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Chapter 9

Corporate Culture Corporate Culture and Leadershipand Leadership

““An organization’s capacity An organization’s capacity

to execute its strategy dependsto execute its strategy depends

on its “hard” infrastructure--its on its “hard” infrastructure--its

organization structure and systems--organization structure and systems--

and on its “soft” infrastructure--its and on its “soft” infrastructure--its

culture and norms.”culture and norms.”

Amar Bhide

39 - 3

Chapter OutlineChapter OutlineChapter OutlineChapter Outline

Building a Corporate Culture that Promotes Good Strategy Execution

What to Look for in Identifying a Company’s Culture Culture: Ally or Obstacle to Strategy Execution? Types of Cultures Creating a Strong Fit Between Strategy and Culture Grounding the Culture in Core Values and Ethics Establishing a Strategy-Culture Fit in Multinational Companies

Leading the Strategy Execution Process Staying on Top of How Well Things Are Going Pushing Company to Achieve Good Results Keeping Internal Organization Innovative Exercising Ethics Leadership Making Corrective Adjustments

BUILD A STRATEGY-BUILD A STRATEGY-

SUPPORTIVE CORPORATE SUPPORTIVE CORPORATE

CULTURE CULTURE

McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

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59 - 5

What Makes Up aWhat Makes Up aCompany’s Culture?Company’s Culture?What Makes Up aWhat Makes Up a

Company’s Culture?Company’s Culture?

Core values and business principles of executives

Ethical standards Patterns of “how we do things around here” Oft-told stories illustrating company’s values Approach to people

management Internal politics Traditions

69 - 6

Features of the CorporateFeatures of the CorporateCulture at Wal-MartCulture at Wal-Mart

Features of the CorporateFeatures of the CorporateCulture at Wal-MartCulture at Wal-Mart

Dedication to customer satisfaction Zealous pursuit of low costs Frugal operating practices Strong work ethic Ritualistic Saturday morning meetings Executive commitment to

Visit stores Listen to customers Solicit employees’ suggestions

79 - 7

Features of the CorporateFeatures of the CorporateCulture at Nordstrom’sCulture at Nordstrom’s

Features of the CorporateFeatures of the CorporateCulture at Nordstrom’sCulture at Nordstrom’s

Deliver exceptional customerservice to customers

Company motto “Respond to Unreasonable

Customer Requests” Out-of-the-ordinary customer requests viewed

as opportunities for “heroic” acts Promotions based on outstanding service Salaries based entirely on commission

89 - 8

Features of the CorporateFeatures of the CorporateCulture at General ElectricCulture at General ElectricFeatures of the CorporateFeatures of the CorporateCulture at General ElectricCulture at General Electric

Hard-driving, results-orientedatmosphere prevails All businesses are held to a standard

of being #1 or #2 in their industries aswell as achieving good business results

Cross-business sharing of ideas, best practices, and learning

Reliance on “workout sessions” to identify, debate, and resolve “burning issues”

Commitment to Six Sigma Quality Globalization of the company

99 - 9

Long work hours of programmers Emotional peaks and valleys in encountering

and overcoming coding problems Exhilaration of completing a complex program

on schedule Satisfaction of working on cutting-edge projects Rewards of being part of a team responsible

for a popular new software program Tradition of competing aggressively

Features of the CorporateFeatures of the CorporateCulture at MicrosoftCulture at Microsoft

Features of the CorporateFeatures of the CorporateCulture at MicrosoftCulture at Microsoft

109 - 10

Where Does CorporateWhere Does CorporateCulture Come From?Culture Come From?

Where Does CorporateWhere Does CorporateCulture Come From?Culture Come From?

Founder or early leader

Influential individual or work group

Policies, vision, or strategies

Traditions, supervisory practices, employee attitudes

Organizational politics

Relationships with stakeholders

Internal sociological forces

119 - 11

How Is a Company’sHow Is a Company’sCulture Perpetuated?Culture Perpetuated?How Is a Company’sHow Is a Company’sCulture Perpetuated?Culture Perpetuated?

