Organizational culture is a quiet, but driving, influence on our perception of a company, whether as a consumer or as an employee. For instance, we know Southwest Airlines as laid back and friendly. We think of Google as innovative. To almost every well-known company we can assign a character. It is now well recognized that corporate culture has a significant impact on organizational health and performance. Yet, the concept of corporate culture and culture management is too often tantalizingly elusive.
In this book, Flamholtz and Randle define culture, identifying and explaining the five key dimensions that determine it: a customer orientation; a people orientation; a process orientation; strong standards of performance and accountability; innovation and openness to change. They explain why culture is a critical factor in organizational success and failurea key determinant of financial performance. Then, they provide a theoretically sound, highly practical, and field-tested method for managing corporate culturepresenting a set of international and domestic cases that show how actual companies have leveraged culture as the ultimate source of sustainable competitive advantage. In addition to well-known companies such as Starbucks, Ritz-Carlton, American Express, IBM, and Toyota, the text presents lesser known culture stars, such as Smartmatic and Infogix.
While other titles on culture have focused too heavily on the organization as a psychological being, or on academic studies of culture as a business lever, Corporate Culture draws on empirics to present a go-to, must-read guide for leveraging corporate culture as a source of competitive advantage and as a means of impacting the bottom line.
|Publisher:||Stanford University Press|
|Edition description:||New Edition|
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About the Author
Eric G. Flamholtz is Professor Emeritus at the UCLA Anderson School of Management and President of Management Systems Consulting, which he founded in 1978. He also teaches at the Cheung Kong Graduate School of Business in China and serves as a member of the Board of Directors of 99 Cents Only Stores. Flamholtz is the author of a number of published books, including Leading Strategic Change and Growing Pains, Fourth Edition. He has consulted with renowned companies around the world.
Yvonne Randle is Executive Vice President of Management Systems Consulting, which she joined in 1983. She is a Lecturer at the UCLA Anderson School of Management. She has extensive consulting experience with companies that range in size from small entrepreneurships to multi-billion dollar enterprises. With Flamholtz, she has co-authored several books, including Leading Strategic Change and Growing Pains, Fourth Edition.
Read an Excerpt
Corporate CultureTHE ULTIMATE STRATEGIC ASSET
By Eric G. Flamholtz Yvonne Randle
Stanford University PressCopyright © 2011 the Board of Trustees of the Leland Stanford Junior University
All right reserved.
Chapter OneCorporate Culture The Invisible Asset
Scholars, students, and practitioners of organizational studies are faced with a variety of "corporate enigmas"—strange organizational phenomena that, at least on the surface, require some special explanation. Specifically:
How does a little company headquartered in Bentonville, Arkansas, become one of the largest retailers in the world, with more than $400 billion in sales?
How does a company selling a commodity product that has existed for centuries grow from $122 million in sales to more than $5 billion in slightly more than a decade, and more than $12 billion in two decades?
How does a small company in Texas with all the cards stacked against it—whose business plan was created on a napkin—grow into one of the largest and most profitable players in its market?
How does a company with an odd, unbusinesslike name come out of nowhere in the competitive environment of Silicon Valley to challenge the behemoth Microsoft and replace it as the leader in the Internet space?
How does a company retain its vitality for more than one hundred years when virtually all of its peers of a century ago have disappeared?
How does a company with a dominant market position (more than 42 percent market share) fall from grace over a period of twenty years and face the abyss of failure? How does a company that has developed a carefully nurtured reputation for quality over a period of more than fifty years suddenly have it tarnished by serious product defects that were known to management but concealed from customers?
Corporate Culture: an invisible Strategic asset
The answer in all these cases, we believe, is attributable to something that is very real but invisible to the naked eye. It is not magic but something that, under the best of circumstances, works much like organizational magic. The answer is the invisible asset (or liability!) of corporate culture.
In the case of the little company from Bentonville, Walmart has grown to be a retailing colossus. In his book The Wal-Mart Way, Don Soderquist, former vice chairman and chief operating officer, of Walmart, now retired, attributes its success to the company's culture. Similarly, both Howard Schultz, founder and chairman of Starbucks Coffee Company; and Howard Behar, former president of Starbucks International, have attributed their company's astounding success to its culture rather than its coffee. Southwest Airlines recognizes that corporate culture has been a key ingredient to success and the ability to remain profitable, even in the face of significant challenges. As stated in their 2008 report "Southwest Cares: Doing the Right Thing," "It is the Southwest Culture that sets us apart." Other airlines went bankrupt in the aftermath of September 11, 2001, or as a result of the financial crisis that began in the fall of 2008, but Southwest remained profitable and consistently ranked in the top ten on Fortune magazine's "Most Admired Companies" lists.
The company from Silicon Valley with the odd, unbusinesslike name of Google has become the leader in the Internet space through its search engine technology. However, a key to the continuous development of that technology is the talent and creativity of its people. As one article aptly stated, "The secret of Google's success is its way of turning talented engineers into an extraordinarily creative team." Google attracts its talent because of its culture. As a result of its special culture, Google is recognized as one of the best companies to work for.
