Chapter 12

Leadership and Culture

0Chapter Summary

This chapter examines organizational leadership and organizational culture—two factors

essential to the successful implementation and execution of a company’s strategic plan.
Organizational leadership is guiding and sheparding an organization over time and
developing that organization’s future leadership and its organization culture. Good
organization leadership involves three considerations: clarifying strategic intent, building an
organization, and shaping the organization’s culture. Leaders use education, principles, and
perseverance to build their organization. Leaders start to shape organizational culture by the
passion they bring to their role, and their choice and development of young manager and
future leaders. Understanding seven sources of power and influence, rather than just the
power of position and punishment, is a critical skill for effective future leaders to grasp.

Organizational culture is the set of important assumptions, values, beliefs, and norms that
members of an organization share in common. The organizational leader plays a critical role
in developing, sustaining, and changing organizational culture. Ethical standards, the leader’s
basis for differentiating right from wrong, quickly spread as a centerpiece between the leader
and the organization’s culture. Leaders use many means to reinforce and develop their
organization’s culture—from rewards and appointments to storytelling and rituals. Managing
the strategy-culture relationship requires different approaches, depending on the match
between the demands of the new strategy and the compatibility of the culture with that
strategy. This chapter examines four different scenarios.

0Learning Objectives

1. Describe what good organizational leadership involves.

2. Explain the relevance of vision and performance in helping leaders clarify their
strategic intent.
3. Describe how good leaders use education, principles, and perseverance to build their
organization.
4. Define and illustrate the value of passion and selection/development of new leaders
as means to shape their organization’s culture.
5. Briefly explain seven sources of power and influence available to every manager.
6. Define and explain what is meant by organizational culture, and how it is created,
influenced, and changed.
7. Explain two roles of organizational leaders in an organizational culture.
8. Describe four ways leaders influence organizational culture.
9. Explain four situations typically encountered in managing the strategy-culture
relationship.
10. Address the importance of ethical considerations relative to leadership and culture.

252
0Lecture Outline

I0. Strategic Leadership: Embracing Change

A0. The blending of telecommunications, computers, the Internet, and one global
marketplace has increased the pace of change exponentially during the past 10 years.

10. All business organizations are affected.

2. Change has become an integral part of what leaders and managers deal with
daily.

3. The leadership challenge is to galvanize commitment among people within an

organization as well as stakeholders outside the organization to embrace change
and implement strategies intended to position the organization to succeed in a
vastly different future.

4. Leaders galvanize commitment to embrace change through three interrelated

activities: clarifying strategic intent, building an organization, and shaping
organizational culture.

B. Clarifying Strategic Intent

1. Leaders help their company embrace change by setting for their strategic
intent—a clear sense of where they want to lead the company and what
results they expect to achieve.

a) They do this by concentrating simultaneously and very clearly on two

very different issues: vision and performance.

2. Vision

a) A leader needs to communicate clearly and directly a fundamental vision

of what the business needs to become.

(1) Traditionally, the concept of vision has been a description or

picture of what the company could be that accommodates the needs
of all its stakeholders.
(2) The intensely competitive, rapidly changing global marketplace has
refined this to be targeting a very narrowly defined leader’s vision
—an articulation of a simple criterion or characterization of what
the leader sees the company must become to establish and sustain
global leadership.

b) Keep the Vision Simple

253
 (1) Exhibit 12.1, Top Strategist, shows how CEO Alan Lafley
articulates a radically different strategic intent for the new Procter
& Gamble that involves P&G’s legendary R&D capacity—focus
outward, instead of inward, for innovative ideas, outsource noncore
activities, and build products around the customer experience with
them.
(2) In reading the discussion case at the end of the chapter about the
Immelt revolution, examine the issue of a sense of vision and
whether Immelt communicates a clear vision for a new GE.

3. Performance

a) Clarifying strategic intent must also ensure the survival of the enterprise
as it pursues a well-articulated vision, and after it reaches the vision.

(1) So a key element of good organizational leadership is to make clear

the performance expectations a leader has for the organization, and
managers in it, as they seek to move toward that vision.

b) Oftentimes this can create a bit of a paradox, because the vision is a

future picture and performance is now and tomorrow and next quarter
and this year.

(1) The job of a good leader, in clarifying strategic intent, is to do so

by painting a picture of that intent in future terms, and in setting
sound performance expectations while moving toward that vision
and as the vision becomes a reality.

C. Building an Organization

1. The previous chapter examined alternative structures to use in designing the

organization necessary to implement strategy.

a) Leaders spend considerable time shaping and refining their

organizational structure and making it function effectively to accomplish
strategic intent.
b) Because leaders are attempting to embrace change, they are often
rebuilding or remaking their organization to align it with the ever-
changing environment and needs of a new strategy.
c) And because embracing change often involves overcoming resistance to
change, leaders find themselves addressing problems such as the
following as they attempt to build or rebuild their organization:

(1) Ensuring a common understanding about organizational priorities.