Selecting new employees who will “fit” in Systematic indoctrination of new employees Senior employees’ reinforcement of core

values Story-telling of company legends Ceremonies honoring employees

who display cultural ideals Visibly rewarding those who

follow cultural norms

129 - 12

Forces and FactorsForces and FactorsCausing Culture to EvolveCausing Culture to Evolve

Forces and FactorsForces and FactorsCausing Culture to EvolveCausing Culture to Evolve

New challenges in marketplace Revolutionary technologies Shifting internal conditions

Internal crisis Turnover of top executives

Arrival of a new CEO Diversification into new businesses Expansion into foreign countries Rapid growth involving adding new employees Merger with or acquisition of another company

139 - 13

Culture: Ally or ObstacleCulture: Ally or Obstacleto Strategy Execution?to Strategy Execution?

Culture: Ally or ObstacleCulture: Ally or Obstacleto Strategy Execution?to Strategy Execution?

Culture can contribute to -- or hinder -- successful strategy execution

Requirements for successfulstrategy execution may --or may not -- be compatible with culture

A close match between cultureand strategy promotes effectivestrategy execution

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Why Culture Matters: BenefitsWhy Culture Matters: Benefitsof a Tight Culture-Strategy Fitof a Tight Culture-Strategy FitWhy Culture Matters: BenefitsWhy Culture Matters: Benefitsof a Tight Culture-Strategy Fitof a Tight Culture-Strategy Fit

A culture that encourages actions supportive of good strategy execution Not only provides employees with clear guidance

regarding what behaviors and results constitute good job performance

But also produces significant peer pressure from coworkers to conform to culturally acceptable norms

A culture imbedded with values and behaviors that facilitate strategy execution promotes strong employee commitment to the company’s Vision Performance targets Strategy

159 - 15

Optimal Outcome of a Optimal Outcome of a Tight Culture-Strategy FitTight Culture-Strategy FitOptimal Outcome of a Optimal Outcome of a

Tight Culture-Strategy FitTight Culture-Strategy Fit

A good job of culture-building by managers Promotes can-do attitudes Encourages acceptance of change Instills strong peer pressure for strategy-

supportive behaviors Enlists enthusiasm and dedicated effort to

achieve company objectives

Closely aligning corporate culture with the Closely aligning corporate culture with the requirements for proficient strategy execution merits requirements for proficient strategy execution merits

the full attention of senior executives!the full attention of senior executives!

169 - 16

The Perils of Strategy-Culture ConflictThe Perils of Strategy-Culture ConflictThe Perils of Strategy-Culture ConflictThe Perils of Strategy-Culture Conflict

Conflicts between culturally-approvedbehaviors and behaviors needed for good strategy execution send mixed signals Should employees by loyal to the culture and

company traditions and resist actions and behaviors promoting better strategy execution?

Or should they support the strategy by engaging in behaviors that run counter to the culture?

When a company’s culture is out of sync with what is When a company’s culture is out of sync with what is needed for strategic success, the culture has to be needed for strategic success, the culture has to be

changed as rapidly as can be managed!changed as rapidly as can be managed!

179 - 17

Types of Corporate CulturesTypes of Corporate Cultures

Strong vs. Weak Cultures

Unhealthy Cultures

Adaptive Cultures

189 - 18

Characteristics ofCharacteristics ofStrong Culture CompaniesStrong Culture Companies

Characteristics ofCharacteristics ofStrong Culture CompaniesStrong Culture Companies

Conduct business according to a clear, widely-understood philosophy

Considerable time spent by management communicating and reinforcing values

Values are widely shared and deeply rooted Have a well-defined corporate character,

reinforced by a creed or values statement Careful screening/selection of new employees

to be sure they will “fit in”

199 - 19

ValuesCustomers

EmployeesShareholders

How Does a CultureHow Does a CultureCome to Be Strong? Come to Be Strong? How Does a CultureHow Does a Culture

Come to Be Strong? Come to Be Strong?

Leader who establishes values consistent with Customer needs Competitive conditions Strategic requirements

A deep, abiding commitment to espousedvalues and business philosophy Practicing what is preached!

