19e Section6 LN Chapter12

Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

CHAPTER 12

CORPORATE CULTURE AND LEADERSHIP: KEYS TO GOOD STRATEGY EXECUTION CHAPTER SUMMARY Chapter twelve explores the two remaining managerial tasks that shape the outcome of efforts to execute a company’s strategy: creating a strategy-supportive corporate culture and exerting the internal leadership needed to drive the implementation of strategic initiatives forward and achieve higher plateaus of operating excellence.

LECTURE OUTLINE I. Instilling a Corporate Culture that Promotes Good Strategy Execution 1. Every company has its own unique culture. The character of a company’s culture or work climate is a product of the core values and business principles that executives espouse, the standards of what is ethically acceptable and what is not, the work practices and behaviors that define “how we do thing around here,” its approach to people management and the “chemistry” and the “personality” that permeates its work environment. 2. The meshing together of stated beliefs, business principles, style of operating, ingrained be­haviors and attitudes, and work climate define a company’s corporate culture. Importantly, corporate cultures vary widely.

CORE CONCEPT Corporate culture refers to the character of a company’s internal work climate – as shaped by a system of shared values, beliefs, ethical standards, and traditions that define behavioral norms, ingrained attitudes, accepted work practices, and styles of operating. A. Identifying the Key Features of a Company’s Corporate Culture 1. A company’s corporate culture is mirrored in the character or “personality” of it work environment: The chief things to look for include the following: a. The values, business principles, and ethical standards that management preaches and practices— actions speak louder than words b. The company’s approach to people management and the official policies, procedures and operating practices that paint the white lines for the behavior of company personnel

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

c. The atmosphere and spirit that pervades the work climate. Is the workplace vibrant and fun? Methodical and all-business? Tense and harried? Highly competitive and politicized? Are people excited about their work and emotionally connected to the company’s business, or are they just in it for the paycheck d. The way managers and employees interact and relate to each other—the reliance on teamwork and open communication, the extent to which there is good camaraderie, whether people are called by their first names, what the dress codes are e. The strength of peer pressure to do things in particular ways and conform to expended norms. f

The actions and behaviors that are explicitly encouraged and rewarded by management in the form of compensation and promotion.

g. The company’s revered traditions and oft-repeated stories about “heroic act” and “how we do things around here: h. The manner in which the company deals with external stakeholders (particularly vendors and local communities where it has operations.

ILLUSTRATION CAPSULE 12.1

The Culture that Drives Innovation at W. L. Gore & Associates Discussion Question: What does the statement describing W.L. Gore & Associates climate/culture indicate? Answer: The statement made by this organization represents its core values and beliefs. It defines how communication and team effort will be employed to achieve organizational goal with emerging leadership. 2. The values, beliefs, and practices that undergird a company’s culture can come from anywhere in the organization hierarchy, most often representing the business philosophy and managerial style of influential executives. 3. The Role of Core Values and Ethics: The culture-shaping significance of core values and ethical behaviors accounts for one reason why so many companies have developed a formal values statement and a code of ethics. 5. Figure 12.1, The Two Culture-Building Roles of a Company’s Core Values and Ethical Standards, provides an illustration of how these two forces shape culture. 6. Transforming Core Values and Ethical Standards into Cultural Norms: values and ethical standards must be institutionalized in the company’s policies and practices and embedded in the conduct of company personnel. This can be accomplished by: a. Giving explicit attention to values and ethics in recruiting and hiring. b. Incorporating the statement of values and the code of ethics into orientation programs and training courses. c. Having senior executives frequently reiterate the importance and role of company values and ethical principles. d. Using values statements and codes of ethical conduct as benchmarks for judging the appro­ priateness of company policies and operating practices.

