08/04/2015 Learning outcomes Strategy and Culture Dr. Violina Ratcheva What do we understand by organisational ‘culture’ Identify the symptoms of strategic drift Cultural web as a tool for deconstructing the organisational paradigm Case study of the impact of organisational culture upon the strategy process What is Organisational Culture? “Culture is how organisations ‘do things’.” “Culture is the organisation’s immune system.” “In large, culture is a product of compensation.” “Organisational culture is shaped by the main culture of the society we live in.” “A strategy that is at odds with a company’s culture is doomed. Culture trumps strategy every time.” Peter Drucker Organisational Culture is Persistent The case of BRL Hardy Key facts: Result of a merger of BRl Company and Hardy Company Pre – merger: Different strategies and organisational culture Motive for the merger – BRL’s desire to expand internationally and Hardy’s financial difficulties • Solution – Decentralised Management “An organisation is a living culture...that can adapt to the reality as fast as possible.” Watkins, M. (2013) What is Organisational Culture? Harvard Business Review, May. Why is Culture Important? ‘Effective culture can create between 20 ‐ 30% uplift in corporate performance’ Individual and organisational behaviour and performance cannot be understood without a cultural understanding Concept of culture has been misunderstood and confused e.g. confusing surface manifestations with core culture Factors within the organisation influencing culture include: history and ownership, size, technology, leadership and mission and the cultural web Heskett, J. (2011) The Culture Cycle: How to Shape the Unseen Force that Transforms Performance, FT Press. 1 08/04/2015 Why Do Sub‐optimal Cultures Develop? Lack of guiding vision, goals and purpose Bureaucratic, misaligned systems, polices and processes Underutilised and demotivated talent Low trust Why Successful Companies Fail? “The problem is not an inability to take action but an inability to take appropriate action.....Active Inertia... using the same pattern and ideas that have moulded actions in the past in an attempt to adapt to the changing environment.” Professor Donald Sull ........Unwelcome by‐product of command‐ and‐control management style Hamel, G. (2007) The Future of Management, Harvard Business School Press. Sull, D. N. (2005) Why good companies go bad and how great managers remake them’, Harvard Business School Press. Strategic Drift Strategic drift is the tendency for strategies to develop incrementally on the basis of historical and cultural influences but fail to keep pace with a changing environment. Sull, D. N.( 2005) Why good companies go bad’ and how great managers remake them, Harvard Business School Press. Strategic Drift The Tendency Towards Strategic Drift Strategies fail to keep pace with environmental change because : Steady as you go – reluctance to accept that change requires moving away from strategies that have been successful. Building on the familiar – uncertainty of change is met with a tendency to stick to the familiar. Core rigidities – capabilities that are taken for granted and deeply ingrained in routines are difficult to change even when they are no longer suitable. Figure 5.2 Strategic drift Johnson, G., Scholes, K., & Whittington, R., (2011), Exploring Strategy (9th Edition), FT: Prentice Hall 2 08/04/2015 The Tendency Towards Strategic Drift (cont.) What Prevents Companies from Avoiding Strategic Drift? Relationships become shackles – organisations become reluctant to disturb relationships with customers, suppliers or the workforce even if they need to change. Lagged performance effects – the financial performance of the organisation may hold up initially (e.g. due to loyal customers or cost cutting) masking the need for change. The Cultural Web Incremental Change to Avoid Strategic Drift Gradual change in alignment with environmental change. Building on successful strategies used in the past (built around core competences) Making changes based on experimentation around a theme (incremental change built on a successful formula) This approach is called Logical Incrementalism Routines – What are the normal ways of doing things? What are procedures? Stories Symbols What matters? What do people talk about? What is success /failure? What are the office symbols? Office size? Company car? Different canteens? Rituals – what does the org highlight? ‐Long service ‐Sales achievement? ‐Innovation? ‐Quality standards? Power The Paradigm Controls Bureaucratic? Well documented? Oriented towards performance? Formal/informal? Who makes the decisions? Who influences the decisions? How?