Corporate Culture and Leadership Chapter 13 Corporate Culture and Leadership

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

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

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

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

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

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

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

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

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

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

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

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!

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!

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

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”

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

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

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

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

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

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

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

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

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

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 . . .

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

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

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

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

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

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

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

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

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

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

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

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 . . .

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