1. 1 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright CHAPTER 13 Screen graphics created by: Jana F. Kuzmicki, PhD, Mississippi University for Women IMPLEMENTING AND EXECUTING STRATEGY: CULTURE AND LEADERSHIP

2. “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 “Quote” © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright

3. 3 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Chapter Outline  Building a Strategy-Supportive Corporate Culture  Where Does Corporate Culture Come From?  Culture and Strategy Execution  Types of Cultures  Creating a Fit Between Strategy and Culture  Establishing Ethical Standards  Building a Spirit of High Performance  Exerting Strategic Leadership  Staying on Top of How Well Things are Going  Establishing a Strategy-Supportive Culture  Keeping Internal Organization Innovative  Exercising Ethics Leadership  Making Corrective Adjustments

4. BUILD A STRATEGY- SUPPORTIVE CORPORATE CULTURE © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright

5. 5 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright What Makes Up a Company’s Culture?  Beliefs about how business ought to be conducted  Values and principles of management  Work climate and atmosphere  Patterns of “how we do things around here”  Oft-told stories illustrating company’s values  Taboos and political don’ts  Traditions  Ethical standards

6. 6 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Features of the Corporate Culture at Wal-Mart  Dedication to customer satisfaction  Zealous pursuit of low costs  Belief in treating employees as partners  Sam Walton’s legendary frugality  Ritualistic Saturday morning meetings  Executive commitment to  Visit stores  Talk to customers  Solicit employees’ suggestions

7. 7 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright  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  Concept of boundaryless organization exists  Reliance upon “workout sessions” to identify, debate, and resolve “burning issues”  Commitment to Six Sigma Quality  Globalization of the company Features of the Corporate Culture at General Electric

8. 8 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Features of the Corporate Culture at Nordstrom’s  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  Weeds out those not meeting or living up to standards/expectations/shared values and rewards those who do

9. 9 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Where Does Corporate Culture Come From?  Founder or early leader  Influential individual or work group  Policies, vision, or strategies  Traditions, supervisory practices, employee attitudes  Organizational politics  Relationships with stakeholders  Internal sociological forces

10. 10 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright How Is a Company’s Culture Perpetuated?  Selecting new employees based on how well their personalities “fit” in  Systematic indoctrination of new employees  Senior employees’ reinforcement of core values  Story-telling of company legends  Ceremonies honoring employees who display cultural ideals  Visibly rewarding those who follow cultural norms

11. 11 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Forces and Factors Causing Culture to Evolve  Internal crises  Revolutionary technologies  New challenges  Arrival of new leaders  Turnover of key employees  Diversification into new businesses  Expansion into different geographic areas  Rapid growth adding new employees  Merger with or acquisition of another company  Globalization

12. 12 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Culture and Strategy Execution: Ally or Obstacle?  Culture can contribute to -- or hinder -- successful strategy execution  Requirements for successful strategy execution may -- or may not -- be compatible with culture  A close match between culture and strategy promotes effective strategy execution

13. 13 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Why Culture Matters: Benefits of a Good Culture-Strategy Fit  Strategy-supportive cultures  Shape mood and temperament of the work force, positively affecting organizational energy, work habits, and operating practices  Provide standards, values, informal rules and peer pressures that nurture and motivate people to do their jobs in ways that promote good strategy execution  Strengthen employee identification with the company, its performance targets, and strategy

14. 14 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright  Strategy-supportive cultures  Stimulate people to take on the challenge of realizing the company’s vision, do their jobs competently and with enthusiasm, and collaborate with others to execute the strategy  Optimal condition: A work environment that Promotes can do attitudes Accepts change Breeds needed capabilities Why Culture Matters: Benefits of a Good Culture-Strategy Fit (continued) Can Do!

15. 15 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Strategic Management Principle Anything so fundamental as implementing a new or different strategy involves aligning the organization’s culture with the requirements for competent strategy execution!

