34 Corporate Culture and Strategic Management

Learning Objectives:

The Learning objectives of the module are to explore relationship between corporate culture and Strategies, to address the following questions:

1.    What is the definition and Scope of Corporate Culture?

2.    How does Corporate Culture affect the Strategic decisions of the firm?

3.    To know the impact of competition on Corporate Culture.

4.    To understand relationship between corporate culture and Competitive advantage.

1.  Introduction

Managers perform the planning, organizing, directing, and controlling functions within the context of the organization’s culture. The term ‘Corporate Culture’ can be explained as corporate DNA to communicate, coordinate focused to achieve organizational objectives keeping in view the norms and values of the organization. In simple words, corporate culture can act as an essential influential factor in analyzing organizations in various contexts. Its importance to establish competitive advantages or its impact on organizational performance. Success of organizations is not only determined by specific external conditions (viz. barriers to market entry, rivalry in the industry, and supplier and buyer power), rather it is being decided by company values. The broader scope of corporate culture is developed social controls among individuals of the organization. In order to ensure the corporate culture to become integrated part of corporate environment, organization needs to ensure culture function should blend with the ongoing activities of the business.

The relationship between organizational culture and business strategy is important to understand. The organizational culture creates powerful strategies and become its competitive advantages in current competitive environment, then makes organizations and companies successful.

1.1. Importance of Culture

Firm’s culture is one of the important parts of the strategic thinking and it can impact on company’s employees, customers, suppliers and other different targets. The owner of the company can create their own strategy on the alignment of unique organizational culture with a competitive space. It also involves how organizational culture affects its strategic decision, options and actions.

Following YouTube link explains the Need of Corporate Culture in a Business

https://www.youtube.com/watch?v=gficoigz1xs

The video highlights culture as a catalyst towards organizational productivity. It also depicts how companies can use it to gain a competitive advantage. (Source: strategy-business.com)

1.2. What is corporate culture?

Corporate culture refers to the beliefs and behaviors that determine how a company’s employees and management interact and handle outside business transactions. Often, corporate culture is implied, not expressly defined, and develops organically over time from the cumulative traits of the people the company hires. A company’s culture will be reflected in its dress code, business hours, office setup, employee benefits, turnover, hiring decisions, and treatment of clients, client satisfaction and every other aspect of operations.

Exhibit I : What Culture Is and Isn’t

An organization’s culture is complex. But it’s not hard to describe. It’s often explained as being “the way we do things around here”— what goes and what doesn’t. 7 These behaviors reflect assumptions about people and how they think and act, as well as values and beliefs shared by members of an organization, whether or not they have been articulated. They are reinforced by artifacts—icons, stories, heroes and heroines, rites and rituals—that remind people what an organization stands for, such as IBM’s famous “THINK” signs or Walmart’s ubiquitous “ten-foot greeting.” Stories about organizational heroes or “goats” provide added reinforcement. Finally, “the way we do things around here” is backed up by efforts to measure behaviors and take some kind of corrective action when the behaviors are unacceptable to other members of the organization. These assumptions, values, beliefs, behaviors, artifacts, measurements, and actions determine how things get done in an organization. (Source: Haskett, 2011)

1.3 History of Corporate Culture

While awareness of corporate or organizational culture in businesses and other organizations such as universities emerged in the 1960s, the term “corporate culture” was developed in the early 1980s and widely known by the 1990s. Corporate culture was used at this time by managers, sociologists and other academics to describe the character of a company, not only through generalized beliefs and behaviors, but also through company-wide value systems, management strategies, employee communication and relations, work environment, attitude, and even company origin myths via charismatic CEOs, as well as visual symbols such asl ogos and trademarks.

By 2015, corporate culture was not only created by the founders, management and employees of a company, but also influenced by national cultures and traditions, economic trends, international trade, company size and products produced. A well-cited historical example of distinctions between corporate cultures is the traditional business practices of the Japanese, and the American individualistic and entrepreneurial corporate culture of the 1960s.

There are a variety of terms that relate to companies affected by multiple cultures, especially in the wake of globalization and the increased international interaction of today’s business environment. As such, cross culture refers to “the interaction of people from different backgrounds in the business world”; culture shock refers to the confusion or anxiety people experience when conducting business in a society other than their own; and reverse culture shock is often experienced by people who spend lengthy times abroad for business and have difficulty readjusting upon their return. To create positive cross-culture experiences and facilitate a more cohesive and productive corporate culture, companies often devote in-depth resources to combating the occurrence of the above, including specialized training that improves cross-culture business interactions.

2. Definition

2.1. Organization Culture (Corporate Culture): Organization culture refers to the unique configuration of norms, beliefs, ways of behaving and so on that characterize the manner in which groups and individuals combine to get things done.

