measures have helped raise the rating in this area from 39% to 85%, the highest in the industry.

Ownership scores dropped dramatically at the time of the acquisition in 2019 as staff members wondered if they would actually continue to own Alpha. But the Alpha Town Hall meeting tackled this fall because the leadership openly discussed its decision. No. Will be acquired. Assured, staff members have brought the ownership factor back up to 85%. According to Alpha’s leadership, this series of events helped launch “Alpha 0.0”. They firmly decided to grow the firm “in the right way”.

Alpha has also focused on implementing the plan. Alpha has seen its factor rating improve from 50% to 80% by bringing in experienced COOs in 2017, in addition to taking steps to improve decision-making and operations. Implementing the plan for Alpha continues to be a key focus.

Communication is also an area that Alpha has strengthened over the last 10 years. In 2010, only %% of staff said they had experienced open and transparent communication. When the Covid-1 pandemic epidemic began, Alpha launched a dime and introduced new communication equipment and channels. Today, Alpha has an almost perfect score of 98%.

The emphasis of the leadership team on honesty explains many of these results. Outside teams have instructed staff on multiple occasions that can be called respectable candid and the firm has embraced both spirit and equipment. Phrases like “facts vs. stories” and “hold your story lightly” have become part of Alpha’s vocabulary.

Relationship Alpha Tile

3. Toxic behavior

All organizations get some amount of experience in what we call sludge – gossip, guilt, disrespect and so on. But the goal is to reduce such behavior. In the case of Alpha, the journey had ups and downs. The firm’s sludge score jumped back from 6% to 11%

Sludge analysis chart showing annual comparison
Source: Focus Consulting Group (FCG)

For Alpha’s achievement, every time the mud rises, the team will break up the behavior or division and solve the problem. For example, in one year a team’s toxic behavior score increased by 25%. The reason was a role change that was not working. Alpha takes the necessary steps and the toxic behavior score returns to a minimum.

Alpha and “slow moving / reactive” are major sludge concerns for most of the industry. Regulatory and compliance issues have influenced the speed at which decisions can be made and implemented. Again, to Alpha’s credit, the party has tackled the problem by changing the governance structure. They scrutinize and make decisions at different levels and decide to hand down many decisions in the organization and take some to the senior level. The epidemic adds more impetus to the reform of their decision-making process. Results: Slow Moving / Reactive Score dropped from 26% in 2019 to 12% in 2020.

Through all of these successes two things go hand in hand: Alpha’s desire to closely track its culture and the steps it takes to address it while raising issues. Like caring for a garden, maintaining a strong culture is never done. This requires water, weed and pruning equivalent. This is a continuous process that requires caution.

4. Leadership Development and Mentoring (LDM)

What next? Leaders need to always be at the top of that question for a healthy culture.

In today’s world of investment, leadership development and mentoring are the biggest questions that come from staff members. All investment firms are making such requests and Alpha is no different. Employees, especially young employees, want opportunities like career path, ongoing education, coaching and so on. Alpha has a big gap between the current assessment of staff LDM and what it expects.

The difference between what they have and what they want is 7% to 32%. To meet this 25%, Alpha has brought in a team and development experts whose job is to understand and address this new need and examine all aspects of Alpha’s career journey. This work has led to the development of a comprehensive program to help all team members achieve career success through self-reflection, clear roles and goals, effective planning and continuous feedback.

House Advertising for Behavioral Finance: Second Generation

Although the Alpha culture shows many signs of strength, its president is wary of claiming any final victory. Instead, he warns, “we are concerned about complacency – we always need to improve.”

Fortunately, the most recent culture survey shows that the top-rated value for both alpha existing and ambitious cultures is “excellence / continuous improvement.” So it doesn’t look like Alpha will be complacent anytime soon.

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All posts are the author’s opinion. As such, they should not be construed as investment advice, or the opinions expressed do not necessarily reflect the views of the CFA Institute or the author’s employer.

Photo Credit: © Getty Images / jayk7

Jim Weir, CFA

James Ware, CFA, founder of Focus Consulting Group, is an organization dedicated to helping investor leaders harness their talents. Wire, author of “Investment Leadership: Building Winning Culture for Long-Term Success” and “High Performing Investment Teams”, discusses both the elements of leadership and teamwork that lead to sustainable success for the investing organization. Ware has 20 years of experience as a research analyst, portfolio manager and director of by-side investment operations. He was a guest lecturer on investment firm management at Kellogg Graduate School of Management, Northwestern University. Wire holds a master’s degree in business from the University of Chicago and a bachelor’s degree in philosophy from Williams College, where he graduated from Phi Beta Kappa.

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