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McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-1
Executing the Executing the Strategy: Strategy: Building a Building a Capable Organization Capable Organization
and Instilling a Cultureand Instilling a Culture
Chapter 8 Chapter 8 Chapter 8 Chapter 8
Screen graphics created by:Jana F. Kuzmicki, PhD
Troy University - Florida and Western Region
““An organization’s capacity to An organization’s capacity to execute its strategy depends execute its strategy depends on its ‘hard infrastructure’—on its ‘hard infrastructure’—its organizational structure its organizational structure
and systems—and on its ‘soft’ and systems—and on its ‘soft’ infrastructure—its culture and infrastructure—its culture and
norms.” norms.”
Quote . . . Quote . . . Quote . . . Quote . . .
Amar Bhide
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-4
Chapter OutlineChapter Outline
A Framework for Executing Strategy
The Principal Managerial Components of the Strategy Execution Process
Building a Capable Organization
Staffing the Organization
Building Core Competencies and Competitive Capabilities
Organizing the Work Effort
Instilling a Corporate Culture
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-5
Crafting the Strategy Primarily a market-driven
activity Successful strategy making
depends on Business vision Perceptive analysis of
market conditions and company capabilities
Attracting and pleasing customers
Outcompeting rivals Using company resources
and capabilities to forge a competitive advantage
Executing the Strategy Primarily an operations-
driven activity Successful strategy execution
depends on Good organization-building
and people management Creating a strategy-
supportive culture Continuous improvement Getting things done and
delivering good results
Crafting vs. Executing Crafting vs. Executing StrategyStrategy
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-6
An action-oriented, make-things happen task involving management’s ability toDirect organizational change
Achieve continuous improvement inoperations and business processes Move toward operating excellence
Create and nurture astrategy-supportive culture
Consistently meet or beat performance targets
Tougher and more time-consuming than crafting strategy
Implementation involves . . .
Executing the StrategyExecuting the Strategy
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-7
The demanding variety of managerialactivities to be performed
Numerous ways to tackle each activity Requires good people management skills Requires launching and managing
a variety of initiatives simultaneously Number of bedeviling issues to be worked out Battling resistance to change Hard to integrate efforts of many different work groups
into a smoothly-functioning whole
Why Executing Strategy Is aWhy Executing Strategy Is aTough Management JobTough Management Job
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-8
Implementing a New Implementing a New StrategyStrategy
Requires Adept LeadershipRequires Adept Leadership Implementing a new strategy
takes adept leadership to
Convincingly communicatereasons for the new strategy
Overcome pockets of doubt
Build consensus and enthusiasm
Secure commitment of concerned parties
Get all the implementation pieces launched, put in place expeditiously, and then coordinated into a smoothly functioning operation
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-9
Who Are the StrategyWho Are the StrategyImplementers and Executers?Implementers and Executers?
Implementing and executing strategyinvolves a company’s wholemanagement team and all employeesJust as every part of a watch plays a role in making the
watch function properly, it takes all pieces of an organization working cohesively for a strategy to be well-executed
While top-level managers must lead the processand orchestrate major initiatives, good execution requires that Middle and lower-level managers see that things are in sync
and on track in their areas of responsibility and Employees perform their roles competently on a daily basis
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-10
What Are the Goals of theWhat Are the Goals of theStrategy Implementation Strategy Implementation
Process?Process? Unite total organization behind strategy
See that activities are done in a manner that is conducive to first-rate strategy execution
Generate commitment so an enthusiasticcrusade emerges to carry out strategy
Fit how organization conducts itsoperations to requirements of strategy
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-11
Fig. 8.1: The Eight Components of the Strategy Fig. 8.1: The Eight Components of the Strategy Execution ProcessExecution Process
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-12
Every manager has an active role
No proven “formula” for implementing particular types of strategies
There are guidelines, but no absolute “must do it this way” rules
There are usually several ways to proceed that are capable of working
The process cuts across many aspects of “how to manage”
Characteristics of the Characteristics of the Strategy Implementation Strategy Implementation
ProcessProcess
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-13
Each implementation situation occurs in a different context, affected by differingBusiness practices and competitive situations
Work environments and cultures
Policies
Compensation incentives
Mix of personalities and firm histories
Approach to implementation/execution
has to be customized to fit the situation
People implement strategies - Not companies!
