UNIVERSITY OF LUGANO
MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Measuring and Managing
Corporate Culture: The
Invisible Key to
Organizational Success
Presented to:
University of Lugano
MScom Excellence-in-Communications
Lecture Series
Presented by:
Eric G. Flamholtz, Ph.D.
Professor
Anderson School of Management
University of California at Los Angeles
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Corporate Enigmas: The US
• How does a little company headquartered in Bentonville
Arkansas become one of the largest retailers in the
world with more than $288 billion in sales (Wal*Mart)?
• How does a company selling a commodity product grow
from $122 million in sales to more than $5 billion in
slightly more than a decade (Starbucks)?
• How does a company retain its vitality for more than
100 years (GE)?
• How does a company with a dominant market position
(more than 42% market share) fall from grace over a
period of 20 years (General Motors)?
2
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Corporate Enigmas: Europe
• Why have the acquisitions by Allianz worked well while
the acquisitions of Baskin Robbins and Duncan Donuts
by Allied-Domecq experienced difficulties?
• What caused Reuters to lose its dominant market
position?
• Why does the Movenpick web site just mention Ueli
Prager and its history, while Disney has an entire “Walt
Disney Family Museum” on its web site?
3
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Answer is Corporate Culture:
The Invisible Asset (Or Liability!)
4
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Corporate Culture Enigma
•
•
•
•
•
You
You
You
You
You
can
can
can
can
can
not
not
not
not
not
see it
touch it
taste it
hear it
smell it
5
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Culture: The Invisible Asset
• But it is there, and although it is invisible, it is a
fundamental reason why some organizations are
successful and others not over the long run.
6
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
OUR PURPOSE
• What is the role of corporate culture in organizational
success?
• How can we measure and manage corporate culture to
utilize it as an organizational asset?
• What companies manage corporate culture well?
• What are some of the significant differences in culture
in US and European organizations?
7
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Perspective:
Practical Management Theory
• Theory which is empirically sound and scientifically
validated, but is relevant and practical for leaders,
managers, and investors to use.
• Derived from research on organizational success and
failure.
8
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Research on Organizational Success
and Failure:
 What role does Culture play in organizational
Success?
9
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Research on Organizational Success and Failure
Paired Comparisons
Successes
Failures/Difficulties
Starbucks
Boston Market
PacifiCare
MaxiCare
Southwest
People Express
Nike
L.A. Gear
Wal*Mart
K-Mart
10
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What is Success?
• There are varying degrees of corporate success:
–
–
–
–
–
Survival, including the ability to continue to employ people
Continuing to grow
Becoming a market leader
Becoming the market leader
Increasing shareholder value
11
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What is the Role that
Corporate Culture Plays in
Organizational Success?
12
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Role of Culture in organizational Success
• Culture is the ‘secret’ ingredient in organizational
success
13
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Enigma of Wal*Mart
Versus K-Mart
• In 1960 Sears was the largest US retailer and K-Marts’
parent company was the number 1 discount retailer?
• How did Wal*Mart from humble beginnings
become the largest U.S. retailer with more than
$288 billion is sales revenue?
14
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Wal*Mart vs. K-Mart, 1990’s
$300.00
$200.00
*
$150.00
Adjusted for splits
Wal-Mart
K-Mart
$100.00
$50.00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
$-
19
90
Stock Price*
$250.00
Year
15
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Wal*Mart vs. K-Mart, 2000-2003
$250.00
$200.00
Adjusted for splits
** K-Mart filed for
Chapter 11
bankruptcy during
2002.
$150.00
Wal-Mart
$100.00
K-Mart
$50.00
20
02
**
20
01
$-
20
00
Stock Price*
*
Year
16
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Enigma of Wal*Mart
Versus K-mart
• There are no products that Wal*Mart has that K-mart
cannot have.
• The explanation for the difference in success must be
somewhere else.
• The explanation is inside “the black box” of how
Wal*Mart operates, which includes its culture.
17
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Secret to Wal*Mart’s Success:
Its Culture
Two key Dimensions of “The Wal*Mart Way”
– Respect for the individual, and
– Focus upon the customer.
