13-1

Corporate Culture

and Leadership

“An organization’s capacity

to execute its strategy depends

on its “hard” infrastructure – its

organization structure and

systems – and on its “soft”

infrastructure – its culture and

norms.”

Amar Bhide

13-3

Presentation Snapshot

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 Focused on Operating Excellence

Exercising Ethics Leadership

Making Corrective Adjustments

BUILD A STRATEGY-

SUPPORTIVE CORPORATE

CULTURE

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

13-5

The Defining Characteristics of a Company’s Culture

Its core values, beliefs, and business principles

Patterns of “how we do things around here”—its style of operating and ingrained behaviors of company personnel

Oft-told stories illustrating company’s values

Its approach to people management

Ethical standards

Internal politics

Traditions

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Features of the Corporate Culture 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

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Features of the Corporate Culture at Nordstrom’s

Deliver exceptional customer service 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

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Features of the Corporate Culture at General Electric

Hard-driving, results-oriented atmosphere prevails

All businesses are held to a standard

of being #1 or #2 in their industries as

well 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

13-9

Features of the Corporate Culture at Microsoft

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

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What to Look for in Identifying Corporate Culture

A company’s culture is manifested in . . .

Values, beliefs, and business principles

management preaches and practices

Official policies and procedures

Its revered traditions and oft-repeated stories

Attitudes and behaviors of employees

Peer pressures that exist to display core values

Its politics

Approaches to people management and problem solving

Its relationships with external stakeholders

“Chemistry” and “personality” permeating work environment

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Where Does Corporate Culture Come From?

Founder or early leader

Influential individual or work group

Policies, vision, or strategies

Traditions, supervisory practices,

employee attitudes

The peer pressures that exist

Organizational politics

Relationships with stakeholders

Company’s approach to people management

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How Is a Company’s Culture Perpetuated?

Selecting new employees who will “fit” in

Systematic indoctrination of new employees

Senior management efforts to reinforce core values, beliefs, principles, key operating practices

Story-telling of company legends

Ceremonies honoring employees who display cultural ideals

Visibly rewarding those who follow cultural norms

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Forces and Factors Causing 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

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Culture: Ally or Obstacle to Strategy Execution?

A company’s culture can contribute to – or hinder –

successful strategy execution

A culture that promotes attitudes and

behaviors that are well-suited to

first-rate strategy execution is a

valuable ally in the strategy

execution process

A culture that embraces attitudes and

behaviors which impede good

strategy execution is a huge obstacle

to be overcome

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Why Culture Matters: Benefits of a Tight Culture-Strategy Fit

A culture that encourages actions and behaviors

supportive of good strategy execution

Provides employees with clear guidance regarding what

behaviors and results constitute good job performance

Creates significant peer pressure among 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

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Optimal Outcome of a Tight 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 requirements for proficient strategy execution

merits the full attention of senior executives!

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The Perils of Strategy-Culture Conflict

Conflicts between culturally-approved

behaviors 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 needed for strategic success, the culture has to

be changed as rapidly as can be managed!

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Types of Corporate Cultures

Strong vs. Weak Cultures

Unhealthy Cultures

Adaptive Cultures

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Characteristics of Strong 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”

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How Does a Culture Come to Be Strong?

Leader who establishes values and behaviors

consistent with

Customer needs

Competitive conditions

Strategic requirements

A deep, abiding commitment to espoused

values, beliefs, and business philosophy

Practicing what is preached!

Genuine concern for well-being of

Customers

Employees

Shareholders

Values

Customers

Employees

Shareholders

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Characteristics of Weak 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 to

company’s vision and strategy

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Characteristics 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 – company

personnel discount need to look outside for

Best practices

New or better managerial approaches

Innovative ideas

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Hallmarks 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

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Dominant 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

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Creating a Strong Fit Between Strategy and Culture

Responsibility of Strategy Maker –

Select a strategy compatible with the

sacred or unchangeable parts of organization’s

prevailing corporate culture

Responsibility of Strategy Implementer –

Once strategy is chosen, change

whatever facets of the corporate

culture hinder effective execution

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Fig: Changing a Problem Culture

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Menu of Culture- Changing Actions

Make a compelling case why a new cultural atmosphere

is in best interests of both 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

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Menu of Culture- Changing Actions (continued)

Alter incentive compensation to

reward desired cultural behavior

Hire new managers and employees who have

desired cultural traits and can serve as role models

Replace key executives strongly

associated with old culture

Revise policies and procedures

to help drive cultural change

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Symbolic 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

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Substantive Culture- Changing Actions

Engineer quick successes to highlight

benefits of proposed cultural changes

Bring in new blood, replacing

traditional 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

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Grounding the Culture in Core 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 support

of personnel displaying ethical standards

in conducting the company’s business

Value statements serve as a

cornerstone for culture-building

Our ethics

program

consists of . . .

