Culture examples

UNIVERSITY OF LUGANOMSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES

Measuring and Managing Corporate Culture: The Invisible Key to Organizational Success

Presented to:University of Lugano

MScom Excellence-in-Communications Lecture Series

Presented by:Eric G. Flamholtz, Ph.D.

ProfessorAnderson School of Management

University of California at Los Angeles

2

UNIVERISTY OF LUGANO – MSCOM EXCELLENCE-IN-COMMUNICATIONS LECTURE SERIES


Corporate Enigmas: The US

• How does a little company headquartered in Bentonville Arkansas become one of the largest retailers in the world with more than $288 billion in sales (Wal*Mart)?

• How does a company selling a commodity product grow from $122 million in sales to more than $5 billion in slightly more than a decade (Starbucks)?

• How does a company retain its vitality for more than 100 years (GE)?

• How does a company with a dominant market position (more than 42% market share) fall from grace over a period of 20 years (General Motors)?

3



Corporate Enigmas: Europe

• Why have the acquisitions by Allianz worked well while the acquisitions of Baskin Robbins and Duncan Donuts by Allied-Domecq experienced difficulties?

• What caused Reuters to lose its dominant market position?

• Why does the Movenpick web site just mention Ueli Prager and its history, while Disney has an entire “Walt Disney Family Museum” on its web site?

4



The Answer is Corporate Culture: The Invisible Asset (Or Liability!)

5



The Corporate Culture Enigma

• You can not see it• You can not touch it• You can not taste it• You can not hear it• You can not smell it

6



Culture: The Invisible Asset

• But it is there, and although it is invisible, it is a fundamental reason why some organizations are successful and others not over the long run.

7



OUR PURPOSE

• What is the role of corporate culture in organizational success?

• How can we measure and manage corporate culture to utilize it as an organizational asset?

• What companies manage corporate culture well?• What are some of the significant differences in culture

in US and European organizations?

8



Perspective: Practical Management Theory

• Theory which is empirically sound and scientifically validated, but is relevant and practical for leaders, managers, and investors to use.

• Derived from research on organizational success and failure.

9



Research on Organizational Success and Failure:

What role does Culture play in organizational

Success?

10



Research on Organizational Success and FailurePaired Comparisons

K-MartWal*Mart

L.A. GearNike

People ExpressSouthwest

MaxiCarePacifiCare

Boston MarketStarbucks

Failures/DifficultiesSuccesses

11



What is Success?

• There are varying degrees of corporate success:– Survival, including the ability to continue to employ people – Continuing to grow– Becoming a market leader– Becoming the market leader– Increasing shareholder value

12



What is the Role that Corporate Culture Plays in Organizational Success?

13



Role of Culture in organizational Success

• Culture is the ‘secret’ ingredient in organizational success

14



The Enigma of Wal*Mart Versus K-Mart

• In 1960 Sears was the largest US retailer and K-Marts’ parent company was the number 1 discount retailer?

• How did Wal*Mart from humble beginnings become the largest U.S. retailer with more than $288 billion is sales revenue?

15



Wal*Mart vs. K-Mart, 1990’s

* Adjusted for splits

$-

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

Sto

ck P

rice*

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

Year

Wal-Mart

K-Mart

16



Wal*Mart vs. K-Mart, 2000-2003

* Adjusted for splits

** K-Mart filed for Chapter 11 bankruptcy during 2002.

$-

$50.00

$100.00

$150.00

$200.00

$250.00

Sto

ck P

rice*

2000

2001

2002

**

Year

Wal-Mart

K-Mart

17



The Enigma of Wal*Mart Versus K-mart

• There are no products that Wal*Mart has that K-mart cannot have.

• The explanation for the difference in success must be somewhere else.

• The explanation is inside “the black box” of how Wal*Mart operates, which includes its culture.

18



The Secret to Wal*Mart’s Success: Its Culture

Two key Dimensions of “The Wal*Mart Way”

– Respect for the individual, and

– Focus upon the customer.

19



The Growth of Starbucks?