Genuine concern for well-being of Customers Employees Shareholders

209 - 20

Characteristics ofCharacteristics ofWeak Culture CompaniesWeak Culture Companies

Characteristics ofCharacteristics ofWeak Culture CompaniesWeak Culture Companies

Lack of a widely-shared core set of values

Few behavioral norms evident in operating practices

Few strong traditions

No strong sense of company identity

Little cohesion among departments

Weak employee allegiance tocompany’s vision and strategy

219 - 21

Characteristics of Unhealthy CulturesCharacteristics of Unhealthy CulturesCharacteristics of Unhealthy CulturesCharacteristics of Unhealthy Cultures

Highly politicized internal environment Issues resolved on basis of political clout

Hostility to change Avoid risks and don’t screw up Experimentation and efforts to

alter status quo discouraged “Not-invented-here” mindset -- employees

discount need to look outside company for Best practices New managerial approaches Innovative ideas

229 - 22

Hallmarks of Adaptive CulturesHallmarks of Adaptive CulturesHallmarks of Adaptive CulturesHallmarks of Adaptive Cultures

Willingness to accept change and embrace challenge of introducing new strategies

Risk-taking, experimentation, and innovation to satisfy stakeholders

Entrepreneurship is encouraged and rewarded

Funds provided for new products New ideas openly evaluated Genuine interest in well-being

of all key constituencies Proactive approaches to

implement workable solutions

239 - 23

Dominant Traits of Adaptive CulturesDominant Traits of Adaptive CulturesDominant Traits of Adaptive CulturesDominant Traits of Adaptive Cultures

Any changes in operating practices and behaviors Must not compromise core values and long-

standing business principles Must satisfy legitimate interests of

key stakeholders Customers Employees Shareholders Suppliers Communities

249 - 24

Creating a Strong FitCreating a Strong FitBetween Strategy and CultureBetween Strategy and Culture

Responsibility of Strategy MakerResponsibility of Strategy Maker -- --Select a strategy compatible with theSelect a strategy compatible with the

sacred or unchangeable parts of sacred or unchangeable parts of organization’s prevailing corporate cultureorganization’s prevailing corporate culture

Responsibility of Strategy ImplementerResponsibility of Strategy Implementer -- --Once strategy is chosen, change Once strategy is chosen, change whatever facets of the corporatewhatever facets of the corporateculture hinder effective executionculture hinder effective execution

259 - 25

Changing a Problem CultureChanging a Problem Culture

Step 1Identify facets of present

culture that are strategy-supportive and those that are not

Clearly define desired newbehaviors and specify keyfeatures of “new” culture

Step 2

Talk openly about problems of present culture and how new

behaviors will improve performance Step 3

Follow with visible, aggressive actions to modify culture—includes substantive and symbolic actions

Step 4

269 - 26

Menu of Culture-Changing ActionsMenu of Culture-Changing ActionsMenu of Culture-Changing ActionsMenu of Culture-Changing Actions

Make a compelling case why a new cultural atmosphere is in best interests ofboth company and employees Challenge status quo Create events where employees

must listen to angry key stakeholders Continuously repeat messages of why cultural

change is good for stakeholders Visibly praise and reward people who display

new cultural norms

279 - 27

Menu of Culture-Changing Menu of Culture-Changing Actions (continued)Actions (continued)

Menu of Culture-Changing Menu of Culture-Changing Actions (continued)Actions (continued)

Alter incentive compensation to reward desired cultural behavior

Hire new managers and employees whohave desired cultural traits and can serveas role models

Replace key executives stronglyassociated with old culture

Revise policies and proceduresto help drive cultural change

289 - 28

Symbolic Culture-Changing ActionsSymbolic Culture-Changing ActionsSymbolic Culture-Changing ActionsSymbolic Culture-Changing Actions

Emphasize frugality Eliminate executive perks Require executives to spend

time talking with customers Ceremonial events to praise people and

teams who “get with the program” Alter practices identified as cultural

hindrances Visible awards to honor heroes

299 - 29

Substantive Culture-Changing ActionsSubstantive Culture-Changing ActionsSubstantive Culture-Changing ActionsSubstantive Culture-Changing Actions

Engineer quick successes to highlightbenefits of proposed cultural changes

Bring in new blood, replacingtraditional managers

Change dysfunctional policies Change reward structure Reallocate budget, downsizing and upsizing Reinforce culture through both word and deed Enlist support of cultural norms from frontline

supervisors and employee opinion leaders

309 - 30

Grounding the Culture inGrounding the Culture inCore Values and EthicsCore Values and Ethics

Grounding the Culture inGrounding the Culture inCore Values and EthicsCore Values and Ethics

A culture based on ethical principles is vital to long-term strategic success

Ethics programs help make ethical conduct a way of life

Executives must provide genuine supportof personnel displaying ethical standardsin conducting the company’s business

Value statements serve as a cornerstone for culture-building

Our ethicsprogram

consists of . . .

