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Generally, business today gets done in a global marketplace. Change is occurring at an incredible pace. Time and distance continue to become less and less relevant thanks in great part to the explosive growth of technology and the Internet. Therefore, leaders of business must be able to anticipate change, forecast trend, and develop a strategy to readily and successfully deal with the chaos created by change. In particular, despite the level of any individual company, strategic planning provides a company purpose and direction. Everyone in an organization needs to know what they are selling or doing, who the target customers are, and how the company competes in the marketplace. However, the company could even have the best strategic plan with all excellent ideas and clear vision but it could still fail to survive without the efforts and contributions in execution that plan from its own people. No great achievement has ever been the efforts of just one person. People need people. Many might take that for granted, but science has actually proven that people cannot successfully live alone (Bell 2008). For people to live and work with each other successfully there must be defined roles and responsibilities whether they exist within families, companies, or society as a whole. Wherever people live and work together, culture develops. Organizational culture refers to the beliefs, values and attitudes that define the company and develops naturally, whether it is nourished or not. In the extent of this report, we are going to discuss the importance of organizational culture towards the strategic management.
What is the organizational culture
Schein suggests that culture is:
A pattern of basic assumptions - invented, discovered, or developed by a group as it learns to cope with its problems of external adaptation and internal integration - that has worked well enough to be considered valid, and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems. (Schein 1985, p. 6)
For Schein, organizational culture can be further broken down into three levels, which include artefacts (the visible level), espoused beliefs and values (not observable), and finally the basic underlying assumptions (at the core of the formation). However, according to Hofstede (2010), there are four levels of culture, which include symbols, heroes, rituals, and values. Symbols, heroes and rituals are considered visible practices, while values are intangible. Regardless of definition or numbers of levels, organizational culture can be seen as different values and norms, shared by people in an organization. These values, beliefs, and ideas influence the member's goals of an organization, and the appropriate standards of behaviour organizational members should use to achieve these goals (Hill & Jones 2001).
In an organization, culture plays a role like an operating system of computer thereby creating clear process environment to help the strategy operable. If an organization is to function effectively it must develop a coherent culture (Capon 2008). This is supported by Deal and Kennedy (1998) 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.
Cultural web - the coordinator between organization's culture and strategy:
In order to understand the existing culture and its effects, there is an effective mean used to analysis an organization's culture which is the cultural web (Johnson 1987). The cultural web shows "the behavioural, physical and symbolic manifestations of a culture that inform and are informed by the taken-for-granted assumptions, or paradigm, of an organisation" (Johnson et al 2011, p.176). By the use of the cultural web, managers could reveal cultural assumptions and practices, and then set to work aligning organizational elements with one another and with the business strategy. The elements of the cultural web are displayed in Figure 1 (see Appendix).
Among them, the paradigm is the core element which is the set of assumptions held in common and is accepted supposedly in an organisation. The assumptions of the paradigm could be very basic but not always follow the logic of a strategy. For instance, the core assumptions of a newspaper business are about the news coverage and reporting. However, in the view of strategy, the main source of revenues comes from advertising income and the strategy should be focused on this segment. Symbols are objects, events, acts or people that convey, maintain or create meaning over and above their functional purpose (Johnson 1990). Routines are the daily basic activities in the organisation and have been implemented for a long time. They could provide a basis for distinctive organisational capabilities if are operated well. Routines should come along well with the current strategy of the company. The stories are built among the members of an organization and could be transmitted to the non-member people or the new recruits. They can be a way of letting people know what is conventionally important in an organisation (Wilkins 1983). Organisational structures are the roles, responsibilities and reporting relationships in organisations and control systems are the formal and informal ways of monitoring and supporting people within and around an organisation and tend to emphasize what is seen to be important in the organisation.
The impact of organization's culture on business strategy
The impact of organizational culture on the strategy formulation:
Organizational culture reflects the internal values which influence interaction between strategy, strategy implementation, structure, systems, style, employee skills and staff behaviour (Muafi 2009). Besanko et al. (2000) suggested that corporate culture has a significant effect on an organization's long-term sustainability and economic performance, thereby determining outcomes such as profitability, staff turnover and employee commitment. These authors proposed that harmony of beliefs among employees will create a unifying force that can enhance organizational performance. Noe et al. (2006) believe key personal attributes of managers and employees who choose to implement an innovative strategy are a long-term orientation, co-operation, a preference for freedom of action to take risks and a high tolerance for ambiguity and uncertainty.