18
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Growth of Starbucks?
• How does a company producing a commodity
product (Coffee) grow so rapidly to become the
market leader?
• In 1993 Starbucks had $122 million in sales and 220
stores.
• In 1994 when they had $165 million in revenues,
Starbucks set the goal to grow to $2 billion in revenues
and 2000 stores by the year 2000.
• Starbucks has more stores in California than all of its
competitors combined have throughout the US!
19
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Starbucks Success is Not Just About Coffee
• The real reason for Starbuck’s success is its
culture, which is invisible to the outside observer.
• Howard Schultz says that when people ask him to tell
them the reasons for Starbuck’s success, he tells them
something that they are surprised to hear: “The most
important single reason for Starbuck’s success is its
people.”
• One of Starbuck’s core beliefs is: “The way we treat
our people affects the way they treat our
customers and, in turn, our financial performance.”
20
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Starbucks Cultural Principles
•
Provide a great work environment and treat each other
with respect and dignity.
•
Embrace diversity as an essential component in the way
we do business.
•
Apply the highest standards of excellence to the
purchasing, roasting, and fresh delivery of our coffee.
•
Develop enthusiastically satisfied customers all of the
time.
•
Contribute positively to our communities and our
environment.
•
Recognize that profitability is essential to our future
success.
21
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What is Corporate Culture?
22
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What is Organizational Culture?
• Culture is “corporate personality.”
• The underlying values, beliefs, and norms which
govern the behavior of people as members of an
organization.
• Example of Values, Beliefs, and Norms: Ritz Carlton
23
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Ritz-Carlton Values
• The Ritz-Carlton Hotel is a place where the genuine care
and comfort of our guests is our highest mission.
• We pledge to provide the finest personal service and
facilities for our guests who will always enjoy a warm,
relaxed yet refined ambience.
• The Ritz-Carlton experience enlivens the senses, instills
well-being, and fulfills even the unexpressed wishes and
needs of our guests.
24
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Ritz-Carlton Beliefs
“We are Ladies and Gentlemen
Serving
Ladies and Gentlemen”
25
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Ritz-Carlton Norms
• A warm and sincere greeting. Use the guest’s
name, if and when possible.
• Anticipation and compliance with guest needs.
• Fond farewell. Give them a warm good-bye
and use their names, if and when possible.
26
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
IBM Core “Values”
•
Respect for the individual.
•
Excellence in customer service.
•
Excellence in everything we do.
27
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
American Century Guiding Principles
• Providing value for our investors.
• Challenging and inspiring the best people.
 Personal responsibility.
 Organizational commitment.
 Teamwork.
• Building a financially sound company.
• Being adaptable and innovative.
• Working with integrity.
28
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Why is Culture Important?
29
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Why is Culture Important?
• Culture influences the success of people in
organizations.
30
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Culture Influences The Success of People
Microsoft Reorganizes;
President Belluzzo is Out
“The reorganization ends an awkward 2 1/2 year relationship
between the software behemoth and Belluzzo, a veteran of
Silicon Valley hardware stalwarts Hewlett-Packard Co. and Silicon
Graphics Inc. Since joining Microsoft in September 1999,
insiders say he failed to embrace the company’s distinctive
corporate culture - a shortcoming the led to his ouster.
Source: Los Angeles Edition, April 4, 2002, Section C,
Business, p. 1.
31
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Why is Culture Important?
• Culture influences the success of people in
organizations.
• Research has indicated that culture is one of
the six “key strategic building blocks” of
successful organizations.
32
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Culture is a Key Building Block of Success
Corporate
Culture
Management
Systems
Operational
Systems
Financial
Performance
Resources
Products
Markets
33
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Why is Culture Important?
• Culture influences the success of people in
organizations.
• Culture is one of the six “key strategic building
blocks” of successful organizations.
• Culture is an invisible key to organizational
success.
34
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Culture is an Invisible Key to Success
• Culture is a sustainable competitive
advantage.
• It is invisible to competitors.
• It cannot be copied easily.
35
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Why is Culture Important?
