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Organizational culture defines the type of place an organization is for people, be they any type of stakeholder: employee, customer, bank, director. Culture functions like an operating system of computer thereby providing definite process environment for operability of strategy. If an organization is to function effectively it must develop a coherent culture. This is supported by Deal and Kennedy (*) who identify two types of culture: strong and weak. The strong culture is highly cohesive and coherent, and has system of informal rules which indicates to people exactly what is expected of them, so that employees will know how to react and what to do in given situations. In contrast, people operating in a weak culture, one lacking in cohesiveness and coherence, will waste time working out what to do and how to do it.
(*) : Deal, T. and Kennedy, A. 1988. Corporate Cultures. London: Penguin Business.
Position, choice and action
The Johnson, Scholes and Whittington (*) definition of strategy is well known and suggests that, when actually deciding and planning strategy, a framework is needed. Johnson, Scholes and Whittington define strategy as being concerned with position, choice and action. Position is concerned with environmental analysis, strategic capability or resource evaluation, the expectations of stakeholders and impact of culture from both within and outside the organisation, which are all covered in Thompson and Ohmae's definitions of strategy. This definition of strategy is often viewed as prescriptive.
Choice is about what the organisation wants to do and involves identifying strategic options, which include competitive strategy, corporate strategy, international strategy, market options and growth strategy. Competitive strategy involves the company deciding to be a low-cost or added-value producer in a mass or niche market. Market options include market penetration, product development, market development or diversification. Growth strategy covers how an organisation chooses to expand and there are various options, including organic growth, acquisitions and strategic alliances. International strategy examines how companies can develop international strategy and expansion. Johnson, Scholes and Whittington argue a company should select and review all possibilities for strategy, and select those which are feasible and sustainable. This identifies the need to evaluate current and potential strategy to ensure its cohesiveness.
Action covers implementation, which involves deciding how resources are going to be used and allocated to make the chosen strategic options happen. This action or implementation involves both managing and controlling the resources used to pursue the chosen strategic options. If necessary actions can also cover alterations to the organisation's structure to allow strategic options to proceed and this can involve the management of significant organisational change.
(*) : Johnson, G., Scholes, K. and Whittington, R. 2005. Exploring Corporate Strategy. 7th ed. London: Prentice Hall.
[Pearce, J.A. and Robinson, R.B. 1997. Strategic management: formulation, implementation, and control. 6th ed. NY: Irwin McGraw-Hill. ]
Managing the Strategy-Culture Relationship
Managers find it difficult to think through the relationship between a firm's culture and the critical factors on which strategy depends. They quickly recognize, however, that key components of the firm - structure, staff, systems, people and style - influence the ways in which key managerial tasks are executed and how critical management relationships are formed. And implementation of a new strategy is largely concerned with adjustments in these components to accommodate the perceived needs of the strategy. Consequently, managing the strategy - culture relationship requires sensitivity to the interaction between the changes necessary to implement the new strategy and the compatibility or "fit" between those changes and the firm's culture. Figure 11-8 provides a simple framework for managing the strategy-culture relationship by identifying four basic situations a firm might face.
Figure 11-8: Managing the Strategy-Culture Relationship
Changes in key organizational factors that are necessary to implement the new strategy
Link changes to basic mission and fundamental organizational norms.
Reformulate strategy or prepare carefully for long-term, difficult cultural change.
Synergistic - focus on reinforcing culture.
Manage around the culture.
Potential compatibility of changes with existing culture
Link to Mission:
A firm in cell 1 is faced with a situation in which implementing a new strategy requires several changes in structure, systems, managerial assignments, operating procedures, or other fundamental aspects of the firm. However, most of the changes are potentially compatible with the existing organizational culture. Firms in this situation usually have a tradition of effective performance and are either seeking to take advantage of a major opportunity or are attempting to redirect major product - market operations consistent with proven core capabilities. Such firms are in a very promising position: they can pursue a strategy requiring major changes but still benefit from the power of cultural reinforcement.
Four basic considerations should be emphasized by firms seeking to manage a strategy - culture relationship in this context. First, key changes should be visibly linked to the basic company mission. Since the company mission provides a broad official foundation for the organizational culture, top executives should use all available internal and external forums to reinforce the message that the changes are inextricably linked to it. Second, emphasis should be place on the use of existing personnel where possible to fill positions created to implement the new strategy. Existing personnel embody the shared values and norms that help ensure cultural compatibility as major changes are implemented. Third, care should be taken if adjustments in the reward system are needed. These adjustments should be consistent with the current reward system. If, for example, a new product - market thrust requires significant changes in the way sales are made, and, therefore, in incentive compensation, common themes (e.g., incentive oriented) should be emphasized. In this way, current and future reward approaches are related and the changes in the reward system are justified (encourage development of less familiar markets). Fourth, key attention should be paid to the changes that are least compatible with the current culture, so current norms are not disrupted. For example, a firm may choose to subcontract an important step in a production process because that step would be incompatible with the current culture.
IBM's strategy in entering the Internet - based market is an illustration. Serving this radically different market required numerous organizational changes. To maintain maximum compatibility with its existing culture while doing so, IBM went to considerable public and internal effort to link its new Internet focus with its long-standing mission. Numerous messages relating the network - centric computing to IBM's tradition of top - quality service appeared on television and in magazines, and every IBM manager was encouraged to go online. Where feasible, IBM personnel were used to fill the positions created to implement the strategy. But because the software requirements were not compatible with IBM's current operations, virtually all of its initial efforts were linked to newly acquired Lotus Notes.
