Culture eats strategy for breakfast

The relationship between the six concepts central to the delivery of the new Business Management programme is one that is worth exploring in detail with students. When applying concepts to contexts in the form of real life case studies, it is quickly apparent that there are significant overlaps and connections between the concepts and that considering any of them in isolation does not reflect reality. This post examines the relationship between culture and strategy, which seek to exemplify an organisation’s ethics.

Peter Drucker, considered by some to be “the man who invented management,” usually gets credit for the phrase, “Culture eats strategy for breakfast”; a saying frequently quoted by managers who believe culture sits at the heart of all great companies. They argue that strategy may be easy to create on paper, but it is far harder to build and maintain a winning culture. Culture determines how things are done in practice and an organisation with a strong culture can succeed, even when its strategy is mediocre. Certainly it is easier to change strategy than culture.

Corporate culture is a concept pioneered by Edgar Schein, and represents the operational outcome of putting an organisation’s values into action. Culture is the DNA of the firm and is in large part created by the actions of its founders. It guides organisational decision-making and underpins how employees interact with other stakeholders. Corporate culture is represented by, and made visible in, the firm’s mission and vision statements which provide a guiding philosophy for all employees and stakeholders. A strong culture flourishes when an organisation possesses a clear set of values and norms that actively guide the way it operates. When employees buy-in to an organisation’s culture, this promotes a shared and consistent approach to action, even when the members of teams are diverse in outlook and personality.

There are significant benefits resulting from a vibrant and thriving culture:

• Focus: Aligns the entire company towards achieving its vision, mission, and goals.
• Motivation: Builds higher employee motivation and loyalty.
• Connection: Builds team cohesiveness among the company’s various departments and divisions.
• Cohesion: Builds consistency and encourages coordination and control within the company.
• Spirit: Shapes employee behaviour at work, enabling the organisation to be more efficient and productive.

Without a functional and relevant culture, investment in research and development, product differentiation, marketing, and human resources may be wasted. Many management writers believe that culture cannot be “engineered,” as culture is the result of the combination of a wide number of both controllable, and uncontrollable, variables. Since culture develops with, or without, management intervention, it is in the interest of the firm and its management to communicate their desired values and then encourage the workforce to see that these are in their interest, as well as the firm’s.

IBM, when it was the most respected, profitable and rapidly growing computer business in the world, developed training and appraisal systems which focused on communicating their trio of core values: respect for the individual, exceptional customer service and the pursuit of excellence in all their operations. The success of the business and high employee rewards created a genuine belief and adherence to these core values, and ensured that IBM was one of the most admired global organisations for several decades.

Nevertheless, no culture, however strong, can overcome poor choices when developing, and implementing, corporate strategy. Corporate culture and strategy are usually mutually supporting. Strategy is rooted in the firm’s cultural strengths. If culture is hard to change, then strategy will be as well; both take years to build and both may take years to change. This is one reason why even established companies may struggle to cope with significant disruptions in their markets and external environments.

For a firm, the following questions are fundamental when setting strategy:

• In what market or markets should the firm operate?
• For each of these markets, what unique selling proposition does the firm possess?

The firm’s culture is central to answering the first question. For example, firms offering high-margin, premium-product are unlikely to be suited to markets where consumers possess high price sensitivity. This might explain why major airlines are not always successful setting up and operating a subsidiary offering a budget service. The cultural requirements and the necessary changes prove too difficult. Whatever synergies exist in operating two airlines, these can be offset by a lack of cultural coherence.

Cultural issues also impact on the second question. Customers consider more than concrete features and benefits when choosing between alternative providers; they also consider intangible factors, such as image, service and ‘personality’. These ‘personality traits’ come from a firm’s staff and management, but are retained, maintained and developed through a shared corporate culture. Culture is an essential variable of a firm’s USP and can provide distinct competitive advantage. Consumers are far more likely to buy from organisations which they like, and to which they have a sense of loyalty.

Often the prevailing corporate culture will decide to what extent the strategy is adopted and how successful the result. For example, recent changes to Ryanair’s customer services and conditions were a strategic reaction to the growing realisation that many customers had grown to dislike the firm, its management and its aggressive corporate culture and that despite cheap fares and an efficient service, this aversion risked market share and longer-term success. The management concluded that it was time to present a gentler persona, supported by a change in strategic direction. The next, and commercially essential, task is to embed this change in its corporate culture so that it reflects the change in strategic direction.

It has been recognised that an ethical corporate culture can provide competitive advantage in the market place. Many firms now include an ethical approach in their mission statement or corporate aims and objectives. Some firms produce separate documents outlining their corporate and social responsibilities. Firms like S.C. Johnson in the United States and Ikea in Sweden base their activities within an ethical framework, and are very profitable as a result of this commitment.

A vibrant culture is organic and evolving. For instance, the rapid shift from ‘bricks to clicks’; from traditional retailing to e-commerce and digital transactions, requires a significant adaption of strategy that many firms are finding difficult to implement. This strategic change requires not only cultural transformation, but also a change in a firm’s target customer, value propositions, and core competencies and capabilities.

Mergers and acquisitions frequently provide examples of a mismatch between strategy and culture, and culture and culture, which consigns the strategic move to commercial failure. Perhaps the most striking illustration of this was in the disastrous integration of AOL and Time Warner. In 2001, the merger of AOL-Time Warner was hailed as a brilliant vision of the future; a company with the ability to deliver all manner of entertainment to the world over the Web. Everything from Time magazine to popular TV series would be delivered to people’s desks, their homes and their hand held computers. It was a $125 billion deal bonding the magic of Hollywood films, the TV news of CNN and the all-conquering technology of the internet as supplied by AOL. However, the deal bought together three billionaire entrepreneurs, Ted Turner of CNN, Steve Case of AOL and the movie maker Gerald Levin, whose very different business ideals, personality and values and inflated egos, were destined to create conflicts that would undermine the commercial advantages of the merger.

Two years later, the company formed from the world’s biggest, brightest and most revolutionary business merger reported losses of an astonishing $110 billion, a sum equivalent to the total wealth of a medium-sized country like Ireland. Mega-mergers almost never fulfil their promise. Research shows that more often than not, they destroy the value, which comes with more focused management. By bringing together three extraordinarily different corporate cultures, the creativity was certain to result in a clash of empires and egos that destroyed the potential synergies set out in the pre-merger strategy.

The lesson from these failures is that relegating strategy to simply a morning meal for culture, or confining culture to the narrow role of enabling strategy, ignores the potential of combining the two and making certain that they feed off each other. Successful businesses respond quickly to a dynamic external environment, and to changes in PEST factors, such as social tastes, fashion, consumer preferences and business models by ensuring that their strategy and corporate culture are aligned. Poorly aligned strategy and culture normally leads to commercial disaster.

Student activities

1. Ask your students to access Fortune’s 500 most admired companies, select two of the top 50 and then find:

• their mission and vision statements
• any supporting corporate responsibility and ethics statements and policies

Your students should then search for articles online that refer to, and describe the firm’s operations and activities and comment on whether, and how, these businesses appear to put their mission and vision statements into practice. Do they appear to align their corporate culture with their strategic direction?

2. Find the website of the S.C. Johnson and the pages that describes and expands on its ‘This We Believe’ statements. How does S.C. Johnson put its vision into practice through its strategic approach and its tactical activities and operations?

Sources:

• Strategy-Business
• TechCrunch
• Forbes
• Fastcompany
• Fortune