(2) Clarifying responsibilities among managers and organizational
units.
(3) Empowering newer managers and pushing authority lower in the
organization.
(4) Uncovering and remedying problems in coordination and
communication across the organization and across boundaries
inside and outside the organization.

254
 (5) Gaining the personal commitment to a shared vision from managers
throughout the organization.
(6) Keeping closely connected with what’s going on inside and outside
the organization and with its customers.

2. There are three ways good leaders go about building the organization they
want and dealing with problems and issues like those listed: education,
principles, and perseverance.

3. Education and leadership development is the effort to familiarize future

leaders with the skills important to the company and to develop exceptional
leaders among the managers you employ.

4. Leaders do this in many ways.

a) All managers adapt structures, create teams, implement systems, and

otherwise generate ways to coordinate, integrate, and share information
about what their organization is doing and might do.

5. Others create customer advisory groups, supplier partnerships, R&D joint

ventures, and other adjustments to build an adaptable, learning organization
that buys into the leader’s vision and strategic intent and the change driving
the future opportunities facing the business.

a) These, in addition to the fundamental structural guidelines described in

the previous chapter for restructuring to support strategically critical
activities, are key ways leaders constantly attempt to educate and build a
supportive organization.

6. Principles are your fundamental personal standards that guide your sense of
honesty, integrity, and ethical behavior.

a) If you have a clear moral compass guiding your priorities and those you
set for the company, you will be a more effective leader.
b) This observation is repeatedly one of the first things effective leaders
interviewed by researchers, business writers, and students mention when
they answer a question about what they think is most important in
explaining their success as leaders and the success of leaders they
admire.

7. Principle boils down to a personal philosophy we all deal with at an

individual level—choices involving honesty, integrity, and ethical behavior.

a) Indeed Exhibit 12.2, Strategy in Action, gives you the chance to “test”
your personal principles in comparison with the actions of some of your
business school peers or predecessors.
b) The key thing to remember as a future leader is that your personal
philosophies, or choices, manifest themselves exponentially for you or
any key leaders of any organization.
c) The people who do the work of any organization watch their leaders and
what their leaders do, sanction, or stand for.

255
 d) These people then reflect those principles in what they do or come to
believe is the way to do things in or with that organization.
e) An effective organization is better built—is stronger—when its leaders
show by example what they want their people to do and the principles
they want their people to operate by on a day-to-day basis and in making
decisions shaped by values and principles—a clear sense of right and
wrong.

8. Perseverance is the capacity to see a commitment through to completion long

after most people would have stopped trying.

D. Shaping Organizational Culture

1. Leaders know well that the values and beliefs shared throughout their
organization will shape how the work of the organization is done.

a) And when attempting to embrace accelerated change, reshaping their

organization’s culture is an activity that occupies considerable time for
most leaders.
b) Elements of good leadership—vision, performance, principles,
perseverance, which have just been described—are important ways
leaders shape organizational culture as well.
c) Leaders shape organizational culture through their passion for the
enterprise and the selection/development of talented managers to be
future leaders.

2. Passion, in a leadership sense, is a highly motivated sense of commitment to

what you do and want to do.

3. Like many other traits of good leaders, passion is best seen through the
leaders’ intermittent behaviors while in the throws of the challenging times of
the organizations they lead.

a) They must use special moments to convey a sincere passion for and
delight in the work of the company they lead.

4. Leaders also use reward systems, symbols, and structure among other means
to shape the organization’s culture.

5. As leaders clarify strategic intent, build an organization, and shape their

organization’s culture, they look to one key element to help—their
management team throughout the organization.

a) Leaders look to managers they need to execute strategy as another

source of leadership to accept risk and cope with the complexity that
change brings about.
b) So selection and development of key managers becomes a major
leadership role.

E. Recruiting and Developing Talented Operational Leadership

256
1. As noted at the beginning of this section on organizational leadership, the
accelerated pace and complexity of business will increase pressure on
corporations to push authority down in their organizations ultimately meaning
that every line manager will have to exercise leadership’s prerogatives to an
extent unthinkable a generation earlier.

a) We also defined one of the key roles of good organizational leadership

as building the organization by educating and developing new leaders.
b) They will each be global managers, change agents, strategists,
motivators, strategic decision makers, innovators, and collaborators if
the business is to survive and prosper.
c) So we want to examine this more completely by looking at key
competencies these future managers need to possess or develop.
d) Exhibit 12.3, Strategy in Action, provides an interesting perspective on
this reality showing BusinessWeek’s version for a résumé for the typical
twenty-first-century operating manager every company will be looking
for in today’ fast-paced, global marketplace.

