Many people have called for changes in culture in relation to the attitude to risk-taking, leadership and remuneration in banks. These sweeping assertions about ‘what has to change’ are all well and good, but in our experience few organisations, and fewer outside commentators, can clearly and consistently provide any detail to describe what they mean by this.

At Hay Group we have undertaken some analysis which provides a more concrete picture of what this culture change looks like. Using our robust ‘C-sort’ tool for measuring culture we have identified the transition needed for a hypothetical European bank. The findings provide some powerful insights into exactly what banks need to stop and start doing in order to get through this difficult time.

Culture is all-important in setting the tone for people’s behaviour in organisations. It's ‘the way things are done’ in an organisation, encapsulating widely-held (but often subconscious) assumptions and beliefs about what the organisation stands for, how people should behave, and how to really make things happen. It’s rather like the set of beliefs and values that define the characteristics of nations of people.

Very few people could describe precisely what attributes and characteristics add up to being Bavarian, for example – but it certainly feels different from those which would define ‘German-ness’. Culture is so pervasive that we rarely question it. Yet, it's vitally important because it defines what is and isn’t acceptable behaviour, and helps people understand how their jobs fit into ‘the bigger picture’.

It's self-evident that many banks do need to undergo massive change – they need to rapidly and dramatically transform themselves, in the eyes of their own staff, their shareholders and the public, to a new mould to re-establish trust and confidence for the future. This transformation is clearly more than ‘just’ a PR job and will call for major shifts in processes, in structures, in regulation, but most importantly of all, a major and co-ordinated shift in the behaviours of the people working for the banks. This is a cultural change. Worryingly, though, very few organisations can describe, apart from in the most simplistic terms (‘we need to be more customer focused/risk averse’) precisely what needs to change.

Using our tried and tested method for measuring culture ‘C-sort’, we can describe the culture that exists in an organisation now, and the ‘target’ culture – the culture that the organisation wants or needs to change to. The tool uses a ‘forced ranking’ exercise to allow the user to describe the relative importance of each of 56 cultural attributes, now and in the future, and it benchmarks this against the hundreds of organisations which have previously used this instrument. Using C-sort provides an incredibly powerful approach, even in the best of economic times, to help organisations define cultural change to support, for example, changes in strategy. In the current circumstances, it is indispensable as it provides a detailed map of how to achieve the desired culture change.

It’s worth noting that C-sort often throws up unexpected attributes (you could think of them as ‘X-factors’) which need significant changes in emphasis in order to achieve the desired change. We gathered together our European experts on the financial services sector (a group, with collectively over 100 years of  experience of working in the banking industry) and asked them to use C-sort to describe the cultural transition needed for a hypothetical European Bank.

In order to make the simulation and analysis as meaningful as possible, the team designed the European example bank with some very specific characteristics:

• Headquartered in Europe
• Broadly based business model – active in retail, corporate and investment banking as well as asset and wealth management
• Globally managed and operating on a world-wide basis, although not active in every region with every business line
• Strong brand and reputation
• Sizeable and diverse employee population
• Fully fledged in terms of infrastructure and staff areas
• Heavily affected by current crisis but no use of state aid

The exercise provided some interesting insights into the changes that may be required at today’s bank.

Firstly, the analysis identified an important group of cultural attributes which our example bank needs to urgently place much more emphasis on. Specifically, they need to:

• Build and maintain clear lines of authority and accountability – in the rush to deliver growth, many banks have diluted accountability in favour of creating freedom to act, particularly for individuals seen as ‘star performers’.
• Build mechanisms to consistently quality check work – this is fundamental to delivering quality and accountability, and a by-word for banking of the past, but again cast aside as an unnecessary encumbrance to rapid growth and expansion into unknown marketplaces.
• Create an environment which encourages the expression of diverse and conflicting opinions – it has become clear, time and time again, that some individuals were keenly aware of the risks being taken and their potential consequences but were unable to raise them (or were ignored or sidelined when they did).

The exercise also found a group of attributes which our example bank needs to urgently de-emphasise, including:

• An overwhelming focus on achieving financial objectives – particularly in relation to the short termist attitude to measuring and rewarding financial performance.
• Focusing on developing new products or services – this is not in itself ‘a bad thing’ to do, but new products need to be carefully evaluated in the round rather than rushed out without clear consideration of the risks as well as Benefits.
• Establishing new ventures or new lines of business – similarly should be carefully considered and developed as a means to satisfy customer needs rather than shareholder and executive demands for unsustainable growth.

It’s clear that the scale of the cultural change needed is extremely large. Of the organisations in our database who have used C-sort, only 3% have a cultural transition to make which is the same or larger in magnitude than for our ‘generic’ bank.

Over the past years many banks moved towards a culture where the focus was on agility, speed, flexibility and maximising market share. Their goal was to dominate markets in high profitability phases and to identify and capitalise on new opportunities as markets matured. This meant that strategies were highly variable, competition was intense, products and services were developed and deployed quickly and risks were not addressed adequately (on the contrary – risk-prone initiatives were acceptable for as long as they paid off and rewards were dependent on short term outcomes).

Our C-sort outcome illustrates that banks need to shift towards a more stable and traditional culture where focus would be on:

• The consistent delivery of core products and services
• Reduced risk-taking
• Provision of reliable production/services/ ventures.

This shift requires banks to implement strategies which aim to achieve sustainable growth over a broader time period and a greater focus on their clients' needs. To do this needs greater discipline, stronger management and reporting lines to co-ordinate and control activities, with far less emphasis on individual ‘star performers’ being given latitude to act in whatever way they choose as long as it delivers growth.

This culture would gradually redevelop what our European experts identified as a need for the re-establishment of ‘trust’ towards banks and the banking sector. Solutions for organisational change which don’t involve detailed consideration of cultural change and focusing purely on structural and process changes will fail to deliver the anticipated Results. Such is the impact of a cultural change that it needs to be treated as a business-critical, high priority item, and addressed rapidly and decisively.

It's worth noting that while our analysis of an example bank provides some useful insights into changes in ‘generic’ terms – the precise blueprint for cultural change will be different for different banks – depending on the type of banking that they are involved in and where they are starting from. For example, two banks might serve a similar customer base with similar products and yet have very different cultures. Even if they have a very similar aspiration for their future culture, it's not enough to define the nature of the cultural change simply by painting a visionary (simplistic) picture of the future. The ‘journey’ to get there looks very different depending on where you are starting from.

The analysis of a hypothetical bank is only a guide; the specific cultural transition for different organisations will be unique to them. However, there are three key pointers which all banks should bear in mind, particularly as all of them, in our experience, are areas that financial services organisations tend to be poor at:

• Understanding precisely what needs to change: without measuring culture, any culture change efforts will be costly, unguided and unpredictable.
• Stating the goal is not enough: people need concrete directions as to what needs to change; from where, to where and how. Organisations need to communicate continuously: not just where they are going culturally, but how they are going to get there.
• Culture change requires strong, versatile and decisive leadership; and particularly the ability to manage people’s performance not in relation to financial performance but in relation to behaviours. Leaders need to strongly encourage ‘new’ behaviours and sanction unacceptable ‘old’ behaviours through their performance management process and ongoing dialogues.

The current circumstances make for extremely grim times for banks and bankers the world over. However, opportunities exist for organisations that choose to act quickly and decisively, to build a new organisational culture which will enable them to thrive in the new world of financial services.