Cultural intelligence improves performance in diverse settings

Cultural intelligence is becoming a bigger issue for boards as more Australian organisations expand overseas and look to capitalise on strong growth in emerging Asian markets.

Cultural intelligence is becoming a bigger issue for boards as more Australian organisations expand overseas and look to capitalise on strong growth in emerging Asian markets.

The Governance Leadership Centre (GLC) asked Felicity Menzies, author of the insightful new book, A World of Difference (Major Street Publishing), about the importance of cultural intelligence and how boards can improve their understanding of it.

Menzies is an expert in cultural intelligence, diversity and inclusion in the corporate environment, and a former Head of Private Banking in Westpac, Singapore. She is an accredited facilitator with the Cultural Intelligence Centre and the founder and principal consultant at Culture Plus Consulting.

Here is an extract of Menzies’ interview with the Governance Leadership Centre.

Interview with Felicity Menzies

GLC: In broad terms, what is cultural intelligence?

FM: Cultural intelligence (CQ) is the capability to manage cultural diversity—the set of knowledge, skills and abilities required to recognise, understand, reflect on and adapt to cultural differences.

Your book mentions key competencies that form cultural intelligence. What are they?

Individuals with high cultural intelligence (CQ) display four main competencies:

CQ Drive is your willingness to work with diverse others, CQ Knowledge is your understanding of culture and cultural differences, CQ Strategy is your ability to flex mentally, CQ Action is your ability to flex verbal and non-verbal behaviour.

Why is cultural intelligence an important predictor of success in diverse settings?

Studies show cultural intelligence has incremental predictive power in explaining intercultural effectiveness over emotional intelligence (EQ), cognitive ability (IQ), personality, demographic characteristics, language fluency and international experience. In diverse cultural settings, cultural intelligence improves task performance, judgment, decision-making, adjustment, innovation, inclusion, collaboration, negotiation and stakeholder relations.

Why is cultural intelligence a competitive advantage for companies that possess it?

A workforce with high cultural intelligence possesses the dynamic competencies needed to continuously adapt processes, products and services to capture new opportunities and respond to change across diverse markets. Without cultural intelligence, an organisation is myopic. Without an ability to look outside itself and think divergently, businesses lacking cultural intelligence may miss emerging opportunities, fail to strategise to take advantage of new opportunities or fail to successfully execute adaptive strategies.

What does an organisation that is culturally intelligent look like?

Organisations with cultural intelligence have a global mindset and are adaptable, innovative, astute, collaborative, diverse and inclusive.

Sam Palmisano, chairman and CEO of IBM, pioneered the “globally integrated enterprise” as a new business model for the 21st century. Under this model, IBM has transitioned from a traditional multinational corporation, consisting of a central head office with a number of smaller international “mini-me” offices, to horizontal integration across all markets.

This strategy enables IBM to reduce duplication, leverage synergies and access the best talent, market conditions and productivity globally. Practically, it means that IBM’s circa 435,000 employees across 170 markets are now interdependent and interconnected with a diverse group of customers and suppliers across the globe.

The company actively invests in developing cultural intelligence so that it can draw and integrate insights from its diverse internal and external networks to drive innovation and growth in new markets.

Are companies generally giving enough consideration to their cultural intelligence capabilities?

Overall, the global business community is woefully ill-equipped to manage cultural diversity in markets and workforces. More than half of all business leaders do not believe their organisations are flexible enough to respond to change across diverse markets. More than 40 per cent of all international leadership assignments fail.

Could a lack of cultural intelligence inhibit Australian industry’s potential to capitalise on the coming boom in the Asian middle-class?

Yes! If Australian business is to remain competitive in the Asian century it must strengthen its capability to understand the needs and concerns of different consumer segments and stakeholders across rapidly-changing diverse Asian markets.

Consumer attitudes and behaviours are highly influenced by culture. Unless local cultures drive business models, foreign businesses have a high risk of failure. Business success in Asia also necessitates an in-depth understanding of local business customs that may not be evident to the foreigner.

Why do some companies struggle with managing cultural diversity?

While workforce diversity offers potential benefits, managing cultural diversity is complex.