Characteristics of the Characteristics of the Strategy Implementation Strategy Implementation
Process Process (continued)(continued)
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-14
BUILDING A CAPABLE BUILDING A CAPABLE
ORGANIZATION — ORGANIZATION —
WHAT IS INVOLVED?WHAT IS INVOLVED?
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-15
Fig. 8.2: The Three Components of Building a Capable Fig. 8.2: The Three Components of Building a Capable OrganizationOrganization
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-16
Assembling a capable management team is a cornerstone of the organization-building task
Find the right people to fill each slot
Existing management teammay be suitable
Core executive groupmay need strengthening
Promote from within
Bring in skilled outsiders
Putting Together a Strong Putting Together a Strong Management TeamManagement Team
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-17
Selecting the Management Selecting the Management Team:Team:
Key ConsiderationsKey Considerations Determine mix of
Backgrounds
Experiences and know-how
Beliefs and values
Styles of managing and personalities
Personal chemistry must be right
Talent base needs to be appropriate
Picking a solid management team needs to be acted on early in implementation process
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-18
Assemble needed human resources and knowledge base for effective strategy execution
Biggest challenge facing companies
How to recruit and retain the bestand brightest talent with strongskill sets and management potential
Intellectual capital, not tangible assets, is increasingly being viewed as the most important investment
Talented people collaborating to create competencies and capabilities are a prime source of competitive advantage
Recruiting and Retaining Recruiting and Retaining Talented Employees: Issues Talented Employees: Issues
and Challengesand Challenges
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-19
Key Human Resource Practices Key Human Resource Practices toto
Attract and Retain Talented Attract and Retain Talented Employees Employees
Spend considerable effort in screening jobapplicants, selecting only those with Suitable skill setsEnergy and initiativeJudgment and aptitudes for learningAbility to adapt to firm’s work
environment and culture
Put employees through training programs throughout their careers
Give promising employees challenging, interesting, and skills-stretching assignments
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-20
Rotate employees through jobs with great content, spanning functional and geographic boundaries
Encourage employees toBe creative and innovativeChallenge existing ways of
doing things and offer better waysSubmit ideas for new products or businesses
Foster a stimulating work environment Exert efforts to retain high-potential employees with
excellent salary and benefits Coach average employees to improve their skills
Key Human Resource Practices to Key Human Resource Practices to AttractAttract
and Retain Talented Employees and Retain Talented Employees (continued)(continued)
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-21
Building Core CompetenciesBuilding Core Competenciesand Competitive Capabilitiesand Competitive Capabilities
Crafting the strategy involves
Identifying the desired competencies and capabilities to build into the strategy and help achieve competitive advantage
Good strategy execution requires
Putting desired competencies and capabilities in place,
Upgrading them as needed, and
Modifying them as marketconditions evolve
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-22
Greater proficiency in product development Better manufacturing know-how Capability to provide better after-sale service Faster response to changing customer needs Superior cost-cutting skills Capacity to speed new products to market Superior inventory management systems Better marketing and merchandising skills Specialized depth in unique technologies Greater effectiveness in promoting
union-management cooperation
Strategically-Relevant Strategically-Relevant Competencies:Competencies:
Some ExamplesSome Examples
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-23
Expertise in gasoline enginetechnology and small engine design
Example: Honda’s Core Example: Honda’s Core CompetenceCompetence
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-24
Design of complex chipsfor personal computers, servers, and
other electronic devices
Example: Intel’s Core Example: Intel’s Core CompetenceCompetence
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-25
Superb marketing-distribution skills and R&D capabilities in five core technologies - fats, oils,
skin chemistry, surfactants, emulsifiers
Example: Procter & Example: Procter & Gamble’sGamble’s
Core CompetenciesCore Competencies
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Developing professional managers
with broad problem-solving skills and
proven ability to grow global businesses
Example: One of GeneralExample: One of GeneralElectric’s Core CompetenciesElectric’s Core Competencies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-27
Theme park operation and family entertainment
Example: Disney’s Core Example: Disney’s Core CompetenciesCompetencies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-28
Expertise in electronic technology and ability to translate the expertise into innovative products — miniaturized
radios, digital cameras; TVs and DVDs with unique features, attractively designed PCs, videogame consoles
Example: Sony’s Core Example: Sony’s Core CompetenciesCompetencies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-29
1. Develop ability to do something
2. As experience builds,ability can translate into acompetence or capability
3. If competence or capability continues to be polished and refined, it can become a distinctive competence, providing a potential competitive advantage!