Baker and Feldman (1991) stated that several role behaviours can be assumed to be instrumental in the implementation of competitive strategies. For firms pursuing a competitive strategy based upon innovation, culture should be reflected by employee behaviour which includes creativity, long-term focus, commitment to co-operation, moderate concern over quality and a high tolerance for ambiguity and unpredictability. The authors believe that pursuing a competitive strategy based upon innovation typically requires the organization to ensure a culture exists which includes selecting highly skilled individuals, giving employees discretion in decision-making, minimal use of rigid control systems, providing resources for experimentation, allowing and even rewarding occasional failure and appraising the long-term implications of actions when assessing employees. The outcome of embedding this type of culture into the organization is the existence among employees of enhanced personal control and morale plus a strong commitment to achieving the organization's long-term performance goals (Chaston 2012).
The impact of organizational culture on the strategy implementation:
An organization's culture may have an influence on the strategies it pursues (Beach, 1993). Organizations in the same market but with different cultural assumptions can interpret their environment significantly differently which could lead to opposite strategies. The decision regarding which strategy to follow will depend in part on what information has been selectively focused on, how this information has been interpreted, the values and assumptions of the organization, and the power relationships between subcultures. According to Lorsch (1986), all the successful companies had a culture which supported the strategy they pursued. Following by this perspective, if the managers could understand how to evaluate culture then they are willing to be in a position to manage organizations through periods of strategic change. Therefore, culture is considered as the mean to effective organizational performance through the medium of strategy. The effect of culture on strategy is shown in Figure 2 (see Appendix).
To cope with the serious problems, such as declining performance, managers first try to improve the implementation of existing strategy. This might be through trying to lower cost, improve efficiency, tighten controls or improve accepted way of doing things. If this is not effective, a change of strategy may occur, but a change in line with the existing culture. For example, managers may seek to extend the market for their business, but assume that it will be similar to their existing market, and therefore set about managing the new venture in much the same way as they have been used to. Alternatively, even where managers know intellectually that they need to change strategy, indeed know technologically how to do so; they find themselves constrained by path-dependent organizational routines and assumptions or political processes. This often happens, for example, when there are attempts to change highly bureaucratic organizations to be customer-oriented. Even if people who accept the need to change a culture's emphasis on the importance of conforming to established rules, routines and reporting relationships, they do not readily do so.
For instance, Motorola used to be a symbol of technological innovation from its beginning phase and indeed was the leading producer of cell phone with 60% of the US mobile telephone market by the mid-1990s. After that, however, the digital technology was being developed rapidly and while other competitors such as Nokia and Eriksson has emerged into this potential market for more than 1 billion mobile phones per year, Motorola chose to stay with analogue technology for many years. As a result, by 1998 Motorola's market share had dropped to 34% and it was forced to lay off 20,000 people. What Motorola had overlooked was that the market had changed significantly. Consumers were replacing phones faster, typically every two years or less; in effect it was becoming a fashion market. Motorola on the other hand continued to focus on advancing technology in microchips, screen size and data speed (Finkelstein 2006). In this case, the vision and mission of Motorola was out-dated and not suitable to the market at that time. The failure of one important factor of organizational culture had led to the unsuccessful business strategy.
Managing the relationship of organization's culture and strategy
It is difficult to understand thoroughly the relationship between a company's culture and the main factors of strategy. However, Pearce and Robinson (2009) stated that the key components of the firm - structure, system, style and people - affect the ways in which the most essential managerial tasks are implemented and how crucial management relationships are established. And the conduct of a new strategy is mainly related to adjustments in these factors to conform the perceived requirements of the strategy. Therefore, managing the culture - strategy relationship requires the understanding of the interaction between the changes needed to operate the new strategy and the harmony between those changes and the company's culture. In particular, Figure 3 (see Appendix) describes an ordinary framework for managing the culture-strategy relationship by distinguishing four basic situations a company might confront.
Link to Mission:
A firm in cell 1 needs to do some changes in system, structure, operating procedures, managerial assignments, or other fundamental factors of the firm to carry out a new strategy. However, most of the changes are likely harmonious with the current organizational culture. Such companies are in a very favourable position: they can go after a strategy which requires major changes but still take advantage from the cultural reinforcement.
Four basic conditions should be underlined by firms trying to regulate a strategy - culture relationship in this situation. First, important changes should be visibly connected to the fundamental company mission. Second, current personnel should embrace the shared values and norms that help assure cultural compatibility as major changes are carried out. Third, some adjustments in the reward system should be taken carefully if needed. These changes should be compatible with the current reward system. Consequently, current and future reward approaches are associated and the alterations in the reward system are reasonable. Fourth, the changes that are least compatible with the current culture must be controlled carefully, so current norms are not broken up.
