2. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 1 000100101001001111010100100010010100100111101010010001001010010011110101 Chapter 9 Corporate Culture and Leadership Screen graphics created by: Jana F. Kuzmicki, PhD Troy State University-Florida and Western Region

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 McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved.

4. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 3 Chapter Outline  Building a Corporate Culture that Promotes Good Strategy Execution  What to Look for in Identifying a Company’s Culture  Culture: Ally or Obstacle to Strategy Execution?  Types of Cultures  Creating a Strong Fit Between Strategy and 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  Pushing Company to Achieve Good Results  Keeping Internal Organization Innovative  Exercising Ethics Leadership  Making Corrective Adjustments

5. BUILD A STRATEGY- SUPPORTIVE CORPORATE CULTURE McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 4

6. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 5 What Makes Up a Company’s Culture?  Core values and business principles of executives  Ethical standards  Patterns of “how we do things around here”  Oft-told stories illustrating company’s values  Approach to people management  Internal politics  Traditions

7. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 6 Features of the Corporate Culture at Wal-Mart  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

8. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 7 Features of the Corporate Culture at Nordstrom’s  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

9. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 8 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  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

10. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 9  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 Features of the Corporate Culture at Microsoft

11. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 10 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

12. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 11 How Is a Company’s Culture Perpetuated?  Selecting new employees who will “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

13. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 12 Forces and Factors Causing Culture to Evolve  New challenges in marketplace  Revolutionary technologies  Shifting internal conditions  Internal crisis  Turnover of top executives  Arrival of a new CEO  Diversification into new businesses  Expansion into foreign countries  Rapid growth involving adding new employees  Merger with or acquisition of another company

14. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 13 Culture: Ally or Obstacle to Strategy Execution?  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

15. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 14 Why Culture Matters: Benefits of a Tight Culture-Strategy Fit  A culture that encourages actions supportive of good strategy execution  Not only provides employees with clear guidance regarding what behaviors and results constitute good job performance  But also produces significant peer pressure from coworkers 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

16. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 15 Optimal Outcome of a Tight Culture-Strategy Fit  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!

17. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 16 The Perils of Strategy-Culture Conflict  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!

18. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 17 Types of Corporate Cultures Strong vs. Weak Cultures Unhealthy Cultures Adaptive Cultures

19. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 18 Characteristics of Strong Culture Companies  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”

20. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 19 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

21. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 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. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 21 Characteristics of Unhealthy Cultures  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 -- employees discount need to look outside company for  Best practices  New managerial approaches  Innovative ideas

23. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 22 Hallmarks of Adaptive Cultures  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

24. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 23 Dominant Traits of Adaptive Cultures  Any changes in operating practices and behaviors  Must not compromise core values and long- standing business principles  Must satisfy legitimate interests of key stakeholders l Customers l Employees l Shareholders l Suppliers l Communities

25. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 24 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

26. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 25 Changing a Problem Culture Step 1 Identify facets of present culture that are strategy-supportive and those that are not Clearly define desired new behaviors and specify key features of “new” culture Step 2 Talk openly about problems of present culture and how new behaviors will improve performance Step 3 Follow with visible, aggressive actions to modify culture—includes substantive and symbolic actions Step 4

27. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 26 Menu of Culture-Changing Actions  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  Continuously repeat messages of why cultural change is good for stakeholders  Visibly praise and reward people who display new cultural norms

28. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 27 Menu of Culture-Changing Actions (continued)  Alter incentive compensation to reward desired cultural behavior  Hire new managers and employees who have desired cultural traits and can serve as role models  Replace key executives strongly associated with old culture  Revise policies and procedures to help drive cultural change

29. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 28 Symbolic Culture-Changing Actions  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

30. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 29 Substantive Culture-Changing Actions  Engineer quick successes to highlight benefits of proposed cultural changes  Bring in new blood, replacing traditional managers  Change dysfunctional policies  Change reward structure  Reallocate budget, downsizing and upsizing  Reinforce culture through both word and deed  Enlist support of cultural norms from frontline supervisors and employee opinion leaders

31. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 30 Grounding the Culture in Core Values and Ethics  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...

32. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 31

33. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 32 Fig. 9.1: The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards

34. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 33 Fig. 9.2: How the Practice of Stated Core Values and Ethical Principles Positively Impact the Corporate Culture

35. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 34 Approaches to Establishing Ethical Standards  Word-of-mouth indoctrination and tradition  Annual reports and Websites  Orientation courses for new employees  Training courses for managers and employees  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

36. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 35 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  Frequent communications of the values and ethics code to all employees  Management involvement and oversight  Strong endorsement by CEO  Ceremonies and awards for individuals and groups who display the values  Institute ethics enforcement procedures

37. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 36 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

38. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 37 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  Draw on full range of motivational and compensation incentives to induce personnel to adopt and practice desired behaviors  Allow some leeway for certain core values and principles to be interpreted and applied somewhat differently, if necessary, to accommodate local customs and traditions

39. STRATEGIC LEADERSHIP STRATEGIC LEADERSHIP McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. 38

40. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 39 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

41. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 40 Leadership Activities of the Strategy Implementer 1. Stay on top of what’s happening 2. Put constructive pressure on company to achieve good results 3. Keep company focused on operating excellence 4. Lead development of stronger core competencies and competitive capabilities 5. Exercise ethics leadership 6. Take corrective actions to improve overall strategic performance Carly Fiorina Hewlett-Packard

42. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 41 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 Michael Dell Dell Computer

43. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 42 Role #2: Put Constructive Pressure on Company to Achieve Good Results  Successful leaders spend time  Mobilizing organizational energy behind l Good strategy execution and l Operating excellence  Nurturing a results-oriented work climate  Promoting certain enabling cultural drivers l Strong sense of involvement on part of company personnel l Emphasis on individual initiative and creativity l Respect for contributions of individuals and groups l Pride in doing things right

44. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 43 Approaches to Instilling a Spirit of High Performance  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  Grant employees autonomy to contribute  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

45. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 44 Role #3: Keep Organization Focused on Operating Excellence  Promote openness to improving how things are done  Support mavericks with creative ideas to improve ways of operating  Ensure rewards for successful champions are large and visible  Use all kinds of ad hoc organizational forms to support experimentation  Use tools of benchmarking, best practices, reengineering, TQM, and six sigma to focus attention on continuous improvement

46. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 45  Top management intervention is required to establish new  Organizational capabilities  Resource strengths and competencies  Senior managers must lead the effort because  Competencies reside in combined efforts, requiring integration  Stronger competencies and capabilities can lead to a competitive edge over rivals Role #4: Develop Stronger Core Competencies and Capabilities

47. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 46 Role #5: Exercise Ethics Leadership  Display unequivocal commitment to ethical and moral conduct  Insist upon ethical behavior  Encourage compliance and establish tough consequences for unethical behavior  Make it a duty for employees to  Observe ethical codes  Report ethical violations

48. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 47 Roles of a Manager in Enforcing Ethical Behavior  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

49. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 48 Actions Demonstrating Corporate Citizenship and Social Responsibility  Having “family friendly” employment practices  Operating a safe workplace  Taking special pains to protect 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 benefiting society

50. McGraw-Hill/Irwin © 2004 The McGraw-Hill Companies, Inc., All Rights Reserved. 49 Role #6: 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