Three-Stage Process of Three-Stage Process of Developing Competencies Developing Competencies
and Capabilitiesand Capabilities
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-30
Develop ability to do something
Select people with relevant skills/experience
Broaden or expand individual abilities as needed
Mold efforts and work products ofindividuals into a cooperative effortto create organizational ability
Step 1 in Developing Step 1 in Developing CompetenciesCompetencies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-31
As experience builds and company learns how to perform the activity consistently well and at acceptable cost, the ability gradually evolves into a competence or capability over a period of time
Typically, a capability or competence emerges from establishing and nurturing collaborative relationships betweenIndividuals and groups in different departments and/or A company and its external allies
Step 2 in Developing Step 2 in Developing CompetenciesCompetencies
The process is cross-functional and involves a total team effort to do something particularly well
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If company masters the activity, performing itbetter than rivals, the “capability” or “competence” becomes a
Distinctive competence and
Holds potential forcompetitive advantage
This is the optimal outcome of the process
of building capabilities and competencies!
Step 3 in Developing Step 3 in Developing CompetenciesCompetencies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-33
1. Competencies are bundles of skills and know-how growing from combined efforts of different departments
Building competencies is a cross-functional task that entails cross-department cooperation and collaboration
2. Normally, competencies emerge incrementally from various company efforts to respond to market conditions
3. Leveraging competencies into competitive advantage requires concentrating more effort and talent than rivals on strengthening competencies to create valuable capabilities
4. Sustaining competitive advantage requires adjusting competencies to new conditions
Managing the Process of Managing the Process of Building Competencies: Four Building Competencies: Four
Key TraitsKey Traits
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-34
Internal development involves eitherStrengthening the company’s base of skills,
knowledge, and intellect orCoordinating and networking the efforts
of various work groups and departments
Partnering with key suppliers, formingstrategic alliances, or outsourcingcertain activities to specialists
Buying a company that has the required capabilities and integrating these competencies into the firm’s value chain
Approaches to Developing Approaches to Developing CompetenciesCompetencies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-35
Competencies and capabilities mustcontinuously be modified and perhapseven replaced with new ones due toNew strategic requirements
Evolving market conditions
Changing customer expectations
Ongoing efforts to keep core competencies up-to-date can provide a basis for sustaining bothEffective strategy execution and
Competitive advantage
Updating Competencies andUpdating Competencies andCapabilities as Conditions Capabilities as Conditions
ChangeChange
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-36
When it is difficult to outstrategizerivals with a superior strategy . . .
. . . Best avenue to industry leadership is to out-compete rivals with superior strategy
execution!
Building competencies and capabilitiesrivals can’t match is one of the
best ways to out-compete them!
Competitive Advantage Competitive Advantage PotentialPotential
of Competencies and of Competencies and CapabilitiesCapabilities
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-37
Training plays a critical role in implementation whena firm shifts to a strategy requiring differentSkills or core competenciesCompetitive capabilitiesManagerial approachesOperating methods
Types of training approaches Internal “universities”Orientation sessions for new employeesTuition reimbursement programsOnline training courses
Strategic Role of Employee Strategic Role of Employee TrainingTraining
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-38
Organizing the Work Effort Organizing the Work Effort toto
Support Good Strategy Support Good Strategy ExecutionExecution
Few hard and fast rules for organizingOne Big Rule: Role and purpose of organization structure is
to support and facilitate good strategy execution!