319 - 31

329 - 32

Fig. 9.1: The Two Culture-Building Roles of a Fig. 9.1: The Two Culture-Building Roles of a Company’s Core Values and Ethical StandardsCompany’s Core Values and Ethical StandardsFig. 9.1: The Two Culture-Building Roles of a Fig. 9.1: The Two Culture-Building Roles of a Company’s Core Values and Ethical StandardsCompany’s Core Values and Ethical Standards

339 - 33

Fig. 9.2: How the Practice of Stated Core Values and Fig. 9.2: How the Practice of Stated Core Values and Ethical Principles Positively Impact the Corporate CultureEthical Principles Positively Impact the Corporate Culture

Fig. 9.2: How the Practice of Stated Core Values and Fig. 9.2: How the Practice of Stated Core Values and Ethical Principles Positively Impact the Corporate CultureEthical Principles Positively Impact the Corporate Culture

349 - 34

Approaches to Establishing Approaches to Establishing Ethical StandardsEthical Standards

Approaches to Establishing Approaches to Establishing Ethical StandardsEthical Standards

Word-of-mouth indoctrination and tradition Annual reports and Websites Orientation courses for new employees Training courses for managers and employees Making stakeholders aware of a commitment to

ethical business conduct is attributable to Greater management understanding of role these

statements play in culture building Renewed focus on ethical standards stemming from

recent corporate scandals Growing numbers of consumers who prefer to

patronize ethical companies

359 - 35

Instilling Values andInstilling Values andEthics in the CultureEthics in the CultureInstilling Values andInstilling Values andEthics in the CultureEthics in the Culture

Incorporate values statement and ethics code in employee training programs

Screen out applicants who do notexhibit compatible character traits

Frequent communications of thevalues and ethics code to all employees

Management involvement and oversight Strong endorsement by CEO Ceremonies and awards for individuals and groups

who display the values Institute ethics enforcement procedures

369 - 36

Key Approaches toKey Approaches toEnforcing Ethical BehaviorEnforcing Ethical Behavior

Key Approaches toKey Approaches toEnforcing Ethical BehaviorEnforcing Ethical Behavior

Conduct an annual audit to assess

Each manager’s efforts touphold ethical standards

Actions taken by managersto remedy deficient conduct

Require all employees to sign a statement annually certifying they have complied with company’s code of ethics

379 - 37

Establishing a Strategy-Culture Fit in Establishing a Strategy-Culture Fit in Multinational and Global CompaniesMultinational and Global Companies

Establishing a Strategy-Culture Fit in Establishing a Strategy-Culture Fit in Multinational and Global CompaniesMultinational and Global Companies

Institute training programs to Communicate the meaning of core values and Explain the case for common operating

principles and practices Draw on full range of motivational and

compensation incentives to inducepersonnel to adopt and practice desired behaviors

Allow some leeway for certain core values and principles to be interpreted and applied somewhat differently, if necessary, to accommodate local customs and traditions

STRATEGIC STRATEGIC

LEADERSHIPLEADERSHIP

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Visionary

Chief Entrepreneur & Strategist Capabilities

Builder

Resource Acquirer & Allocator

Culture Builder

Chief Administrator

& Strategy Implementer

Process Integrator

Coach

Crisis Solver

Taskmaster

Spokesperson

Negotiator

Motivator

Arbitrator

Consensus Builder

PolicymakerPolicy

Enforcer

Mentor

Head Cheerleader

Numerous RolesNumerous Rolesof Strategic Leadersof Strategic Leaders

Numerous RolesNumerous Rolesof Strategic Leadersof Strategic Leaders

409 - 40

Leadership Activities of theLeadership Activities of theStrategy ImplementerStrategy Implementer

Leadership Activities of theLeadership Activities of theStrategy ImplementerStrategy Implementer

1. Stay on top of what’s happening 2. Put constructive pressure on

company to achieve good results3. Keep company focused

on operating excellence4. Lead development of stronger core

competencies and competitive capabilities5. Exercise ethics leadership6. Take corrective actions to improve overall

strategic performance

Carly FiorinaHewlett-Packard

419 - 41

Role #1: Stay on TopRole #1: Stay on Topof What’s Happeningof What’s Happening

Role #1: Stay on TopRole #1: Stay on Topof What’s Happeningof What’s Happening

Develop a broad network of formal and informal sources of information

Talk with many people at all levels

Be an avid practitioner of MBWA

Observe situation firsthand

Monitor operating results regularly

Get feedback from customers

Watch competitive reactions of rivals

Michael DellDell Computer

429 - 42

Role #2: Put Constructive Pressure on Role #2: Put Constructive Pressure on Company to Achieve Good Results Company to Achieve Good Results

