Strategic Management week 8 Discussion

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chapter 12 Corporate Culture and Leadership—Keys to Good Strategy Execution

Arthur A. Thompson The University of Alabama

An e-book published and distributed by McGraw Hill Education

Sixth Edition of Strategy: Core Concepts and Analytical Approaches (2020-2021). Arthur A. Thompson, The University of Alabama. Published and distributed by McGraw Hill Education. Image of globe comprised of puzzle pieces with several pieces dislodged and scattered below the globe. Chapter 5 The Five Generic Competitive Strategy Options: Which One to Employ

“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.”

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Wayne Leonard former CEO, Entergy

“Weak leadership can wreck the soundest strategy; forceful execution of even a poor plan can often bring victory.”

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Sun Zi ancient Chinese general and philosopher

“Leadership is accomplishing something through other people that wouldn’t have happened if you weren’t there… Leadership is being able to mobilize ideas and values that energize other people… Leaders develop a story line that engages other people.”

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Noel Tichy,

Professor

“You’ve got to have a vision. You’ve got to have a plan to implement it. Then you’ve got to set the example, develop the principles and values that are important, and get people to buy into it.”

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Nick Saban, Head Football Coach, The University of Alabama

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 shaping the corporate culture.

Understand how and why a company’s culture can aid or block the drive for good strategy execution and operating excellence.

Learn the kinds of actions management can take to change a problem corporate culture.

Understand what constitutes effective managerial leadership in achieving superior strategy execution and operating excellence.

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Chapter 12 Learning Objectives

Instilling a Corporate Culture that Promotes Good Strategy Execution

Identifying the Key Features of a Corporate Culture

Cultures Are Often Grounded in Core Value and Ethics

Strong vs. Weak Cultures

Why Cultures Matter to the Strategy Execution Process

Healthy Cultures That Aid Good Strategy Execution

Unhealthy Cultures Impede Good Strategy Execution

Changing a Problem Culture

Leading the Strategy Execution Process

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Chapter 12 Roadmap

Every firm has its own unique culture that is a product of:

The core values and business principles articulated by executives

Its standards of what is ethically acceptable and what is not

The ingrained work practices, beliefs, and behaviors that define “how we do things around here”

Its approach to people management and its style of operating

The “chemistry” and the “personality” that permeates its work environment

Stories told repeatedly to reinforce its values, business practices, and traditions

The specific cultural traits that emerge from a firm’s meshing of these culture-determining factors define its corporate culture

A firm’s culture is its psyche or organizational DNA

A firm’s culture is important because it influences its actions and approaches to conducting its business

There are large variations in the character of company cultures

Instilling a Corporate Culture That Promotes Good Strategy Execution

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Core Concept

Corporate culture refers to the character of a firm’s internal work climate and psyche—as shaped by its core values, business principles, ethical standards, ingrained beliefs and behaviors, approach to people management, style of operating, and traditions.

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Identifying the Key Features of a Company’s Corporate Culture

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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

A Company’s Corporate Culture

Values, principles, and ethical standards in actual use

Approach to people management and key policies and procedures

Atmosphere and spirit that pervades the firm’s work climate

How managers and employees interact and relate to one another

The values, beliefs, and practices that undergird a firm’s culture can have any of several origins:

A founder or strong executive leaders who articulated them as a set of business principles, the firm’s policies and ways of operating

Exemplary actions of personnel viewed as role models

Evolving consensus about “how we ought to do things around here.”

Over time, these cultural underpinnings take root, become embedded in how the firm conducts its business, and gain widespread acceptance among both managers and employees

Identifying the Key Features of a Company’s Corporate Culture

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Zealous pursuit of low costs and frugal operating practices

A strong work ethic

Ritualistic headquarters meetings to exchange ideas and review problems

Executives’ commitment to visiting stores, listening to customers, and soliciting suggestions from employees.

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Example: Corporate Culture at Wal-Mart

Share a common customer-centered goal of developing the best consumer products that make users feel delight, surprise, and connection to each Apple device

Secretive, and highly protective of company-developed technology and know-how.