Each firm’s structure is idiosyncratic, reflectingPrior arrangements and internal politicsExecutive judgments and preferences about how to arrange
reporting relationshipsHow best to integrate and coordinate work effort of different
work groups and departments
Vice President Vice President Vice President
CEO
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-39
Fig. 8.3: Structuring the Work Effort Fig. 8.3: Structuring the Work Effort to Promote Successful Strategy Executionto Promote Successful Strategy Execution
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-40
Step 1: Decide Which Value Chain Step 1: Decide Which Value Chain Activities to Perform Internally and Activities to Perform Internally and
Which to OutsourceWhich to Outsource
Involves deciding which activities are essentialto strategic success
Most strategies entail certain crucial business processes that must be performed exceedingly well or in closely coordinated fashion if the strategy is to be executed with real proficiency
These processes/activities usually need to be performed internally
Other activities, such as routine administrativehousekeeping and some support functions,may be candidates for outsourcing
Criticalactivities
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-41
Pinpointing Strategy-Critical Pinpointing Strategy-Critical ActivitiesActivities
1. What functions or business processes have to be performed extra well or in timely fashion to achieve competitive advantage?
2. In what value-chain activities wouldpoor execution seriously impairstrategic success?
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-42
Turn a core competence into a distinctive competence Decrease internal bureaucracies Flatten organization structure Speed internal decision-making Increase competitive responsiveness Provide firm with heightened strategic focus Enhance overall capabilities and resource strengths
Outsourcing makes strategic sense when an outsider can perform an activity cheaper or better!
Potential Benefits ofPotential Benefits ofOutsourcing Non-Critical Outsourcing Non-Critical
ActivitiesActivities
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-43
Appeal of OutsourcingAppeal of Outsourcing
Outsourcing non-critical activities allows a firm to concentrate its energies and resources on those value-chain activities where it
Can create unique value
Can be best in the industry
Needs direct control to
Build core competences
Achieve competitive advantage
Manage key customer-supplier-distributor relationships
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-44
Dangers of OutsourcingDangers of Outsourcing
A company must guard against hollowing out its knowledge base and capabilities
Way to guard against pitfalls of outsourcing
Avoid sourcing key components from a single supplier
Use two or three suppliers to minimizedependence on any one supplier
Regularly evaluate suppliers
Work closely with key suppliers
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-45
Assign managers of strategy-critical activities a visible, influential position
Avoid fragmenting responsibility for strategy-critical activities across many departments
Provide coordinating linkages between related work groups
Meld into a valuablecompetitive capability
Assignmanagerskey roles
Functional departments
Strategicrelation-
ships
Coordi-nation
Valuablecapability
Process-complete departments
Step 2: Make Strategy-CriticalStep 2: Make Strategy-CriticalActivities the Main Building Activities the Main Building
BlocksBlocks
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-46
Why Structure Follows Why Structure Follows StrategyStrategy
Changes in strategy typically require a new/modified organization structure
A new strategy often involves different skills,different key activities, and different staffingand organizational requirements
A new strategy signals a need to reassessand modify the organization structure
How work is structured is a means to an end –not an end in itself!