It also can define that the set of important assumptions that members of an organization share in common. There is other definition of the organizational culture involves assumptions, adaptations, perceptions and learning.

Exhibit II : Organization culture of Walt Disney

Walt’s Disney has three layers of organization culture. First layer includes artifacts and creations, such as annual report, a newsletter, wall dividers between workers and furnishings. Second layer includes values, or the things that are important to people. The third layer is the basic assumptions that tell individuals how to perceive, think about and feel about work, performance goals, human relationships and the performance of colleagues. This becomes the three layer model of organizational culture.

2.2 Culture function: Culture functions are the function that exhibits cultural aspect of a group of people with similar interests, backgrounds, and beliefs together while shaping their views of the world. Culture strengthens bonds between people and can easily change and evolve by adding new trends or removing old traditions. Culture function incorporate variables including – Incentives and Integrity. Whereas, Incentives emerged as major strategic focus as culture component that complement with traditional control systems and the term Integrity define as holistic of the functions.

2.3. Cultural Values: Cultural values are the set of values the define firms’ past and present standing. . Three common cultural characteristics are:

1.  It should blend with the core philosophy of the business (social and commercial objectives of the firm)

2.  Synchronization with business environment of the firm (reshaping business processes as per the business environment)

3.  Cultivation of work culture across the levels of management

3. Elements of Corporate Culture

The following are the elements comes under corporate culture

Vision: An inspirational description of what an organization would like to achieve or accomplish in the mid-term or long-term future. It is intended to serves as a clear guide for choosing current and future courses of action.

1.1 Value: A company’s values are the core of its culture. While a vision articulates a company’s purpose, values offer a set of guidelines on the behaviors and mindsets needed to achieve that vision.

1.2 Practices: A method, procedure, process, or rule employed or followed by a company in the pursuit of its objectives

1.3 People: No company can build a coherent culture without people who either share its core values or possess the willingness and ability to embrace those values. That’s why the greatest firms in the world also have some of the most stringent recruiting policies.

1.4 Narrative/Leadership: A company’s leadership is composed of the top executives who oversee its operations and plot its strategies for the future

1.5 Place: The term place signifies the geographical location where the plant location, corporate office is located. Place is important from the perspective of operational and strategic decision making.

There are other factors that influence culture. But these six components can provide a firm foundation for shaping a new organization’s culture. And identifying and understanding them more fully in an existing organization can be the first step to revitalizing or reshaping culture in a company looking for change.

Beside to above listed six components significantly shape organization’s culture. There are other factors that influence culture including, aassumptions, values, beliefs, behaviors, artifacts, measurements, and actions—has its own properties.

4. Determinants of Corporate Culture

Various determinants define the scope and applicability of Culture of an organization, including:

1.4  Organizational Structure – is the institutional framework that ensures activities including task allocation, coordination and leadership to achieve organizational objectives. Various

properties coming under organizational structure are Power and authority structure, pattern of information exchange and organizational roles.

1.5   Business Processes – A Business Process is a series of repeatable steps performed by stakeholders with a definite goal. A specific event in a chain of structured business activities.Examples of business processes include receiving orders, invoicing, shipping products, updating employee information, or setting a marketing budget.

1.6    HR Management and Compensation mechanism– Human Resource Management plays vital role in a business organization. Since, among four Ms, i.e Men, Material, Machine and Money, Men has been most important factor, it is impossible to imagine a business process without Men. Compensation Management is concerned with the formulation and implementation of strategies and policies that aim to reward people fairly, equitably and consistently in accordance with their value to the organization. Overall strategic outlook of the organization – Strategic outlook for a business firm includes vision statement, Corporate Governance and Competitive advantage of the firm.

5. Why Culture matters?

It is very important to understand that ‘why we should study culture and how culture influence the overall performance of employees and firm respectively’. Corporate culture, like personal character, is an amorphous quality that exerts a powerful influence. Therefore the Corporate culture could be boon or bane for organizations as they ponder strategic and human resource issues clearly, companies should analyze the leadership profiles of their own employees and assess their organizations’ tolerance for divergent styles when considering mergers and acquisitions or important external hires. Successful mergers between companies in which employees displayed similar leadership styles or where the cultures tolerated different ones.

5.1 Culture’s role in organizational performance

Corporate Culture and strategy together decide the present and future performance of the organization. Figure 2-1 depicts how corporate culture can blind with the strategic dimension of the business. Various components of firm show one way of thinking about the relationship. Shared assumptions regarding such things as the “right” customers, competitors, and suppliers; communities to be served; the legal and regulatory environment; and people, work, motivation, & the social environment influence elements of culture, strategy, and execution.