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e. Making the display of core values and ethical principles a big factor in evaluating each person’s job performance. f. Making sure that managers at all levels are diligent in stressing the importance of ethical conduct and observance of core values. g. Encouraging everyone to use his or her influence in helping enforce observance of core values and ethical standards. h. Periodically having ceremonial occasions to recognize individuals and groups who display the company values and ethical principles. i. Instituting ethics enforcement procedures. 7. The Role of Stories: Frequently, a significant part of a company’s culture is captured in the stories that get told over and over again to illustrate to newcomers the importance of certain values and the depth of commitment that various company personnel have displayed. 8. Forces that Cause a Company’s Culture to Evolve: New challenges in the marketplace, revolutionary technologies, and shifting internal conditions—especially an internal crisis, a change in company direction, or top executive turnover—tend to breed new ways of doing things and, in turn, drive cultural evolution. B. Strong vs. Weak Cultures 1. Corporate cultures vary widely in the degree to which they are embedded in company practices and behavioral norms. 2. Strong-Culture Companies: The hallmark of a strong-culture company is the dominating presence of certain deeply rooted values and behavioral norms that “regulate” the conduct of company personnel as they go about the company’s business. Two factors contribute to the development of strong cultures: a. A founder or strong leader who establishes values, principles, and practices that are consistent and sensible in light of customer needs, competitive conditions, and strategic requirements b. A sincere, long-standing company commitment to operating the business according to these established traditions, thereby creating an internal environment that supports decision making and strategies based on cultural norms

CORE CONCEPT In a strong-culture company, deeply rooted values and norms of behavior are widely shared and regulate the conduct of the company’s business. 3. Weak-Culture Companies: In direct contrast to strong-culture companies, weak-culture companies are fragmented in the sense that no one set of values is consistently preached or widely shared, few behavioral norms are evident in operating practices, and few traditions are widely revered or proudly nurtured by company personnel. Very often, cultural weaknesses stems from moderately entrenched subcultures that block the emergence of a well-defined companywide work climate. 4. Weak cultures provide little or no strategy-implementing assistance because there are no traditions, beliefs, values, common bonds, or behavioral norms that management can use as levers to mobilize commitment to executing the chosen strategy.

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

C. Why Corporate Cultures Matter to the Strategy Execution Process 1. Strong cultures can have a powerful effect on the strategy execution process, and this effect may be positive or negative. 2. A culture that is grounded in actions, behaviors, and work practices that are conducive to good strategy implementation assists the strategy execution effort in three ways: a. A culture that is well matched to the requirements of the strategy execution effort focuses the attention of employees on what is most important to this effort. b. Culture-induced peer pressure further induces company personnel to do things in a manner that aids the cause of good strategy execution. c. A company culture that is consistent with the requirements for good strategy execution can energize employees, deepen their commitment to execute the strategy flawlessly, and enhance worker productivity in the process. 3. In sharp contrast, when a culture is in conflict with what is required to execute the company’s strategy well, a strong culture becomes a hindrance to the success of the implementation effort. D. Healthy Cultures That Aid Good Strategy Execution: A strong culture, provided it embraces execution-supportive attitudes, behaviors, and work practices, is definitely a healthy culture. Two other types of cultures exist that tend to be healthy and largely supportive of good strategy execution: 1. High-Performance Cultures a. The standard cultural traits of high performance cultures are a can-do spirit, pride in doing things right, no-excuses accountability, and a pervasive result-oriented work climate. There is a strong sense of involvement on the part of company personnel and emphasis on individual initiative and creativity. b. The challenge in creating a high performance culture is to inspire high loyalty and dedication on the part of employees. 2. Adaptive Cultures a. The hallmark of adaptive corporate cultures is willingness on the part of organizational members to accept change and take on the challenge of introducing and executing new strategies. b. In adaptive cultures, there is a spirit of doing what is necessary to ensure long-term organizational success provided the new behaviors and operating practices that management is calling for are seen as legitimate and consistent with the core values and business principles underpinning the culture. c. What sustains an adaptive culture is that organization members perceive the changes that management is trying to institute as legitimate and in keeping with the core values and business principles that form the heart and soul of the culture. d. For an adaptive culture to remain intact over time, top management must orchestrate the respon­ ses in a manner that demonstrates genuine care for the well-being of all key constituencies and tries to satisfy all their legitimate interests simultaneously. e. In fast-changing business environments, a corporate culture that is receptive to altering organizational practices and behaviors is a virtual necessity.