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Fig: The Two Culture-Building Roles of a

Company’s Core Values and Ethical Standards

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Fig: How a Company’s Core Values and Ethical

Principles Positively Impact the Corporate Culture

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Approaches to Establishing Ethical 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

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Instilling Values and Ethics in the Culture

Incorporate values statement and ethics

code in employee training programs

Screen out applicants who do not

exhibit compatible character traits

Frequent communications of the

values 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

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Structuring the Ethics Compliance and Enforcement Process

Develop procedures for

Enforcing ethical standards and

Handling potential violations

Scrutinize attitudes, character, and work history of prospective employees

Educate employees about what is ethical and what is not

Encourage employees to raise issues with ethical dimensions

Explain how company values and the ethics code apply at all levels of a company

Insist that company values and ethical standards become a way of life

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Structuring the Ethics Compliance and Enforcement Process (continued)

Form an ethics committee to give guidance on ethics

matters

Appoint an ethics officer to head compliance effort

Establish an ethics hotline/Web site employees can use to

Anonymously report a possible violation

Get confidential advice on a

troubling ethics-related situation

Conduct an annual ethics audit

to measure extent of

Ethical behavior and

Identify problem areas

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Key Approaches to Enforcing Ethical Behavior

Have mandatory ethics trainings for employees

Conduct an annual audit to assess

Each manager’s efforts to

uphold ethical standards

Actions taken by managers

to remedy deficient conduct

Require all employees to sign a statement annually certifying

they have complied with company’s code of ethics

Openly encourage employees to report possible infractions via

Anonymous calls to a hotline or

Posting to a special company Web site

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Establishing a Strategy-Culture Fit in

Multinational 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 induce personnel

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

McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGIC LEADERSHIP

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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

Policymaker Policy

Enforcer

Mentor

Head

Cheerleader

Numerous Roles of Strategic Leaders

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Leadership Activities of the Strategy Implementer

1. Stay on top of what’s happening

2. Put constructive pressure on

company to achieve good results

3. Keep company focused

on operating excellence

4. Lead development of stronger core

competencies and competitive capabilities

5. Exercise ethics leadership

6. Take corrective actions to improve overall strategic

performance

Carly Fiorina

Hewlett-Packard

13-44

Role #1: Stay on Top of 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

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Role #2: Put Constructive Pressure on

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

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Approaches to Instilling a Spirit of High Achievement

Treat employees with dignity and respect

Make champions out of people who excel

Encourage employees to use initiative

Set stretch objectives and expectations that employees are to

give their best

Grant employees autonomy to contribute

Use 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

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Role #3: Keep Organization

Focused on Operating Excellence

Promote openness to improving

how things are done

Support mavericks with creative

ideas to improve ways of operating

Ensure rewards for successful champions

are large and visible

Use all kinds of ad hoc organizational forms

to support experimentation

Use tools of benchmarking, best practices, reengineering,

TQM, and Six Sigma to focus attention on continuous

improvement

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Role #4: Promote Stronger Core Competences and Capabilities

Top management intervention is

required to establish better or new

Resource strengths and competences

Competitive capabilities

Senior managers must lead the effort because

Competences reside in combined

efforts of different work groups and

departments, thus requiring

cross-functional collaboration

Stronger competencies and capabilities

can lead to a competitive edge over rivals

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Role #5: Exercise Ethics Leadership

Set an excellent example in

Displaying ethical behaviors and

Demonstrating character and personal

integrity in actions and decisions

Make it a duty for employees to

Observe ethical codes

Report ethical violations

Encourage compliance and establish tough

consequences for unethical behavior

Our ethics

code is . . .

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Roles of a Manager in Enforcing Ethical Behavior

Set an excellent ethical example

Provide training to employees

about 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

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Actions Demonstrating Commitment

to a Strategy of Social Responsibility

Craft a strategy that positively improves well-being of

employees, environment, communities, and society

Use social and environmental metrics

to evaluate company performance

Tie social and environmental performance

to executive compensation

Take special pains to protect environment

Take an active role in community affairs

Generously support charitable causes

and projects benefiting society

Support workforce diversity and commit

to overall well-being of employees

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Role #6: Lead the Process of 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