McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

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Chapter Title

15/e PPT

Corporate Culture and Leadership

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region

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“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

Corp.

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“An organization’s capacity to execute its strategy

dependson its “hard” infrastructure – its organization structure and

systems – and on its “soft” infrastructure – its culture

and norms.”Amar Bhide

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Chapter 13 Roadmap Instilling a Corporate Culture that Promotes Good Strategy

Execution Identifying the Key Features of a Company’s Corporate Culture Strong versus Weak Cultures Unhealthy Cultures High-Performance Cultures Adaptive Cultures Culture: Ally or Obstacle to Strategy Execution? Changing a Problem 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 Putting Constructive Pressure on the Organization to Achieve Good Results

and Operating Excellence Leading the Development of Better Competencies and Capabilities Displaying Ethical Integrity and Leading Social Responsibility Initiatives Leading the Process of Making Corrective Adjustments

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INSTILLING A STRATEGY-INSTILLING A STRATEGY-SUPPORTIVE CORPORATE SUPPORTIVE CORPORATE

CULTURE CULTURE

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Defining Characteristics of Corporate Culture

Core values, beliefs, and business principles Ethical standards Operating practices and behaviors defining

“how we do things around here” Approach to people management “Chemistry” and “personality” permeating

work environment Oft-told stories illustrating

Company’s values Business practices Traditions

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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

Features of the CorporateCulture at Wal-Mart

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Hard-driving, results-oriented atmosphere prevails All businesses are held to a standard

of being #1 or #2 in their industries aswell as achieving good business results

Extensive 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

Features of the CorporateCulture at General Electric

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Entrepreneurship of employees

Empowered employees are encouraged to

Be innovative

Excel in their fields of specialization

Respond quickly to strategic opportunities

Creatively apply state-of-the-art technology in a manner to promote operating excellence

Features of the CorporateCulture at Occidental Petroleum

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Deliver exceptional customer service to customers

Company motto

“Respond to UnreasonableCustomer Requests”

Out-of-the-ordinary customer requestsviewed as opportunities for “heroic” acts

Promotions based on outstanding service

Salaries based entirely on commission

Features of the CorporateCulture at Nordstrom’s

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A company’s culture is manifested in . . . Values, business principles, and ethical standards preached

and practiced by management Approaches to people management and problem solving Official policies and procedures Spirit and character permeating work environment Interactions and relationships among managers and

employees Peer pressures that exist to display core values Its revered traditions and oft-repeated stories Its relationships with external stakeholders

Identifying the Key Featuresof Corporate Culture

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Founder or early leader

Influential individual or work group

Policies, vision, or strategies

Operating approaches

Company’s approach to people management Traditions, supervisory practices, employee attitudes

Organizational politics

Relationships with stakeholders

Where Does CorporateCulture Come From?

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Role of Stories at Microsoft

Oft-told stories focus on . . . 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

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Selecting new employees who will “fit” in

Systematic indoctrination of new employees

Senior management efforts to reinforce core values, beliefs, principles, key operating practices

Story-telling of company legends

Ceremonies honoring employeeswho display cultural ideals

Visibly rewarding thosewho follow cultural norms

How Is a Company’s Culture Perpetuated?

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Forces Causing Culture to Evolve

New challenges in marketplace Revolutionary technologies Shifting internal conditions

Internal crisis Turnover of top executives

A new CEO who opts to change things Diversification into new businesses Expansion into foreign countries Rapid growth that involves adding many new

employees Merger with or acquisition of another company

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Company Subcultures: Problems Posed by New Acquisitions and Multinational Operations Values, beliefs, and practices within a company can vary by

Department Geographic location Business unit

Subcultures can clash if They embrace conflicting business philosophies Key executives use different approaches to people

management Differences between a company’s culture and recent

acquisitions have not been ironed out Existence of subcultures does not preclude important areas

of commonality and compatibility being established in different countries

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Types of Corporate Cultures

Strong vs. Weak Cultures

Unhealthy Cultures

High-Performance Cultures

Adaptive Cultures

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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 newemployees to be sure they will “fit in”

Characteristics ofStrong Culture Companies

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How Does a Culture Come to Be Strong?