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

E. Unhealthy Cultures That Impede Good Strategy Execution: The distinctive characteristic of an un­ healthy corporate culture is the presence of counterproductive cultural traits that adversely impact the work climate and company performance. There are five particularly unhealthy cultural traits: 1. Change-Resistant Cultures a. In less adaptive cultures where skepticism about the importance of new developments and resistance to change are the norm, managers prefer waiting until the fog of uncertainty clears before steering a new course. b. Change-resistant cultures encourage a number of undesirable or unhealthy behaviors—risk avoidance, timidity regarding emerging opportunities, and laxity in product innovation and continuous improvement. 2 Politicized Cultures a. What makes a politicized internal environment so unhealthy is that political infighting con­ sumes a great deal of organizational energy. b. Often with the result that political maneuvering takes precedence over what is best for the company. 3. Insular, Inwardly Focused Cultures a. The not-invented-here mind-set b. Tends to develop when a company reigns as an industry leader or enjoys great market success for so long that its personnel start to believe they have all the answers or can develop them on their own. 4. Unethical and Greed-Driven Cultures: Companies that have little regard for ethical standards or that are run by executives driven by greed and ego gratification are scandals waiting to happen. 5. Incompatible Subcultures a. Values, beliefs, and practices within a company sometimes vary significantly by department, geographic location, division, or business unit. b. Incompatible subcultures arise most commonly because of important cultural differences between a company’s culture and that of a recently acquired company or because of a merger between companies with cultural differences. F. Changing a Problem Culture 1. Changing a problem culture is one of the toughest tasks because of the heavy anchor of ingrained behaviors and ways of doing things. 2. The single most visible factor that distinguishes successful culture-change efforts from failed attempts is competent leadership at the top. Great power is needed to force major cultural change and overcome the springback resistance of entrenched cultures. a. The first step in fixing the problem culture, as shown in Figure 12.2, is for top management to identify those facets of the present culture that are dysfunctional and pose obstacles to executing new strategic initiatives and meeting or beating company performance targets. b. Second, managers have to clearly define the desire new behaviors and features of the culture they want to create.

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

c. Third, managers have to convince company personnel why the present culture poses problems and why and how new behaviors and operating approaches will improve company performance—the case for cultural reform has to be persuasive. d. Finally, and most important, all the talk about remodeling the present culture has to be followed swiftly by visible, forceful actions to promote the desired new behaviors and work practices. 3. Making a Compelling Case for Culture Change: Management must sell company personnel on the need for new-style behaviors and work practices by making a compelling case for why the company’s new strategic direction and culture-remodeling efforts are in the organization best interest. This can be done by: a. Explaining why and how certain behavioral norms and work practices in the current culture pose obstacles to good execution of new strategic initiatives. b. Explaining how new behavior and work practices that are to have important roles in the new culture will be more advantageous and produce better results. c. Citing reasons why the current strategy has to be modified and why new strategic initiatives that are being undertaken will bolster the company’s competitiveness and performance. 4. Figure 12.2, Steps to Take in Changing a Problem Culture, illustrates this essential leadership process. 5. Arguments for new ways of doing things and new work practices tend to be embraced more readily if employees understand how they will benefit company stakeholders. 6. Substantive Culture-Changing Actions: Company executives have to give the culture-change effort some teeth by initiating a series of actions that company personnel will see as credible and unmistakably indicative of management’s commitment. a. Replacing key executives who are strongly associated with the old culture and are stonewalling needed organizational and cultural changes. b. Promoting individuals who are known to possess the desired cultural traits and can serve as role models for the desired cultural behavior. c. Appointing outsider with the desired cultural attributes to high-profile positions. d. Screening all candidates for new positions carefully, hiring only those who appear to fit in with the new culture. e. Mandating that all company personnel attend culture training programs. f. Designing compensation incentives that boost the pay of teams and individuals who display the desired cultural behaviors and hit change-resisters in the pocketbook. g. Revising policies and procedures in ways that will help drive cultural change. 7. Symbolic Culture-Changing Actions to alter a problem culture and tighten the strategy—culture fit: a. Lead by example. b. Hold ceremonial events to single out and honor people whose actions and performance exemplify what is called for in the new culture. c. Use symbols in culture-building (such as employee of the month award).