• How does a company producing a commodity product (Coffee) grow so rapidly to become the market leader?

• In 1993 Starbucks had $122 million in sales and 220 stores.

• In 1994 when they had $165 million in revenues, Starbucks set the goal to grow to $2 billion in revenues and 2000 stores by the year 2000.

• Starbucks has more stores in California than all of its competitors combined have throughout the US!

20



Starbucks Success is Not Just About Coffee

• The real reason for Starbuck’s success is its culture, which is invisible to the outside observer.

• Howard Schultz says that when people ask him to tell them the reasons for Starbuck’s success, he tells them something that they are surprised to hear: “The most important single reason for Starbuck’s success is its people.”

• One of Starbuck’s core beliefs is: “The way we treat our people affects the way they treat our customers and, in turn, our financial performance.”

21



Starbucks Cultural Principles

• Provide a great work environment and treat each other with respect and dignity.

• Embrace diversity as an essential component in the way we do business.

• Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee.

• Develop enthusiastically satisfied customers all of the time.

• Contribute positively to our communities and our environment.

• Recognize that profitability is essential to our future success.

22



What is Corporate Culture?

23



What is Organizational Culture?

• Culture is “corporate personality.”• The underlying values, beliefs, and norms which

govern the behavior of people as members of an organization.

• Example of Values, Beliefs, and Norms: Ritz Carlton

24



Ritz-Carlton Values

• The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission.

• We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed yet refined ambience.

• The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.

25



Ritz-Carlton Beliefs

“We are Ladies and GentlemenServing

Ladies and Gentlemen”

26



Ritz-Carlton Norms

• A warm and sincere greeting. Use the guest’s name, if and when possible.

• Anticipation and compliance with guest needs.

• Fond farewell. Give them a warm good-bye and use their names, if and when possible.

27



IBM Core “Values”

• Respect for the individual.

• Excellence in customer service.

• Excellence in everything we do.

28



American Century Guiding Principles

• Providing value for our investors.

• Challenging and inspiring the best people. Personal responsibility. Organizational commitment. Teamwork.

• Building a financially sound company.

• Being adaptable and innovative.

• Working with integrity.

29



Why is Culture Important?

30




• Culture influences the success of people in organizations.

31



Culture Influences The Success of People

Microsoft Reorganizes; President Belluzzo is Out

“The reorganization ends an awkward 2 1/2 year relationship between the software behemoth and Belluzzo, a veteran of Silicon Valley hardware stalwarts Hewlett-Packard Co. and Silicon Graphics Inc. Since joining Microsoft in September 1999, insiders say he failed to embrace the company’s distinctive corporate culture - a shortcoming the led to his ouster.

Source: Los Angeles Edition, April 4, 2002, Section C, Business, p. 1.

32





• Research has indicated that culture is one of the six “key strategic building blocks” of successful organizations.

33



CorporateCulture

Resources

FinancialPerformance

Products

Markets

Culture is a Key Building Block of Success

OperationalSystems

ManagementSystems

34





• Culture is one of the six “key strategic building blocks” of successful organizations.

• Culture is an invisible key to organizational success.

35



Culture is an Invisible Key to Success

• Culture is a sustainable competitive advantage.

• It is invisible to competitors.

• It cannot be copied easily.

36





• Culture is one of the six “key strategic building blocks” of successful organizations.

• Culture is an invisible key to organizational success.

• Culture has a direct impact upon financial performance.

37



Culture Has a Direct Impact On Financial Performance

• Our research has shown that the extent to which there is an agreement between the culture of organizational units and overall corporate culture has a statistically significant impact upon financial performance.

• Culture accounts for 46% of EBIT.

38



Research at Banner Corporation

• Approximately $800 (US) million in revenue.

• 18 business units or divisions.

• All divisions with revenues between $25 - $100 million (Stage III).

• Most divisions with revenues of $25 - $50 million.

39



Divisional Cultural Buy-in vs. EBIT

-5

0

5

10

15

20

25 35 45 55 65 75 85

Approval with Culture

EB

IT

40



• There are “strong” and “weak” cultures.

