How Peer Pressure Can Influence Culture
The Two Major Pitfalls for Leaders Looking to Manage Culture
Take 90 seconds to view this short, amusing video clip from the popular movie “A Few Good Men.” The witness is testifying in the murder trial of two Marines who are stationed at Guantanamo Bay, Cuba. The defendants claim they were simply giving the murdered Marine a “code red” – a common, but unsanctioned, exercise where enlisted men and women discipline each other.
This short exchange nicely illustrates the dilemma so many organizations face when attempting to implement major transformations in their businesses. Even though they use change management techniques to document values, policies, procedures, and so forth, people tend to continue to behave in their comfortable patterns and in ways that let them fit into the organization. They “follow the crowd” in terms of how they prioritize and carry out their work and how they collaborate with colleagues. Embedded cultural norms exert a powerful influence over how people behave. And even if an individual sees the potential value in an organizational change, shifting behavior is generally not easy and becomes even harder when peers – and superiors – continue to exhibit the old ways of working. For instance, consider the organization that is looking to accelerate decision making but requires an exorbitant amount of hard-to-obtain data in order to make investments. Or the company that is aiming to become more innovative yet rewards making the numbers – and punishes failure, no matter whether or how new ideas were tested.
Leaders of an organization have a unique and crucial role to play in dealing with this dilemma. As stewards of the organization’s culture, they have the authority – and responsibility – to implement desired shifts in cultural norms. Clearly, this is easier said than done.
There are two major pitfalls for leaders looking to manage culture:
- Failing to model the new behaviors themselves.
- Failing to monitor the demonstration of new cultural norms, and to intervene in positive ways when individuals are not behaving in line with the desired norms.
Overcoming these pitfalls is simple, but not easy.
- Lay out the aspirational cultural norms – what working in the new environment will feel like – and engage all levels to discuss and refine them in order to gain buy-in for the desired shifts.
- Have the leadership team hold each other accountable for modeling the new behaviors. A leadership team that does not “walk the talk” in terms of behaving in line with cultural norms will never elicit followership on the part of the organization and build the “right behaving crowd” for people to follow.
- Use every interaction with employees as an opportunity to observe and discuss commitment to cultural aspirations.
- When employee behavior is out of line with agreed-upon cultural norms, engage in productive ways to understand the reasons behind the behaviors and to discuss the implications for the organization of these outmoded behaviors. For example, the plant manager at an electric utility observed that some employees were extending their 15-minute breaks to 30 or even 45 minutes. He met with the union stewards and simply said, “We all agreed that we would transform our plant from one of the worst performing ones in the organization to a model of performance by taking ownership of our work and keeping costs down for customers. Help me understand how taking extended breaks fits with this goal?” Everyone agreed there was no good reason for the behavior, and it changed in a matter of days – without using the standard disciplinary process.
Leaders can also choose to accelerate shifting the culture of the organization. Rather than wait for employees to demonstrate – or not demonstrate – the new behaviors in the course of day to day work, leaders can use rapid-paced aggressive efforts like Schaffer Consulting's Rapid Results projects to create circumstances where people must follow the new cultural norms in order to succeed. For example, a marketing manager who convened a cross-functional team and challenged them to bring a product to market in less than three months immediately created an environment where people had to share information across silos, and decisions had to be made quickly. The team's successful experience became a “legend” example of the desired culture – showing not only what the new behaviors looked like, but the value they created for the company.
The pressure to “follow the crowd” begins early in childhood and does not end as we become adults and join organizations with performance goals. Instead of ignoring or bemoaning this phenomenon, leaders can use it to drive acceptance of change. By consistently exhibiting the desired behaviors and reinforcing them in others, leaders create “the crowd they want.” This crowd then becomes a powerful social mechanism for self-governance and compliance. Fitting in requires behaving in ways that fit with the aspirational culture. As they set this dynamic in motion, leaders can begin to get the crowd to “manage culture” with them. Peer pressure is not always such a bad thing.
An Emerging Theme In Thematic Investing
Exchange traded funds (ETFs) are popular vehicles for market participants looking to engage in thematic investing. Thematic investing looks to take advantage of future growth trends, including disruptive technologies. Given that forward-looking approach, stock-picking in the thematic universe is equally as hard, if not harder, than in traditional market segments.
Go back to the late 1990s, before the bursting of the Internet/technology bubble. Back then, investors stood an equal chance of selecting E-Toys over Amazon or some no longer in existence networking equipment maker over Cisco.
“History is littered with examples of prospering industries with no indication of which company will come to dominate the industry,” according to Nasdaq. “This suggests that successful thematic investing is more about selecting baskets of investments rather than single securities.”1
The ALPS Disruptive Technologies ETF (DTEC) provides basket exposure to a broad swath of thematic investments. DTEC features exposure to not just one or two emerging technologies, but 10 such themes on an equal-weight basis.