Creative thinking and inspired solutions are expected from everyone—perfectionists always on the lookout for better ideas.

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Example: Cultural Traits at Apple

Delivering exceptional service to an out-of-the-ordinary customer request is a “heroic” act

Promoting employees noted for their heroic acts and dedication to outstanding service

Motivating salespeople with a commission-based compensation system that enables Nordstrom’s best salespeople to earn more than double what other stores pay

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Example: Cultural Traits at Nordstrom

Corporate culture is strongly influenced by its dedication to its core values and the bar it sets for ethical behavior.

Accounts for why so many firms have developed a formal values statement and a code of ethics

At some firms stated values/ethics are cosmetic, existing mainly to impress outsiders and help create a positive image.

Stated core values and ethical principles have two culture-building roles:

Fostering a work climate where personnel share common and strongly held convictions about how the firm’s business is to be conducted

Providing personnel with guidance about the manner in which they are to do their jobs

Cultures Are Often Grounded in Core Values and Ethics

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Strategic Insight

A company’s values statement and code of ethics communicate expectations of how all company personnel should conduct themselves in the workplace.

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FIGURE 12.1 The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards

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Screening and selecting new employees that will mesh well with the culture.

Incorporating discussions of the firm’s culture and desired cultural behaviors into employee orientation programs and training courses for managers and employees.

Having senior managers frequently reiterate core values, ethical standards, and the desired cultural behaviors in daily conversations, at company events, and internal communications to employees.

Stressing that line-managers all the way down to first-level supervisors give ongoing attention to explaining the desired cultural traits and behaviors in their areas and why they are important.

Expecting managers at all levels to be cultural role models and exhibit the advocated cultural norms in their own behavior.

Encouraging company personnel to exert strong peer pressure on coworkers to conform to expected cultural norms.

Making the display of cultural norms a factor in evaluating each person’s job performance, granting compensation increases, and deciding who to promote.

Holding periodic ceremonies to honor people who excel in exhibiting and role modeling the desired cultural behaviors.

Ways That Companies Ingrain Cultural Norms and Perpetuate the Culture

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Cultures evolve because a variety of factors breed a new work climate and new ways of doing things:

Diversification into new businesses

Expansion into foreign countries

Rapid growth that brings an influx of new employees

Merger with or acquisition of another firm

A new CEO who opts to shake things up

A significant change in the company’s direction and/or a big strategy change and/or a sudden decline in sales/profits

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The Forces That Cause a Company’s Culture to Evolve

Why a Company’s Culture Evolves

Causes of Cultural Change

A new CEO that shakes things up.

Expansion into foreign countries

Diversification into new businesses

Eroding business prospects or big internal changes

Merger or acquisition of another firm

Rapid growth that causes an influx of new employees

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It is not unusual for firm to have multiple cultures (or subcultures) with their own values, beliefs, and practices:

Departments

Geographic locations

Business units

Global and multinational firms tend to be multicultural because cross-country organization units have different operating histories and work climates, members who speak different languages, have grown up under different customs and traditions, and have different sets of values and beliefs

Subcultures can clash if:

They embrace conflicting business philosophies

Key executives use different approaches to people management

Differences between a firm’s culture and recently-acquired businesses have not been ironed out

Existence of subcultures does not preclude important areas of commonality and compatibility being established in different countries (or within a subculture)

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The Presence of Company Subcultures

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 widely-shared traditions, principles, beliefs, values, or behavioral norms.

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Strong vs. Weak Cultures

Core Concept

In a strong-culture company, culturally approved behaviors and ways of doing things flourish, while culturally disapproved behaviors and work practices get squashed.

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The dominating presence of deeply-rooted values and operating approaches “regulate” conduct of a firm’s business and its workplace.

In strong culture firms, senior managers

Reiterate business principles and core values to organization members and explain how they relate to its business environment.