A firm in cell 3 needs only a few organizational changes to implement its new strategy, and those changes are potentially quite compatible with its current culture. A firm in this situation should emphasize two broad themes: (1) take advantage of the situation to reinforce and solidify the current culture and (2) use this time of relative stability to remove organizational roadblocks to the desired culture. Holiday Inns' move into casino gambling required a few major organizational changes. Holiday Inns saw casinos as resort locations requiring lodging, dining, and gambling/entertainment services. It only had to incorporate gambling/entertainment expertise into its management team, which was already capable of managing the lodging and dining requirements of casino (or any other) resort locations. It successfully inculcated this single major change by selling the change internally as completely compatible with its mission of providing high - quality accommodations for business and leisure travellers. The resignation of Roy Clymer, its CEO, removed an organizational roadblock, legitimizing a culture that placed its highest priority on quality service to the middle-to-upper-income business traveller, rather than a culture that placed its highest priority on family-oriented service. The latter priority was fast disappearing from Holiday Inns' culture, with the encouragement of most of the firm's top management, but its disappearance had not yet been fully sanctioned because of Clymer's personal beliefs. His voluntary departure helped solidify the new values that top management wanted.
Manage around the Culture
A firm in cell 3 must make a few major organizational changes to implement its new strategy, but these changes are potentially inconsistent with the firm's current organizational culture. The critical question for a firm in this situation is whether it can make the changes with a reasonable chance of success.
A firm can manage around the culture in various ways: create a separate firm or division; use task forces, teams, or program coordinators; subcontract; bring in an outsider; or sell out. These are a few of the available options, but the key idea is to create a method of achieving the change desired that avoids confronting the incompatible cultural norms. As cultural resistance diminishes, the change may be absorbed into the firm.
In the 1970s, Rich's was a highly successful, quality-oriented department store chain that served higher income customers in several south-eastern locations. With Wal-Mart and Kmart experiencing rapid growth in the sale of mid- to low- priced merchandise, Rich's decided to serve this market as well. Finding such merchandise inconsistent with the successful values and norms of its traditional business, it created a separate business called Richway to tap this growth area in retailing. Though a new store network, it was able to manage around its culture. Both Rich's and Richway have since flourished, though their cultures are radically different in some respects.
Reformulate the Strategy or Culture
A firm in cell 4 faces the most difficult challenge in managing the strategy-culture relationship. To implement its new strategy, such a firm must make organizational changes that are incompatible with its current, usually entrenched, value and norms. A firm in this situation faces the complex, expensive, and often long-term challenge of changing its culture; it is a challenge that borders on impossible. Strategy in Action 11-2 describes the challenge faced by Robert Daniell, CEO of United Technologies, as he attempted to change the culture of his firm.
When a strategy requires massive organizational change and engenders cultural resistance, a firm should determine whether reformulation of the strategy is appropriate. Are all of the organizational changes really necessary? Is there any real expectation that the changes will be acceptable and successful? If these answers are yes, then massive changes in management personnel are often necessary. AT&T offered early retirement to over 20,000 managers as part of a massive recreation of its culture to go along with major strategic changes in 1996. If the answer to these questions is no, the firm might reformulate its strategic plan so as to make it more consistent with established organizational norms and practices.
Merrill Lynch faced the challenge of strategy-culture incompatibility in the last decade. Seeking to remain number one in the newly deregulated financial services industry, it chose to pursue a product development strategy in its brokerage business. Under this strategy, Merrill Lynch would sell a broader range of investment products to a more diverse customer base and would integrate other financial services, such as real estate sales, into the Merrill Lynch organization. The new strategy could succeed only if Merrill Lynch's traditionally services-oriented brokerage network became sales and marketing oriented. Initial efforts to implement the strategy generated substantial resistance from Merrill Lynch's highly successful brokerage network. The strategy was fundamentally inconsistent with long-standing cultural norms at Merrill Lynch that emphasized personalized service and very close broker - client relationships. Merrill Lynch ultimately divested its real estate operation, reintroduced specialists that supported broker/retailers and refocused its brokers more narrowly on basic client investment needs.
Strategy in Action 11-2: Transforming organizational culture at United Technologies
Robert F.Daniell - the newly appointed CEO - United Technologies Corporation.
Overall, Daniell's effort to change the culture is based on four approaches:
Flatten the hierarchy. Daniell levelled a Byzantine corporate structure by cutting many layers of decision making. At Pratt & Whitney, for instance, he cut eight levels of management to as few as four.
Empower your workers. Managers pushed decision making down. For instance, field representatives at Pratt & Whitney now make multimillion-dollar decisions about reimbursing customers on warranty claims. Before, they would have to wait for approvals from numerous layers above.
Get close to your customers. This is Daniell's battle cry. Worker empowerment helps, but the imperative goes even further than that. For instance, Pratt & Whitney lends some of its top engineers to customers for a year - and pays their salaries.
Train, train, train. Daniell uses training to revamp the corporate culture. More than 5,000 senior and middle managers are getting at least 40 hours of classroom work. In some classes, customers are brought in for gripe sessions, and a problem-solving team gathered from many different departments must come up with solutions.