2. Today’s need for fluid, learning organizations capable of rapid response,

sharing, and cross-cultural synergy place incredible demands on young
managers to bring important competencies to the organization.

a) Exhibit 12.3 describes the needs organizations look to managers to meet

and then identify the corresponding competencies managers would need
to do so.

3. Researcher David Goleman addressed the question of what types of

personality attributes generate the type of competencies described in Exhibit
12.4, What Competencies Should Managers Possess?

a) His research suggested that a set of four characteristics commonly

referred to as emotional intelligence play a key role in bringing the
competencies needed from today’s desirable manager:

(1) Self-awareness in terms of the ability to read and understand one’s

emotions and assess one’s strengths and weaknesses, underlain by
the confidence that stems from positive self-worth.
(2) Self-management in terms of control, integrity, conscientiousness,
initiative, and achievement orientation.
(3) Social awareness in relation to sensing others’ emotions (empathy),
reading the organization (organizational awareness), and
recognizing customers’ needs (service orientation).
(4) Social skills in relation to influencing and inspiring others;
communicating, collaborating, and building relationships with
others; and managing change and conflict.

4. A key way these characteristics manifest themselves in a manager’s routine

activities is found in the way they seek to get the work of their unit or group
done over time.

a) How do they use power and influence to get others to get things done?

257
 b) Effective leaders seek to develop managers who understand they have
many sources of power and influence, and that relying on the power
associated with their position in an organization is often the least
effective means to influence people to do what is needed.
c) Managers have available seven sources of power and influence (see
Exhibit 12.5, Sources of Power and Influence).

5. Organizational sources of power are derived from a manager’s role in the

organization.

a) Position power is formally established based on the manager’s position

in the organization.
b) By virtue of holding that position, certain decision-making authorities
and responsibilities are conferred that the manager is entitled to use to
get things done.
c) It is the source of power many new managers expect to be able to rely
on, but often the least useful.
d) Reward power is available when the manger confers rewards in return
for desired actions and outcomes.
e) This is often a power source.
f) Information power can be particularly effective and is derived from a
manager’s access to and control over the dissemination of information
that is important to subordinates not yet easily available in the
organization.
g) Punitive power is the power exercised via coercion or fear of
punishment for mistakes or undesired actions by a manager’s
subordinates.

6. Leaders today increasingly rely on their personal ability to influence others

perhaps as much, if not more so, than organizational sources of power.

a) Personal influence, a form of “power,” comes mainly from three

sources.
b) Expert influence is derived from a leader’s knowledge and expertise in
a particular area or situation.
c) This can be a very important source of power in influencing others.
d) Referent influence comes from having others want to identify with the
leader.
e) We have all seen or worked with leaders who have major influence over
others based simply on their charisma, personality, empathy, and other
personal attributes.
f) Peer influence can be a very effective way for leaders to influence the
behavior of others.
g) Most people in organizations and across organizations find themselves
put in groups to solve problems, serve customers, develop innovations,
and perform a host of other tasks.
h) Leaders can use the assignment of team members and the charge to the
team as a way to enable peer-based influence to work on key managers
and the outcomes they produce.

258
 7. Effective leaders make use of all seven sources of power and influence, very
often in combination, to deal with the myriad situations they face and need
others to handle.

a) The exact best source(s) of power and influence are often shaped by the
nature of the task, project, urgency of an assignment, or the unique
characteristics of specific personnel, among myriad factors.

8. One final perspective on the role of organizational leadership and

management selection is found in the work of Bartlett and Ghoshal.

a) Their study of several of the most successful global companies in the

last decade suggests that combining flexible responsiveness with
integration and innovation requires rethinking the management role and
the distribution of management roles within a twenty-first-century
company.
b) They see three critical management roles: the entrepreneurial process
(decisions about opportunities to pursue and resource deployment), the
integration process (building and deploying organizational capabilities),
and the renewal process (shaping organizational purpose and enabling
change).
c) Traditionally viewed as the domain of top management, their research
suggests that these functions need to be shared and distributed across
three management levels as suggested in Exhibit 12.6, Management
Processes and Levels of Management.

II. Organizational Culture

A. Organizational culture is the set of important assumptions (often unstated) that

members of an organization share in common.

1. Every organization has its own culture.

a) An organization’s culture is similar to an individual’s personality—an

intangible yet ever-present theme that provides meaning, direction, and
the basis for action.
b) In much the same way as personality influences the behavior of an
individual, the shared assumptions (beliefs and values) among a firm’s
members influence opinions and actions within that firm.