• Culture influences the success of people in
organizations.
• Culture is one of the six “key strategic building
blocks” of successful organizations.
• Culture is an invisible key to organizational
success.
• Culture has a direct impact upon financial
performance.
36
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Culture Has a Direct Impact On
Financial Performance
• Our research has shown that the extent to
which there is an agreement between the
culture of organizational units and overall
corporate culture has a statistically significant
impact upon financial performance.
• Culture accounts for 46% of EBIT.
37
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Research at Banner Corporation
• Approximately $800 (US) million in revenue.
• 18 business units or divisions.
• All divisions with revenues between $25 - $100
million (Stage III).
• Most divisions with revenues of $25 - $50 million.
38
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Divisional Cultural Buy-in vs. EBIT
20
15
EBIT
10
5
0
-5
25
35
45
55
65
75
85
Approval with Culture
39
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What You Need to Know for Effective
Culture Management
• There are “strong” and “weak” cultures.
40
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Strong and Weak Cultures
• A “strong” culture is one where there
is a high level of understanding of what
the culture is as well as a strong
commitment to the core values.
• A “weak” culture is where there is not
a high level of understanding of what
the core values are or a high degree of
commitment to them.
41
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What You Need to Know for Effective
Culture Management
• There are “strong” and “weak” cultures.
• There are “functional” and “dysfunctional”
cultures.
42
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Functional and Dysfunctional
Cultures
• A functional culture is one which enhances
organizational performance and success.
• A dysfunctional culture is one which leads to
suboptimal or underperformance.
43
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Examples of Companies of Each Culture Type:
Strong and Weak; Functional and Dysfunctional
Strong
Weak
Functional
Dysfunctional
J&J
Starbucks
GE
The Body Shop
Countrywide Financial
Wal*Mart
Kodak
Reuters
The Body Shop
Disney
Wal*Mart
PowerBar
Movenpick
Amgen
Navistar
Allied Domecq/Baskin
Robbins
UAL
44
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Where would you place the following:
Nestle? Allianz? Unilever?
Functional
Dysfunctional
Strong
Weak
45
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What You Need to Know for Effective
Culture Management
• There are “strong” and “weak” cultures.
• There are “functional” and “dysfunctional”
cultures.
• There is sometimes a difference between
“Stated” and “Real” Culture.
46
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
The Difference Between “Real” and
“Nominal” Cultures
Nominal (Stated) Culture: What we say our
culture is with respect to how we treat our
customers, our people, and the standards we
have.
Real Culture: The culture that our employees
“live and breathe.”
47
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
IBM Stated versus Real Culture
• Stated Culture:
– Respect for the individual.
– Excellence in customer service.
– Excellence in everything we do.
• Real Culture (“Organizational Reciprocity”):
– “Your take care of IBM, and IBM will take care of you.”
48
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
What are the Key Dimensions
of Corporate Culture?
49
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Five Key Aspects of Culture
• Customer-Client Orientation.
• Employee Orientation.
• Performance Standards/Accountability.
• Openness to Change.
• Company Norms.
50
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Corporate Culture Map
Cultural
Dimension
Values
Beliefs
Norms
Customer
Orientation
Employee
Orientation
Performance
Standards/
Accountability
Openness to
Change
Company
Norms
51
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Additional Research on Key
Dimensions of Culture
• Factors which directly affect financial
performance:
–
–
–
–
Customer Focus
Identification with the company
Performance & behavior standards
Corporate citizenship
• Factors which indirectly affect financial
performance:
– Human resource practices
– Communication
52
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
How can Corporate Culture be
Measured?
53
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Sample Culture Survey
Current Culture
Current Statement
To A
Very
Slight
Extent
To A
Slight
Extent
To
Some
Extent
To A
Great
Extent
Desired Culture
To A
Very
Great
Extent
To A
Very
Slight
Extent
To A
Slight
Extent
To
Some
Extent
To A
Great
Extent
To A
Very
Great
Extent
We keep our commitments
1. to our customers/business
partners.
Our people are the
2. Company’s most valuable
asset.
3. Our company reacts quickly to
changes in the marketplace.
