CHAPTER 12 CORPORATE CULTURE AND LEADERSHIP Keys to Good Strategy Execution

12–2© 2013 by McGraw-Hill Education. All rights reserved. 1.Be able to identify the key features of a company’s corporate culture and appreciate the role of a company’s core values and ethical standards in building corporate culture. 2.Gain an understanding of how and why a company’s culture can aid the drive for proficient strategy execution. 3.Learn the kinds of actions management can take to change a problem corporate culture. 4.Understand what constitutes effective managerial leadership in achieving superior strategy execution.

12–3© 2013 by McGraw-Hill Education. All rights reserved. INSTILLING A CORPORATE CULTURE CONDUCIVE TO GOOD STRATEGY EXECUTION  Corporate Culture ● Is the meshing of shared values, beliefs, business principles, and traditions that imbues a firm’s operating style, behavioral norms, ingrained attitudes, and work atmosphere. ● Is important because it influences the firm’s actions and approaches to conducting business.

12–4© 2013 by McGraw-Hill Education. All rights reserved. CORE CONCEPT ♦Corporate culture refers to the shared values, ingrained attitudes, core beliefs and company traditions that determine norms of behavior, accepted work practices, and styles of operating.

12–5© 2013 by McGraw-Hill Education. All rights reserved. ♦Why is the team-based culture of W. L. Gore and Associates so important to its success? ♦How important to its culture and success is that it is a privately-held company? ♦Is there a relationship between development of unique cultures and the subsequent grow and success of niche businesses (e.g., Apple and W. L. Gore)? ILLUSTRATION CAPSULE 12.1 The Culture that Drives Innovation at W. L. Gore & Associates

12–6© 2013 by McGraw-Hill Education. All rights reserved. KEY FEATURES OF A FIRM’S CORPORATE CULTURE Strength of peer pressure to conform and observe norms Actions and behaviors encouraged and rewarded Traditions and stories and “how we do things around here” How the firm treats its stakeholders Features of a Corporate Culture Values, principles, and ethical standards in actual use Management practices and organizational polices Atmosphere and spirit embodied in the firm’s work climate How managers and employees interact and relate to one another

12–7© 2013 by McGraw-Hill Education. All rights reserved. STRATEGIC MANAGEMENT PRINCIPLE ♦A company’s culture is grounded in and shaped by its core values and ethical standards.

12–8© 2013 by McGraw-Hill Education. All rights reserved. FIGURE 12.1 The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards

12–9© 2013 by McGraw-Hill Education. All rights reserved. TRANSFORMING CORE VALUES AND ETHICAL STANDARDS INTO CULTURAL NORMS  Recruit and hire applicants with values and ethics compatible to those of the firm.  Incorporate the values statement and the code of ethics into orientation and training programs.  Have senior executives frequently reiterate and stress the firm’s values and ethical principles.  Use values statements and codes of ethics as benchmarks for the firm’s polices and practices.

12–10© 2013 by McGraw-Hill Education. All rights reserved. STRATEGIC MANAGEMENT PRINCIPLE ♦A company’s values statement and code of ethics communicate expectations of how employees should conduct themselves in the workplace.

12–11© 2013 by McGraw-Hill Education. All rights reserved. TRANSFORMING CORE VALUES AND ETHICAL STANDARDS INTO CULTURAL NORMS (CONT’D)  Use core values and ethical principles when evaluating each person’s job performance.  Encourage all employees to help enforce the observance of core values and ethical standards.  Periodically have ceremonial occasions to recognize individuals and groups who display the firm’s values and ethical principles.  Institute strict ethics enforcement procedures.