What You Need to Know for Effective Culture Management

41



Strong and Weak Cultures

• A “strong” culture is one where there is a high level of understanding of what the culture is as well as a strong commitment to the core values.

• A “weak” culture is where there is not a high level of understanding of what the core values are or a high degree of commitment to them.

42




• There are “functional” and “dysfunctional” cultures.


43



Functional and Dysfunctional Cultures

• A functional culture is one which enhances organizational performance and success.

• A dysfunctional culture is one which leads to suboptimal or underperformance.

44



Examples of Companies of Each Culture Type:Strong and Weak; Functional and Dysfunctional

Functional Dysfunctional

Strong

J&JStarbucks

GEThe Body Shop

Countrywide FinancialWal*Mart

KodakReuters

The Body ShopDisney

Wal*Mart

WeakPowerBarMovenpick

Amgen

NavistarAllied Domecq/Baskin

RobbinsUAL

45



Where would you place the following:Nestle? Allianz? Unilever?

Functional Dysfunctional

Strong

Weak

46




• There are “functional” and “dysfunctional” cultures.

• There is sometimes a difference between “Stated” and “Real” Culture.


47



The Difference Between “Real” and “Nominal” Cultures

Nominal (Stated) Culture: What we say our culture is with respect to how we treat our customers, our people, and the standards we have.

Real Culture: The culture that our employees “live and breathe.”

48



IBM Stated versus Real Culture

• Stated Culture: – Respect for the individual.– Excellence in customer service.– Excellence in everything we do.

• Real Culture (“Organizational Reciprocity”):– “Your take care of IBM, and IBM will take care of you.”

49



What are the Key Dimensions of Corporate Culture?

50



Five Key Aspects of Culture

• Customer-Client Orientation.

• Employee Orientation.

• Performance Standards/Accountability.

• Openness to Change.

• Company Norms.

51



Corporate Culture Map

Company Norms

Openness to Change

Performance Standards/ Accountability

Employee Orientation

Customer Orientation

NormsBeliefsValuesCultural

Dimension

52



Additional Research on Key Dimensions of Culture

• Factors which directly affect financial performance:– Customer Focus– Identification with the company– Performance & behavior standards– Corporate citizenship

• Factors which indirectly affect financial performance:– Human resource practices– Communication

53



How can Corporate Culture be Measured?

54



Sample Culture Survey

We keep our commitments to our customers/business partners.

Our people are the Company’s most valuable asset.

Our company reacts quickly to changes in the marketplace.

Our leaders act and communicate with integrity at all times.

People are rewarded based on their performance.

Good planning is rewarded.

Company policies are applied consistently..

Changes that affect employees are communicated quickly and effectively.

Current Culture Desired Culture

Current Statement

1.

2.

3.

4.

5.

6.

7.

8.

To A Very Slight Extent

To A Slight Extent

To Some Extent

To A Great Extent

To A Very Great Extent

To A Very Slight Extent

To A Slight Extent

To Some Extent

To A Great Extent

To A Very Great Extent

55



Key Things to Measure Using Surveys

• Cultural Alignment: Agreement with the proposed culture.

• Behavioral Consistency: The extent to which behavior is consistent with the desired culture.

• Cultural Gaps: The difference between the stated or desired culture for a given value and the actual or observed culture in practice.

56



Euroco. – Survey Results for Culture Items

Item Mean%

Unfavorable% Neutral

% Favorable

19People have different interpretations of our corporate values, beliefs, and norms.

3.3 0.0 66.7 33.3

26Corporate values are understood clearly by all employees.

3.0 33.3 33.3 33.3

31We focus more on sales than on profitability as a measure of performance.

3.3 33.3 0.0 66.7

34The people who best represent our corporate values get rewarded.

3.3 33.3 0.0 66.7

36Our leadership spends time communicating the company’s values.

4.0 0.0 33.3 66.7

40Planning and systematic execution of plans are rewarded more than “crisis management.”

4.0 0.0 0.0 100.0

41We encourage and reward appropriate innovation and risk-taking among employees.