4. Our leaders act and
communicate with integrity
at all times.
5. People are rewarded based
on their performance.
6. Good planning is rewarded.
7. Company policies are
applied consistently..
8. Changes that affect employees
are communicated quickly and
effectively.
54
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Key Things to Measure Using Surveys
• Cultural Alignment: Agreement with the
proposed culture.
• Behavioral Consistency: The extent to which
behavior is consistent with the desired culture.
• Cultural Gaps: The difference between the
stated or desired culture for a given value and
the actual or observed culture in practice.
55
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Euroco. – Survey Results for Culture Items
Item
Mean
%
Unfavorable
%
Neutral
%
Favorable
19
People have different interpretations of our
corporate values, beliefs, and norms.
3.3
0.0
66.7
33.3
26
Corporate values are understood clearly by all
employees.
3.0
33.3
33.3
33.3
31
We focus more on sales than on profitability as
a measure of performance.
3.3
33.3
0.0
66.7
34
The people who best represent our corporate
values get rewarded.
3.3
33.3
0.0
66.7
36
Our leadership spends time communicating the
company’s values.
4.0
0.0
33.3
66.7
40
Planning and systematic execution of plans are
rewarded more than “crisis management.”
4.0
0.0
0.0
100.0
41
We encourage and reward appropriate
innovation and risk-taking among employees.
3.7
0.0
33.3
66.7
46
Employees are encouraged to make
suggestions and offer constructive criticism.
4.0
0.0
0.0
100.0
48
We live quality in service, products, and
processes at all levels of the company.
4.0
0.0
33.3
66.7
49
We demonstrate fairness and consistency in
our supervision of employees.
4.0
0.0
0.0
100.0
56
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Euroco. – Survey Results for Culture Items
Item
Mean
%
Unfavorable
%
Neutral
%
Favorable
50
We expend too much energy on protecting our
turf.
3.7
0.0
33.3
66.7
52
Planning is a "way of life" in our organization.
3.3
0.0
66.7
33.3
53
People feel free to bring up sensitive issues to
corporate/senior management.
3.7
0.0
33.3
66.7
Culture Totals
3.7
7.1
23.8
69.0
57
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
How Can Culture be
Managed?
58
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Culture Management Process
Define the Culture Needed to
Support Long-Term Success
(“Desired Culture”)
Identify the
Current Culture
Identify And Analyze Significant
Gaps Between Desired Culture
And Current Culture
Develop Culture
Management Plan
Communicate The “New”
Culture, As Well As The Steps
Being Taken To Manage It
Monitor Implementation Of
Desired Culture And
Update/Refine The Culture
Management Plan
59
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
To what Extent is Corporate
Culture Similar or Different in
European and US
Organizations?
60
Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success
UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES
Mean Score Survey Results for Culture Items –
Swissco. versus USCO. A and USCO. B
Item
Swiss Co.
US Co. A
US Co. B
19
People have different interpretations of our corporate values,
beliefs, and norms.
2.6
3.6
3.3
26
Corporate values are understood clearly by all employees.
2.7
3.5
3.4
31
We focus more on sales than on profitability as a measure of
performance.
3.2
3.4
3.1
34
The people who best represent our corporate values get
rewarded.
2.7
3.3
3.3
36
Our leadership spends time communicating the company’s
values.
3.4
3.9
3.6
40
Planning and systematic execution of plans are rewarded
more than “crisis management.”
3.0
3.0
3.7
41
We encourage and reward appropriate innovation and risktaking among employees.
2.8
2.7
3.6
46
Employees are encouraged to make suggestions and offer
constructive criticism.
3.2
3.9
3.6
48
We live quality in service, products, and processes at all
levels of the company.
3.5
3.9
4.2
49
We demonstrate fairness and consistency in our supervision
of employees.
3.5
3.4
3.8
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Mean Score Survey Results for Culture Items –
Swissco. versus USCO. A and USCO. B
Item
Swiss Co.
US Co. A
US Co. B
50
We expend too much energy on protecting our turf.
3.4
3.6
4.1
51
We do an effective job of balancing strategic performance
with long-term success.