16. 16 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Types of Corporate Cultures Strong vs. Weak Cultures Unhealthy Cultures Adaptive Cultures

17. 17 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Characteristics of Strong Culture Companies  Conduct business according to a clear, widely- understood philosophy  Management spends considerable time communicating and reinforcing values  Values are widely shared and deeply rooted  Typically have a values statement  Careful screening/selection of new employees to be sure they will “fit in”  Visible rewards for those following norms; penalties for those who don’t

18. 18 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Values Customers Employees Shareholders How Does a Culture Come to Be Strong?  Leader who establishes values consistent with  Customer needs  Competitive conditions  Strategic requirements  A deep, abiding commitment to espoused values and business philosophy  Practicing what is preached!  Genuine concern for well-being of  Customers  Employees  Shareholders

19. 19 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Strategic Management Principle Strong cultures promote good strategy execution where there’s strategy-culture fit and hurt execution where there’s little fit!

20. 20 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Characteristics of Weak Culture Companies  Many subcultures  Few values and norms widely shared  Few strong traditions  Little cohesion among the departments  Weak employee allegiance to company’s vision and strategy  No strong sense of company identity

21. 21 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Characteristics of Unhealthy or Low Performance Cultures  Politicized internal environment  Issues resolved on basis of turf  Hostility to change  Experimentation and efforts to alter status quo discouraged  Avoid risks and don’t screw up  Promotion of managers more concerned about process and details than results  Aversion to look outside for superior practices  Must-be-invented here syndrome Avoid risks!

22. 22 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Hallmarks of Adaptive Cultures  Introduction of new strategies to achieve superior performance  Strategic agility and fast response to new conditions  Risk-taking, experimentation, and innovation to satisfy stakeholders  Proactive approaches to implement workable solutions  Entrepreneurship encouraged and rewarded  Top managers exhibit genuine concern for customers, employees, shareholders, suppliers

23. 23 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Step 1 Diagnose which facets of present culture are strategy-supportive and which are not Step 2 Talk openly about why aspects of present culture need to be changed Step 3 Follow with swift, visible actions to modify culture - include both substantive and symbolic actions Creating a Strong Fit Between Strategy and Culture

24. 24 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Types of Culture-Changing Actions  Revising policies and procedures to help drive cultural change  Altering incentive compensation to reward desired cultural behavior  Visibly praising and recognizing people who display new cultural traits  Hiring new managers and employees who have desired cultural traits and can serve as role models  Replacing key executives strongly associated with old culture  Communicating to all employees the basis for cultural change and its benefits

25. 25 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Symbolic Culture-Changing Actions  Emphasize frugality  Eliminate executive perks  Require executives to spend time talking with customers  Alter practices identified as cultural hindrances  Visible awards to honor heroes  Ceremonial events to praise people and teams who “get with the program”

26. 26 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Substantive Culture-Changing Actions  Benchmarking and best practices  Set world-class performance targets  Bring in new blood, replacing traditional managers  Shake up the organizational structure  Change reward structure  Increase commitment to employee training  Reallocate budget, downsizing and upsizing

27. 27 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Establishing Ethical Standards and Values  A culture based on ethical principles is vital to long- term strategic success  Ethics programs make ethical conduct a way of life  Value statements serve as a cornerstone for culture-building  A code of ethics serves as a cornerstone for developing a corporate conscience  Approaches to establishing ethical standards  Word-of-mouth indoctrination and tradition  Written documents Our ethics program consists of...

28. 28 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Table 13-1: Topics Covered in Value Statements and Codes of Ethics Topics in Value Statements  Customer importance  Commitment to quality  Commitment to innovation  Respect for individual employee  Importance of honesty  Duty to stockholders  Duty to suppliers  Corporate citizenship  Protecting the environment Topics in Codes of Ethics  Honesty & observing the law  Conflicts of interest  Fairness in marketing practices  Using inside information  Supplier relations  Corrupt practices  Acquiring information  Political activities  Use of company assets  Proprietary information  Pricing, contracting, & billing

29. 29 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright  Incorporate values statement and ethics code in employee training programs  Screen out applicants who do not exhibit compatible character traits  Communicate the values and ethics code to all employees  Management involvement and oversight  Strong endorsement by CEO  Word-of-mouth indoctrination Instilling Values and Ethics in the Culture