3.7 0.0 33.3 66.7

46Employees are encouraged to make suggestions and offer constructive criticism.

4.0 0.0 0.0 100.0

48We live quality in service, products, and processes at all levels of the company.

4.0 0.0 33.3 66.7

49We demonstrate fairness and consistency in our supervision of employees.

4.0 0.0 0.0 100.0

57



Euroco. – Survey Results for Culture Items

Item Mean%


% Favorable

50We expend too much energy on protecting our turf.

3.7 0.0 33.3 66.7

52 Planning is a "way of life" in our organization. 3.3 0.0 66.7 33.3

53People feel free to bring up sensitive issues to corporate/senior management.

3.7 0.0 33.3 66.7

Culture Totals 3.7 7.1 23.8 69.0

58



How Can Culture be Managed?

59



Culture Management Process

Identify And Analyze Significant Gaps Between Desired Culture

And Current Culture

Identify the Current Culture

Develop Culture Management Plan

Communicate The “New” Culture, As Well As The Steps

Being Taken To Manage It

Monitor Implementation Of Desired Culture And

Update/Refine The Culture Management Plan

Define the Culture Needed to Support Long-Term Success

(“Desired Culture”)

60



To what Extent is Corporate Culture Similar or Different in

European and US Organizations?

61



Mean Score Survey Results for Culture Items – Swissco. versus USCO. A and USCO. B

Item Swiss Co. US Co. A US Co. B


2.6 3.6 3.3

26 Corporate values are understood clearly by all employees. 2.7 3.5 3.4


3.2 3.4 3.1


2.7 3.3 3.3


3.4 3.9 3.6


3.0 3.0 3.7


2.8 2.7 3.6


3.2 3.9 3.6


3.5 3.9 4.2


3.5 3.4 3.8

62



Mean Score Survey Results for Culture Items – Swissco. versus USCO. A and USCO. B

Item Swiss Co. US Co. A US Co. B

50 We expend too much energy on protecting our turf. 3.4 3.6 4.1

51We do an effective job of balancing strategic performance with long-term success.

3.3 N/A N/A

52 Planning is a "way of life" in our organization. 3.4 2.7 3.1


2.6 3.1 3.3

54All employees understand the informal rules that we operate with around here.

2.8 N/A N/A

55Informal communication channels are more informative than formal communication channels.

3.0 N/A N/A

68The slogan “Proud of the past; Prouder of the future” reflects precisely our mission.

3.9 N/A N/A

Culture Totals 3.1 3.4 3.6

63



What are the Key Differences?

• “People have different interpretations of our corporate VALUES, BELIEFS, AND NORMS.”

• “Corporate values are understood by all employees.”• “The people who best represent our corporate values

get rewarded.”• “People feel free to bring up sensitive issues to

corporate/senior management.”

64



What Can Your organization do to manage culture more effectively?

Ten tools to manage culture

65



Ten Key Tools of Culture Management

• Develop a Clear Statement of the Company’s Culture/Values

66



Examples

• Johnson & Johnson Credo• Ritz Carleton • Starbucks• IBM

67





• Recruit and Select People for Cultural Fit

68



Example: Hewlett Packard

Hewlett Packard puts prospective employees through a day-long series of interviews with

eight HP employees (the "interview team") in order to effectively screen for culture

compatibility.

69



Example: Avon Cultural Fit Selection

• Management Systems is currently working with Avon Supply Chain Operations to develop a tool for identifying people who are most likely to fit in to their culture.

• Involves identifying the criteria for people’s success.

• Involves identifying questions to be used in interviews to determine people likely to fit those criteria.

• Involves a validation of the selection tool.

70





• Recruit and Select People for Cultural Fit• Manage Culture through Socialization and

Training

71



Example: Disney Theme Parks Training Practices

• New “cast members” (not employees) go through “Traditions 1” course upon entry.

• All people are cast for a “Role” in a Live Stage Production.

• All cast members are trained by another employee (Mentor system) in the same role after completing Traditions 1.