Leader who establishes values and behaviors consistent with Customer needs Competitive conditions Strategic requirements

A deep, abiding commitment to espousedvalues, beliefs, and business philosophy Practicing what is preached!

Genuine concern for well-being of Customers Employees Shareholders

ValuesCustomers

EmployeesShareholders

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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 tocompany’s vision and strategy

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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 – company

personnel discount need to look outside for Best practices New or better managerial approaches Innovative ideas

Disregard for high ethical standards and overzealous pursuit of wealth by key executives

Characteristics of Unhealthy Cultures

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Standout cultural traits include A can-do spirit Pride in doing things right No-excuses accountability A results-oriented work climate in which people go the extra

mile to achieve performance targets Strong sense of involvement by all employees Emphasis on individual initiative and creativity Performance expectations are clearly identified for all

organizational members Strong bias for being proactive, not reactive Respect for the contributions of all employees

Characteristics ofHigh-Performance Cultures

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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

Hallmarks of Adaptive Cultures

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Any changes in operating practices and behaviors

Must not compromise core values and long-standing business principles

Must be “legitimate” in the sense of not having an inappropriate or unfair impact on the best interests of key stakeholders

Customers

Employees

Shareholders

Suppliers

Communities

Dominant Traits of Adaptive Cultures

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A company’s culture can contribute to – or hinder – successful strategy execution

A culture that promotes attitudes and behaviors that are well-suited to first-rate strategy execution is a valuable ally in the strategy execution process

A culture where attitudesand behaviors impedegood strategy execution is ahuge obstacle to be overcome

Culture: Ally or Obstacleto Strategy Execution?

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A culture that encourages actions and behaviors supportive of good strategy execution Provides employees with clear guidance regarding what

behaviors and results constitute good job performance Creates significant peer pressure among co-workers to

conform to culturally acceptable norms A culture imbedded with values and behaviors

that facilitate strategy execution promotesstrong employee commitment to the company’s Vision Performance targets Strategy

Why Culture Matters: Benefitsof a Tight Culture-Strategy Fit

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

Optimal Outcome of a Tight Culture-Strategy Fit

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Conflicts between culturally-approvedbehaviors and behaviors needed for goodstrategy execution send mixed signals Should employees by loyal to the culture and company

traditions and resist actions and behaviors promotingbetter 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 When a company’s culture is out of sync with what is needed for strategic success, the culture what is needed for strategic success, the culture has to be changed as rapidly as can be managed!has to be changed as rapidly as can be managed!

The Perils of Strategy-Culture Conflict

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Creating a Strong FitBetween Strategy and Culture

Responsibility of Strategy MakerResponsibility of Strategy Maker – –Select a strategy compatible with theSelect a strategy compatible with the

sacred or unchangeable parts of sacred or unchangeable parts of organization’s prevailing corporate cultureorganization’s prevailing corporate culture

Responsibility of Strategy ImplementerResponsibility of Strategy Implementer – –Once strategy is chosen, changeOnce strategy is chosen, changewhatever facets of the corporatewhatever facets of the corporateculture hinder effective executionculture hinder effective execution

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Fig. 13.1: Changing a Problem Culture

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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

Cite why and how certain behavioral norms and work practices in current culture pose obstacles to good execution of new strategic initiatives

Explain how new behaviors and work practices to be introduced will be more advantageous and produce better results

Menu of Culture-Changing Actions

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Replace key executives strongly associated with old culture

Promote individuals who have desired cultural traits and can serve as role models

Appoint outsiders who have desiredcultural attributes to high-profile positions

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

Mandate all company personnel attend culture-training programs to learn more about new work practices, operating approaches, and behaviors