Make a conscious effort to display these principles in their own actions and behavior—they walk the talk

Insist that those values and business principles are reflected in the decisions and actions taken by all personnel

Over time, the strong values are widely shared by rank-and-file employees—people who dislike the culture tend to leave

Individuals encounter strong peer pressures from co-workers to observe culturally approved norms and behaviors

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Strong-Culture Companies

A strong corporate culture has a powerful influence on strategy execution (“how we do things around here”) because:

Many personnel are accepting of cultural traditions

There are strong management expectations and co-worker peer pressure to conform to cultural norms

Managers use traditions, beliefs, values, common bonds, and behavioral norms as levers to mobilize commitment to executing the chosen strategy.

Caution: Strong cultures can create a HUGE OBSTACLE to good strategy execution if its behavioral norms conflict with the needed kinds of execution-supportive behaviors.

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Strong-Culture Companies (continued)

A Weak-Culture Firm

Lacks values and principles consistently preached or widely shared

Has few widely revered traditions and evidences few culture-induced norms in its operating practices

Top executives not committed to culture-building, no commitment to particular values and behavioral norms and/or efforts to paint white lines for actions, decisions, and behavior of company personnel

Has a working environment where its personnel feel little co-worker peer pressure to do the right things in particular ways

Breeds no strong allegiance to what the firm stands for or to operating the business in well-defined ways

Cultural weakness can result from entrenched subcultures that block the emergence of a well-defined work climate

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Weak-Culture Companies

When a firm’s culture promotes attitudes, behaviors, and ways of doing things conducive to first-rate strategy execution, the culture

Functions as a valuable ally in the strategy execution process

Adds formidable power to management’s strategy execution efforts

Why so?

Execution-supportive cultural norms, actions, behaviors, and work practices make it easier for managers to win support for doing the things needed to execute strategy proficiently

Culture-induced peer pressures steer personnel into actions and behaviors that aid the cause of good strategy execution

Execution-supportive cultural influences rally personnel to implement needed internal changes by exerting their best efforts to attain execution-critical performance

Why Corporate Cultures Matter to the Strategy Execution Process

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Core Concept

A culture that encourages actions, behaviors, and work practices conducive to good strategy execution adds significantly to the power and effectiveness of a firm’s strategy execution effort.

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Strategic Insight

In companies with execution-supportive cultural influences, managers can use the ingrained values, business principles, behavioral norms, and established ways of doing things as levers to mobilize the energy and actions of company personnel squarely behind the drive for good strategy execution.

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A culture that clashes with execution-supportive behaviors and work practices poses a dilemma for the firm’s personnel:

Should they be loyal to the culture and traditions of the firm and resist or be indifferent to behaviors and practices that promote better strategy execution?

Should they go along with the strategy execution effort and engage in actions and behaviors that run counter to the culture?

Why Corporate Cultures Matter to the Strategy Execution Process (continued)

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Strategic Insight

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 and that marshals organizational energy behind the drive for good strategy execution.

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Closely aligning culture with requirements for strategy execution merits the full attention of senior executives

Their culture-building objective is to create a work climate and style of operating that mobilizes their personnel squarely behind efforts to execute the firm’s strategy competently.

The more that execution-supportive ways are embedded in the culture, the more the culture automatically steers its members toward execution-supportive behaviors and work practices

Why Corporate Cultures Matter to the Strategy Execution Process (concluded)

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Strategy execution in a weak culture firm poses big top management challenges because:

There are no ingrained traditions, values, peer pressures, or behavioral norms for managers to rely on in helping align the actions and behavior of employees with the requirements for good strategy execution.

Managers have no strong internal cultural support for their attempts to implement strategic change.

Managers are left with the options of urging employee support for needed changes and using compensation incentives and rules-driven directives to induce execution-supportive actions and behaviors.

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Trying to Execute Strategy in a Weak-Culture Company

A strong, healthy culture embraces execution-supportive attitudes, behaviors, and work practices.