30. 30 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Building a Spirit of High Performance into the Culture  Emphasize achievement and excellence  Promote a results-oriented culture  Pursue practices to inspire people to excel  Desired outcome  Produce extraordinary results with ordinary people

31. 31 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Approaches to Building a Spirit of High Performance  Treat employees with dignity and respect  Train each employee thoroughly  Encourage employees to use initiative  Set clear performance standards  Use rewards and punishment to enforce high-performance standards  Hold managers responsible for employee development  Grant employees autonomy to contribute  Make champions out of people who excel

32. 32 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright People Management Practices That Promote a Spirit of High Performance  Belief in the worth of the individual  Strong commitment to  Job security  Promotion from within  Managerial practices that encourage employees to exercise individual initiative and creativity  Pride in doing the “itty-bitty, teeny-tiny things” right

33. STRATEGIC LEADERSHIP STRATEGIC LEADERSHIP © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright

34. 34 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright 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

35. 35 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Leadership Roles of the Strategy Implementer 1. Stay on top of what’s happening 2. Promote a culture energizing organization to accomplish strategy 3. Keep firm responsive to changing conditions 4. Exercise ethics leadership 5. Take corrective actions to improve overall strategic performance

36. 36 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright 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

37. 37 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Role #2: Foster a Strategy - Supportive Culture  Successful leaders spend time  Convincing organization members chosen strategy is right and competent strategy execution is top priority  Nurturing values  Building and nurturing a culture promoting good strategy execution Jack Welch CEO of General Electric

38. 38 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Leader’s Role in Matching Culture and Strategy  Implement a “stakeholders-are-king” philosophy  Challenge status quo with very “basic” questions  Create events where all managers must listen to  Angry customers  Dissatisfied strategic allies  Alienated employees  Disenchanted stockholders  Energize employees to make new strategy happen  Initiate substantive actions to reinforce desired cultural traits  Reward people exhibiting desired cultural norms

39. 39 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Role #3: Keep Internal Organization Responsive  Promote openness to fresh ideas  Pursue attractive new opportunities  Support people who are willing to champion  Innovative ideas and products  Better services  New technologies  Promote continuous adaptation to changing conditions  Build new competencies and capabilities

40. 40 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Leader’s Role in Empowering Champions  Encourage people to be creative and imaginative  Tolerate mavericks with creative ideas  Promote lots of tries and be willing to accept failures (most ideas don’t pan out)  Use all kinds of organizational forms to support experimentation (venture teams, task forces, “skunk works” and individual champions)  See that rewards for successful champions are large and visible

41. 41 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Leader’s Role in Developing New Capabilities  Responding to changes requires top management intervention to establish new  Organizational capabilities  Resource strengths and competencies  Senior managers must lead the effort because  Competencies reside in combined efforts, requiring integration  Clout is needed to enforce necessary networking and cooperation

42. 42 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Role #4: Exercising Ethics Leadership  Display unequivocal commitment to ethical and moral conduct  Insist upon strong code of ethics  Encourage compliance and establish tough consequences for unethical behavior  Make it a duty for employees to  Observe ethical codes  Report ethical violations

43. 43 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Manager’s Role in Exercising Ethics Leadership  Set an excellent ethical example  Provide training to employees about what is ethical and what isn’t  Reiterate unequivocal support of ethics code  Remove people from key positions if found guilty of a violation  Reprimand people lax in monitoring ethical compliance

44. 44 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Key Approaches to Enforcing Ethical Behavior  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

45. 45 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Actions Demonstrating Corporate Citizenship and Social Responsibility  Having “family friendly” employment practices  Operating a safe workplace  Taking special pains to protect the environment  Taking an active role in community affairs  Interacting with community officials to minimize impact of  Layoffs or  Hiring large numbers of new employees  Being a generous supporter of charitable causes and projects that benefit society

46. 46 © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Copyright Role #6: Lead the Process of Making Corrective Adjustments  Requires both  Reactive adjustments  Proactive adjustments  Involves  Reshaping long-term direction, objectives, and strategy to unfolding events  Promoting initiatives to align internal activities and behavior with strategy