Substantive Culture-Changing Actions

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Push hard to implement new-style work practices and operating procedures

Design compensation incentives to reward teams and individuals who display the desired cultural behaviors

Grant generous pay raises to individuals who lead the way in adopting desired work practices, displaying new-style behaviors, and achieving pace-setting results

Revise policies and proceduresin ways to drive cultural change

Substantive Culture-Changing Actions (continued)

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Lead by example – Walk the talk 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

Symbolic Culture-Changing Actions

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A culture based on ethical principles isvital to long-term strategic success

Ethics programs help make ethical conduct a way of life

Executives must provide genuine supportof personnel displaying ethical standardsin conducting the company’s business

Value statements serve as acornerstone for culture-building

Our ethicsprogram

consists of . . .

Grounding the Culture inCore Values and Ethics

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Formal values statement and a code of ethics Word-of-mouth indoctrination and tradition Annual reports and Websites 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

Approaches to Establishing Ethical Standards

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Test Your Knowledge

Which of the following topics would least likely be a topic or element of a company’s statement of its core values?

A. A dedication to superior customer service, top-notch quality, product innovation, and/or technological leadership

B. An expectation that company personnel will display creativity, exercise initiative, and accept responsibility

C. Prohibiting giving or accepting bribes, kickbacks, or gifts

D. A commitment to exhibiting such qualities as integrity, fairness, trustworthiness, pride of workmanship, Golden Rule behavior, and respect for co-workers

E. A commitment to making the company a great place to work

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Test Your Knowledge

Which of the following topics would least likely be contained in a company’s code of ethics?

A. Expecting all employees to not divulge trade secrets or proprietary information to outsiders

B. Expecting all company personnel to display honesty and integrity in their actions and avoid conflicts of interest

C. Not dealing with suppliers that employ child labor or engage in other unsavory practices

D. Committing to create a work environment characterized by teamwork and employee empowerment

E. Mandating full compliance with all laws and regulations

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Fig. 13.2: The Two Culture-Building Roles of aCompany’s Core Values and Ethical Standards

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Techniques to Transform Core Values and Ethical Standards into Cultural Norms

Screen out applicants who do not exhibit compatible character traits

Incorporate values statement and ethics code in employee training programs

Strong endorsement by senior executives of the importance of core values and ethical principles at company events and in internal communications

Use values statements and codes of ethics as benchmarks to judge appropriateness of company policies and operating practices

Make the display of core values and ethical principles a big factor in evaluating employee performance

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Techniques to Transform Core Values and Ethical Standards into Cultural Norms (continued)

Make sure managers at all levels are diligent in stressing the importance of ethical conduct and observance of core values

Encourage everyone to use their influence in helping enforce observance of core values and ethical standards

Hold periodic ceremonies to recognize individuals and groups who display the values

Institute ethicsenforcement procedures

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Fig. 13.3: The Benefits of Cultural Norms StronglyGrounded in Core Values and Ethical Principles

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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 Create a cultural climate where the norm is to

Adopt best practices Use common work procedures Pursue operating excellence

Give local managers Flexibility to modify people management

approaches or operating styles Discretion to use different motivational and compensation

incentives to induce personnel to practice desired behaviors

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For Discussion: Your Opinion

Identify one cultural trait that you would like to see at the company you decide to go to work for when you graduate? Why is this cultural trait important to you?

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STRATEGIC LEADERSHIPSTRATEGIC LEADERSHIP

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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

PolicymakerPolicy

Enforcer

Mentor

Head Cheerleader

Numerous Roles of Strategic Leaders

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1. Stay on top of what’s happening

2. Put constructive pressure oncompany to achieve good results

3. Lead development of stronger corecompetencies and competitive capabilities

4. Exercise ethics leadership and lead social responsibility initiatives

5. Take corrective actions to improve overall strategic performance

Leadership Activities of ChiefStrategy Implementer

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Develop a broad network of formaland 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 #1: Stay on Top of What’s Happening