P&G's new innovation approach under Alan Lafley offers an excellent example of a company in this situation. P&G's long -standing mission as a consumer products company had been one of innovative product design and development. Alan Lafley was very careful to push for a more open culture in terms of who would help P&G innovate more effectively, but he was also emphatic about linking these new efforts at changing how the "great innovator" innovated with the core notion that P&G people, and P&G's 100-year-old tradition or mission was still the global consumer products innovator. He linked changes to the basic P&G mission. Lafley next emphasized speaking positively about P&G people and getting them to buy in to the changes he sought. He placed emphasis on existing personnel. Third, he included new rewards to encourage acceptance of the different way of doing things. And fourth, he made sure on changes that were "stretching people too much" to use what he called and accelerator and a throttle approach. He identified himself as the accelerator, pushing aggressively for change. And he assigned his managers as his throttle, to regularly meet and discuss and perhaps alter the pace of change, depending on their assessment of whether the changes were taking or whether people were being pushed to change too quickly. So in this way Lafley made sure to monitor changes least compatible with P&G's current culture (McGregor 2007).
In this case, there are only a few organizational changes needed to implement the firm's new strategy, and those alterations are possibly quite compatible with its current culture. A firm in this situation should punctuate two important points: (1) take this chance to strengthen and improve the current culture and (2) use this time of relative stability to eliminate organizational barriers to the desired culture.
3M's current effort to reacquire its culture of innovation illustrates this situation. In 2001, James McNerney became the first outsider to lead 3M in its 100-year history. His playbook was classic pursuit of efficiency: he axed 8,000 workers (about 11 per cent of the workforce), strengthened the performance review process, tightened the purse strings, and implemented s Six Sigma program to decrease production defects and increase efficiency. Five years later, McNerney abruptly left for a bigger opportunity - Boeing. His successor, George Buckley, encountered a challenging issue: whether the rigid stress on efficiency had reduced the creative power of the company. The company that has always been proud of drawing at least one third of products sale released in the past five years; however by the end of 2006 that portion has dropped to only one-quarter.
Efficiency programs such as Six Sigma are designed to identify problems in work processes - and then use strict measurement to limit variation and take out imperfections. When these types of moves become deep-rooted in a company's culture, creativity can easily be diminished. "Invention is by its very nature a disorderly process", says CEO Buckley, who has dialled some key McNerney's initiatives as he attempts to return 3M to its roots and its culture of innovation. "You can't put a Six Sigma process into that area and say, well, I'm getting behind on invention, so I'm going to schedule myself for three good ideas on Wednesday and two on Friday. That's not how creativity works." While process excellence demands precision steadiness, and repetition, innovation requires variation, failure, and luck. Buckley is taking advantage of this difficult situation to reinforce and solidify 3M's "re"-embrace of its former, innovation culture by bringing back flexible funding for innovative ideas among other tradition. At the same time, he is using the general embrace of a return to its old culture to make some key changes in manufacturing practices and plant locations outside the United States to make 3M more cost effective and competitive in a global economy (Hindo 2007).
Manage around the Culture
In cell 3, a firm must make a few major organizational changes to carry out the new strategy, but these changes are not likely appropriate to the company's current organizational culture. The challenge for a firm in this circumstance is whether its changes can lead to a reasonable chance of success.
A firm can manage around the culture in various ways: expand its number of divisions; use task forces, teams, program coordinators or outsourcing. The key idea is to create a way of achieving the change desired that avoids opposing the incompatible cultural norms. As cultural resistance reduces, the change may be implemented more conveniently.
Reformulate the Strategy or Culture
A firm in cell 4 encounters the toughest challenge in handling the culture-strategy relationship. To implement its new strategy, such a firm must make organizational changes that are incompatible with its current, usually conflicted to the current value and norms. When a strategy requires serious organizational change and causes cultural resistance, a firm should find out whether reformulation of the strategy is reasonable. Are all of the organizational changes really necessary? Is there any real prospect that the changes will be accepted and successful? If these answers are yes, then major changes in management personnel are often necessary.
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.
In conclusion, the organizational culture plays a significant role in the growth of any organization. Culture is simply a collection of shared norms or values within a workplace, or what is generally referred to as a company's way of doing things. The business strategy could be considered as the "brain" of the company which leads the company's operation to follow the vision from the top executives but it could never be "alive" without a strong culture - its "soul". Therefore, considering the impact and importance of organizational culture in strategic management is critical. Strategy is created to cope with the unpredictable changes happen frequently in the marketplace and to achieve the expectation of the stakeholders. It requires a thorough understanding in the whole organization upside-down as well as the commitment and effective performance from all employees in the organization. In order to do that, the organizational culture must be strong - cohesive and coherent - enough to indicate to people what is the expectation of them so the employees know how to implement in any situations. Moreover, a strong culture could ease communication, facility organizational decision making process and the level of control inside the company. A strong organizational culture is one of the most sustainable competitive advantages a company can have because it is difficult to imitate and it could last in the long period.