3.3
N/A
N/A
52
Planning is a "way of life" in our organization.
3.4
2.7
3.1
53
People feel free to bring up sensitive issues to
corporate/senior management.
2.6
3.1
3.3
54
All employees understand the informal rules that we operate
with around here.
2.8
N/A
N/A
55
Informal communication channels are more informative than
formal communication channels.
3.0
N/A
N/A
68
The slogan “Proud of the past; Prouder of the future”
reflects precisely our mission.
3.9
N/A
N/A
Culture Totals
3.1
3.4
3.6
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What are the Key Differences?
• “People have different interpretations of our corporate
VALUES, BELIEFS, AND NORMS.”
• “Corporate values are understood by all employees.”
• “The people who best represent our corporate values
get rewarded.”
• “People feel free to bring up sensitive issues to
corporate/senior management.”
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What Can Your organization do to
manage culture more effectively?
Ten tools to manage culture
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Ten Key Tools of Culture
Management
• Develop a Clear Statement of the Company’s
Culture/Values
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Examples
•
•
•
•
Johnson & Johnson Credo
Ritz Carleton
Starbucks
IBM
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Ten Key Tools of Culture
Management
• Develop a Clear Statement of the Company’s
Culture/Values
• Recruit and Select People for Cultural Fit
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Example: Hewlett Packard
Hewlett Packard puts prospective employees
through a day-long series of interviews with
eight HP employees (the "interview team") in
order to effectively screen for culture
compatibility.
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Example: Avon Cultural Fit Selection
• Management Systems is currently working with Avon
Supply Chain Operations to develop a tool for
identifying people who are most likely to fit in to their
culture.
• Involves identifying the criteria for people’s success.
• Involves identifying questions to be used in interviews
to determine people likely to fit those criteria.
• Involves a validation of the selection tool.
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Ten Key Tools of Culture
Management
• Develop a Clear Statement of the Company’s
Culture/Values
• Recruit and Select People for Cultural Fit
• Manage Culture through Socialization and
Training
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Example: Disney Theme Parks
Training Practices
• New “cast members” (not employees) go
through “Traditions 1” course upon entry.
• All people are cast for a “Role” in a Live Stage
Production.
• All cast members are trained by another
employee (Mentor system) in the same role
after completing Traditions 1.
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Ten Key Tools of Culture
Management
• Develop a Clear Statement of the Company’s
Culture/Values
• Recruit and Select People for Cultural Fit
• Manage Culture Through Socialization and
Training
• Retain People Who “Fit” With the Culture
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Example: GE Cultural Management
CULTURAL ACCEPTANCE
Low
High
High
Outsiders
PERFORMANCE
Low
Losers
Stars
3
1
4
2
Question
Marks
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Ten Key Tools of Culture
Management (cont’d)
• Change Leadership Practices
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Example: Motorola Leadership
Training
• All managers were trained in participative
management.
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Example: Countrywide Financial
Corporation Leadership Program
• Senior leadership is trained in “new”
leadership practices.
• Expected to function as change agents and
cascade the different practices throughout the
company.
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Ten Key Tools of Culture
Management (cont’d)
• Change Leadership Practices
• Change the Reward System
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Example: 3M
3M Corporation rewards employees for
successfully championing a new product by
making them the head of that product
division.
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Ten Key Tools of Culture
Management (cont’d)
• Change Leadership Practices
• Change the Reward System
• Set Up the Structure to Support Core Values
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Examples
• Berkshire Hathaway uses a tiny corporate staff to
support the value of business autonomy, but selects
only those companies which fit its culture.
• Johnson & Johnson uses a group and divisional structure
to emphasize a balance between entrepreneurship and
overall coordination.
• McDonalds uses a centralized approach to support
consistency throughout the system.
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Ten Key Tools of Culture
Management (cont’d)
• Change Leadership Practices
• Change the Reward System
• Set Up the Structure to Support Core Values
• Embed Core Values in Performance Standards
and Procedures
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Example: McDonalds
To reinforce its value for consistency,
McDonald’s strictly enforces adherence to
cooking and preparation guidelines for each
menu item so that a Big Mac in Pacoima is
indistinguishable from one in Poughkeepse.