Two types of cultures that are healthy and supportive of good strategy execution are:

High-performance cultures

Adaptive cultures

Healthy Cultures That Aid Good Strategy Execution

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The standout traits:

A “can-do” spirit of results-oriented work climate where people do more than is expected to meet or beat stretch objectives

Pride in doing things right

No-excuses accountability

A strong sense of involvement on the part of all personnel

An emphasis on individual initiative and creativity

ALL personnel display high-performance behaviors and a passion for making the firm successful

Such a culture—permeated by a spirit of achievement and constructive pressure to achieve good results—is a valuable contributor to strategy execution and operating excellence

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High-Performance Cultures

A willingness to accept change, introduce and execute new strategies, and adopt new work practices

Confidence that the firm can deal with new threats and opportunities

A proactive approach to identifying issues, evaluating implications and options, and quickly moving ahead with workable solutions

Receptiveness to risk taking, experimentation, and innovation

Supportive of managers and employees who advocate useful change

Seek out, support, and promote individuals who exercise initiative, spot opportunities, and display the skills to implement them.

Openly evaluate ideas and suggestions, fund initiatives to develop new or better products, and take prudent risks to pursue opportunities

Firms with adaptive cultures thrive on change— driving it, leading it, and capitalizing on it .

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Traits of Adaptive Cultures

Why is change willingly embraced in an adaptive culture as opposed to a condition where organization members are fearful of how change will affect them and thus change-resistant?

Answers lie in the traits of an adaptive culture:

Managers are careful to make sure that any changes in operating practices and behaviors do not compromise core values and long-standing business principles

Managers are careful to make sure that any changes they institute are consistent with the legitimate and best interests of all stakeholders—customers, employees, shareowners, suppliers, and the communities where the company operates

Changes are readily accepted so long as the changes are viewed as fair to all stakeholders and management exhibits a commitment to doing the right thing

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Change in Adaptive Cultures

Strategic Insight

As a firm’s strategy evolves, both a high performance culture and an adaptive culture are valuable allies in the strategy-implementing, strategy-executing process, as compared to cultures that have to be coaxed and cajoled to change.

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The distinctive characteristic of an unhealthy corporate culture is the presence of counterproductive cultural traits that adversely impact the work climate, company performance, and the success of strategy execution initiatives

Five particularly unhealthy cultural traits are:

Hostility to change

Heavily politicized decision-making

Insular, inwardly-focused thinking

Unethical and greed-driven behaviors

The presence of incompatible subcultures

Unhealthy Cultures That Impede Good Strategy Execution

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Five Unhealthy Cultures That Impede Good Strategy Execution

Change-resistant cultures

Insular, inwardly focused cultures

Politicized cultures

Incompatible Subcultures

Unethical and greed-driven cultures

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Undesirable or unhealthy behaviors in change-resistant cultures

Avoiding risks; being cautious and conservative is deemed wiser

Not making bold proposals to pursue emerging opportunities

A lax approach to both product innovation and continuous improvement in performing value chain activities

Following rather than leading market change because:

Being in the forefront of change is too risky

Acting too quickly increases exposure to costly mistakes

Moving later allows careful analysis and learning from missteps of early movers

No enthusiasm for (or opposition to) proposals to do things differently

People who champion new ways of doing things are viewed as a nuisance or troublemaker; more comfortable with “we have done it this way for years”

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Change-Resistant Cultures

Internal politics and political infighting consumes a great deal of organizational energy

Empire-building managers jealously guard their prerogatives

Have their own agendas and operate their work units as autonomous “fiefdoms”

Their positions on issues are aimed at protecting or expanding their turf

Collaboration with other units is viewed with suspicion, and cross-unit cooperation occurs grudgingly

Politically influential executives and/or coalitions among departments with vested interests in a particular outcome shape what actions the firm takes

What’s best for the firm takes a backseat to political maneuvering

Political jockeying detracts from efforts to execute strategy and frustrates personnel who are less political and more inclined to do what is in the firm’s best interests.

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Politicized Cultures

Standout traits and behaviors:

A belief on the part of managers and key employees that they have all the answers or can develop them internally

A neglect of customers and how their needs and expectations are changing.

Confidence in the correctness of how the firm does things and the firm’s skills and capabilities causes managers to discount he merits of what outsiders are doing and see little payoff from studying best-in-class performers.

Insular thinking, internally driven solutions, and a must-be-invented-here mindset permeates a culture of managerial inbreeding and a failure to recruit people who offer fresh thinking and perspectives.