72





• Recruit and Select People for Cultural Fit• Manage Culture Through Socialization and

Training• Retain People Who “Fit” With the Culture

73



Example: GE Cultural Management

Outsiders

Losers

Stars

Question Marks

3 1

4 2

Low High

Low

High

CULTURAL ACCEPTANCE

PERFORMANCE

74



Ten Key Tools of Culture Management (cont’d)

• Change Leadership Practices

75



Example: Motorola Leadership Training

• All managers were trained in participative management.

76



Example: Countrywide Financial Corporation Leadership Program

• Senior leadership is trained in “new” leadership practices.

• Expected to function as change agents and cascade the different practices throughout the company.

77





• Change the Reward System

78



Example: 3M

3M Corporation rewards employees for successfully championing a new product by

making them the head of that product division.

79






• Set Up the Structure to Support Core Values

80



Examples

• Berkshire Hathaway uses a tiny corporate staff to support the value of business autonomy, but selects only those companies which fit its culture.

• Johnson & Johnson uses a group and divisional structure to emphasize a balance between entrepreneurship and overall coordination.

• McDonalds uses a centralized approach to support consistency throughout the system.

81







• Embed Core Values in Performance Standards and Procedures

82



Example: McDonalds

To reinforce its value for consistency, McDonald’s strictly enforces adherence to

cooking and preparation guidelines for each menu item so that a Big Mac in Pacoima is indistinguishable from one in Poughkeepse.

83








• Use Symbols to Reinforce Corporate Values

84



Knapp Communications:Architectural Digest, Bon Appetit

Knapp created a special Gold “K” pin as a symbol of Outstanding Performance.

85








• Use Communication to Reinforce Corporate Values

86



Examples

• Jack Welsh regularly visited the GE Leadership Training Facility to talk about GE’s core values.

• Bill Hewlett and Dave Packard formalized the tactic of “Management by Walking Around.”

• Sam Walton visited Wal*Marts.

• Angelo Mozilo uses annual meetings to talk about the history of Countrywide, the reasons for its success, and (by implication) its core values.

87



Final Thoughts

• Culture is invisible but real

• It constitutes an asset, intangible but real

• Although it is invisible and intangible, it can be measured

• Although invisible and intangible, it can be managed

• If managed appropriately, it can have a positive impact upon “the bottom line” of financial performance

• If managed inappropriately, it can lead to organizational distress and failure.

88



References

• Flamholtz, E. (1995). Managing Organizational Transitions: Implications for Corporate and Human Resource Management. European Management Journal, 13 (1), 39-51.

• Flamholtz, E. (2001). Corporate Culture and the Bottom Line. European Management Journal, 19 (3), 268-275.

• Flamholtz, E. And Rangapriya Kannan-Narasimhan,(2005). Differential Impact of Corporate Cultural Elements on Financial Performance. European Management Journal, 23 (1), 50-64.

• Eric Flamholtz and Stanford Kurland, “Strategic Organizational Development and Financial Performance: An Empirical Investigation, unpublished Working paper to be presented at the UCLA/Oxford University “Empirical Research in Entrepreneurship Conference,” June 23-25, 2005

• Flamholtz, E. and Hua, Wei, (2002). Strategic Organizational Development and the Bottom Line: Further Empirical Evidence, European Management Journal, 20 (1), 72-81.

• Eric G. Flamholtz and Yvonne Randle, Growing Pains, Jossey-Bass Publishers, Inc. (2000).

• Eric G. Flamholtz and Yvonne Randle, Changing The Game: Transformations of the First, Second and Third Kinds, Oxford University Press (September 1998).

89



Please note that all of the materials in this slide presentation are the proprietary intellectual property of

Eric G. Flamholtz, Ph. d, and Management Systems Consulting Corporation and may not be reproduced or

otherwise distributed without written permission.

For more about reproduction rights or other information on this presentation, please contact:

Management Systems Consulting Corporation10990 Wilshire Blvd., Ste. 1420

Los Angeles, CA 90024(310) 477-0444

www.mgtsystems.com

90



• Language: How we talk about ourselves and our customers.

