Implementing and Executing Strategy: Culture and Leadership

“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” 2

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

BUILD A STRATEGY-SUPPORTIVE CORPORATE CULTURE 4

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

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

Features of the Corporate Culture at General Electric 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 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

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

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

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

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

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

Why Culture Matters: Benefits of a Good Culture-Strategy Fit (continued) 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 Can Do!

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!

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

Characteristics of Strong Culture Companies Conduct business according to a clear, widely-understood philosophy 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

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 Values Customers Employees Shareholders

Strategic Management Principle Strong cultures promote good strategy execution where there’s strategy-culture fit and hurt execution where there’s little fit!

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

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!

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

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

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”

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

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 . . .

Instilling Values and Ethics in the Culture Incorporate values statement and ethics code in employee training programs Screen out applicants who do not exhibit compatible character traits Communicate the values and ethics code to all employees Management involvement and oversight Strong endorsement by CEO Word-of-mouth indoctrination

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

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

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

STRATEGIC LEADERSHIP 33

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

Role #1: Stay on Top of What’s Happening Develop a broad network of formal and informal sources of information Talk with many people at all levels Be an avid practitioner of MBWA Observe situation firsthand Monitor operating results regularly Get feedback from customers Watch competitive reactions of rivals

Role #2: 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

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

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

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

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

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 Our ethics code is . . .

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

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

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

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