The big risk of insular thinking is underestimating the power of the competitive capabilities of rival firms and overestimating the power of the firm’s own competitive capabilities.

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Insular, Inwardly Focused Cultures

The standout traits and behaviors:

Executives exude

Arrogance, ego, and greed

An “ends-justify-the-means” mentality in pursuing performance targets

Senior managers

Wink at unethical behavior

May cross over the line to unethical (and criminal) behavior themselves

Adopt accounting principles that make financial performance look better than it really is

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Unethical and Greed-Driven Cultures

Subcultures are unhealthy when:

They embrace conflicting business philosophies, approaches to people management, and/or styles of operating

They spawn warring factions within the firm, creating a poisonous atmosphere

They become absorbed in political behaviors with surrounding clashing subcultures that distract personnel from doing the firm’s business while they are jockeying with other subcultures for cultural dominance

They prevent or impede teamwork among various units and block emergence of a collaborative approach to strategy execution

Lack of consensus among subcultures about how to do things results in fragmented or inconsistent approaches to implementing strategic initiatives and limited success in executing the firm’s overall strategy.

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Incompatible, Clashing Subcultures

When a culture is unhealthy or out of sync with actions and behaviors needed to successfully execute the company’s strategy, the culture must be changed as rapidly as can be managed by

Eliminating the unhealthy or dysfunctional or mismatched cultural traits and replacing them with execution-supportive behaviors and work practices

Successful culture change requires decisive, forceful leadership by top executives

The single most visible factor that distinguishes successful culture-change efforts from failed attempts is competent leadership at the top.

Changing a Problem Culture

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FIGURE 12.2 Changing a Problem Culture

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Efforts to replace a problem culture are made credible by initiating a series of visible, forceful change actions:

Replace recalcitrant “old culture” executives and managers

Promote advocates of the shift to a different culture who can function as new-culture role models

Appoint outsiders with the desired cultural attributes to high-profile positions

Screen all candidates for new positions carefully, hiring only those who appear to fit in with the new culture

Mandate that all personnel attend culture-training programs

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Substantive Culture-Changing Actions

Ways to change a problem culture:

Design compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors.

Let word leak out that generous pay raises have been awarded to individuals who have stepped out front, led the adoption of the desired work practices, displayed the new-style behaviors, and achieved pace-setting results.

Revise policies and procedures to better drive cultural change

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Substantive Culture-Changing Actions (continued)

Symbolic actions that top executives can take:

Lead by example—Walk the talk

If the firm is striving to be a low-cost provider, top executives must display frugality in their own actions and minimize executive perks

If the culture change imperative is to be more responsive to customers’ needs and to pleasing customers, then executives must spend time talking with customers

Hold ceremonial events

To praise and honor people who display the desired cultural traits

To celebrate each culture-change success

Appear at employee training programs to stress strategic priorities, values, ethical principles, and cultural norms

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Symbolic Culture-Changing Actions

Changing a problem culture is not a short-term exercise:

A new culture takes time to emerge and prevail, overnight transformations do not occur.

A new culture can take 2-5 years (maybe longer) to become deeply embedded

The larger the organization and the greater the cultural shift needed to produce an execution-supportive fit, the longer change takes

How Long Does It Take to Change a Problem Culture?

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Leading the Strategy Execution Process

Managing the strategy process is simple enough:

Craft a sound strategic plan, implement it, fully execute it, adjust it as needed, and win!

Leading the strategy execution process is a top-down management activity:

Stay on top of what is happening, monitor progress, remove obstacles to good execution, and decide how to get things done

Use constructive pressure to achieve good results and operating excellence

Push corrective actions to improve strategy execution and achieve the targeted results

Requires senior executives to tap into information from a wide range of sources:

Talk with key subordinates

Stay in close contact with key personnel in outlying locations via e-mail and telephone

Attend meetings and quiz presenters and attendees

Review the latest operating results

Watch the competitive reactions of rival firms

Visit with key customers and suppliers to get their perspectives

Practice managing by walking around (MBWA)—learn firsthand how well the strategy execution process is going (gather information by visiting facilities, talking with different personnel at different organization levels, asking lots of questions, listening to concerns and opinions, soliciting ideas)

Staying on Top of How Well Things Are Going

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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 and determine whether and when to intervene to help move things along.