Role #2: Put Constructive Pressure on Role #2: Put Constructive Pressure on Company to Achieve Good Results Company to Achieve Good Results

Successful leaders spend time Mobilizing organizational energy behind

Good strategy execution and Operating excellence

Nurturing a results-oriented work climate Promoting certain enabling cultural drivers

Strong sense of involvement on part of company personnel

Emphasis on individual initiative and creativity Respect for contributions of individuals and groups Pride in doing things right

439 - 43

Approaches to Instilling aApproaches to Instilling aSpirit of High PerformanceSpirit of High PerformanceApproaches to Instilling aApproaches to Instilling aSpirit of High PerformanceSpirit of High Performance

Treat employees with dignity and respectMake champions out of people who excelEncourage employees to use initiativeSet stretch objectives and expectations that

employees are to give their bestGrant employees autonomy to contributeUse full range of motivational techniques

and compensation incentives to Inspire employees Nurture a results-oriented climate Enforce high-performance standards

Celebrate individual, group, company successes

449 - 44

Role #3: Keep Organization Focused Role #3: Keep Organization Focused on Operating Excellenceon Operating Excellence

Role #3: Keep Organization Focused Role #3: Keep Organization Focused on Operating Excellenceon Operating Excellence

Promote openness to improvinghow things are done

Support mavericks with creativeideas to improve ways of operating

Ensure rewards for successful championsare large and visible

Use all kinds of ad hoc organizational formsto support experimentation

Use tools of benchmarking, best practices, reengineering, TQM, and six sigma to focus attention on continuous improvement

459 - 45

Top management intervention isrequired to establish new Organizational capabilities

Resource strengths and competencies

Senior managers must lead the effort because Competencies reside in combined

efforts, requiring integration

Stronger competencies and capabilitiescan lead to a competitive edge over rivals

Role #4: Develop Stronger Core Role #4: Develop Stronger Core Competencies and CapabilitiesCompetencies and Capabilities

Role #4: Develop Stronger Core Role #4: Develop Stronger Core Competencies and CapabilitiesCompetencies and Capabilities

469 - 46

Role #5: Exercise Ethics LeadershipRole #5: Exercise Ethics LeadershipRole #5: Exercise Ethics LeadershipRole #5: Exercise Ethics Leadership

Display unequivocal commitment to ethical and moral conduct

Insist upon ethical behavior

Encourage compliance and establish tough consequences for unethical behavior

Make it a duty for employees to

Observe ethical codes

Report ethical violations

Our ethicscode is . . .

479 - 47

Roles of a Manager inRoles of a Manager inEnforcing Ethical BehaviorEnforcing Ethical Behavior

Roles of a Manager inRoles of a Manager inEnforcing Ethical BehaviorEnforcing Ethical Behavior

Set an excellent ethical example

Provide training to employeesabout what is ethical and what isn’t

Declare unequivocal support of ethics code

Act as final arbiter on hard calls Remove people from key positions if found

guilty of a violation

Reprimand people lax in monitoring ethical compliance

489 - 48

Actions Demonstrating CorporateActions Demonstrating CorporateCitizenship and Social ResponsibilityCitizenship and Social Responsibility

Actions Demonstrating CorporateActions Demonstrating CorporateCitizenship and Social ResponsibilityCitizenship and Social Responsibility

Having “family friendly” employment practices Operating a safe workplace Taking special pains to protect environment Taking an active role in community affairs Interacting with community officials to minimize

impact of Layoffs or Hiring large numbers of new employees

Being a generous supporter of charitable causes and projects benefiting society

499 - 49

Role #6: Lead the Process ofRole #6: Lead the Process ofMaking Corrective Adjustments Making Corrective Adjustments Role #6: Lead the Process ofRole #6: Lead the Process of

Making Corrective Adjustments Making Corrective Adjustments Requires deciding

When adjustments are needed

What adjustments to make

Involves

Adjusting long-term direction, objectives, and strategy on an as-needed basis in response to unfolding events and changing circumstances

Promoting fresh initiatives to bring internal activities and behavior into better alignment with strategy

Making changes to pick up the pace when results fall short of performance targets