In a World of Difference, I share the difficulties of a Sydney property manager who contacted me after she lost two senior Chinese recruits from her predominantly Australian-born sales team to Chinese-owned competitors. We discussed how her Western management techniques of combative brainstorming sessions, participative management and direct negative feedback might have been demotivating to her new recruits and how it was likely that fault-lines had created social divisions in her sales teams that negatively impacted group cohesion, information sharing and performance.

Pursuing diversity in your markets and your workforce is only half of the solution. Because cultural diversity is complex, its benefits for growth, innovation and talent optimisation will only be realised if your workforce has the knowledge, skills and abilities required to manage that complexity.

What are some practical examples of the challenges in managing cultural diversity?

Consider the difference between task-based and relationship-based cultures. Australian and US cultures are task-based. Decision-makers from these cultures will fly across the world to complete a complex negotiation in a short timeframe – hoping to get in and out within 48 hours, returning with the contracts signed.

If they are dealing with relationship-based cultures like the Malaysian culture, they will not be able to complete their objectives in this way. They will be met with what they would consider, “stalling” or diversionary tactics and come away very disappointed. If they had heightened cultural intelligence, they would be aware that effective trust plays a significant role in business decisions in relationship-based cultures and business decisions are formulated slowly as the parties get to know each other personally.

Is the issue of cultural intelligence starting to register with boards?

Great question—board awareness of cultural diversity and cultural intelligence varies across markets. Overall, although there is increasing recognition at board level of why cultural diversity is important, there is a much lower level of awareness of how to manage it.

How can stronger cultural diversity on boards improve decision making?

Cultural diversity is most likely to involve differences in the perspectives, knowledge and experience necessary for optimal information processing, decision-making and innovation, and for understanding the needs and concerns of different consumer segments and diverse stakeholders at home and across borders.

In 2015, McKinsey released the results of its global study of leadership diversity and corporate financial returns. The results present a compelling case for cultural diversity at top management and board level—companies in the top quartile for racial and ethnic diversity are 35 percent more likely to have financial returns above their national industry median while companies in the top quartile for gender diversity are 15 percent more likely to have financial returns above their national industry medians.

What are some practical steps that boards can take to ensure their organisation has sufficient capability in cultural intelligence.

Cultural intelligence develops socially as individuals engage in authentic intercultural exchanges.

Organisations that embrace a global mindset and engage in practices that promote authentic intercultural exchanges at work—global talent mobility, diversity and inclusion, cultural knowledge management, incentive systems that reward collaboration, and international internships and formal training—support the development of a culturally intelligent workforce.

Why should directors develop their cultural intelligence?

Today’s boards face more complex, uncertain, and volatile environments than previous generations of leaders. Cultural intelligence improves and speeds up a director’s problem-solving, decision-making and risk assessment in ambiguous and rapidly changing environments.

How can directors improve their cultural intelligence?

Cultural knowledge is largely tacit—“know-how”, judgment, insights, beliefs and perspectives as well as memories, attitudes and emotions that reside within a person’s mind and are difficult to document and communicate to others. You acquire tacit cultural knowledge socially as you engage in authentic exchanges with individuals from different cultural backgrounds.

Letting go of the need to be right also develops cultural intelligence. Rather than accepting your beliefs, ideas and customs as true and valid, a willingness to question your assumptions and beliefs, and an openness to making mistakes or acknowledging flaws or gaps in your understanding, promotes inquisitiveness and the consideration of alternative worldviews.

Why did you decide to write a book about cultural intelligence?

The shortage of intercultural skills in the labour market means that there is a large role for organisations to play in developing the intercultural competency of their existing workforce, particularly in terms of practical skills that can be applied on the job.

Responding to this demand, 59 per cent of international firms report having a global leadership program. However, despite the prominence of global development programs, only half of the firms with programs in place perceive theirs to be effective.

How has being culturally intelligent helped your business and career?

Developing cultural intelligence has been critical for my professional and business success in Asia because it helps me to manage the huge variation in cultural identities I encounter day-to-day in my work across the region.

Cultural intelligence is a set of generic competencies that transcend national borders, rigid stereotypes and particular cultural contexts. It is not the capability for effectiveness in a particular culture; rather it is a unifying approach to intercultural competency that helps me to manage any novel cultural setting.

Cultural intelligence can be thought of as akin to an international power adaptor. Cultural intelligence is a flexible skill that can be transferred from one cultural setting to another and replaces the need for arduous country-specific frameworks.