Organizational Culture in Strategy Implementation

Organizational Culture in Supporting Strategies

Organizational Culture in Building Competitive Advantage

Because organizational culture is a set of ideologies, symbols, and core values that influences how the firm conducts its business and helps regulate and control employees’ behavior, it can be a source of competitive advantage.

Given that each firm’s culture is unique, it is possible that a vibrant organizational culture is an increasingly important source of differentiation for firms to emphasize when pursuing strategic competitiveness and above-average returns.

Relationship between Culture and Strategies

Organizational culture can strongly affect the ability of a company to shift its strategic direction because it has a powerful influence on the behavior of all employees.

There is no best organizational culture. An optimal culture is one that best supports the strategy of the company. Unless strategy is in complete agreement with the culture, any significant change in strategy should be followed by a modification of the organizational culture.

Thus, changing a firm’s culture to fit a new strategy is usually more effective than changing a strategy to fit an existing culture.

Weak linkages between strategy and organizational culture and jeopardize performance and success. A change in the mission, objectives, strategies, or policies of a business is not likely to succeed if it is in opposition to the accepted culture of the company.

Changing the Organizational Culture

Corporate culture has a strong tendency to resist change because its very reason for existence often rests on preserving stable relationships and patterns of behavior. Although corporate culture can be changed, it may often take a long time, and require much effort.

Effective strategic leaders recognize when change is needed. Incremental changes to the firm’s culture typically are used to implement strategies. More significant and sometimes even radical changes to organizational culture support selecting strategies that differ from those the firm has implemented historically.

Management must evaluate what a particular change in strategy means to the corporate culture, assess whether a change in culture is needed, and decide whether an attempt to change the culture is worth the estimated costs. When possible, management should strive to preserve, emphasize, and build upon aspects of an existing organizational culture that support proposed new strategies.

In general, cultural changes succeed only when the firm’s CEO, other key top management team members, and middle-level managers actively support them. To effect change, middle-level managers in particular need to be highly disciplined to energize the culture and foster alignment with the firm’s vision and mission.

Regardless of the reasons for change, shaping and reinforcing a new culture requires effective communication and problem solving, along with selecting the right people (those who have the values desired for the organization), engaging in effective performance appraisals (establishing goals that support the new core values and measuring individuals’ progress toward reaching them), and using appropriate reward systems (rewarding the desired behaviors that reflect the new core values).

Linking Organizational Culture to Strategies

Management should pay attention to these elements when trying to link the culture of the organization to its strategy.

They are as follows: (1) Formal statements of organizational philosophy, charters, creeds, materials used for recruitment and selection, and socialization; (2) Designing of physical spaces, facades, buildings; (3) Deliberate role modeling, teaching, and coaching by leaders; (4) Explicit reward and status system, promotion criteria; (5) Stories, legends, myths, and parables about key people and events; (6) What leaders pay attention to, measure, and control; (7) Leader reactions to critical incidents and organizational crises; (8) How the organization is designed and structured; (9) Organizational systems and procedures; and (10) Criteria used for recruitment, selection, promotion, leveling off, and retirement.

Key Concepts in Managing Strategy-Culture Relationship

Key 1: Assessing Strategy-Culture Compatibility

When implementing a new strategy, a company must assess strategy-culture compatibility. The assessment consists of 4 following steps.

The first step is about whether the proposed strategy is compatible with the company’s current culture. Tie organizational changes into the company culture by identifying how the new strategy will achieve the mission better than the current strategy does.

The second step is about whether the culture can be easily modified to make it more compatible with the new strategy. Introduce a set of culture-changing activities such as minor structural modifications, training and development activities, or hiring new managers who are more compatible with the new strategy.

The third step is about whether management is willing and able to make major organizational changes and accept probable delays and a likely increase in costs. Manage the culture by establishing a new structural unit to implement the new strategy.

The fourth step is about whether management is still committed to implementing the strategy. Find a joint-venture partner or contract with another company to carry out the strategy if top management is still committed to this strategy. Otherwise, another strategy should be formulated.

Key 2: Managing Cultural Change through Communication

Communication is key to the effective management of culture change. Ongoing communication and involvement are the approaches most used by companies that successfully transformed themselves.