MBWA allows managers to see firsthand how well the strategy execution process is proceeding, spot gridlock, learn what obstacles lie in the path of good execution, and start considering what might be done to clear the way for better progress.

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Mobilizing organizational energy behind the drive for good strategy execution and operating excellence entails nurturing a results-oriented work climate, where performance standards are high and a spirit of achievement is pervasive

The goal is to build a good organizational track record in meeting or beating stretch performance targets

Putting Constructive Pressure on the Organization to Achieve Good Results and Operating Excellence

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Treating employees as valued partners and contributors in organizational efforts to achieve good business results.

Fostering an esprit de corps that energizes organizational members

Using empowerment to help create a fully engaged workforce

Setting stretch objectives and clearly communicating an expectation that personnel are to give their best in achieving performance targets

Using benchmarking, best practices, business process reengineering, TQM, and Six Sigma to focus attention on internal operating improvements

Using the full range of motivational techniques and compensation incentives to inspire company personnel, nurture a results-oriented work climate, and reward high performance.

Celebrating individual, group, and company successes

Instilling a Spirit of High Achievement Into the Culture

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Success in initiating corrective actions hinges on:

Accurate analysis of unacceptable performance (correcting flawed strategy execution is different than correcting flawed strategy)

Exercise of good business judgment in deciding when and what corrective adjustments to make

Good implementation of the corrective actions that are initiated

Successful managers get an organization back on track quickly because:

They (and their staffs) are good at discerning what actions to take and in driving them through to a successful conclusion.

Managers who misdiagnose the causes of weak performance or are habitually slow to implement corrective actions that produce better results are candidates for being replaced.

Leading the Process of Making Corrective Adjustments

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Leading the Process of Making Corrective Adjustments

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Accurate analysis of the situation

Good business judgment in deciding what actions to take

Good implementation of the corrective actions

Making corrective actions successfully requires:

Leading the Process of Making Corrective Adjustments

Making corrective actions successfully requires:

Accurate analysis of the situation

Good business judgment in deciding what actions to take

Good implementation of the corrective actions

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Strategic Insight

The process of making corrective adjustments is not about searching for the “right” or “provably correct” way to proceed. It’s about instituting actions deemed likely to result in better strategy execution and improved ability to attain the targeted levels of business performance.

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Doing a good job of leading the strategy execution process is not about searching for the “right” way to proceed or for provably “correct” solutions. It is about proceeding in a manner that produces good results, namely proficient strategy execution, progress toward operating excellence, and good business performance.

“Good Results” Are the Best Sign of Effective Leadership

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In practice, it is hard to separate leading the process of executing strategy from leading the other pieces of the strategy process

Strategy consists of five interrelated and linked tasks requiring continuous fine-tuning and adjustments to strategic visions, objectives, strategies, and implementation/execution approaches to fit ever-changing circumstances

The best tests of good strategic leadership and management are

Whether the firm has a good strategy

Whether the strategy is being competently executed

Whether the enterprise is meeting or beating its performance targets

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A Final Word on Leading the Process of Crafting and Executing Strategy

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FIGURE 12.1 The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards, Text Alternate

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A company’s stated core values and ethical principles:

Foster a work climate where company personnel share common and strongly held convictions about how the company’s business is to be conducted.

Signal employees that they are expected to:

Display the company’s core values in their actions (do things the right way)

Uphold the company’s ethical standards (do the right thing)

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FIGURE 12.2 Changing a Problem Culture, Text Alternate

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Step 1: Identify facets of the present culture that are dysfunctional and impede good strategy execution, operating excellence, and the achievement of performance targets.

Step 2: Specify what new actions, behaviors, and work practices should characterize the “new” culture.

Step 3: Talk openly about problems of the present culture and make a persuasive case for how the proposed new actions and behaviors will improve company performance.

Step 4: Follow with visible, forceful actions—both substantive and symbolic—to ingrain a new set of behaviors, operating practices, and cultural norms.

Strategic Management week 8 Discussion

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