2. McGraw-Hill/Irwin© 2007 The McGraw-Hill Companies, Inc. All rights reserved. 13 Chapter Title 15/e PPT Corporate Culture and Leadership Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region

3. 13-2 “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 Corp.

4. 13-3 “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

5. 13-4 Chapter 13 Roadmap  Instilling a Corporate Culture that Promotes Good Strategy Execution  Identifying the Key Features of a Company’s Corporate Culture  Strong versus Weak Cultures  Unhealthy Cultures  High-Performance Cultures  Adaptive Cultures  Culture: Ally or Obstacle to Strategy Execution?  Changing a Problem 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  Putting Constructive Pressure on the Organization to Achieve Good Results and Operating Excellence  Leading the Development of Better Competencies and Capabilities  Displaying Ethical Integrity and Leading Social Responsibility Initiatives  Leading the Process of Making Corrective Adjustments

6. 13-5 INSTILLING A STRATEGY- SUPPORTIVE CORPORATE CULTURE

7. 13-6 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” permeating work environment  Oft-told stories illustrating  Company’s values  Business practices  Traditions

8. 13-7  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 Wal-Mart

9. 13-8  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  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 Features of the Corporate Culture at General Electric

10. 13-9  Entrepreneurship of employees  Empowered employees are encouraged to  Be innovative  Excel in their fields of specialization  Respond quickly to strategic opportunities  Creatively apply state-of-the-art technology in a manner to promote operating excellence Features of the Corporate Culture at Occidental Petroleum

11. 13-10  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 Nordstrom’s

12. 13-11 A company’s culture is manifested in...  Values, business principles, and ethical standards preached and practiced by management  Approaches to people management and 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 Identifying the Key Features of Corporate Culture

13. 13-12  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 Where Does Corporate Culture Come From?

14. 13-13 Role of Stories at Microsoft Oft-told stories 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 on cutting-edge projects  Rewards of being part of a team responsible for a popular new software program  Tradition of competing aggressively

15. 13-14  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 How Is a Company’s Culture Perpetuated?

16. 13-15 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

17. 13-16 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

18. 13-17 Types of Corporate Cultures Strong vs. Weak Cultures Unhealthy Cultures High-Performance Cultures Adaptive Cultures

19. 13-18  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 Strong Culture Companies

20. 13-19 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 espoused values, beliefs, and business philosophy  Practicing what is preached!  Genuine concern for well-being of  Customers  Employees  Shareholders Values Customers Employees Shareholders

21. 13-20 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

22. 13-21  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  Disregard for high ethical standards and overzealous pursuit of wealth by key executives Characteristics of Unhealthy Cultures

23. 13-22  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 Characteristics of High-Performance Cultures

24. 13-23  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 Hallmarks of Adaptive Cultures

25. 13-24  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 Dominant Traits of Adaptive Cultures

26. 13-25  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 where attitudes and behaviors impede good strategy execution is a huge obstacle to be overcome Culture: Ally or Obstacle to Strategy Execution?

27. 13-26  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 culture imbedded with values and behaviors that facilitate strategy execution promotes strong employee commitment to the company’s  Vision  Performance targets  Strategy Why Culture Matters: Benefits of a Tight Culture-Strategy Fit

28. 13-27  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! Optimal Outcome of a Tight Culture-Strategy Fit

29. 13-28  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! The Perils of Strategy-Culture Conflict

30. 13-29 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

31. 13-30 Fig. 13.1: Changing a Problem Culture

32. 13-31  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  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 Menu of Culture-Changing Actions

33. 13-32  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 new positions carefully, hiring only those who 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 Substantive Culture-Changing Actions

34. 13-33  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 procedures in ways to drive cultural change Substantive Culture- Changing Actions (continued)

35. 13-34  Lead by example – Walk the talk  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 Symbolic Culture-Changing Actions

36. 13-35  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... Grounding the Culture in Core Values and Ethics

37. 13-36  Formal values statement and 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 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 Approaches to Establishing Ethical Standards

38. 13-37

39. 13-38 Test Your Knowledge Which of the following topics would least likely be a topic or element of a company’s statement of its core values? A. A dedication to superior customer service, top-notch quality, product innovation, and/or technological leadership B. An expectation that company personnel will display creativity, exercise initiative, and accept responsibility C. Prohibiting giving or accepting bribes, kickbacks, or gifts D. A commitment to exhibiting such qualities as integrity, fairness, trustworthiness, pride of workmanship, Golden Rule behavior, and respect for co-workers E. A commitment to making the company a great place to work