Figure 2-1: Culture’s role in organizational performance (source: Heskett, 2011)

That explains why these basic elements of management typically have more overlap than theory leads us to believe. Although extraordinary technologies or products may afford short-term success, the degree of alignment between elements of culture, strategy, and execution is a major factor in determining an organization’s long-term performance, as shown in Figure 2-2 .

5.2 Characteristics of Corporate Value

It is possible to change a company’s culture—or at least to prod it a bit in one direction or another. That is best achieved by continually hiring people who represent the direction in which you are headed. The set of characteristics (Table I) in a firm leads to reflect the corporate value of it.

Table I: A Description of the Corporate Values

 

Value	Description
Integrity	The organization does what is says it will do for members, and staff follow
	through on promises; what is promised in a membership is delivered.
Fitness	Staff is committed to their own fitness and the fitness of members; they value
	the role of fitness in people’s lives, and know that it can make a difference.
Peak Attitude	Staff are upbeat and energized
Innovation	The organization has innovative fitness ideas, and staff tries to come up with
	new ways of doing things.
Communication	Information  and  education  is  easily  accessible,  and  events,  activities  and
	classes are communicated clearly; member are listened to and heard in the
	organization.
Trust	Members can count on staff to look after them; members trust that staff has
	accurate information and knowledge, and they have confidence in staff ability.
Care	The organization cares about its members and about its staff, and staff care
	about members and about each other
Passion	Staff is passionate about their job, and is dedicated to serving members.
Performance	The organization has a long history of success, and is a leader in the industry

Strategic orientation can be categorized into six factors, namely, leading, future analytic, aggressive, defensive, adventurous, and conservative. These orientations can be described as follows: leading, always trying to innovate; future analytic, focusing on research for future activities; aggressive, undercutting competitors; defensive, maintaining careful control; adventurous, risk taking; and conservative, avoiding risk.

6. Impact of competition on Corporate Culture

Competitive business environment brings about changes in organizations and forces firms to seek the strategies that will best enable them to gain or sustain a competitive advantage in the marketplace. To continue growing, companies should adapt to environmental changes and manage their employees to act consistently in reacting to that change. Thus, corporate strategies should balance external environmental realities with internal capabilities to maximize corporate value.

There is a co-linkage between (a) organizational culture and identity; (b) organizational strategy; (c) organizational design, structure, and processes; and (d) organizational behavior and performance. Existing theories support this linkage at the Organization level.

Figure III show that interlink age between Organizational Culture and Strategy Linkage. Culture symbolized set of guiding principles and it equally affects the process of operationalization. Culture indirectly influences Strategy, Organizational Structure and Operations. Figure IV explains the overlapping between Organizational Culture, Strategy, Structure and Operations using Organizational Culture Model

From Strategic perspective, corporate culture is defined as the pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with norms for behavior in the organization. Corporate culture focuses on the underlying values and attitudes that affect the way in which things are done. Strategic orientation ensured the mapping of organization behavior with firm’s strategy. On the other hand, it is considered as a controllable variable to increase organization’s overall performance. Like culture, strategic orientation is considered to be a critical issue that may determine the success or failure of an organization. This has particular implications for management, because strategic orientation is also considered a controllable variable, and therefore it can improve the organization’s overall performance.

Strategic orientation focuses on how firms should interact with external environments such as customers, competitors, and technology to conduct business. The effectiveness of a firm’s strategy depends on the fit between strategic choices and market dynamism.

7. 7. Corporate Culture and Strategic Advantage

There is a significant relationship between Return on Asset Deployed (ROA) and corporate culture for both service and manufacturing sector. Corporate culture has pervasive effects on non-financial aspects of an organization, and therefore its effects may be found at any point in the relationship because it defines the organization’s employees, customers, competitors, and suppliers, as well as the way in which all of these stakeholders interact. Cultures are independent of geo-ethnic boundaries, and emerge through social transactions (i.e., patterned exchanges of material and immaterial items between individuals or groups). TCA encourages multilevel explorations of complex social phenomena.

Case Study : Breaking down ‘Corporate Culture’ in Google

Google Inc. (GOOGL) is a company that is well-known for its employee-friendly corporate culture. It explicitly defines itself as unconventional and offers perks such as telecommuting, flextime, tuition reimbursement, free employee lunches, on-site doctors and, at its corporate headquarters in Mountain View, Calif., on-site services like oil changes, massages, fitness classes, car washes and a hair stylist. Google’s corporate culture has helped it to consistently earn a high ranking on Fortune magazine’s list of 100 Best Companies to Work For.