Almost unbelievably, GE is one of only two companies that were among the most successful at the beginning of the twentieth century that are still highly successful today. The company's success has also been attributed to corporate culture. GE's cultural values emphasize creating a clear, simple, reality-based, customer-focused vision; a passion for excellence; and not just acceptance of change but initiation of it.
General Motors, which was once the undisputed leader and apotheosis of business greatness, has fallen from grace and is now in a battle for its very survival. Many people attribute this to the insularity of the GM culture, and its unwillingness to look beyond the boundaries of Grosse Pointe, Michigan. While GM was in decline, one of the chief beneficiaries was Toyota. For more than fifty years, Toyota burnished its image and reputation as a manufacturer of high-quality automobiles and strived to surpass GM and become the biggest automaker in the world. However, beginning around 2008 some of Toyota's automobiles experienced a "sudden acceleration problem" that led to a significant decline in the company's exquisite reputation and its sales as well. In a public apology, the president of Toyota explained that the company's managers were distracted from adhering to "the Toyota Way"—the cultural values and principles instilled by the company's founders—by the drive to become the biggest automaker in the world and by the push to increase manufacturing in North America.
Like bacteria or X-rays or other invisible phenomena, corporate culture is real but difficult to observe. In spite of this invisibility, it has a profound impact on organizational success and failure; it can be a true strategic asset and sometimes a toxic liability. Throughout the remainder of this book, we describe in more depth how the culture of the companies identified here (and others) had a significant positive or not-so-positive impact on organizational success.
Corporate Culture: an introduction
During the past few decades, the term corporate culture has become widely used in business. It is now well recognized that corporate culture is a significant aspect of organizational health and performance. Explicitly or implicitly, it is presumed that corporate culture affects a company's overall financial performance.
Although its significance is recognized, the concept of corporate culture as well as how to manage it in a practical way in organizations have remained tantalizingly elusive. As a result, several important questions arise:
What is corporate culture?
How is it manifested (how can we see it) in organizations?
Why is it important?
What are the key aspects of corporate culture?
How can it be managed?
What tools are available to help manage corporate culture?
All of these questions and others related to this topic are addressed in this book in the following chapters. In Chapter 1, we begin by addressing the first three of these issues: What is culture? How is it manifested? Why is it important?
What is Corporate Culture?
The concept of corporate culture has become embedded in management vocabulary and thought. Although there are many definitions of the concept, the central notion is that culture relates to core organizational values. In a very real sense, corporate culture can be thought of as a company's "personality." Every organization—regardless of size—has a culture that influences how people behave, in a variety of areas, such as treatment of customers, standards of performance, innovation, etc.
How is Culture Manifested in Organizations?
Culture is manifested almost everywhere in an organization, if we know where to look for it. It is reflected in the words and language people use in communicating with one another. For example, a company with a language rich in acronyms can communicate that the company values efficiency. At the same time, though, it can signal that there are barriers to cultural entry; one needs to know the language to understand what is being discussed.
Culture is also manifested in the artifacts that are in (and on display in) the company's facilities. Everything in an organization—from coffee cups to artwork—contains a cultural message, whether explicitly intended or not. A simple coffee cup can be quite valuable to the person who owns it, if it was given for a reason that has meaning and purpose to the individual and to everyone in the company.
In brief, culture is manifested in everything from the cultural statements on posters to the furnishing of the office and to the art that adorns the walls. Sometimes, the culture of a company is obvious and clearly visible, as in the treatment we receive as customers and the artifacts we see that support this focus on customer service. Sometimes, a company's culture is subtler and needs to be "read."
Clear and Explicit Cultural Messages
Cultural messages may be clear and explicit, as in formal statements of culture. The Johnson & Johnson Credo is posted on the walls of subsidiaries such as Neutrogena and Life Scan; it is clearly meant to be absorbed by employees as well as observed by visitors.
Another clear but very different type of message about the importance of culture is found at Google, the quirky Silicon Valley company that has become a powerhouse in Internet search and caused mighty Microsoft to try to purchase its rival Yahoo! In 2006, Google's co-founders, Larry Page and Sergey Brin, decided to establish the position of "chief culture officer," currently held by Stacy Savides Sullivan, who is also director of human resources. The very existence of this position is a clear statement about the importance of corporate culture at Google. Sullivan's mission is to retain the company's culture as it grows, and keep the "Googlers" (the term used by the company to refer to its employees) happy.
At Southwest Airlines, a number of mechanisms are used to help reinforce and make the company's values real to all employees. There is a Culture Committee with 120 members and a number of alumni. Each cultural ambassador (team member) serves a three-year term and works as a member of the team to communicate and find ways to reinforce the company's culture. The company's blog frequently presents a description of this committee's activities. In addition, the company's website, written publications, and facilities (including the airplanes) all include statements of the company's values, whether presentation of the written values statement, recognition of the "Star of the Month" (in the company's Spirit magazine), or the heart that is present on every employee's shirt.