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-47
In a centralized structure
Top managers retain authorityfor most decisions
In a decentralized structure
Managers and employees areempowered to make decisions
Trend in most companies
Shift from authoritarian to decentralizedstructures stressing empowerment
Step 3: Determine How MuchStep 3: Determine How MuchAuthority to Delegate to Authority to Delegate to
WhomWhom
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-48
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-49
Characteristics ofCharacteristics ofCentralized Decision MakingCentralized Decision Making
Top executives retain authorityFor most strategic and operating decisions andKeep a tight rein on lower-level managers
Minimal discretionary authority is granted toFrontline supervisorsRank-and-file employees
Key advantage – Tight control by topmanagers fixes accountability
DisadvantagesLengthens response time to changing conditionsDoes not encourage responsibility among lower-level
managers and employeesDiscourages lower-level managers and employees from
exercising initiative
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-50
Advantages of a Decentralized Advantages of a Decentralized StructureStructure
Creates more horizontal structure with fewer management layers
Managers and employees develop their own action plansMake decisions in their areas of responsibility
Held accountable for results
Shortens organizational response times and spursCreative thinking and innovation
Greater involvement of managers and employees
Jobs can be defined more broadly
Fewer managers are needed
Electronic communication systems providequick, direct access to data
Genuine gains in morale and productivity
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-51
Place limits on authority empowered employeescan exercise
Hold people accountable for their decisions
Institute compensation incentives that reward employees for doing their jobs in a manner contributing to good company performance
Create a corporate culture wherethere’s strong peer pressure onemployees to act responsibly
Maintaining Control inMaintaining Control ina Decentralized Structurea Decentralized Structure
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-52
Classic method of coordinating activities – Have related units report to single manager
Upper-level managers have clout tocoordinate efforts of their units
Support activities should bewoven into structure to
Maximize performance of primary activities
Contain costs of support activities
Formal reporting relationships often need to be supplemented to facilitate coordination
Step 4: Provide for InternalStep 4: Provide for InternalCross-Unit CoordinationCross-Unit Coordination
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-53
Process departments
Cross-functional task forces
Dual reporting relationships
Informal networking
Voluntary cooperation
Incentive compensation tied to group performance
Teamwork and cross-departmental cooperation
Coordinating Mechanisms to Coordinating Mechanisms to Supplement the Basic Supplement the Basic Organization StructureOrganization Structure
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-54
Step 5: Provide forStep 5: Provide forCollaboration with Outsiders Collaboration with Outsiders
Need multiple ties at multiple levels to ensure
Communication
Coordination and control
Find ways to produce collaborative efforts toenhance firm’s capabilities and resource strengths
While collaborative relationships present opportunities, nothing valuable is realized until the relationship develops into an engine for better organizational performance
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-55
Get right people together
Promote good rapport
See plans for specific activitiesare developed and implemented
Help adjust internal procedures and communication systems to
Iron out operating dissimilarities
Nurture interpersonal ties
Roles of Relationship Roles of Relationship ManagersManagers
with Strategic Partnerswith Strategic Partners
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BUILD A BUILD A
STRATEGY-SUPPORTIVE STRATEGY-SUPPORTIVE
CORPORATE CULTURE CORPORATE CULTURE
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-57
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 valuesBusiness practicesTraditions
Defining Characteristics Defining Characteristics of Corporate Cultureof Corporate Culture
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-58
Dedication to customer satisfaction
Zealous pursuit of low costs
Frugal operating practices
Strong work ethic
Ritualistic Saturday morning meetings
Executive commitment toVisit stores
Listen to customers
Solicit employees’ suggestions
Features of the CorporateFeatures of the CorporateCulture at Wal-MartCulture at Wal-Mart
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-59
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 customer service and “heroic” deeds
Compensation based entirely on commission
Features of the CorporateFeatures of the CorporateCulture at Nordstrom’sCulture at Nordstrom’s
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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 as well as achieving good business results
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 CorporateFeatures of the CorporateCulture at General ElectricCulture at General Electric
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Long work hours of programmers
Emotional peaks and valleys inencountering 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 responsiblefor a popular new software program
Tradition of competing aggressively
Features of the CorporateFeatures of the CorporateCulture at MicrosoftCulture at Microsoft
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-62
A company’s culture is manifested in . . . Values, beliefs, and business principles
management preaches and practices Official policies and procedures Revered traditions and oft-repeated stories Attitudes and behaviors of employees Peer pressures that exist to display core values Organizational politics Approaches to people management and problem solving Relationships with external stakeholders “Chemistry” and “personality” permeating work environment
What to Look for inWhat to Look for inIdentifying Corporate CultureIdentifying Corporate Culture
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-63
Founder or early leader
Influential individual or work group
Policies, vision, or strategies
Traditions, supervisory practices, employee attitudes
Peer pressures that exist
Organizational politics
Relationships with stakeholders
Company’s approach to people management
Where Does CorporateWhere Does CorporateCulture Come From?Culture Come From?
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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’sHow Is a Company’sCulture Perpetuated?Culture Perpetuated?