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Ten Key Tools of Culture
Management (cont’d)
• Change Leadership Practices
• Change the Reward System
• Set Up the Structure to Support Core Values
• Embed Core Values in Performance Standards
and Procedures
• Use Symbols to Reinforce Corporate Values
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Knapp Communications:
Architectural Digest, Bon Appetit
Knapp created a special Gold “K” pin as a symbol
of Outstanding Performance.
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Ten Key Tools of Culture
Management (cont’d)
• Change Leadership Practices
• Change the Reward System
• Set Up the Structure to Support Core Values
• Embed Core Values in Performance Standards
and Procedures
• Use Communication to Reinforce Corporate
Values
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Examples
• Jack Welsh regularly visited the GE Leadership Training
Facility to talk about GE’s core values.
• Bill Hewlett and Dave Packard formalized the tactic of
“Management by Walking Around.”
• Sam Walton visited Wal*Marts.
• Angelo Mozilo uses annual meetings to talk about the
history of Countrywide, the reasons for its success, and
(by implication) its core values.
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Final Thoughts
• Culture is invisible but real
• It constitutes an asset, intangible but real
• Although it is invisible and intangible, it can be
measured
• Although invisible and intangible, it can be managed
• If managed appropriately, it can have a positive impact
upon “the bottom line” of financial performance
• If managed inappropriately, it can lead to organizational
distress and failure.
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References
•
Flamholtz, E. (1995). Managing Organizational Transitions: Implications for
Corporate and Human Resource Management. European Management Journal, 13
(1), 39-51.
•
Flamholtz, E. (2001). Corporate Culture and the Bottom Line. European
Management Journal, 19 (3), 268-275.
•
Flamholtz, E. And Rangapriya Kannan-Narasimhan,(2005). Differential Impact of
Corporate Cultural Elements on Financial Performance. European Management
Journal, 23 (1), 50-64.
•
Eric Flamholtz and Stanford Kurland, “Strategic Organizational Development and
Financial Performance: An Empirical Investigation, unpublished Working paper to
be presented at the UCLA/Oxford University “Empirical Research in
Entrepreneurship Conference,” June 23-25, 2005
•
Flamholtz, E. and Hua, Wei, (2002). Strategic Organizational Development and
the Bottom Line: Further Empirical Evidence, European Management Journal, 20
(1), 72-81.
•
Eric G. Flamholtz and Yvonne Randle, Growing Pains, Jossey-Bass Publishers, Inc.
(2000).
•
Eric G. Flamholtz and Yvonne Randle, Changing The Game: Transformations of
the First, Second and Third Kinds, Oxford University Press (September 1998).
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Please note that all of the materials in this slide
presentation are the proprietary intellectual property of
Eric G. Flamholtz, Ph. d, and Management Systems
Consulting Corporation and may not be reproduced or
otherwise distributed without written permission.
For more about reproduction rights or other information
on this presentation, please contact:
Management Systems Consulting Corporation
10990 Wilshire Blvd., Ste. 1420
Los Angeles, CA 90024
(310) 477-0444
www.mgtsystems.com
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Appendix A:
How to See (read) Culture
• Language: How we talk about ourselves and
our customers.
• Symbols: What represents value to people.
• Rituals: Events that promote culture.
• Rewards: How we recognize people and
behavior that is valued by us.
• Heroes: The role models for success in our
company.
• Web Sites: How we present ourselves.
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Appendix B:
• Steps in Culture Management
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Step 1: Define the Culture Needed to
Support Long-Term Success
(“Desired Culture”)
Key Question:
What should our culture be, given our current
stage of development and our future goals?
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Define the Culture Needed to Support
Long-Term Success (“Desired Culture”)
• Identify The Elements of Your Organization’s Culture
With Respect to:
–
–
–
–
–
Treatment of Employees
Treatment of Customers/Clients
Performance Standards/Accountability
Openness to Change
Company Norms
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Step 2: Identify Your Current Culture
• Methods to Identify Your Current Culture
– Stories – What is life like here?
