Chapter 12: Corporate Culture and Leadership : Keys to Good Strategy Execution

1. Chapter 12: Corporate Culture and Leadership: Keys to Good Strategy Execution Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University

2. “The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture.” Wayne Leonard CEO, Entergy

3. “An organization’s capacity to execute its strategy dependson its “hard” infrastructure – its organization structure and systems – and on its “soft” infrastructure – its culture and norms.” Amar Bhide

4. INSTILLING A STRATEGY-SUPPORTIVE CORPORATE CULTURE 12-4

5. Defining Characteristics of Corporate Culture • Core values, beliefs, and business principles • Ethical standards • Operating practices and behaviors defining“how we do things around here” • Approach to people management • “Chemistry” and “personality” permeatingwork environment • Oft-told stories illustrating • Company’s values • Business practices • Traditions

6. Features of the CorporateCulture 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

7. Features of the CorporateCulture at General Electric • Hard-driving, results-orientedatmosphere prevails • All businesses are held to a standardof being #1 or #2 in their industries aswell as achieving good business results • Extensive 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

8. Features of the CorporateCulture at Nordstrom’s • Deliver exceptional customer service to customers • Company motto • “Respond to UnreasonableCustomer Requests” • Out-of-the-ordinary customer requestsviewed as opportunities for “heroic” acts

9. Identifying the Key Featuresof Corporate Culture A company’s culture is manifestedin . . . • Values, business principles, and ethical standards preached and practiced by management • Approaches to people managementand problem solving • Official policies and procedures • Spirit and character permeating work environment • Interactions and relationships among managers and employees • Peer pressures that exist to display core values • Its revered traditions and oft-repeated stories • Its relationships with external stakeholders

10. Where Does CorporateCulture Come From? • Founder or early leader • Influential individual or work group • Policies, vision, or strategies • Operating approaches • Company’s approach to people management • Traditions, supervisory practices,employee attitudes • Organizational politics • Relationships with stakeholders

11. Role of Stories at Microsoft Oft-toldstories focus on . . . • 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 oncutting-edge projects • Rewards of being part of a team responsiblefor a popular new software program • Tradition of competing aggressively

12. How Is a Company’s Culture Perpetuated? • Selecting new employees who will “fit” in • Systematic indoctrination of new employees • Senior management effortsto reinforce core values, beliefs,principles, key operating practices • Story-telling of company legends • Ceremonies honoring employeeswho display cultural ideals • Visibly rewarding thosewho follow cultural norms

13. Forces Causing Culture to Evolve • New challenges in marketplace • Revolutionary technologies • Shifting internal conditions • Internal crisis • Turnover of top executives • A new CEO who opts to change things • Diversification into new businesses • Expansion into foreign countries • Rapid growth that involves adding many new employees • Merger with or acquisition of another company

14. Company Subcultures: Problems Posed by New Acquisitions and Multinational Operations • Values, beliefs, and practices within a company can vary by • Department • Geographic location • Business unit • Subcultures can clash if • They embrace conflicting business philosophies • Key executives use different approaches to people management • Differences between a company’s culture and recent acquisitions have not been ironed out • Existence of subcultures does not preclude important areas of commonality and compatibility being established in different countries

15. Types of Corporate Cultures Strong vs. Weak Cultures Unhealthy Cultures High-Performance Cultures Adaptive Cultures 12-15

16. Characteristics ofStrong Culture Companies • Conduct business according to aclear, 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 newemployees to be sure they will “fit in”

17. Values Customers Employees Shareholders 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 espousedvalues, beliefs, and business philosophy • Practicing what is preached! • Genuine concern for well-being of • Customers • Employees • Shareholders

18. Characteristics of Weak Culture Companies • Lack of a widely-shared core set of values • Few behavioral normsevident 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

19. 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 toalter status quo discouraged • “Not-invented-here” mindset – company personnel discount need to look outside for • Best practices • New or better managerial approaches • Innovative ideas • Disregard for high ethical standards and overzealous pursuit of wealth by key executives

20. Characteristics ofHigh-Performance Cultures • Standout cultural traits include • A can-do spirit • Pride in doing things right • No-excuses accountability • A results-oriented work climate in which people go the extra mile to achieve performance targets • Strong sense of involvement by all employees • Emphasis on individual initiative and creativity • Performance expectations are clearly identified for all organizational members • Strong bias for being proactive, not reactive • Respect for the contributions of all employees

21. Hallmarks of Adaptive Cultures • Willingness to accept change and embrace challenge of introducing new strategies • Risk-taking, experimentation, andinnovation to satisfy stakeholders • Entrepreneurship isencouraged and rewarded • Funds provided for new products • New ideas openly evaluated • Genuine interest in well-being of all key constituencies • Proactive approaches toimplement workable solutions

22. Dominant Traits of Adaptive Cultures • Any changes in operating practices and behaviors • Must not compromise core values and long-standing business principles • Must be “legitimate”in the sense of not having an inappropriate or unfair impact on the best interests of key stakeholders • Customers • Employees • Shareholders • Suppliers • Communities

23. Culture: Ally or Obstacleto Strategy Execution? • A company’s culture can contribute to – or hinder – successful strategy execution • A culture that promotesattitudes and behaviors that are well-suited to first-rate strategy execution is a valuable allyin the strategy execution process • A culture where attitudesand behaviors impedegood strategy execution is ahuge obstacle to be overcome

24. Why Culture Matters: Benefitsof 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 co-workers to conform to culturally acceptable norms • A deeply embedded culture tightly matched to the strategy • Aids the cause of competent strategy execution by top management to culturally approved behaviors, thus • Making it far simpler for management to root out operating practices that are a misfit • A culture imbedded with valuesand behaviorsthat facilitate strategy execution promotesstrong employee commitment to the company’s • Vision • Performance targets • Strategy

25. Optimal Outcome of a Tight Culture-Strategy Fit • A good job of culture-buildingby managers • Promotes can-do attitudes • Encourages acceptance of change • Instills strong peer pressure forstrategy-supportive behaviors • Enlists enthusiasm and dedicatedeffort to achieve company objectives Closely aligning corporate culture with the requirementsfor proficient strategy execution merits the full attention of senior executives!