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-65
Forces and FactorsForces and FactorsCausing Culture to EvolveCausing Culture to Evolve
New challenges in marketplace Revolutionary technologies Shifting internal conditions
Internal crisisTurnover of top executives
Arrival of a new CEO Diversification into new businesses Expansion into foreign countries Rapid growth involving adding new employees Merger with or acquisition of another company
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A company’s culture can contribute to –or hinder – successful strategy execution
A culture promoting attitudes and behaviors well-suited to first-ratestrategy execution is a valuable allyin the strategy execution process
A culture embracing attitudes andbehaviors that impede good strategyexecution is a huge obstacle to be overcome
Culture: Ally or ObstacleCulture: Ally or Obstacleto Strategy Execution?to Strategy Execution?
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A culture encouraging actions and behaviors supportive of good strategy executionProvides employees with clear guidance regarding what
behaviors and results constitute good job performanceCreates significant peer pressure among coworkers to
conform to culturally acceptable norms A culture imbedded with values and behaviors
that facilitate strategy execution promotesstrong employee commitment to a company’sVisionPerformance targetsStrategy
Why Culture Matters: Why Culture Matters: BenefitsBenefits
of a Tight Culture-Strategy of a Tight Culture-Strategy FitFit
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A good job of culture-building by managersPromotes can-do attitudes
Encourages acceptance of change
Instills strong peer pressure forstrategy-supportive behaviors
Enlists enthusiasm and dedicatedeffort to achieve company objectives
Closely aligning corporate culture withrequirements for proficient strategy executionmerits the full attention of senior executives!
Optimal Outcome of a Optimal Outcome of a Tight Culture-Strategy FitTight Culture-Strategy Fit
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-69
Conflicts between culturally-approvedbehaviors and behaviors needed for goodstrategy execution send mixed signalsShould 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 inbehaviors that run counter to the culture?
When a company’s culture is out of sync with whatis needed for strategic success, the culture has to
be changed as rapidly as can be managed!
Perils of Strategy-Culture Perils of Strategy-Culture ConflictConflict
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Types of Corporate CulturesTypes of Corporate Cultures
Strong vs. Weak Cultures
Unhealthy 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 “fit in”
Characteristics ofCharacteristics ofStrong Culture CompaniesStrong Culture Companies
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-72
How Does a Culture Come to How Does a Culture Come to Be Strong? Be Strong?
Leader who establishes values and behaviors consistent withCustomer needsCompetitive conditionsStrategic requirements
A deep, abiding commitment to espousedvalues, beliefs, and business philosophyPracticing what is preached!
Genuine concern for well-being ofCustomersEmployeesShareholders
ValuesCustomers
EmployeesShareholders
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved.8-73
Characteristics ofCharacteristics ofWeak Culture CompaniesWeak 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 changeAvoid risks and don’t screw upExperimentation and efforts to
alter status quo discouraged
“Not-invented-here” mindset – company personnel discount need to look outside forBest practicesNew or better managerial approaches Innovative ideas
Characteristics of Unhealthy Characteristics of Unhealthy CulturesCultures
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Willingness to accept change and embrace challenge of introducing new strategies
Risk-taking, experimentation, and innovation to satisfy stakeholders
Internal 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 Hallmarks of Adaptive CulturesCultures
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Any changes in operating practices and behaviors
Must not compromise core values and long-standing business principles
Must satisfy legitimate interests of key stakeholders
Customers
Employees
Shareholders
Suppliers
Communities
Dominant Traits of Adaptive Dominant Traits of Adaptive CulturesCultures
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Creating a Strong FitCreating a Strong FitBetween Strategy and Between Strategy and
CultureCulture
Responsibility of Strategy MakerSelect a strategy compatible with the
sacred or unchangeable parts of organization’s prevailing corporate culture!
Responsibility of Strategy ImplementerOnce strategy is chosen, changewhatever facets of the corporate
culture hinder effective execution!