40. 13-39 Test Your Knowledge Which of the following topics would least likely be contained in a company’s code of ethics? A. Expecting all employees to not divulge trade secrets or proprietary information to outsiders B. Expecting all company personnel to display honesty and integrity in their actions and avoid conflicts of interest C. Not dealing with suppliers that employ child labor or engage in other unsavory practices D. Committing to create a work environment characterized by teamwork and employee empowerment E. Mandating full compliance with all laws and regulations

41. 13-40 Fig. 13.2: The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards

42. 13-41 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

43. 13-42 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 ceremonies to recognize individuals and groups who display the values  Institute ethics enforcement procedures

44. 13-43 Fig. 13.3: The Benefits of Cultural Norms Strongly Grounded in Core Values and Ethical Principles

45. 13-44 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  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 management approaches or operating styles  Discretion to use different motivational and compensation incentives to induce personnel to practice desired behaviors

46. 13-45 For Discussion: Your Opinion Identify one cultural trait that you would like to see at the company you decide to go to work for when you graduate? Why is this cultural trait important to you?

47. 13-46 STRATEGIC LEADERSHIP

48. 13-47 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

49. 13-48 1. Stay on top of what’s happening 2. Put constructive pressure on company to achieve good results 3. Lead development of stronger core competencies and competitive capabilities 4. Exercise ethics leadership and lead social responsibility initiatives 5. Take corrective actions to improve overall strategic performance Leadership Activities of Chief Strategy Implementer

50. 13-49  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 #1: Stay on Top of What’s Happening

51. 13-50  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 #2: Put Constructive Pressure on Company to Achieve Good Results

52. 13-51  Treat employees with dignity and respect  Make champions out of people who excel  Encourage employees to use initiative  Set stretch objectives and expectations that employees are to give their best  Use tools of benchmarking, best practices, business process reengineering, TQM, and Six Sigma quality to focus attention on continuous improvement  Use full range of motivational techniques and compensation incentives to  Inspire employees  Nurture a results-oriented climate  Enforce high-performance standards  Celebrate individual, group, company successes Approaches to Instilling a Spirit of High Achievement

53. 13-52  Top management intervention is required to establish better or new  Resource strengths and competencies  Competitive capabilities  Senior managers must lead the effort because  Competencies 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 #3: Promote Stronger Core Competencies and Capabilities

54. 13-53 Role #4: Display Ethics Leadership and Lead Social Responsibility Initiatives  Set an excellent example in  Displaying ethical behaviors  Demonstrating character and personal integrity in actions and decisions  Declare support of company’s ethics code and expect all employees to conduct themselves in an ethical fashion  Encourage compliance and establish tough consequences for unethical behavior

55. 13-54  Set an excellent ethical example  Provide training to employees about what is ethical and what isn’t  Declare unequivocal support of ethics code  Act as final arbiter on hard calls  Remove people from key positions if found guilty of a violation  Reprimand people lax in monitoring ethical compliance Roles of a Manager in Enforcing Ethical Behavior

56. 13-55 Structuring an Ethics Compliance and Enforcement Process  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

57. 13-56  Have mandatory ethics trainings for employees  Openly encourage employees to report possible infractions via  Anonymous calls to a hotline or  Posting to a special company Web site  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 the ethics code  Make sure ethical violations carry appropriate punishment, including dismissal for egregious violations Key Approaches to Enforcing Ethical Behavior

58. 13-57 Test Your Knowledge Assuming that a company’s senior executives are really serious about enforcing high standards of ethical behavior, then they probably need to consider doing all but which one of the following? A.Appointing a committee of high-profile employees to serve on a committee or task force that is charged with (a) being champions of high ethical standards, (b) finding ways to ingrain high ethical standards as a cultural norm, and (3) heading up the company’s ethics enforcement process B.Having mandatory ethics training programs for employees C.Conducting an annual audit of each manager’s efforts to uphold ethical standards and requiring formal reports on the actions taken by managers to remedy deficient conduct D.Requiring all employees to sign a statement annually certifying that they have complied with the company’s code of ethics and making sure that ethical violations carry appropriate punishment, including dismissal if the violation is sufficiently egregious E.Openly encouraging company personnel to report possible infractions via anonymous calls to a hotline or e-mails sent to a designated address

59. 13-58 For Discussion: Your Opinion What would your reaction be if your employer required you to sign a statement annually certifying that you have complied with the company’s code of ethics?

60. 13-59 Actions Demonstrating Commitment to a Strategy of Social Responsibility  Craft a strategy that positively improves well-being of employees, environment, communities, and society  Use social and environmental metrics to evaluate company performance  Tie social and environmental performance to executive compensation  Take special pains to protect environment  Take an active role in community affairs  Generously support charitable causes and projects benefiting society  Support workforce diversity and commit to overall well-being of employees

61. 13-60 Role #5: 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