Implicit Cultural Messages
Sometimes you are literally surrounded by cultural symbols or icons of the organization, reflecting the company's identity but not containing an explicit message. For example, walking the halls at the Disney offices in Burbank or Glendale, California, you see the Disney characters (Mickey and Minnie, Goofy, Donald Duck, and all their compatriots) everywhere—as stuffed animals, in glass and plastic replicas, in pictures, and on posters. Similarly, the hallways of Architectural Digest are lined with framed covers from issues of the magazine. The halls of Pardee Homes, headquartered in Los Angles, are adorned with pictures of the houses and communities developed by the company. The offices of many investment bankers or venture capital firms in Silicon Valley contain various symbols of companies that were taken public. The boardroom of Citation Corporation, headquartered in Birmingham, Alabama, has framed pictures of people working in the foundries located throughout the United States. All of these are reminders of a company's business identity.
Cryptic Cultural Messages
Cultural messages may also be clearly visible, but subtler in meaning. Many U.S. company boardrooms boast art or statuary—expensive symbols of the stature of the company. However, in the boardroom of Melvin Simon & Associates (now Simon Properties), the largest shopping center (mall) developer in the country, there was displayed a picture of an old man and an old woman. It was not artwork, but more like a family portrait, something one would see in a home rather than a boardroom. In fact, it was a picture of the parents of the founders and leaders of the company (Mel, Herb, and Fred Simon). The message, if somewhat cryptic, was a strong, implicit culture (values) statement: We are the Simons. We know who we are; and we assume you know who we are. We value family and where we came from; and we do not need to try to impress you. Needless to say, we were impressed by this message.
A "Cultureless Culture"
Although culture is everywhere and in everything, in some companies there are few clues about what the culture is: no culture statement, no pictures pertaining to the history of the business, no hint of what line of business the company is in. This is characteristic of a company whose culture is ill-defined (almost a "nonculture culture"), one devoid of obvious cultural symbols. This usually occurs by happenstance, rather than design. It is a marker of a company that does not recognize the importance of culture to people, whether to members of the organization or to those with whom they do business.
But the notion of a "cultureless" company is an illusion. Just as an individual must have a personality, a company must have a culture, even though it appears not to exist. A company that appears cultureless is actually a company with a weak or ill-defined culture. Nevertheless, we are using the term cultureless to characterize a special kind of organization that seems devoid of culture.
a Typology of Culture
All companies can be viewed as belonging to a few classic cultural types. Some have murky cultures, which are ill-defined and not clear to observers or employees. Others have well-defined cultures with specific statements of core values that all employees embrace and live by. This section provides a brief typology based on two key variables that can be used to classify culture: cultural strength and cultural functionality. Cultural strength refers to whether a culture is strong or weak (as explained below). Cultural functionality refers to whether a culture is functional or dysfunctional.
Strong and Weak Cultures
Companies differ in the extent to which they are effective in defining, communicating, and managing their culture. Companies where there is a clearly defined culture, where time is invested in communicating and reinforcing this culture, and where all employees are behaving in ways consistent with this culture are defined as having a strong culture. Simply having a values statement is not enough to have a strong culture; the values need to be communicated in both words and actions, and they need to be reinforced. A strong culture is one that people clearly understand and can articulate. A weak culture is one that employees have difficulty defining, understanding, or explaining. The culture may not have been defined, or it is not being actively managed. As a result, employees are left to interpret the company's values for themselves, which sometimes results in the company having not one but many cultures.
Strong company cultures can be positive (an asset) or negative (a liability). If the company's values are constructive and support its goals, then having a strong culture is an asset. We define this as a functional culture. If the company's values are negative or dysfunctional, then having a strong culture will be a liability.
The culture at Ford Motor Company in the late 1960s and 1970s is a good illustration of a dysfunctional culture. The informal culture at Ford during the late 1960s and early 1970s was captured in a statement often made among employees: "If you can get it to drive out the door, we can sell it!" This was not a formal corporate pronouncement, of course, but a statement prevalent in conversations around the company. It contained an implicit disrespect for the customer and suggested that working to achieve high quality products was not important. The lack of focus on quality and reliability was also reflected in how customers talked about the company. Many customers said Ford stands for "Fix or Repair Daily." Ford later made the pronouncement that "Quality is Job One"—a clear response to the damage that had been done to its brand. Unfortunately, it took some time to overcome the perception of poor quality in customers' minds. This is an example of a strong dysfunctional culture in action.
Excerpted from Corporate Culture by Eric G. Flamholtz Yvonne Randle Copyright © 2011 by the Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of Stanford University Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
1 Corporate Culture: The Invisible Asset....................3
2 Culture Management Foundations....................26
3 Culture Management Process and Tools....................46
4 Managing the Customer Orientation Dimension of Culture....................75
5 Managing the People Orientation Dimension of Culture....................92
6 Managing the Performance Standards and Accountability Dimension of Culture....................109
7 Managing the Innovation and Change Dimension of Culture....................135
8 Managing the Company Process Orientation Dimension of Culture....................152
9 The Dark Side of Corporate Culture....................174
10 Leading Culture Management and Culture Transformations....................193