Corporate Culture and Leadership

1. 13 Chapter Corporate Cultureand Leadership

2. Chapter Roadmap • 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

3. 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

4. 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

5. 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 • Promotions based on outstanding service • Salaries based entirely on commission

6. Features of the CorporateCulture at Microsoft • Long work hours of programmers • Emotional peaks and valleys inencountering 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 responsiblefor a popular new software program • Tradition of competing aggressively

7. What to Look for inIdentifying Corporate Culture A company’s culture is manifested in . . . • Values, beliefs, and business principlesmanagement 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

8. Where Does CorporateCulture 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

9. How Is a Company’sCulture 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 employeeswho display cultural ideals • Visibly rewarding thosewho follow cultural norms

10. Forces and FactorsCausing 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

11. Culture: Ally or Obstacleto 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

12. 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 coworkers to conform to culturally acceptable norms • A culture imbedded with values and behaviorsthat facilitate strategy execution promotesstrong employee commitment to the company’s • Vision • Performance targets • Strategy

13. 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 withthe requirements for proficient strategy executionmerits the full attention of senior executives!

14. 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 promotingbetter 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 whatis needed for strategic success, the culture has tobe changed as rapidly as can be managed!

15. Strong vs. Weak Cultures Unhealthy Cultures Adaptive Cultures Types of Corporate Cultures

16. Characteristics ofStrong 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 newemployees to be sure they will “fit in”

17. Characteristics ofWeak 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

18. Characteristics ofUnhealthy 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

19. Hallmarks ofAdaptive 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 toimplement workable solutions

20. Dominant Traitsof 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

21. 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 Creating a Strong FitBetween Strategy and Culture

22. 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 • Continuously repeat messages of whycultural change is good for stakeholders • Visibly praise and reward peoplewho display new cultural norms

23. Menu of Culture-Changing Actions(continued) • Alter incentive compensation toreward desired cultural behavior • Hire new managers and employees who havedesired cultural traits and can serve as role models • Replace key executives stronglyassociated with old culture • Revise policies and proceduresto help drive cultural change

24. Symbolic Culture-Changing Actions • 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 identified as cultural hindrances • Visible awards to honor heroes

25. Substantive 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

26. Our ethics program consists of . . . 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 acornerstone for culture-building

27. 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 commitmentto 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

28. Instilling Values andEthics in the Culture • Incorporate values statement and ethicscode 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 individualsand groups who display the values • Institute ethics enforcement procedures

29. 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 raiseissues with ethical dimensions • Explain how company values and the ethicscode apply at all levels of a company • Insist that company values and ethicalstandards become a way of life

30. 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 atroubling ethics-related situation • Conduct an annual ethics auditto measure extent of • Ethical behavior and • Identify problem areas

31. Key Approaches toEnforcing Ethical Behavior • Have mandatory ethics trainings for employees • 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 • Openly encourage employees to report possible infractions via • Anonymous calls to a hotline or • Posting to a special company Web site

32. 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 • Draw on full range of motivational andcompensation incentives to induce personnelto 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

33. Leadership Activities of theStrategy Implementer 1. Stay on top of what’s happening 2. Put constructive pressure oncompany to achieve good results 3. Keep company focusedon operating excellence 4. Lead development of stronger corecompetencies and competitive capabilities 5. Exercise ethics leadership 6. Take corrective actions to improve overall strategic performance Carly Fiorina Hewlett-Packard

34. Role #1: Stay on Topof 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

35. 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

36. Role #3: Keep OrganizationFocused on 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

37. Role #4: Promote Stronger Core Competences and Capabilities • Top management intervention isrequired to establish better or new • Resource strengths and competences • Competitive capabilities • Senior managers must lead the effort because • Competences reside in combinedefforts of different work groups and departments, thus requiring cross-functional collaboration • Stronger competencies and capabilitiescan lead to a competitive edge over rivals

38. Our ethics code is . . . Role #5: ExerciseEthics Leadership • Set an excellent example in • Displaying ethical behaviors and • Demonstrating character and personalintegrity in actions and decisions • Make it a duty for employees to • Observe ethical codes • Report ethical violations • Encourage compliance and establish toughconsequences for unethical behavior

39. Role #6: Lead the Process ofMaking 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