19e Global Edition

THOMPSON | PETERAF | GAMBLE | STRICKLAND

CHAPTER 12
CORPORATE CULTURE AND LEADERSHIP:
KEYS TO GOOD STRATEGY EXECUTION

Copyright © 2014 by The McGraw-Hill Education All rights reserved.

1. Be able to identify the key features of a company’s
corporate culture and appreciate the role of a
company’s core values and ethical standards in
building corporate culture.
2. Gain an understanding of how and why a company’s
culture can aid the drive for proficient strategy
execution.
3. Learn the kinds of actions management can take to
change a problem corporate culture.
4. Understand what constitutes effective managerial
leadership in achieving superior strategy execution.

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 INSTILLING A CORPORATE CULTURE
CONDUCIVE TO GOOD STRATEGY
EXECUTION

 Corporate Culture
● Is the meshing of shared values, beliefs, business
principles, and traditions that imbues a firm’s
operating style, behavioral norms, ingrained attitudes,
and work atmosphere.
● Is important because it influences the firm’s actions
and approaches to conducting business.

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CORE CONCEPT

♦ Corporate culture refers to the shared values,

ingrained attitudes, core beliefs and company
traditions that determine norms of behavior,
accepted work practices, and styles of
operating.

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 KEY FEATURES OF A FIRM’S
CORPORATE CULTURE
Values, principles, Management Atmosphere and How managers and
and ethical practices and spirit embodied employees interact
standards organizational in the firm’s work and relate to one
in actual use polices climate another

Features of a Corporate Culture

Strength of peer Actions and Traditions and

How the firm
pressure to behaviors stories and “how
treats its
conform and encouraged we do things
stakeholders
observe norms and rewarded around here”

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STRATEGIC MANAGEMENT PRINCIPLE

♦ A company’s culture is grounded in and

shaped by its core values and ethical
standards.

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FIGURE 12.1 The Two Culture-Building Roles of a Company’s Core Values
and Ethical Standards

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TRANSFORMING CORE VALUES AND ETHICAL
STANDARDS INTO CULTURAL NORMS

 Recruit and hire applicants with values and

ethics compatible to those of the firm.
 Incorporate the values statement and the code
of ethics into orientation and training programs.
 Have senior executives frequently reiterate and
stress the firm’s values and ethical principles.
 Use values statements and codes of ethics as
benchmarks for the firm’s polices and practices.

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STRATEGIC MANAGEMENT PRINCIPLE

♦ A company’s values statement and code of

ethics communicate expectations of how
employees should conduct themselves in the
workplace.

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 TRANSFORMING CORE VALUES AND ETHICAL
STANDARDS INTO CULTURAL NORMS (CONT’D)

 Use core values and ethical principles when

evaluating each person’s job performance.
 Encourage all employees to help enforce the
observance of core values and ethical
standards.
 Periodically have ceremonial occasions to
recognize individuals and groups who display
the firm’s values and ethical principles.
 Institute strict ethics enforcement procedures.

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PERPETUATING THE CULTURE

Systematic
indoctrination of
new members
Screening and Vocal support by
selecting new senior managers
employees

Perpetuating
the Culture

Telling and Rewarding those

retelling of the who display
firm’s legends cultural norms
Ceremonies
honoring
employees

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 FORCES THAT CAUSE A FIRM’S
CULTURE TO EVOLVE
New or revolutionary
technologies

New challenges in Diversification into

the marketplace new businesses
Causes of
Cultural
Change
Shifting internal Rapid growth
conditions of the firm

Merger or acquisition
of another firm

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 COMPANY CULTURES CAN BE
STRONGLY OR WEAKLY EMBEDDED

♦ Strong-Culture Firm ♦ Weak-Culture Firm

● Has deeply rooted ● Lacks values and
widely-shared values, principles that are
behavioral norms, and consistently preached
operating approaches. or widely shared.
● Insists that its values ● Has few or no
and principles be traditions, beliefs,
reflected in the values, common
decisions and actions bonds, or behavioral
taken by all company norms.
personnel.

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CORE CONCEPT

♦ In a strong-culture company, deeply rooted

values and norms of behavior are widely
shared and regulate the conduct of the
company’s business.

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 DEVELOPMENT OF
A STRONG CULTURE

Founder or Commitment
strong leader Strong by the firm to
with strong Culture ethical
values behavior

Closely aligning corporate culture with the requirements

for proficient strategy execution merits the full attention
of senior executives.

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STRATEGIC MANAGEMENT PRINCIPLE

♦ A strong culture that encourages actions,

behaviors, and work practices that are in sync
with the chosen strategy and conducive to
good strategy execution is a valuable ally in the
strategy execution process.

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 WHY CORPORATE CULTURES MATTER TO
THE STRATEGY EXECUTION PROCESS

 A culture well matched to the requirements of the

strategy execution effort focuses the attention of
employees on what is most important to this effort.
 Culture-induced peer pressure induces personnel to do
things in a manner that aids good strategy execution.
 A culture consistent with the requirements for good
strategy execution can energize employees, deepen
their commitment to execute the strategy, and enhance
worker productivity.

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STRATEGIC MANAGEMENT PRINCIPLE

♦ It is in management’s best interest to dedicate

considerable effort to establishing a corporate
culture that encourages behaviors and work
practices conducive to good strategy
execution.