2. A member of an organization can simply be aware of the organization’s

beliefs and values without sharing them in a personally significant way.

a) Those beliefs and values have more personal meaning if the member
views them as a guide to appropriate behavior in the organization and,
therefore, complies with them.
b) The member becomes fundamentally committed to the beliefs and values
when he or she internalizes them; that is, comes to hold them as personal
beliefs and values.
c) In this case, the corresponding behavior is intrinsically rewarding for
the member—the member derives personal satisfaction from his or her

259
 actions in the organization because those actions are congruent with
corresponding personal beliefs and values.
d) Assumptions become shared assumptions through internalization among
an organization’s individual members.
e) And those shared, internalized beliefs about values shape the content
and account for the strength of an organization’s culture.

B. The Role of the Organizational Leader in Organizational Culture

1. The previous section of this chapter covered organizational leadership in

detail.

a) Part of that coverage discussed the role of the organizational leader in

shaping organizational culture.
b) Several points in that discussion apply here.
c) It is important to emphasize that the leader and the culture of the
organization s/he leads are inextricably intertwined.

2. The leader is the standard bearer, the personification, the ongoing

embodiment of the culture, or the new example of what it should become.

3. As such, several of the aspects of what a leader does or should do represent

influences on the organization’s culture, either to reinforce it or to exemplify
the standards and nature of what it needs to become.

4. How the leader behaves and emphasizes those aspects of being a leader
become what all the organization sees are “the important things to do and
value.”

C. Build Time in the Organization

1. Some leaders have been with the organization for a long time.

a) If they have been in the leader role for an extended time, then their
association with the organization is usually strongly entrenched.
b) They continue to reinforce the current culture, are empowered by it, and
understandably go to considerable lengths to reinforce it as a key
element in sustaining continued success.
c) The problematic long-time leaders are those who have built a successful
enterprise that also sustains a culture that appears unethical or worse.
d) Exhibit 12.7, Strategy in Action, describes just such a situation at AIG.
e) Either type of long-time leader is often a widely known figure in today’s
media-intense business world.
f) And in their setting, while the culture may be exceptionally strong, their
role in creating it usually means they seemingly hold sway over the
culture rather than the other way around.

2. Many leaders in recent years, and inevitably in any organization, are new to
the top post of the organization.

260
 a) Their relationship within the organization’s culture is perhaps more
complex.
b) Those who built a management career within that culture have the
benefit of knowledge of the culture and credibility as an “initiated”
member of that culture.
c) This may be quite useful in helping engender confidence as they take on
the task of leader of that culture, or, perhaps more difficult, as change
agents for parts of that culture as the company moves forward.

3. In the other situation, a new leader who is not an “initiated” member of the
culture, or tribe faces a much more challenging task.

a) Quite logically, they must earn credibility with the “tribe,” which is
usually somewhat resistant to change.
b) And, very often, they are being brought in with a board of directors
desiring change in the strategy, company, and usually culture.
c) That becomes a substantial challenge for these new leaders to face.
d) Some make it happen, others find the strength of the organization’s
culture far more powerful than their ability to change it.

4. Ethical standards are a person’s basis for differentiating right from wrong.

a) An earlier section of this chapter emphasized the importance of

“principles” in defining what a leader needs to incorporate in his or her
recipe to become an effective leader.
b) We need not repeat those points in the context of being a leader, but it is
critical to recognize that the culture of an organization, and particularly
the link between the leader and the culture’s very nature, is inextricably
tied to the ethical standards of behavior, actions, decisions, and norms
that leader personifies.
c) Enron, WorldCom, Bernie Ebbers, and Martha Stewart are companies,
people, and situations we discussed in Chapter 3—they are all imprinted
in each of our minds (See Exhibit 12.8, Strategy in Action).
d) They speak volumes about this very point: Leaders, and their key
associates, play a key role in shaping and defining the ethical standards
that become absorbed into and shape the culture of the organizations
they lead.
e) Those ethical standards then become powerful, informal guidelines for
the behaviors, decisions, and dealings of members of that culture or
tribe.
f) Exhibit 12.7 provided an example of where ethical standards shape
culture and the challenges they present to insurance giant AIG’s new
CEO, Martin Sullivan, when the culture was led by a leader whose
standards were rather unethical.

5. Leaders use every means available to them as an organizational leader to

influence an organization’s culture and their relationship with it.

a) It bears repeating in this regard that reward systems, assignment of new

managers form within versus outside the organization, composition of
the firm’s board of directors, reporting relationships, and organizational

261
 structure—each of these fundamental elements of executing a
company’s vision and strategy are also a leader’s key “levers” for
attempting to shape organizational culture in a direction s/he sees it
needing to go.
b) Because we have already discussed these levers, we move on to other
ways leaders have sought to shape and reinforce their organization’s
culture.

D. Emphasize Key Themes or Dominant Values

1. Businesses build strategies around distinct competitive advantages they

possess or seek.

2. Quality, differentiation, cost advantages, and speed are four key sources of
competitive advantage.

3. Insightful leaders nurture key themes or dominant values within their

organization that reinforce competitive advantages they seek to maintain or
build.