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

8. How Long Does It Take to Change a Problem Culture? a. Planting and growing the seeds of a new culture require a determined effort by the chief executive and other senior managers. b. Overnight transformations simply don’t occur, and it takes even longer for a new culture to become deeply embedded. c. It is usually tougher to reform an entrenched problematic culture than it is to instill strategysupportive culture from scratch in a brand-new organization. 9. Illustration Capsule 12.2, Changing the “Old Detroit” Culture at Chrysler, discusses the approaches being used at Chrysler in 2009-2010 to change a culture that was grounded in a 1970’s view of the automobile industry.

ILLUSTRATION CAPSULE 12.2

Changing the “Old Detroit” Culture at Chrysler Discussion Question: What elements were put in place in this organization’s concerted effort to implement cultural change? Answer: A strategic partnership ceding management control to Italian automaker Fiat SpA was part of the deal for Chrysler’s bankruptcy reorganization, with Fiat’s CEO, Sergio Marchionne, becoming Chrysler’s CEO as well. Promotion and compensation were changed to reward performance, not seniority. A former Toyota executive Doug Bretts was brought in as vice chairman of the company to push the drive for improved product quality. One of Doug Bretts’ first actions was to create new cross functional teams in order to break down the embedded functional silos. By May 2010, confidence was beginning to return with sales up by 33 percent over the previous year. II. Leading the Strategy-Execution Process 1. Top executives have to be out front personally leading the implementation/execution process and driving the pace of progress for an enterprise to execute its strategy in a truly proficient fashion. 2. The strategy execution process must be driven by mandates to get things on the right track and show good results. 3. In general, leading the drive for good strategy execution and operating excellence calls for three actions on the part of the manager in charge (1) Staying on top of what is happening and closely monitoring progress, (2) Putting constructive pressure on the organization to execute the strategy well and achieve operating excellence, and (3) Initiating corrective actions to improve strategy execution and achieve the targeted performance results. 4. Staying on top of How Well Things Are Going: What is happening and closely monitoring progress. To stay on top of how well the strategy execution process is going, senior executives have to tap into information from a wide range of sources.

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.

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

5. Mobilizing the Effort for Excellence in Strategy Execution: Putting constructive pressure on the organization to execute the strategy well and achieve operating excellence. Managers have to be out front in mobilizing organizational energy behind the drive for good strategy execution and operating excellence. This can include actions such as: a. Treating employees as valued partners in the drive for operating excellence and good business performance. b. Fostering an esprit de corps that energizes organization members. c. Using empowerment to help create a fully engaged workforce. e. Setting stretch objectives and clearly communicating an expectation that company personnel are to give their best in achieving performance targets. f. Using the tools of benchmarking best practices, business process reengineering, TQM, and Six Sigma to focus attention on continuous improvement. g. Using the full range of motivational techniques and compensation incentives to inspire company personnel, nurture a results-oriented work climate, and enforce high-performance standards. h. Celebrating individual, group, and company successes. 6. Leading the Process of Making Corrective Adjustments a. Here comes a time at every company when managers have to fine-tune or overhaul the approaches to strategy execution since no action plan for executing strategy can foresee all the problems that will arise. b. Success in making corrective actions hinges on three things: 1) A thorough analysis of the situation 2) The exercise of good business judgment in deciding what actions to take 3) Good implementation of the corrective actions that are initiated. III. A Final Word on Managing the Process 1. In practice it is hard to separate the leadership requirements of executing strategy from the other pieces of the strategy process. The process is continuous and the conceptually separate acts of crafting and executing strategy blur together in real-world situations. 2. The best tests of good strategic leadership are whether the company has a good strategy and whether the strategy execution effort is delivering the hoped-for results.