The 10 themes represented in DTEC are as follows: 3D printing, clean energy, cloud computing, cybersecurity, data and analytics, fintech, healthcare innovation, Internet of Things (IoT), mobile payments and robotics and artificial intelligence (AI).
Generally speaking, fund issuers have been quick to respond to disruptive and transformative technologies, bringing products to market to tap these themes. Prior to DTEC coming to market late last year, there were ETFs devoted exclusively to cloud computing, cybersecurity, robotics and other themes featured in DTEC. However, few use the basket approach to themes employed by DTEC.
February, a rough month for U.S. stocks, highlighted the advantages of DTEC's multi-theme methodology. Seven of the 10 themes found in the fund finished the month lower, but DTEC was able to outperform the S&P 500 on a monthly basis.
Focusing on individual themes can be rewarding over the long-term, but not all investors have the risk tolerance for such a strategy. Consider this: the Indxx Global Robotics & Artificial Intelligence Thematic Index jumped more than 48% in 2017. That type of performance is enough to seduce many investors, but that same benchmark slipped 7.60% in February, generating monthly volatility of 34.10%.2 Said another way, that robotics and AI index's February slide was more than triple the loss experienced by DTEC during the month.
While it probably is not accurate to call the indexes devoted to individual disruptive themes “old,” many use old school weighting methodologies. For example, the two largest components in the ISE Cloud Computing Index are Netflix, Inc. (NFLX) and Amazon.com Inc. (AMZN). Only two members of the S&P 500 have larger market values than Amazon while Netflix currently has a larger market cap than Wal-Mart (WMT) and McDonald's (MCD).
Holdings subject ot change as of 12/31/17
For its part, DTEC not only equally weights its 10 disruptive themes, but its 100 components as well, potentially reducing single stock risk in the process. As the chart below confirms, equally weighting stocks is rewarding across sectors and market capitalization segments.
Past performance does not guarantee future results
Annualized returns for the past 10 years show seven of the 11 S&P 500 sectors, when equally weighted, outperform cap-weighted equivalents, according to S&P. Three of those seven sectors – financial services, healthcare and technology – are prominent parts of DTEC's roster.
1 Source: Nasdaq Dec. 28, 2015 https://www.nasdaq.com/article/what-thematic-investing-is-and-its-strengths-and-risks-cm559209
2 Source: ETF Replay data
An investor should consider the investment objectives, risks, charges and expenses carefully before investing. To obtain a prospectus which contain this and other information call 866.675.2639 or visit www.alpsfunds.com. Read the prospectus carefully before investing.
An investment in the ALPS Disruptive Technologies ETF (DTEC) may be subject to substantially greater risk and volatility than investments in larger and more mature technology companies.
There is no assurance that the market developments and sector growth based upon the themes discussed in the article will come to pass.
ALPS Disruptive Technologies ETF shares are not individually redeemable. Investors buy and sell shares of the ALPS Disruptive Technologies ETF on a secondary market. Only market makers or “authorized participants” may trade directly with the Fund, typically in blocks of 50,000 shares.
ALPS Advisors, Inc. (AAI) has engaged IRIS Werks, LLC (IRIS) to produce analysis and commentary on ALPS-advised ETFs. IRIS currently has a compensated business relationship with AAI. AAI is not affiliated with IRIS.
The content and opinions expressed in this article are that of the author and not the views and opinions of AAI. In addition, AAI assumes no responsibility to ensure the accuracy of the content written by the author.
There are risks involved with investing in ETFs including the loss of money. Additional information regarding the risks of this investment is available in the prospectus. Past Performance is not indicative of future results.
The fund is new and has limited operating history.
ALPS Portfolio Solutions Distributor, Inc. is the distributor for the ALPS Disruptive Technologies ETF. AAI is affiliated with ALPS Portfolio Solutions Distributor, Inc.
The author is not an investment professional and this article should not be considered investment advice. While the information and statistical data contained herein are based on sources believed to be reliable, the author takes no responsibility to ensure the accuracy of the content. Additionally, this article should not be relied on or be the basis for an investment decision. Information that is historical is not indicative of future results, and subject to change.
S&P 500®: A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
S&P SmallCap 600®: A capitalization-weighted index that measures the small-cap segment of the U.S. equity market.
S&P MidCap 400®: A capitalization-weighted index that measures the mid-cap segment of the U.S. equity market.
Indxx Global Robotics & Artifical Intelligence Thematic Index: The Indxx Global Robotics & Artificial Intelligence Thematic Index is designed to track the performance of companies listed in developed markets that are expected to benefit from the increased adoption and utilization of robotics and Artificial Intelligence ("AI"), including companies involved in Industrial Robotics and Automation, Non-Industrial Robots, Artificial Intelligence and Unmanned Vehicles.
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