4. Key themes or dominant values may center around wording in an

advertisement.

5. They are often found in internal company communications.

6. They are most often found as a new vocabulary used by company personnel
to explain “who we are.”

E. Encourage Dissemination of Stories and Legends about Core Values

1. Companies with strong cultures are enthusiastic collectors and tellers of

stories, anecdotes, and legends in support of basic beliefs.

2. The examples in the text are very important in developing an organizational

culture, because organization members identify strongly with them and come
to share the beliefs and values they support.

F. Institutionalize Practices That Systematically Reinforce Desired Beliefs and Values

1. Companies with strong cultures are clear on what their beliefs and values
need to be and take the process of shaping those beliefs and values very
seriously.

2. Most important, the values espoused by these companies underlay the

strategies they employ.

G. Adapt Some Very Common Themes in Their Own Unique Ways

1. The most typical beliefs that shape organizational culture include (1) a belief
in being the best; (2) a belief in superior quality and service; (3) a belief in
the importance of people as individuals and a faith in their ability to make a

262
 strong contribution; (4) a belief in the importance of the details of execution,
the nuts and bolts of doing the job well; (5) a belief that customers should
reign supreme; (6) a belief in inspiring people to do their best, whatever their
ability; (7) a belief in the importance of informal communication; and (8) a
belief that growth and profits are essential to a company’s well-being.

a) Every company implements these beliefs differently to fit its particular

situation, and every company’s values are the handiwork of one or two
legendary figures in leadership positions.
b) Accordingly, every company has a distinct culture that it believes no
other company can copy successfully.
c) And in companies with strong cultures, managers and workers either
accept the norms of the culture or opt out from the culture and leave the
company.

2. The stronger a company’s culture and the more that culture is directed toward
customers and markets, the less the company uses policy manuals,
organization charts, and detailed rules and procedures to enforce discipline
and norms.

a) The reason is that guiding values inherent in the culture convey in

crystal-clear fashion what everybody is supposed to do in most
situations.
b) Poorly performing companies often have strong cultures.
c) However, their cultures are dysfunctional, being focused on internal
politics or operating by the numbers as opposed to emphasizing
customers and the people who make and sell the product.

H. Manage Organizational Culture in a Global Organization

1. The reality of today’s global organizations is that organizational culture must

recognize cultural diversity.

2. Social norms create differences across national boundaries that influence how
people interact, read personal cues, and otherwise interrelate socially.

3. Values and attitudes about similar circumstances also vary from country to
country.

4. Where individualism is central to a North American’s value structure, the

needs of the group dominate the value structure of their Japanese
counterparts.

5. Religion is yet another source of cultural differences.

6. Holidays, practices, and belief structures differ in very fundamental ways that
must be taken into account as one attempts to share organizational culture in a
global setting.

7. Finally, education, or ways people are accustomed to learning, differ across

national borders.

263
 8. Formal classroom learning in the United States may teach things that are only
learned via apprenticeship in other cultures.

9. Because the process of shaping an organizational culture often involves

considerable “education,” leaders should be sensitive to global differences in
approaches to education to make sure their cultural education efforts are
effective.

I. Manage the Strategy-Culture Relationship

1. Managers find it difficult to think through the relationship between a firm’s

culture and the critical factors on which strategy depends.

a) They quickly recognize, however, that key components of the firm—

structure, staff, systems, people, style—influence the ways in which key
managerial tasks are executed and how critical management
relationships are formed.
b) And implementation of a new strategy is largely concerned with
adjustments in these components to accommodate the perceived needs of
the strategy.
c) Consequently, managing the strategy-culture relationship requires
sensitivity to the interaction between the changes necessary to
implement the new strategy and the compatibility or “fit” between those
changes and the firm’s culture.
d) Exhibit 12.9, Managing the Strategy-Culture Relationship, provides
a simple framework for managing the strategy-culture relationship by
identifying four basic situations a firm might face.

2. Link to Mission

a) A firm in cell 1 is faced with a situation in which implementing a new

strategy requires several changes in structure, systems, managerial
assignments, operating procedures, or other fundamental aspects of the
firm.

(1) However, most of the changes are potentially compatible with the
existing organizational culture.
(2) Firms in this situation usually have a tradition of effective
performance and are either seeking to take advantage of a major
opportunity or are attempting to redirect major product-market
operations consistent with proven core capabilities.
(3) Such firms are in a very promising position: They can pursue a
strategy requiring major changes but still benefit from the power of
cultural reinforcement.

b) Four basic considerations should be emphasized by firms seeking to

manage a strategy-culture relationship in this context:

(1) Key changes should be visibly linked to the basic company mission.

