Instilling a corporate culture that promotes good strategy execution

257Chapter 12 Corporate Culture and Leadership—Keys to Good Strategy Execution 257

Copyright © 2020 by Arthur A. Thompson. All rights reserved. Reproduction and distribution of the contents are expressly prohibited without the author’s written permission

Strategy: Core Concepts and Analytical Approaches

An e-book published by McGraw-Hill Education

Arthur A. Thompson, The University of Alabama 6th Edition, 2020-2021

257

chapter 12 Corporate Culture and Leadership—Keys to Good Strategy Execution The biggest levers you’ve got to change a company are strategy, structure, and culture. If I could pick two, I’d pick strategy and culture. —Wayne Leonard, CEO, Entergy

Weak leadership can wreck the soundest strategy; forceful execution of even a poor plan can often bring victory. —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. —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. —Nick Saban, Head Football Coach, The University of Alabama

In the previous two chapters, we examined six of the eight managerial tasks that drive good strategy execution and operating excellence: staffing the organization and developing the resources, capabilities, and organization structure to execute the strategy successfully; steering the needed resources to execution-critical value chain activities; ensuring that policies and procedures facilitate rather than impede strategy execution; adopting best practices and employing process management tools to drive continuous improvement in how value chain activities are performed; installing information and operating systems that enable better execution; and tying rewards and incentives directly to the achievement of strategic and financial performance targets and other execution-critical outcomes. In this chapter, we explore the two remaining managerial tasks that enhance a company’s efforts to execute its strategy: creating a corporate culture that promotes good strategy execution and leading the strategy execution process.

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Instilling a Corporate Culture That Promotes Good Strategy Execution

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 company’s people management practices and style of operating, the collective attitudes and ingrained behaviors of company personnel, the “chemistry” flowing from how company personnel interact and behave in the workplace, the “personality” that permeates the work environment, and the stories that get told over and over to illustrate and reinforce the company’s values, business practices, and traditions. The specific cultural traits that emerge from a company’s meshing of these culture- determining factors define its corporate culture.1 In effect, a company’s culture defines and shapes “how we do things around here.”2 It functions as the company’s psyche or organizational DNA.3 A company’s culture is important because it influences the organization’s actions and approaches to conducting business and, often, its business performance as well.

There are big variations in the character of company cultures. For instance, the bedrock of Walmart’s culture is zealous pursuit of low costs and frugal operating practices, a strong work ethic, ritualistic headquarters meetings to exchange ideas and review problems, and company executives’ commitment to visiting stores, listening to customers, and soliciting suggestions from employees. The culture at Apple is customer-centered, secretive, and highly protective of company-developed technology. Apple employees share a common goal of making the best products for the consumer; the aim is to make the customer feel delight, surprise, and connection to each Apple device. The company expects creative thinking and inspired solutions from everyone—as the company puts it, “We’re perfectionists. Idealists. Inventors. Forever tinkering with products and processes, always on the lookout for better.”4 According to a former employee, “Apple is one of those companies where people work on an almost religious level of commitment.”5 To spur innovation and creativity, the company fosters extensive collaboration and cross-pollination among different work groups. But it does so in a manner that demands secrecy—employees are expected not to reveal anything relevant about what new project they are working on, not to employees outside their immediate work group and especially not to family members or other outsiders; it is common for different employees working on the same project to be assigned different project codenames. The different pieces of a new product launch often come together like a puzzle at the last minute.6 Moreover, Apple management is obsessive about protecting company-developed technology and innovative know-how; the measures that Apple takes to protect its proprietary technology and intellectual capital are unparalleled in Silicon Valley.

W. L. Gore & Associates (known worldwide for its GORE-TEX membrane used to make outerwear products waterproof, windproof, and breathable) credits its unique culture for allow ing the company to pursue multiple end-market applications simultaneously, enabling rapid growth from a niche business into a diversified multinational company. The company’s culture is team-based and designed to foster personal initiative, with no traditional organizational charts, no chains of command, no predetermined channels of communication. The culture encourages multidiscipline teams to organize around opportunities and in the process leaders emerge. At Nordstrom, the corporate culture is centered on delivering exceptional service to customers—the company’s motto is “Respond to unreasonable customer requests,” and each out-of-the-ordinary request is seen as an opportunity for a “heroic” act by an employee that can further the company’s reputation for a customer-pleasing shopping experience. Nordstrom makes a point of promoting employees noted for their heroic acts and dedication to outstanding service; the company motivates its salespeople with a commission-based compensation system that enables Nordstrom’s best salespeople to earn more than double what other department stores pay.