12–12© 2013 by McGraw-Hill Education. All rights reserved. PERPETUATING THE CULTURE Screening and selecting new employees Systematic indoctrination of new members Vocal support by senior managers Rewarding those who display cultural norms Ceremonies honoring employees Telling and retelling of the firm’s legends Perpetuating the Culture

12–13© 2013 by McGraw-Hill Education. All rights reserved. FORCES THAT CAUSE A FIRM’S CULTURE TO EVOLVE New challenges in the marketplace Merger or acquisition of another firm Shifting internal conditions Causes of Cultural Change Diversification into new businesses New or revolutionary technologies Rapid growth of the firm

12–14© 2013 by McGraw-Hill Education. All rights reserved. ♦Strong-Culture Firm ● Has deeply rooted widely-shared values, behavioral norms, and operating approaches. ● Insists that its values and principles be reflected in the decisions and actions taken by all company personnel. ♦Weak-Culture Firm ● Lacks values and principles that are consistently preached or widely shared. ● Has few or no traditions, beliefs, values, common bonds, or behavioral norms. COMPANY CULTURES CAN BE STRONGLY OR WEAKLY EMBEDDED

12–15© 2013 by McGraw-Hill Education. All rights reserved. CORE CONCEPT ♦In a strong-culture company, deeply rooted values and norms of behavior are widely shared and regulate the conduct of the company’s business.

12–16© 2013 by McGraw-Hill Education. All rights reserved. DEVELOPMENT OF A STRONG CULTURE Commitment by the firm to ethical behavior Founder or strong leader with strong values Strong Culture Closely aligning corporate culture with the requirements for proficient strategy execution merits the full attention of senior executives.

12–17© 2013 by McGraw-Hill Education. All rights reserved. STRATEGIC MANAGEMENT PRINCIPLE ♦A strong culture that encourages actions, behaviors, and work practices that are in sync with the chosen strategy and conducive to good strategy execution is a valuable ally in the strategy execution process.

12–18© 2013 by McGraw-Hill Education. All rights reserved. WHY CORPORATE CULTURES MATTER TO THE STRATEGY EXECUTION PROCESS  A culture well matched to the requirements of the strategy execution effort focuses the attention of employees on what is most important to this effort.  Culture-induced peer pressure induces personnel to do things in a manner that aids good strategy execution.  A culture consistent with the requirements for good strategy execution can energize employees, deepen their commitment to execute the strategy, and enhance worker productivity.

12–19© 2013 by McGraw-Hill Education. All rights reserved. STRATEGIC MANAGEMENT PRINCIPLE ♦It is in management’s best interest to dedicate considerable effort to establishing a corporate culture that encourages behaviors and work practices conducive to good strategy execution.

12–20© 2013 by McGraw-Hill Education. All rights reserved. HEALTHY CULTURES THAT AID GOOD STRATEGY EXECUTION Good Strategy Execution Adaptive Cultures High-Performance Cultures Commitment to achieving stretch objectives and accountability Willingness to accept change and take on challenges Performance

12–21© 2013 by McGraw-Hill Education. All rights reserved. STRATEGIC MANAGEMENT PRINCIPLE ♦As a company’s strategy evolves, an adaptive culture is a definite ally in the strategy- implementing, strategy-executing process as compared to cultures that are resistant to change.

12–22© 2013 by McGraw-Hill Education. All rights reserved. UNHEALTHY CULTURES THAT IMPEDE GOOD STRATEGY EXECUTION Change-resistant cultures Incompatible Subcultures Politicized cultures Unhealthy Cultures Insular, inwardly focused cultures Unethical and greed- driven cultures Poor Strategy Execution Poor Performance

12–23© 2013 by McGraw-Hill Education. All rights reserved. CHANGING A PROBLEM CULTURE: THE ROLE OF LEADERSHIP  A strong, out of sync, or unhealthy culture must be changed in order to execute strategy successfully.  Competent leadership at the top is necessary for culture-change efforts to succeed.

12–24© 2013 by McGraw-Hill Education. All rights reserved. FIGURE 12.2 Changing a Problem Culture

12–25© 2013 by McGraw-Hill Education. All rights reserved. MAKING A COMPELLING CASE FOR CULTURE CHANGE  Selling the Change ● Explain why and how certain behavioral norms and work practices are obstacles to good execution of strategic initiatives. ● Explain how new behaviors and work practices will be produce better results. ● Cite reasons why the current strategy has to be modified, if the need for cultural change is due to a change in strategy.