264
 (a) Because the company mission provides a broad official
foundation for the organizational culture, top executives
should use all available internal and external forums to
reinforce the message that the changes are inextricably linked
to it.

(2) Emphasis should be placed on the use of existing personnel where

possible to fill positions created to implement the new strategy.

(a) Existing personnel embody the shared values and norms that
help ensure cultural compatibility as major changes are
implemented.

(3) Care should be taken if adjustments in the reward system are

needed.

(a) These adjustments should be consistent with the current

reward system.
(b) If, for example, a new product-market thrust requires
significant changes in the way sales are made, and, therefore,
in incentive compensation, common themes should be
emphasized.
(c) In this way, current and future reward approaches are related,
and the changes in the reward system are justified (encourage
development of less familiar markets).

(4) Key attention should be paid to the changes that are least
compatible with the current culture, so current norms are not
disrupted.

3. Maximize Synergy

a) A firm in cell 2 needs only a few organizational changes to implement

its new strategy, and those changes are potentially quite compatible with
its current culture.

(1) A firm in this situation should emphasize two broad themes:

(a) Take advantage of the situation to reinforce and solidify the

current culture.
(b) Use this time of relative stability to remove organizational
roadblocks to the desired culture.

4. Manage around the Culture

a) A firm in cell 3 must make a few major organizational changes to

implement its new strategy, but these changes are potentially
inconsistent with the firm’s current organizational culture.

(1) The critical question for a firm in this situation is whether it can
make the changes with a reasonable chance of success.

265
 b) A firm can manage around the culture in various ways: create a separate
firm or division; use task forces, teams, or program coordinators;
subcontract; bring in an outsider; or sell out.

(1) These are a few of the available options, but the key idea is to
create a method of achieving the change desired that avoids
confronting the incompatible cultural norms.
(2) As cultural resistance diminishes, the change may be absorbed into
the firm.

5. Reformulate the Strategy or Culture

a) A firm in cell 4 faces the most difficult challenge in managing the

strategy-culture relationship.

(1) To implement its new strategy, such a firm must make

organizational changes that are incompatible with its current,
usually entrenched, values and norms.
(2) A firm in this situation faces the complex, expensive, and often
long-term challenge of changing its culture; it is a challenge that
borders on impossible.
(3) Exhibit 12.10, Strategy in Action, describes how 33-year-old
Thomas Charlton transformed a 17-year-old Silicon Valley
software vendor into the fastest growing job-scheduling software
vendor by radically changing its culture.

b) When strategy requires massive organizational change and engenders

cultural resistance, a firm should determine whether reformulation of the
strategy is appropriate.

(1) Are all of the organizational changes really necessary/

(2) Is there any real expectation that the changes will be acceptable
and successful?
(3) Is these answers are yes, then massive changes are often necessary.
(4) When you study the chapter case about Jeff Immelt’s actions at GE
the last few years you will see him making major changes in an
attempt to change GE’s culture to suit its new strategy: bringing
outsiders in as top execs, changing long-standing executive
compensation programs, emphasizing sales and marketing over the
traditionally cherished continuous improvement as GE’s most
prized skill.
(5) These are elements through which GE, under Immelt, is undergoing
massive change as he tries to build a different culture compatible
with a new vision and strategy.

266
Discussion Questions and Case

Questions for Discussion

1. Think about any two leaders you have known, preferably one good and one weak.
They can be businesspersons, coaches, someone you work(ed) with, and so forth.
Make a list of five traits, practices, or characteristics that cause you to consider one
good and the other weak. Compare the things you chose with the seven factors used
to differentiate effective organizational leadership in the first half of this chapter.

Student responses will vary depending on the people they choose and the personal
reasons they chose them. Each student should compare their criteria with the seven
factors outlined in the text, which are used to differentiate effective organizational
leadership.

2. This chapter describes seven attributes that enable good leadership—vision,

performance, principles, education of subordinates, perseverance, passion, and leader
selection/development. Which one have you found to be the most meaningful to you
in the leaders you respond to the best?

Students will find information on each of these seven attributes in the text on pages 361-
368, under the sections titled “Clarifying Strategic Intent,” “Building an Organization,”
and “Shaping Organizational Culture.” Depending on personal experiences and the
context of the students’ interactions with good leaders, the responses will vary.

3. Consider the following situation and determine whether the VC group is engaging in
something that would violate your principles, or be totally acceptable to you. Explain
why. Who likes those ubiquitous online pop-up ads planted by intrusive spyware?
Technology Crossover Ventures is betting few do. The Silicon Valley venture-capital
firm is helping to finance the anti-spyware company Webroot Software. But it appears to
be hedging that bet with a sizable investment in Claria, a company vilified for spreading
spyware. More than 40 million Web surfers viewed Claria ads last year. TCV has pumped
at least $13 million into Claria, but it has removed the company from a list of investments
on its Web site. Critics wonder why TCV would make dual investments. “Users are
rubbed the wrong way by even the suggestion that the same companies that made this
mess are now profiting from helping to clean it up,” says Harvard University researcher
and spyware expert Ben Edelman. TCV declined to comment. There is a similar element
in both ventures: the potential to make money.