26. The Perils of Strategy-Culture Conflict • Conflicts between culturally-approvedbehaviors and behaviors needed for goodstrategy 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 strategyby engaging in behaviors that runcounter 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!

27. Creating a Strong FitBetween Strategy and Culture Responsibility of Strategy Maker – Select a strategy compatible with thesacred or unchangeable parts of organization’s prevailing corporate culture Responsibility of Strategy Implementer – Once strategy is chosen, changewhatever facets of the corporateculture hinder effective execution 12-27

28. Figure 12.1: Changing a Problem Culture 12-28

29. 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 employeesmust listen to angry key stakeholders • Cite why and how certain behavioral norms and work practices in current culture pose obstacles to good execution of new strategic initiatives • Explain how new behaviors and work practices to be introduced will be more advantageous and produce better results

30. Substantive Culture-Changing Actions • Replace key executives strongly associated with old culture • Promote individuals who have desired cultural traits and can serve as role models • Appoint outsiders who have desired cultural attributes to high-profile positions • Screen all candidates for newpositions carefully, hiring only thosewho fit in with the new culture • Mandate all company personnel attend culture-training programs to learn more about new work practices, operating approaches, and behaviors

31. Substantive Culture-Changing Actions (continued) • Push hard to implement new-style work practices and operating procedures • Design compensation incentives to reward teams and individuals who display the desired cultural behaviors • Grant generous pay raises to individuals who lead the way in adopting desired work practices, displaying new-style behaviors, and achieving pace-setting results • Revise policies and proceduresin ways to drive cultural change

32. Symbolic Culture-Changing Actions • Lead by example – Walk the talk • Emphasize frugality • Eliminate executive perks • Require executives to spend time talking with customers • Ceremonial events to praise people andteams who “get with the program” • Alter practices identifiedas cultural hindrances • Visible awards to honor heroes

33. Grounding the Culture inCore Values and Ethics • A culture based on ethical principles isvital 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

34. Approaches to Establishing Ethical Standards • Formal values statementand a code of ethics • Word-of-mouth indoctrination and tradition • Annual reports and Websites • Making stakeholders aware of a commitment to ethical business conduct is attributable to • Greater management understanding of rolethese statements play in culture building • Renewed focus on ethical standardsstemming from recent corporate scandals • Growing numbers of consumers whoprefer to patronize ethical companies

35. Figure 12.2: The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards 12-35

36. Techniques to Transform Core Values and Ethical Standards into Cultural Norms • Screen out applicants who do not exhibit compatible character traits • Incorporate values statement and ethics code in employee training programs • Strong endorsement by senior executives of the importance of core values and ethical principles at company events and in internal communications • Use values statements and codes of ethics as benchmarks to judge appropriateness of company policies and operating practices • Make the display of core values and ethical principles a big factor in evaluating employee performance

37. Techniques to Transform Core Values and Ethical Standards into Cultural Norms(continued) • Make sure managers at all levels are diligent in stressing the importance of ethical conduct and observance of core values • Encourage everyone to use their influence in helping enforce observance of core values and ethical standards • Hold periodic ceremoniesto recognize individuals andgroups who display the values • Institute ethics enforcement procedures

38. Figure 12.3: The Benefits of Cultural Norms StronglyGrounded in Core Values and Ethical Principles 12-38

39. 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 operatingprinciples and practices • Create a cultural climate where the norm is to • Adopt best practices • Use common work procedures • Pursue operating excellence • Give local managers • Flexibility to modify people managementapproaches or operating styles • Discretion to use different motivational and compensation incentives to induce personnel to practice desired behaviors

40. Leading the Strategy-Execution Process 12-40

41. Leading the Strategy-Execution Process • Top executives must be outfront personally • Leading the process and • Driving the pace of progress • Entire management teammust work diligently to engageall employees by • Delegating authority to middle and lower-level managers to move the implementation process forward with all due speed • Empowering all employees to exercise initiative, get things done in a timely, efficient, and effective manner

42. Key Roles in Leading theStrategy-Execution Process • Be out in the field, seeinghow well operations are going • Gather information firsthand • Gauge the progress being made • Be diligent and adept in spotting gridlock • Ferret out problems and issues • Learn the obstacles in the path of good execution and clear the way for progress • Exert constructive, unrelenting pressure on organizational units to • Demonstrate growing consistency in strategy execution • Achieve performance targets

43. Making Corrective Adjustments • Requires deciding • When adjustments are needed • Whatadjustments 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

44. Process of Making Corrective Adjustments • Varies according to the situation • Crisis situation – Take remedial action quickly • Non-crisis situation – Incrementally solidify commitment to a specific course of action • Deciding on specific corrective adjustments is the same for both proactive and reactive situations • Successin initiating correctiveactions hinges on • Thorough analysis of the situation • Exercise of good business judgment in deciding on specific actions • Good implementation of the corrective actions