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HEALTHY CULTURES THAT AID
GOOD STRATEGY EXECUTION
Performance

Good Strategy
Execution

High-Performance Adaptive
Cultures Cultures

Commitment to
Willingness to accept
achieving stretch
change and take on
objectives and
challenges
accountability

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STRATEGIC MANAGEMENT PRINCIPLE

♦ As a company’s strategy evolves, an adaptive

culture is a definite ally in the strategy-
implementing, strategy-executing process as
compared to cultures that are resistant to
change.

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UNHEALTHY CULTURES THAT IMPEDE
GOOD STRATEGY EXECUTION

Incompatible
Subcultures

Change-resistant Insular, inwardly

cultures focused cultures
Unhealthy
Cultures
Politicized Unethical and greed-
cultures driven cultures

Poor Strategy
Execution

Poor Performance

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 CHANGING A PROBLEM CULTURE:
THE ROLE OF LEADERSHIP

 A strong, out of sync, or unhealthy culture

must be changed in order to execute strategy
successfully.
 Competent leadership at the top is necessary
for culture-change efforts to succeed.

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FIGURE 12.2 Changing a Problem Culture

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 MAKING A COMPELLING CASE
FOR CULTURE CHANGE

 Selling the Change

● Explain why and how certain behavioral norms and
work practices are obstacles to good execution of
strategic initiatives.
● Explain how new behaviors and work practices will
be produce better results.
● Cite reasons why the current strategy has to be
modified, if the need for cultural change is due to a
change in strategy.

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 SUBSTANTIVE CULTURE-CHANGING
ACTIONS

 Replace key executives who are stonewalling needed

organizational and cultural changes.
 Promote individuals who advocate for cultural shifts and
can serve as a role model for the cultural behavior.
 Appoint outsiders with the desired cultural attributes to
high-profile positions.
 Screening candidates for positions carefully, hiring only
those who appear to fit in with the new culture.
 Mandate that all personnel attend culture-training.
 Design compensation incentives that boost the pay of
teams and individuals.
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SYMBOLIC CULTURE-CHANGING
ACTIONS

Changing the culture

of an organization

Top executive Ceremonial

Physical symbols
and upper events to honor
that represent
management exemplary
the new culture
behaviors employees

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HOW LONG DOES IT TAKE TO CHANGE
A PROBLEM CULTURE?

 Changing a problem culture is never a short-term

exercise.
 A sustained and persistent effort to reinforce the culture
at every opportunity through word and deed is required.
 It takes time for a new culture to emerge and prevail; it
takes even longer for it to become deeply embedded.
 Fixing a problem culture and instilling a new set of
attitudes and behaviors can take two to five years.

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LEADING THE STRATEGY EXECUTION
PROCESS

 Leading Strategy Execution Requires:

● Staying on top of what is happening and closely
monitoring progress.
● Putting constructive pressure on the organization
to execute the strategy well and achieve operating
excellence.
● Initiating corrective actions to improve strategy
execution and achieve the targeted performance
results.

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 ILLUSTRATION CAPSULE 12.2
Changing the “Old Detroit” Culture
at Chrysler

♦ What is meant by “culture is not part of the

game—it is the game”?
♦ How did Doug Betts’ background prepare him
for leading the cultural change at Chrysler?
♦ What culture-changing actions did Doug Betts
take to produce cultural change at Chrysler
Group LLC?

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CORE CONCEPT

♦ Management by walking around (MBWA) is

one of the techniques that effective leaders use
to stay informed about how well the strategy
execution process is progressing.

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 STAYING ON TOP OF HOW
THINGS ARE GOING

 Management by Walking Around (MBWA)

● Is used by leaders to stay informed about how well
the strategy execution process is progressing.
● Involves spending time with people at company
facilities, asking questions, listening to their opinions
and concerns, and gathering firsthand information
about how well aspects of the strategy execution
process are going.

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MOBILIZING THE EFFORT FOR
EXCELLENCE IN STRATEGY
EXECUTION

 Treat employees as valued partners.

 Foster an esprit de corps that
energizes members.
 Use empowerment to create a fully
engaged workforce.
 Make champions out of the people
who spearhead new ideas and/or
turn in winning performances.

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 MOBILIZING THE EFFORT FOR
EXCELLENCE IN STRATEGY
EXECUTION (CONT’D)

 Set stretch objectives that require personnel to

give their best in achieving performance targets.
 Use benchmarking, reengineering, TQM, and
Six Sigma to focus attention on continuous
improvement.
 Use motivational techniques and compensation
incentives to inspire, nurture a results-oriented
work climate, and enforce high standards.
 Celebrate individual, group, company successes.
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 LEADING THE PROCESS OF
MAKING CORRECTIVE
ADJUSTMENTS

Making corrective actions

successfully requires:

Good business Good

A thorough
judgment in implementation
analysis of the
deciding what of the corrective
situation
actions to take actions

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 A FINAL WORD ON LEADING
THE PROCESS OF CRAFTING
AND EXECUTING STRATEGY
 It is difficult to separate leading the process of executing
strategy from leading the strategy process.
 Crafting, implementing, and executing strategy is a
continuous process that requires much adjusting and
fine-tuning of the strategy to fit changing circumstances.
 The tests of strategic leadership are whether the firm
has a good strategy and business model, whether its
strategy is competently executed, and whether the firm
is achieving its performance targets.
 If these three conditions exist, then the firm has good
strategic leadership and is a well-managed enterprise.
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