/When? Structure Who reports to whom? ‐formally ‐informally Johnson, G., Scholes, K., & Whittington, R., (2011), Exploring Strategy (9th Edition), FT: Prentice Hall Example – Cultural Web in the UK National Health Service Stories the stories told by members of the organisation to each other, to outsiders, to new recruits embed the present in its organisational history flag up important events (successes, disasters) and personalities (heroes, villains, mavericks) devices for telling people what is important in the organisation 3 08/04/2015 Power structures Can be based on seniority, but can also be based on other factors: Engineers in a high tech firm Relationships with the owners Can be fragmented across stakeholder groups Symbols Can include things like logos, offices that are ‘company symbols’ Within the company, company cars and job titles can be powerful symbols of the current paradigm Also includes language used by different functions Rituals and Routines can be formal training programmes induction appraisal and promotion mechanisms or informal drinks in the pub after work coffee breaks Organisational Structure Evidence in the formal representations of hierarchy such as Organisation Charts and formal statements of departmental reporting structures There can also be informal indicators like ‘tribal’ behaviour Control Systems Measurement and reward systems are often a key to this what does the company keep track of? individual or group bonuses tightening of financial monitoring is emphasis on reward or punishment? are there many/few controls? Patterns of Strategy Development Strategy is concerned with major decisions about the future. However this is not to say that it constitutes only large, step changes in direction. “...once an organisation has adopted a particular strategy, it tends to develop from and within that strategy, rather than fundamentally changing direction.” This view of strategy is sometimes called punctuated equilibrium 4 08/04/2015 Patterns of Strategy Development The Challenge of Culture Change Studies of firms show that they will have periods of strategic development which can be described as: Continuity established strategy remains the same Incremental change a large number of gradual changes over time Flux strategies change but in no clear direction Transformational change infrequent and fundamental change in strategic direction Resources allocation & controls Strategic Drift Pre 2000 Drift characterised by: Highly homogeneous organisational culture & paradigm Questioning discouraged Major power blockages to change, e.g. resistant dominant leaders Little focus on its external environment … which was happening at Marks & Spencer? Marks & Spencer – 1990s Profit Customers Longevity Dividend Routines – Formal procedures for all things Store layout/design Rituals – Long service, not sales achievement All from the centre ‐ no room for Innovation Quality important Store design Logo High street fixture The Boss Profit Longevity Success No surprises Bureaucratic British suppliers Centralised buying Identical procedures for all stores Not performance oriented – goods allocated to stores Formal/informal? CEO ‐ Greenbury decisions? Key senior managers Based on extensive experience in M&S Report to Greenbury Baker Street HQ Formal Centralised Relatively low perceived need for change Strategic planning – M&S centre as master planner Heavily centralised Bureaucracy Sales figures & store visits used to judge how M&S was operating – lack of balanced scorecard – customer satisfaction? Store managers seek to increase sales by applying for greater footage Lack of accountability – difficult to identify underperforming stores Control costs – fewer sales assistants Resource Allocation & Controls 2002 onwards processes of: Restructuring to flatter less hierarchical structure to facilitate ownership and accountability for resources Increased decision making by managers throughout the organisation Enhancement of existing competences in supply chain management 5 08/04/2015 Organisational Tools for Cultural Change Homework ‐ Exercise 1 Read the case study ‘From small town pharmacy to a multinational corporation: Pierre Fabre, culture as a competitive advantage’ and consider the following questions: What are the distinctive elements of Pierre Fabre group corporate culture? How do these participate in building a sustainable competitive advantage? When might a strong corporate culture become a weakness for an organisation? Is it possible to change the strategy of a company with a strong culture? How? Denning, S. (2010) The Leader’s Guide to Radical Management, John Wiley and Sons. Homework ‐ Exercise 2 Develop a Cultural Web for the organisation you work for or have a personal experience with: What does it say about the organisation? Is culture a problem or an advantage? Does it need to change and how? 6