The impact of organisational culture on business strategies and

performance

ORGANISATIONAL CULTURE

Key definitions

• Intangible asset: non-monetary asset without physical substance which generates economic benefits; culture as an organisational asset

• Strong culture: a consistent culture; understood and felt by people inside & outside the organisation, consistent with organisational goals.

• Toxic culture: questionable morals and unethical behaviour

Key concepts

• Employee engagement: employees' drive & commitment to use their energy, skills and resources which benefit the firm

• Competitive advantage: sustainable differences compared with the main competitors

• Cultural glue: organisational culture is what keeps an organisation together – it binds people

Features of a positive culture

• A source of competitive advantage• Clear set of values, mission & goals• Performance-orientated• Encourages suitable risk-taking & innovation• Strong internal communication• Engaged employees: higher motivation & loyalty• Better connection between depts. & divisions• Not easily copied

Features of a weak culture

• Little alignment with business values

• Inconsistent behaviour• A need for extensive

bureaucracy & procedures

Examples of when culture goes wrong!

• News of the World / News International: phone-hacking & bribery allegations

• RBS & Fred Goodwin: Reckless external growth & lending hastened banking crisis of 2008/9

• GlaxoSmithKline: record $3bn fine for misselling of drugs and bribery

• Enron / Jeff Skilling: US's 7th largest firm turned out to be an elaborate scam

• Barclays: role in LIBOR rigging & PPI misselling leads to departure of CEO Bob Diamond

Examples of culture as a competitive advantage (1)

• Zappos: defines its culture in terms of 10 core values made part of everyday working life. For Zappos, the "culture is the brand“

• IKEA: clear link between strong corporate culture, the business model and financial success ("to visit IKEA is to visit Sweden"). IKEA's vision and values ("to create a better everyday life for the many people") drives the way the culture operates.

Examples of culture as a competitive advantage (2)

• Southwest Airlines: A strong culture based on employee engagement has helped make it the most profitable, low-cost airline in the world. Herb Kelleher (CEO): "The business of business is people“

• German mittelstand: family-owned businesses with a strong long-term perspective have driven German economic success; invest in quality.

Key depends on factors

• Research emphasises the complexity of corporate culture & the risks of oversimplifying what it is and how to change it.

• Larger, longer-established firms have more complex cultures, consisting of sub-cultures, individuals and groups.

• Having a clear, well-communicated and accepted set of core values helps to establish a common, positive culture.

• A flawed business model or strategy is unlikely to result in business success, even if the culture is strong and healthy.

• A culture that fails to adapt to the changing external environment may hasten the failure of an organisation.

Some possible evaluation points

• There are many potential links between organisational culture and business success but difficult to prove.

• Successful businesses often recognise that the business model/strategy and culture are interdependent - the whole system is aligned.

• Better-performing firms pay attention to nurturing culture - they are disciplined (e.g. have reward, communication systems) and invest time in it.

• Leadership plays a key role in nurturing culture: Schein: "the only thing of real importance that leaders do it to create and manage culture"

Background Slides, Examples and Other

Activities

When Culture Goes Wrong…

4 Factors that Shape Managerial Behaviour

The Corporate Culture

Org Structure, Systems, Policies & Plans

Leadership

External Environment (PEST)

The Behaviour

of a Firm’s

Managers

Source: Kotter & Heskett

One possible chain of events…

Success generates strong sales growth

Bureaucracy builds to cope with growth

Firm hires & promotes managers, not leaders

Managers become increasingly arrogant

A strong but arrogant culture develops

Alternative hypothesis: culture as a “cult”

Employment at businesses founded or led by these has been likened to being “cult-like”.

Apple Disney GoldmanSachs

MarriottHotels

Shadow of the Leader?

A phenomenon where the organisational

culture is the reflection of the

founder or senior team

Shadow of the Leader…?

“A fish rots from the head

first…”

Another great source of examples & evidence…

The UK Bonus Culture…

A possible essay title…

To what extent to do agree that an organisational culture based on high employee rewards will inevitably damage business performance in the long-run?

Can you make the links between culture > high rewards > business damage?

July 2012

Corporate Culture as a Competitive Advantage

Culture as an essential intangible asset

3 categories of intangible assets

essential for implementing any strategy

Human capital

Information capital

Organisation capital

Source: Kaplan & Norton, The Balanced Scorecard

Culture: an intangible asset with big potential

• Distinctive & individual to the firm• Hard to copy• Enables a business to differentiate

itself• Can help add value• A source of competitive advantage?

Built to Last

“A clear, sustained culture is stronger than any one individual as a

factor in continued to success”

Built to Last – “Cult-like Cultures”

“IBM attained its greatest success during the same

era that it displayed its

strongest cult-like culture”

• Orientation & induction training with ideological content (values, history)

• Internal universities• Hire young & promote

from within• Unique language &

terminology

• Corporate songs• Tight screening

processes for hire & fire• Celebrations that

reinforce success & belonging

• Constant reminder of values & heritage

Signs of a cult-like ideology…

Source: Built to Last: Collins & Porras

Culture quotes - IBM

“Until I came to IBM, I probably would have told you that culture was just one among

several important elements in any organisation’s make-up and success.

I came to see, in my time at IBM, that culture isn’t just one aspect of

the game; it is the game”

Lou Gerstner (Chairman & CEO IBM 1993-2002)

Whose corporate culture is this?

Customers are “guests”

A job is a “part”

A uniform is a “costume”

Being on duty is “onstage”

Being off duty is “backstage”

Whose corporate culture is this?

2 Classic Case Studies in Positive Culture

Zappos(Online Shoe Retailer)

Southwest AirlinesWorld’s Largest Low-Cost Airline

Zappos

“your culture is your brand”

Southwest Airlines

“the business of business is

people”

Where to find other examples of successful corporate culture

Best place to work for…The survey methodology identifies workplace performance and best practice according to eight key factors. These factors are particularly significant as they are defined through the results from the survey process, and therefore by employees themselves, as critical factors in workplace engagement.

Leadership: How employees feel about the head of the organisation, senior managers, and the organisations values and principles

My Manager: How employees feel about and communicate with their direct manager

Personal Growth: What employees feel about training and their future prospects

Wellbeing: How employees feel about stress, pressure at work, and work life balance

My Team: Employees feelings towards their immediate colleagues and how well they work together

Giving Something Back: The extent to which employees feel their organisation has a positive impact on society

My Company: The level of engagement employees have for their job and organisation

Fair Deal: How happy employees are with their pay and benefits

Visit the tutor2u BUSS4 Organisational Culture Blog for more resources