The venture capital firm is capitalizing on two sides of the same market—funding the
spyware company itself, but then also financing a company that eliminates/eradicates
spyware. They are making money both ways. There are questions of personal principles
and ethics involved in this case, and the students may have varying responses based on
their personal experiences, upbringing, and outlooks.

4. Read Exhibit 12.2. What would you do if invited by a peer to access this information for
an admission decision about yourself or a friend? What should happen to those that did?

Again, personal student responses will vary. Students may feel more sympathetic to the
Harvard, MIT, and Carnegie crowd who are denying admission to any of the hackers than

267
 those at Stanford, who are making decisions on a case-by-case basis. Either way, students
should support their answers and be ready to defend their positions.

5. Do you think Martin Sullivan is a good CEO candidate for AIG right now? See Exhibit
12.7.

Student responses will vary. According to the exhibit, “Sullivan has inherited a strong
global franchise, but he also heads a company that bears the stamp of Greenberg, a
brilliant but tone-deaf autocrat who continued to complain about increased regulation
even as AIG was immersed in scandal.” Students should become familiar with the case,
and be ready to support their answers regarding Sullivan. The case is on page 373.

6. Do you think Martha Stewart is a good organizational leader? What is her most important
contribution to her organizational culture in your opinion?

Again, responses will vary depend on how the student views the situation. There are legal
issues involved, ethical issues, and issues regarding her ability to lead well. Students
should become familiar with the Stewart case, and outside research in the business press
may be necessary.

7. What three sources of power and influence are best suited to you as a manager?

The sources of power and influence are discussed on pages 370-371 in the text. They
include: position power, reward power, information power, and punitive power, as well as
expert influence, referent influence, and peer influence. They are also summarized in
Exhibit 12.5. Student responses will vary considerably based on their personal experience
and personality.

8. Describe two organizations you have been a part of based on differences in their
organizational cultures.

Student responses will vary. The organizations should be described in the context of the
differences between their organizational cultures. Students should elaborate on their
examples in some detail.

9. What key things is Jeff Immelt doing at GE (see the following case) as an organizational
leader and as to shape GE’s organizational culture? Do you think he will succeed? Why?

Immelt is trying to change the culture from one that prized dealmaking, cost-cutting, and
efficiencies under Welch to one that prizes risk-taking and innovation. He is trying to
encourage his managers to take risks, or “swings” as he calls them, and says that they do
not encourage failure, but have to be understanding of it and let people learn from it in
order to improve their performance and to have success. He has encouraged employees to
come up with Imagination Breakthroughs, which are projects aimed at growth, and that
will represent taking financial risks, but will be very good investments versus acquiring
other companies that have similar (or relevant) projects either now or in the future. He is
also trying to make GE meaningful in industries that are integral in the world. This
includes being big in industries like health care, energy, infrastructure, and finance—not
all industries, but in the big ones that represent good growth opportunities.

268
 Students will have mixed reactions about whether or not Immelt will succeed. Students
should have examples from the case, which is on pages 384-389, to support their
responses.

Discussion Case – “The Immelt Revolution”

Case Summary
Despite his air of easy-going confidence, Jeffrey R. Immelt admits to two fears: that General
Electric Co. will become boring, and that his top people might act like cowards. He worries
that GE’s famous obsession with bottom-line results will make some execs shy away from
taking risks that could revolutionize the company. Immelt, 49, is clearly pushing for a
cultural revolution. For the past 3 1/2 years, the GE chairman and CEO has been on a mission
to transform the hard-driving, process-oriented company into one steeped in creativity and
wired for growth. He wants to move GE’s average organic growth rate—the increase in
revenue that comes from existing operations, rather than deals and currency fluctuations—to
at least 8% from about 5% over the past decade. Under his former boss, the renowned Jack
Welch, the skills GE prized above all others were cost-cutting, efficiency, and dealmaking.
What mattered was the continual improvement of operations. Immelt hasn’t turned his back
on the old ways. But in his GE, the new imperatives are risk-taking, sophisticated marketing,
and above all, innovation. This is change borne of necessity, given the current economy
versus the late 1990s.