12–26© 2013 by McGraw-Hill Education. All rights reserved. SUBSTANTIVE CULTURE-CHANGING ACTIONS  Replace key executives who are stonewalling needed organizational and cultural changes.  Promote individuals who advocate for cultural shifts and can serve as a role model for the cultural behavior.  Appoint outsiders with the desired cultural attributes to high-profile positions.  Screening candidates for positions carefully, hiring only those who appear to fit in with the new culture.  Mandate that all personnel attend culture-training.  Design compensation incentives that boost the pay of teams and individuals.

12–27© 2013 by McGraw-Hill Education. All rights reserved. SYMBOLIC CULTURE-CHANGING ACTIONS Top executive and upper management behaviors Ceremonial events to honor exemplary employees Physical symbols that represent the new culture Changing the culture of an organization

12–28© 2013 by McGraw-Hill Education. All rights reserved. HOW LONG DOES IT TAKE TO CHANGE A PROBLEM CULTURE?  Changing a problem culture is never a short-term exercise.  A sustained and persistent effort to reinforce the culture at every opportunity through word and deed is required.  It takes time for a new culture to emerge and prevail; it takes even longer for it to become deeply embedded.  Fixing a problem culture and instilling a new set of attitudes and behaviors can take two to five years.

12–29© 2013 by McGraw-Hill Education. All rights reserved. LEADING THE STRATEGY EXECUTION PROCESS  Leading Strategy Execution Requires: ● Staying on top of what is happening and closely monitoring progress. ● Putting constructive pressure on the organization to execute the strategy well and achieve operating excellence. ● Initiating corrective actions to improve strategy execution and achieve the targeted performance results.

12–30© 2013 by McGraw-Hill Education. All rights reserved. ILLUSTRATION CAPSULE 12.2 Changing the “Old Detroit” Culture at Chrysler ♦What is meant by “culture is not part of the game—it is the game”? ♦How did Doug Betts’ background prepare him for leading the cultural change at Chrysler? ♦What culture-changing actions did Doug Betts take to produce cultural change at Chrysler Group LLC?

12–31© 2013 by McGraw-Hill Education. All rights reserved. CORE CONCEPT ♦Management by walking around (MBWA) is one of the techniques that effective leaders use to stay informed about how well the strategy execution process is progressing.

12–32© 2013 by McGraw-Hill Education. All rights reserved. STAYING ON TOP OF HOW THINGS ARE GOING  Management by Walking Around (MBWA) ● Is used by leaders to stay informed about how well the strategy execution process is progressing. ● Involves spending time with people at company facilities, asking questions, listening to their opinions and concerns, and gathering firsthand information about how well aspects of the strategy execution process are going.

12–33© 2013 by McGraw-Hill Education. All rights reserved. MOBILIZING THE EFFORT FOR EXCELLENCE IN STRATEGY EXECUTION  Treat employees as valued partners.  Foster an esprit de corps that energizes members.  Use empowerment to create a fully engaged workforce.  Make champions out of the people who spearhead new ideas and/or turn in winning performances.

12–34© 2013 by McGraw-Hill Education. All rights reserved. MOBILIZING THE EFFORT FOR EXCELLENCE IN STRATEGY EXECUTION (CONT’D)  Set stretch objectives that require personnel to give their best in achieving performance targets.  Use benchmarking, reengineering, TQM, and Six Sigma to focus attention on continuous improvement.  Use motivational techniques and compensation incentives to inspire, nurture a results-oriented work climate, and enforce high standards.  Celebrate individual, group, company successes.

12–35© 2013 by McGraw-Hill Education. All rights reserved. LEADING THE PROCESS OF MAKING CORRECTIVE ADJUSTMENTS A thorough analysis of the situation A thorough analysis of the situation Good business judgment in deciding what actions to take Good implementation of the corrective actions Making corrective actions successfully requires:

12–36© 2013 by McGraw-Hill Education. All rights reserved. A FINAL WORD ON LEADING THE PROCESS OF CRAFTING AND EXECUTING STRATEGY  It is difficult to separate leading the process of executing strategy from leading the strategy process.  Crafting, implementing, and executing strategy is a continuous process that requires much adjusting and fine-tuning of the strategy to fit changing circumstances.  The tests of strategic leadership are whether the firm has a good strategy and business model, whether its strategy is competently executed, and whether the firm is achieving its performance targets.  If these three conditions exist, then the firm has good strategic leadership and is a well-managed enterprise.