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

ASSURANCE OF LEARNING EXERCISES 1. Go to the company page for John Deere at http://www.deere.com/wps/dcom/en_US/corporate/our_company/ our_company.page. Click through several of the tabs provided there (about us, citizenship, careers, etc.) to see what they reveal about the company’s culture. What do you think are the key features of their culture? Answer: The student should be able to identify several key features of the corporate culture found at John Deere. These include: A commitment to those linked to the land - farmers, ranchers, landowners, and builders. Core values - quality, integrity, commitment, and innovation. In their Career Opportunities section, the company illustrates how it works to maintain its core values when making hiring choices. The company states: “If you have a strong work ethic, a passion for excellence, and a creative mind…”. 2. Based on what you learned about John Deere from answering the previous question, how do you think their culture affects their ability to execute strategy and operate with excellence? Answer: The student should be able to identify that the company uses it strong corporate culture to shape the way it does business as well as how it treats it stakeholders. The company states that their values determine: The way we work The quality we offer The unsurpassed treatment you get as a customer, investor, and employee. These statements clearly illustrate how the company uses their core values to guide their actions. 3. Using Google Scholar or your university library’s access to EBSCO, Lexis-Nexis, or other databases, search for recent articles in business publications on “culture change.” Give examples of two companies that have recently undergone culture change initiatives. What are the key features of each company’s culture-change program? What results did management achieve at each company? Answer: One example the students might find would be Google. By navigating to Google’s Corporate Information page and selecting the Information Link, the student will find what Google has to say about its culture. Also, in the “Our philosophy” section, the student will find “Ten things Google has found to be true about culture and strategy execution. The ten things include: 1. Focus on the user and all else will follow. 2. It’s best to do one thing really, really well. 3. Fast is better than slow. 4. Democracy on the web works. 5. You don’t need to be at your desk to need an answer. 6. You can make money without doing evil. © 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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Chapter 12 Corporate Culture and Leadership: Keys to Good Strategy Execution

7. There’s always more information out there. 8. The need for information crosses all borders. 9. You can be serious without a suit. 10. Great just isn’t good enough. The “ten things” and Google’s corporate culture are linked very closely. Each of these points sums up a very important idea behind the way “Googlers” interact with one another. Other companies the student might identify include: Trader Joe’s: http://www.themanager.org/Strategy/Trader_Joe_Corporate_Culture_Strategy.htm A second, timely example focuses on the lessons learned in the GM-Toyota joint venture – Levi-Strauss: http://www.soi.org/reading/change/process.shtml 4. Go to www.jnj.com, the Web site of Johnson & Johnson, and read the J&J Credo, which sets forth the company’s responsibilities to customers, employees, the community, and shareholders. Then read the “Our Company” section. Why do you think the credo has resulted in numerous awards and accolades that recognize the company as a good corporate citizen? Answer: The responses provided by students will vary contingent upon their personal viewpoints and comprehension of the Web site information. J&J ‘s responsibility is succinctly stated as, “Our Credo challenges us to put the needs and well-being of the people we serve first.” 5. In the last couple of years, Liz Claiborne, Inc., has been engaged in efforts to turn around its faltering Mexx chain. Use your favorite browser to search for information on the turnaround plan at Mexx, and read at least two articles or reports on this subject. Describe in 1 to 2 pages the approach being taken to turn around the Mexx chain. In your opinion, have the managers involved been demonstrating the kind of internal leadership needed for superior strategy execution at Mexx? Explain your answer. Answer: Students might locate a wide range of articles. Generally, the articles will revolve around two key issues. A new executive leadership with the interim CEO taking charge of the brand, and a new management team with an overseas expansion plan. Both of these are substantive changes designed to remove entrenched management and its associated behaviors. In the first article cited below, the author discusses the new executive leadership in detail, while in the second article, the author discusses the change in management and a stronger focus on overseas sales. Interestingly, the second article discusses that sales have declined despite the management changes and overseas sales efforts. Given the time and effort involved to date as well as the substantive changes to the organization, it does not appear that Mexx currently has the internal leadership necessary for superior strategy execution.

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