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Fig. 8.4: Changing a Problem CultureFig. 8.4: Changing a Problem Culture
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Make a compelling case why a new culture is in best interests of both company and employees
Challenge status quo
Create events where employeesmust listen to angry key stakeholders
Continuously repeat messages of whycultural change is good for stakeholders
Visibly praise and reward peoplewho display new cultural norms
Menu of Culture-Changing Menu of Culture-Changing ActionsActions
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Alter incentive compensation toreward desired cultural behavior
Hire new managers and employees who havedesired cultural traits and can serve as role models
Replace key executives stronglyassociated with old culture
Revise policies and proceduresto help drive cultural change
Menu of Culture-Changing Menu of Culture-Changing ActionsActions (continued)(continued)
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Emphasize frugality
Eliminate executive perks
Require executives to spend time talking with customers
Ceremonial events to praise people andteams who “get with the program”
Alter practices identified as cultural hindrances
Visible awards to honor heroes
Symbolic Symbolic Culture-ChangingCulture-Changing ActionsActions
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Engineer quick successes to highlightbenefits of proposed cultural changes
Bring in new blood, replacingtraditional managers
Change dysfunctional policies Change reward structure Reallocate budget, downsizing and upsizing Reinforce culture through both word and deed Enlist support of cultural norms from frontline
supervisors and employee opinion leaders
Substantive Culture-Changing Substantive Culture-Changing Actions 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
Core values and ethical principles serve as acornerstone for culture-building
Our ethicsprogram
consists of . . .
Grounding the Culture inGrounding the Culture inCore Values and EthicsCore Values and Ethics
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Fig. 8.5: The Two Culture-Building Roles of Fig. 8.5: The Two Culture-Building Roles of aa
Company’s Core Values and Ethical Company’s Core Values and Ethical StandardsStandards
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Fig. 8.6: How a Company’s Core Values and Fig. 8.6: How a Company’s Core Values and Ethical Principles Positively Impact the Ethical Principles Positively Impact the
Corporate CultureCorporate Culture
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Word-of-mouth indoctrination and tradition Annual reports and Web sites Orientation courses for new employees Training courses for managers and employees Making stakeholders aware of a commitment
to ethical business conduct is attributable toGreater management understanding of role
these statements play in culture buildingRenewed focus on ethical standards
stemming from recent corporate scandalsGrowing numbers of consumers who
prefer to patronize ethical companies
Approaches to Establishing Approaches to Establishing Ethical StandardsEthical Standards
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Incorporate values statement and ethicscode in employee training programs
Screen out applicants who do notexhibit compatible character traits
Frequent communications of thevalues and ethics code to all employees
Management involvement and oversight Strong endorsement by CEO Ceremonies and awards for individuals
and groups who display the values Institute ethics enforcement procedures
Instilling Values and Ethics in Instilling Values and Ethics in the Culturethe Culture
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Develop procedures forEnforcing ethical standards andHandling potential violations
Scrutinize attitudes, character, and work history of prospective employees
Educate employees about ethical behaviors Encourage employees to raise
issues with ethical dimensions Explain how company values and ethics
code apply at all levels of a company Insist company values and ethical
standards become a way of life
Structuring the Ethics Structuring the Ethics ComplianceCompliance
and Enforcement Processand Enforcement Process
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Form an ethics committee to provide guidance Appoint an ethics officer to head compliance effort Establish an ethics hotline/Web site employees can
use toAnonymously report a possible violationGet confidential advice on a
troubling ethics-related situation
Conduct annual ethics audit tomeasure extent ofEthical behavior and Identify problem areas
Structuring the Ethics Structuring the Ethics ComplianceCompliance
and Enforcement Process and Enforcement Process (continued)(continued)
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Have mandatory ethics trainings for employees Conduct an annual audit to assess
Each manager’s efforts touphold ethical standards
Actions taken by managersto remedy deficient conduct
Require all employees to sign a statement annually certifying they have complied with firm’s code of ethics
Openly encourage employees to report possible infractions via Anonymous calls to a hotline or
Posting to a special company Web site
Key Approaches toKey Approaches toEnforcing Ethical BehaviorEnforcing Ethical Behavior
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Establishing a Strategy-Culture Establishing a Strategy-Culture Fit in Multinational and Fit in Multinational and
Global CompaniesGlobal Companies Institute training programs to
Communicate meaning of core values and
Explain case for common operatingprinciples and practices
Draw on full range of motivational andcompensation incentives to induce personnelto adopt and practice desired behaviors
Allow some leeway for certain core values and principles to be interpreted and applied somewhat differently, if necessary, to accommodate local customs and traditions