CORE CONCEPT Corporate culture refers to the character of a company’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 A company’s corporate culture is mirrored in the character or “personality” of its work environment—the features that underpin how the company goes about its business and the workplace behaviors held in high esteem. Some of these features are readily apparent, and others operate quite subtly. The chief things to look for include:

n The values, business principles, and ethical standards that management preaches and practices—these are the key to a company’s culture, but actions speak much louder than words here.

n 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.

n The atmosphere and spirit that pervade the work climate—whether the workplace is innovative and vibrant or resistant to change, collegial or politicized, quick to adapt or comfortable with methodical progress (or even the status quo), all business or fun-loving and laid back, and the like.

n How managers and employees interact and relate to one another—whether there is heavy or weak reliance on collaboration and teamwork, the extent to which manager-employee and employee-employee communications are free flowing or restricted and infrequent, whether there is empowered exercise of initiative or whether actions are directed mostly by higher authority, the extent to which there is good camaraderie, whether people are called by their first names, and whether coworkers spend little or lots of time together outside the workplace.

n The strength of peer pressures to do things in particular ways and conform to expected norms.

n The actions and behaviors management explicitly encourages and rewards in the form of compensation and promotion and those that are frowned upon (and sometimes punished).

n The company’s revered traditions and oft-repeated stories about “heroic acts” and “how we do things around here and why we do them that way.”

n The manner in which the company deals with external stakeholders (particularly vendors and local communities where it has operations)—whether it treats suppliers as business partners or prefers hard- nosed, arm’s-length business arrangements, and the strength and genuineness of the commitment to corporate citizenship and environmental sustainability.

The values, beliefs, and practices that function as cornerstones of a company’s culture can come from anywhere in the organization hierarchy. Typically, key elements of the culture originate with a founder or certain strong leaders who articulated them as a set of business principles, company policies, operating approaches, and ways of dealing with employees, customers, vendors, shareholders, and local communities where the company has operations. They also stem from exemplary actions on the part of company personnel, and evolving consensus about “how we ought to do things around here.”7 Over time, these cultural underpinnings take root, come to be accepted by company managers and employees alike, and become ingrained in how the company conducts its business.

Company Cultures Are Often Grounded in Core Values and Ethics A company’s corporate culture and behavioral norms are strongly influenced by its core values and the bar it sets for ethical behavior. The culture-shaping significance of core values and ethical behaviors accounts for why so many companies have developed a formal values statement and a code of ethics. Of course, sometimes a company’s stated core values and code of ethics are cosmetic, existing mainly to impress outsiders and help create a positive

A company’s culture is, to a very large extent, shaped by its core values and ethical standards.

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company image. But more usually a company’s values and ethical standards have been developed to deliberately mold the culture and communicate what actions and behaviors are expected of all company personnel. Many executives want the work climate at their companies to mirror certain values and ethical standards, partly because they are personally committed to these values and ethical standards but mainly because they are convinced that adherence to such values and ethical principles will improve strategy execution, make the company a better performer, and positively impact its reputation.8 And, not incidentally, strongly ingrained values and ethical standards reduce the likelihood of lapses in ethical and socially approved behavior that mar a company’s public image and put its financial performance and market standing at risk.

As depicted in Figure 12.1, a company’s stated core values and ethical principles have two roles in the culture- building process. One, a company that works hard at putting its stated core values and ethical principles into practice fosters a work climate where company personnel share common and strongly held convictions about how the company’s business is to be conducted. Second, the stated values and ethical principles provide company personnel with guidance about the manner in which they are to do their jobs—what behaviors and ways of doing things are approved (and expected) and which are out-of-bounds. These values-based and ethics-based cultural norms serve as yardsticks for gauging the appropriateness of particular actions, decisions, and behaviors, thus helping steer company personnel toward both doing things right and doing the right thing.

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

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)

Ingraining Cultural Norms and Perpetuating the Culture Once established, company cultures can be embedded and perpetuated by drawing on some or all of the following eight actions:9

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

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

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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3. 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.

4. Stressing that 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.

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

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

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

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

As a rule, companies are attentive to the task of hiring people who will fit in and who exhibit character traits compatible with the prevailing culture. And, usually, job seekers lean toward accepting jobs at companies where they feel comfortable with the atmosphere and the people they will be working with. Frequently, significant facets of the company’s culture are conveyed in the stories that are told over and over again (by managers and in training sessions) to illustrate to newcomers the importance of certain traits and behaviors and the depth of the commitment that various company personnel have displayed. Employees who don’t hit it off at a company (sometimes because they do not like the culture and work climate) tend to leave quickly, while employees who are comfortable and pleased with the work environment and cultural norms stay on, eventually moving up the ranks to positions of greater responsibility. The longer people stay at an organization, the more they come to embrace and mirror the corporate culture—their values, beliefs, and behaviors tend to be molded by mentors, fellow workers, company training programs, and the reward structure. Normally, employees who have worked at a company for a long time play a major role in indoctrinating new employees into the culture. But, in the final analysis, deeply ingraining and perpetuating the expected cultural behaviors require senior executives’ active involvement. Top management must make it unequivocally clear that conforming to the company’s values, ethical standards, and cultural norms has to be “a way of life” at the company and that there will be adverse consequences for “outside the lines” behavior.

It takes months to initiate the development of a culture and many more months for a new culture’s shallow roots to begin growing and start influencing behavior. And it can take years, sometimes a decade or more, for cultural values, attitudes, and behaviors to become deeply ingrained and exert a truly major influence on how a company operates. But once strongly implanted, the values, behaviors, and ways of doing things are deeply rooted and hard to weed out.

The Forces That Cause a Company’s Culture to Evolve Company cultures are far from static; just like strategy, they evolve. The introduction of revolutionary technologies and new market challenges that dictate a change in company direction and big strategy changes tend to breed new ways of doing things and, in turn, drive cultural evolution. An incoming CEO who decides to shake up the existing business and take it in new directions often triggers a cultural shift, perhaps a big one. Likewise, diversification into new businesses, expansion into foreign countries, rapid growth that brings an influx of new employees, and a merger with or acquisition of another company all precipitate significant cultural change.