To inspire the fresh thinking he’s looking for, Immelt is wielding the one thing that speaks
loud and clear: money. He is tying executives’ compensation to their ability to come up with
ideas, show improved customer service, generate cash growth, and boost sales instead of
simply meeting bottom-line targets. As Immelt puts it, “you’re not going to stick around this
place and not take bets.” Risking failure is a badge of honor at GE these days. To lay the
groundwork for an organization that grows through innovation, Immelt took steps to rejigger
the GE portfolio. He is selling less profitable businesses, while making massive acquisitions
to dive into bioscience, cable and film entertainment, security, and wind power, which have
better growth prospects. The pressure to produce immediate growth out of the existing
business through “Imagination Breakthroughs” could not be more intense. Many of the
company’s workers weren’t exactly hired to be part of a diverse, creative, fleet-footed army
of visionaries who are acutely sensitive to customers’ needs. Even insiders who are openly
euphoric about the changes admit to feeling some fear in the depth of their guts. The change
is fundamental to the structure, as well as the organizational culture.

Key Issues Addressed

• Define organizational leadership. Explain how it is relevant to organizational culture and
structure. Refer to the introduction of this chapter, on pages 359-360.

• Describe good organizational leadership in times of drastic change. Please refer to the
section titled “Organizational Culture” on pages 372-383.

• Identify various levels of management and processes involved in management. Please refer
to the section titled “Recruiting and Developing Talented Operational Leadership” on pages
368-371.

269
• Explain how a leader’s vision at the corporate level can shape culture. Please refer to the
section titled “Clarifying Strategic Intent” on pages 361-364.

Case Discussion Questions

1. What attributes of good organizational leadership do you see Immelt display?

Immelt displays vision, and there are repeated examples in his interview at the end of
the case in which he elaborates this vision. He also did so at the GE managers’ meeting
in January. He said that he had two fears, that GE would become boring, and that his
executives would become cowards (refer to the case, pages384 and 387). He also
demonstrates performance. He has a well-articulated vision, and is making big changes
at the company to develop that vision and make it a reality—performance. The vision is
a future picture of the company’s performance, but in the short term, the company is
taking steps to realize that goal. (Performance is discussed on page 364 in the text.)
Principles are fundamental personal standards that guide the leader. Immelt has
demonstrated that, in seeking to fulfill the mission and vision of his firm, the company
will be understanding and accepting of some levels of failure. He is also tying
compensation more strongly to performance, which is a sort of more-honest approach to
developing the talent and behavior he wants out of his managers. In this same line of
thinking, he educates his subordinates and is very straightforward and consistent in what
he is asking of them. He is emphasizing innovation and research, and is investing
heavily in the firm’s research facilities. This demonstrates “education of subordinates”
which is discussed on page 366 of the text. Immelt also demonstrates perseverance. He
knows that the changes he has been implementing will not cause immediate realization
of success overnight, but he is “in it for the long haul,” and has said he is committed to a
long stay at GE. He expects successful employees/managers there to be in it for the long
haul too, or else they will probably not remain at the company. Lastly, Immelt is very
clearly passionate, highly motivated, and exhibits that passion in his addresses and
interactions with the managers and employees of the company. Passion and
perseverance are discussed on pages 367-368 in the text.

20. What changes is he making in rewards, skills, and selection of key leaders that are most
different from GE’s past?

In the past, GE’s reward structure emphasized dealmaking, and cost-cutting. It also
rewarded managers for meeting bottom-line objectives. In Immelt’s reward structure,
managers’ incentives are tied more to performance. They are encouraged to exceed
bottom-line goals, and are compensated accordingly. They are also encouraged to take
risks and be innovators. In the past, GE would favor growth, but today the company’s
structure and culture reflects that innovation, growth, and having the goal of being
industry leader in the biggest industries are what are most important in the leaders
selected at GE. He is also bringing in more outsiders, in addition to just making changes
within the company’s original ranks.

3. Do you think they will be embraced? And work?

Student responses will vary depending on their interpretation of the material presented
in the case and what they learned in the chapter.

270
4. How is he changing the GE culture?

Immelt has changed the culture and will continue to change the culture from one of
strict efficiency and meeting financial goals or bottom-line goals to one that prizes
innovation and risks. He says that without risks, the company will not achieve his vision
for it, which is to dominate particular industries that are very opportunistic at this time.
He is considered a revolutionary who is trying to “reinvent” GE.

5. What will be his hardest task?

Student responses will vary depending on what they think is most difficult. It could be
dealing with the employees who are not buying into the vision. It could alternatively be
capitalizing on enough of the “Imagination Breakthroughs” to sustain a certain amount
of growth. It could be getting buy-in from enough of the company’s stakeholders and
shareholders to weather any tough times where the company may not achieve his vision
on-target.

6. Do you sense he operates at the margin, ethically speaking, or that his principles are
transparent? Why?

This is a question that will get varied student responses, because the students’ positions
will lie on a spectrum from “marginal” to “transparent,” and the middle-ground will not
present obvious answers. However, students can cite the case, in which Immelt is very
candid about what he thinks of the “old” way of doing things, and he is very
straightforward about his expectations today.

271