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Successful leaders spend time Mobilizing organizational energy behind

Good strategy execution and

Operating excellence

Nurturing a results-oriented work climate

Promoting certain enabling cultural drivers Strong sense of involvement on part of company personnel

Emphasis on individual initiative and creativity

Respect for contributions of individuals and groups

Pride in doing things right

Role #2: Put Constructive Pressure onCompany to Achieve Good Results

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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 Use tools of benchmarking, best practices, business process

reengineering, TQM, and Six Sigma quality to focus attention on continuous improvement

Use full range of motivational techniquesand compensation incentives to

Inspire employees Nurture a results-oriented climate Enforce high-performance standards

Celebrate individual, group, company successes

Approaches to Instilling aSpirit of High Achievement

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Top management intervention isrequired to establish better or new Resource strengths and competencies Competitive capabilities

Senior managers must lead the effort because Competencies reside in combined

efforts of different work groups and departments, thus requiring cross-functional collaboration

Stronger competencies and capabilitiescan lead to a competitive edge over rivals

Role #3: Promote Stronger CoreCompetencies and Capabilities

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Role #4: Display Ethics Leadership and Lead Social Responsibility Initiatives

Set an excellent example in

Displaying ethical behaviors

Demonstrating character andpersonal integrity in actions and decisions

Declare support of company’s ethics codeand expect all employees to conductthemselves in an ethical fashion

Encourage compliance and establish toughconsequences for unethical behavior

Our ethicscode is . . .

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Set an excellent ethical example

Provide training to employeesabout what is ethical and what isn’t

Declare unequivocal support of ethics code

Act as final arbiter on hard calls

Remove people from key positionsif found guilty of a violation

Reprimand people lax in monitoring ethical compliance

Roles of a Manager inEnforcing Ethical Behavior

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Structuring an Ethics Complianceand Enforcement Process

Form an ethics committee to give guidance on ethics matters

Appoint an ethics officer to head compliance effort Establish an ethics hotline/Web site employees can

use to Anonymously report a possible violation Get confidential advice on a

troubling ethics-related situation Conduct an annual ethics audit

to measure extent of Ethical behavior and Identify problem areas

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Have mandatory ethics trainings for employees Openly encourage employees to

report possible infractions via Anonymous calls to a hotline or Posting to a special company Web site

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 the ethics code

Make sure ethical violations carry appropriate punishment, including dismissal for egregious violations

Key Approaches toEnforcing Ethical Behavior

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Test Your Knowledge

Assuming that a company’s senior executives are really serious about enforcing high standards of ethical behavior, then they probably need to consider doing all but which one of the following?

A. Appointing a committee of high-profile employees to serve on a committee or task force that is charged with (a) being champions of high ethical standards, (b) finding ways to ingrain high ethical standards as a cultural norm, and (3) heading up the company’s ethics enforcement process

B. Having mandatory ethics training programs for employees C. Conducting an annual audit of each manager’s efforts to uphold ethical

standards and requiring formal reports on the actions taken by managers to remedy deficient conduct

D. Requiring all employees to sign a statement annually certifying that they have complied with the company’s code of ethics and making sure that ethical violations carry appropriate punishment, including dismissal if the violation is sufficiently egregious

E. Openly encouraging company personnel to report possible infractions via anonymous calls to a hotline or e-mails sent to a designated address

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For Discussion: Your Opinion

What would your reaction be if your employer required you to sign a statement annually certifying that you have complied with the company’s code of ethics?

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Actions Demonstrating Commitmentto a Strategy of Social Responsibility

Craft a strategy that positively improves well-being of employees, environment, communities, and society

Use social and environmental metrics to evaluate company performance

Tie social and environmental performance to executive compensation

Take special pains to protect environment Take an active role in community affairs Generously support charitable causes

and projects benefiting society Support workforce diversity and commit

to overall well-being of employees

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Role #5: Lead the Process ofMaking 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