• Symbols: What represents value to people.

• Rituals: Events that promote culture.

• Rewards: How we recognize people and behavior that is valued by us.

• Heroes: The role models for success in our company.

• Web Sites: How we present ourselves.

Appendix A:How to See (read) Culture

91



• Steps in Culture Management

Appendix B:

92



Step 1: Define the Culture Needed to Support Long-Term Success

(“Desired Culture”)

Key Question:

What should our culture be, given our current stage of development and our future goals?

93



Define the Culture Needed to Support Long-Term Success (“Desired Culture”)

• Identify The Elements of Your Organization’s Culture With Respect to:– Treatment of Employees– Treatment of Customers/Clients– Performance Standards/Accountability– Openness to Change– Company Norms

94



• Methods to Identify Your Current Culture– Stories – What is life like here?– Interviews.– Analysis of symbols, language, rites/rituals, rewards, heroes,

and web sites (“Artifacts”).– Surveys to Measure Culture.

Step 2: Identify Your Current Culture

95



• Analyze information collected about the organization’s current culture.

• Identify the “key elements” of the current culture, based on this analysis.

• Compare current to desired culture and identify gaps.

Step 3: Identify and Analyze Significant Gaps Between Desired and Current

Culture

Identifying Gaps Using Qualitative Methods

96



• Survey Scores:– Mean Scores

– Percent Favorable

Step 3: Identify and Analyze Significant Gaps Between Desired and Current

Culture Identifying Gaps Using Quantitative Methods

97



Swissco. – Survey Results for Culture Items

Item Mean%


% Favorable


2.6 45.5 42.5 12.0

26Corporate values are understood clearly by all employees.

2.7 46.1 40.7 13.2


3.2 20.1 47.5 32.4


2.7 46.5 36.8 16.8


3.4 21.5 27.0 51.5


3.0 29.8 36.6 33.6


2.8 39.2 41.2 19.6


3.2 24.3 32.5 43.2


3.5 15.3 33.1 51.6


3.5 14.1 31.9 54.0

98



Swissco. – Survey Results for Culture Items

Item Mean%


% Favorable

50We expend too much energy on protecting our turf.

3.4 21.9 23.2 54.8

51We do an effective job of balancing strategic performance with long-term success.

3.3 15.0 44.2 40.8

52 Planning is a "way of life" in our organization. 3.4 24.7 24.7 50.6


2.6 45.8 34.5 19.6

54All employees understand the informal rules that we operate with around here.

2.8 38.4 39.6 22.0

55Informal communication channels are more informative than formal communication channels.

3.0 32.5 28.2 39.3

68The slogan “Proud of the past; Prouder of the future” reflects precisely our mission.

3.9 10.1 22.8 67.1

Culture Totals 3.1 28.9 34.5 36.6

99



Interpreting Scores

– % Favorable Scores equal to or greater than 90% on Desired Culture items or dimensions suggest alignment.

– % Favorable Scores equal to or greater than 50% on Current Culture items or dimensions are positive.

– % Favorable Scores less than 50% on Current Culture items or dimensions are considered somewhat negative.

– A 10 percentage point difference between Current and Desired Culture % Favorable Scores on individual items or dimensions is considered significant.

100



• Identify Strengths and Opportunities to Improve

• Identify Areas of Focus and Analyze

• Develop the Culture Management Plan

• Implement the Culture Management Plan

• Monitor Results

Steps 4 to 6: Develop, Implement and Monitor a Culture Management

Plan

101



Appendix C:The pyramid of organizational Development

102



Pyramid of Organizational Development

Personnel:• Hiring• Compensation

Corporate Culture

Values Beliefs Norms

Management Systems

Planning OrganizationManagementDevelopment

Perf.Mgmt.

Operational Systems

Resources Management

Products & Services

Markets

Accounting:

• Billing• Payroll

Production:

•Shipping

Marketing:

• Selling

Financial Resources

Technological and Physical Resources

Human Resources

Develop Products (Services)

Define Market Segments and Niche

Business Foundation Business Definition Strategic Mission Core Strategy

103