Strategic changes should be communicated to workers not only in newsletters and speeches but also in training and development programs.

Companies in which major cultural changes have successfully taken place had the 2 following characteristics in common.

The first one is that the CEO and other top managers have a strategic vision of what the company could become and communicate that vision to employees at all levels. The current performance of the company is compared to that of its competition and constantly updated.

The second one is that the vision is translated into the key elements necessary to accomplish that vision. Appropriate measurement systems are developed, and these measures are communicated widely through contests, formal and informal recognition, or monetary rewards.

Key 3: Managing Diverse Cultures Following an Acquisition

When merging with or acquiring another company, top management must give some consideration to a potential clash of corporate cultures. Cultural differences are even more problematic when a company acquires a firm in another country.

It is also dangerous to assume that the firms can simply be integrated into the same reporting structure. The greater the gap between the cultures of the firms, the faster executives in the acquired firm quit their jobs and valuable talent is lost. When corporate cultures are similar, performance problems are minimized.

There are 4 general methods to manage 2 different cultures.

Method 1: Integration

This method involves a relatively balanced give-and-take of cultural and managerial practices between the merger partners, and no strong imposition of cultural change on either company. It merges the two cultures in such a way that the separate cultures of both firms are preserved in the resulting culture.

Method 2: Assimilation

This method involves the domination of one organization over the other. The domination is not forced, but it is welcomed by members of the acquired firm, who may feel for many reasons that their culture and managerial practices have not produced success. The acquired firm surrenders its culture and adopts the culture of the acquiring company.

Method 3: Separation

This method involves the separation of the two companies’ cultures. They are structurally separated, without cultural exchange.

Method 4: Deculturation

This method involves the disintegration of one company’s culture resulting from unwanted and extreme pressure from the other to impose its culture and practices. This is the most common and most destructive method of dealing with 2 different cultures. It is often accompanied by much confusion, conflict, resentment, and stress.

Key 4: Facilitating an Entrepreneurial Mindset

Firms of all sizes can use strategic entrepreneurship to pursue entrepreneurial opportunities as a means of earning above-average returns. Companies are more likely to achieve the success they desire by using strategic entrepreneurship when their employees have an entrepreneurial mindset.

Organizational culture often encourages (or discourages) strategic leaders and those with whom they work from pursuing (or not pursuing) entrepreneurial opportunities, especially in large organizations. This is the case in both for-profit and not-for-profit organizations.

This issue is important because entrepreneurial opportunities are a vital source of growth and innovation. Therefore, a key action for strategic leaders to take is to encourage and promote innovation by pursuing entrepreneurial opportunities.

One way to encourage innovation is to invest in opportunities as real options, that is to invest in an opportunity in order to provide the potential option of taking advantage of the opportunity at some point in the future.

Firms might enter strategic alliances for similar reasons. In this instance, a firm might form an alliance to have the option of acquiring the partner later or of building a stronger relationship with it (e.g., developing a new joint venture).

There are 5 dimensions of a firm’s entrepreneurial mindset: autonomy, innovativeness, risk-taking, proactiveness, and competitive aggressiveness.

Autonomy allows employees to take actions that are free of organizational constraints and encourages them to do so.

Innovativeness reflects a firm’s tendency to engage in and support new ideas, novelty, experimentation, and creative processes. Cultures with a tendency toward innovativeness encourage employees to think beyond existing knowledge, technologies, and parameters to find creative ways to add value.

Risk-taking reflects a willingness by employees and their firm to accept measured levels of risks when pursuing entrepreneurial opportunities.

Proactiveness describes a firm’s ability to be a market leader rather than a follower. Proactive organizational cultures constantly use processes to anticipate future market needs and to satisfy them before competitors learn how to do so.

Competitive aggressiveness is a firm’s propensity to take actions that allow it to consistently and substantially outperform its rivals.

Resources

Related Concepts

Strategy Implementation Essentials

References

Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases: Competitiveness and Globalization (MindTap Course List) (13th ed.). Cengage Learning.
Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.
Mastering Strategic Management. (2016, January 18). Open Textbooks for Hong Kong.
Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice Hall.

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