– Interviews.
– Analysis of symbols, language, rites/rituals, rewards, heroes,
and web sites (“Artifacts”).
– Surveys to Measure Culture.
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Step 3: Identify and Analyze Significant
Gaps Between Desired and Current
Culture
Identifying Gaps Using Qualitative Methods
• Analyze information collected about the organization’s
current culture.
• Identify the “key elements” of the current culture, based
on this analysis.
• Compare current to desired culture and identify gaps.
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Step 3: Identify and Analyze Significant
Gaps Between Desired and Current
Culture
Identifying Gaps Using Quantitative Methods
• Survey Scores:
– Mean Scores
– Percent Favorable
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Swissco. – Survey Results for Culture Items
Item
Mean
%
Unfavorable
%
Neutral
%
Favorable
19
People have different interpretations of our
corporate values, beliefs, and norms.
2.6
45.5
42.5
12.0
26
Corporate values are understood clearly by all
employees.
2.7
46.1
40.7
13.2
31
We focus more on sales than on profitability as
a measure of performance.
3.2
20.1
47.5
32.4
34
The people who best represent our corporate
values get rewarded.
2.7
46.5
36.8
16.8
36
Our leadership spends time communicating the
company’s values.
3.4
21.5
27.0
51.5
40
Planning and systematic execution of plans are
rewarded more than “crisis management.”
3.0
29.8
36.6
33.6
41
We encourage and reward appropriate
innovation and risk-taking among employees.
2.8
39.2
41.2
19.6
46
Employees are encouraged to make
suggestions and offer constructive criticism.
3.2
24.3
32.5
43.2
48
We live quality in service, products, and
processes at all levels of the company.
3.5
15.3
33.1
51.6
49
We demonstrate fairness and consistency in
our supervision of employees.
3.5
14.1
31.9
54.0
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Swissco. – Survey Results for Culture Items
Item
Mean
%
Unfavorable
%
Neutral
%
Favorable
50
We expend too much energy on protecting our
turf.
3.4
21.9
23.2
54.8
51
We do an effective job of balancing strategic
performance with long-term success.
3.3
15.0
44.2
40.8
52
Planning is a "way of life" in our organization.
3.4
24.7
24.7
50.6
53
People feel free to bring up sensitive issues to
corporate/senior management.
2.6
45.8
34.5
19.6
54
All employees understand the informal rules
that we operate with around here.
2.8
38.4
39.6
22.0
55
Informal communication channels are more
informative than formal communication
channels.
3.0
32.5
28.2
39.3
68
The slogan “Proud of the past; Prouder of the
future” reflects precisely our mission.
3.9
10.1
22.8
67.1
Culture Totals
3.1
28.9
34.5
36.6
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Interpreting Scores
– % Favorable Scores equal to or greater than 90% on
Desired Culture items or dimensions suggest alignment.
– % Favorable Scores equal to or greater than 50% on
Current Culture items or dimensions are positive.
– % Favorable Scores less than 50% on Current Culture
items or dimensions are considered somewhat negative.
– A 10 percentage point difference between Current and
Desired Culture % Favorable Scores on individual items or
dimensions is considered significant.
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Steps 4 to 6: Develop, Implement
and Monitor a Culture Management
Plan
• Identify Strengths and Opportunities to Improve
• Identify Areas of Focus and Analyze
• Develop the Culture Management Plan
• Implement the Culture Management Plan
• Monitor Results
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Appendix C:
The pyramid of organizational Development
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Pyramid of Organizational Development
Corporate
Culture
Values Beliefs Norms
Management Systems
Planning
Accounting:
• Billing
• Payroll
Organization
Perf.
Mgmt.
Management
Development
Operational Systems
Production:
Marketing:
•Shipping
• Selling
Personnel:
• Hiring
• Compensation
Resources Management
Financial
Resources
Human
Resources
Technological and
Physical Resources
Products & Services
Develop Products (Services)
Markets
Define Market Segments and Niche
Business Foundation
 Business Definition
 Strategic Mission

Core Strategy
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103