Connecting organization culture and business success

Dick Clark, Merck's (a pharmaceutical company) CEO, when asked about his strategy for restoring the pharmaceutical company to greatness in the face of lawsuits over its painkiller Vioxx, expiration of patents and a weak product pipeline, said his strategy was to put strategy second and focus on changing the company's culture. "The fact is culture eats strategy for lunch," Clark explained. "You can have a good strategy in place, but if you don't have the culture and the enabling systems that allow you to successfully implement that strategy, the culture of the organisation will defeat the strategy."
The implication of his statement is that a 'good' strategy will bring business success (usually equating to solid financial performance). Further there seems to be an assumption that execution of the 'good' strategy is dependent on a 'strong' and/or 'healthy' culture.

Even without delving into notions of 'good strategy' or 'healthy' and 'strong' cultures there are conflicting views the connection between organisation culture and performance (business success) which is not surprising as there is little consistent empirical evidence of a link between the two, but plenty of anecdote and intuition making the connection.

A short academic paper Culture-Performance Research: Challenges and Future Directions* describes the issues and summarizes by saying,

"the proliferation of … propositions related to both culture and performance, has limited researchers' abilities to draw stable conclusions about these relations, most notably in the strategy management literature. While many attempts in the strategy literature find support for the link between culture and firm performance, generalizability, and thus construct validity, is extremely limited.

Specifically, the various measures of performance and culture provide limitations to understanding the culture-performance link (Denison, 1984; Petty et al., 1995). As a result of the inconsistencies in measurement, there is limited agreement as to how culture may impact firm-level performance of an organization."

So thinking there is a connection does not necessarily make the connection but it still seems an attractive proposition to pursue.

*Weinzimmer, L. G., Franczak, J. L. and Michel, E.J. (2008) Culture-Performance Research: Challenges and Future Directions. Journal of Academy of Business and Economics, Volume 8, Number 4, 2008 158

Innovation, Hertz, Zipcar

Someone suggested yesterday that organizations in different stages of maturity might need different forms of innovation. He'd defined innovation as a 'better but different' process improvement i.e. not just incremental improvement but something substantially different that meant a process was getting done more efficiently, cheaply, productively in a very different way. An example at a market level is the way car rental process.

The traditional way is of the Hertz. Budget, Avis business model, and a different, newer, innovative way is the Zipcar model.. Now Hertz is taking on the Zipcar model. Connect by Hertz which launched in December 2008 and is now in various cities in the US plus London and Paris. At the time of the launch Hertz spokeswoman Paula Rivera said plans were already in place to expand to other locations. "We plan to go after the car-sharing market in an aggressive way". (wsj. December 3 2008). By April 2009 Hertz was claiming that its pilot was successful and had signed its first corporate customer (Marriott) – adding car sharing to 'its business travel portfolio', and in June added Xerox as a corporate customer.

So how long will it be before other traditional car rental companies start to compete with Hertz? How easy will it be for them to change their business models to take on this new way (for them) of car rental? Going from one business model to another is a challenge for most companies – changing not just the systems, policies, practices, and processes, and measures changes but also the mindset and management style – and many don't think through the implementation and execution of the new model. A perfectly conceived innovation is useless if it can't be implemented effectively.

Six principles and the water problem

The Tellus Institute ( has put out a couple of papers on Corporate Design and Corporate Redesign. It's well worth a look at the Institute's website, not least because it offers six principles for corporate design aimed at altering the 'genetics' of the contemporary corporation to help meet the great societal challenges of the twenty-first century. The six principles are:

1. The purpose of the corporation is to harness private interests to serve the public interest.
2. Corporations shall accrue fair returns for shareholders, but not at the expense of the legitimate interests of other stakeholders.
3. Corporations shall operate sustainably, meeting the needs of the present generation without compromising the ability of future generations to meet their needs.
4. Corporations shall distribute their wealth equitably among those who contribute to its creation.
5. Corporations shall be governed in a manner that is participatory, transparent, ethical, and accountable.
6. Corporations shall not infringe on the right of natural persons to govern themselves, nor infringe on other universal human rights.

They are laudable principles. Now try engaging the various water companies in the application of these principles in their corporations. Read the article in Vanity Fair: The Rise of Big Water, or watch the movie Flow (www.flowthefilm). What are the steps between writing principles about designing organisations and actually redesigning them? Apparently it took 'a two-year multi stakeholder process', to develop the six sentences that form the principles. On that basis redesigning corporations will take us well beyond the point when there is any water on the planet. (Or is this unduly pessimistic?)

Transcendent business culture?

Someone today suggested to me – in relation to Chinese, Korean, and American business designs – that there is a 'transcendent business culture' which set me thinking. It's a view echoed by Yougmaan Park, CEO Doosan, who was interviewed by McKinsey Quarterly in September 2008. Park makes the point that "Culture represents, country, race, language, history, and such. But when you add 'corporate' and make 'corporate culture' that's almost identical in most of the successful conglomerates globally." Making a similar lunge at the notion of a transcendent business culture is John Tomlinson in his book Globalization and Culture when he opens the discussion talking of … "the accomplished business-class passenger who displays his (mostly, 'his') credentials with the insouciance with which he enacts the social-cultural adjustments of arrival: the swift location of the taxi, the easy transit to the pre-booked international hotel … the assurance of finding all the facilities … that will allow him to function independently of context. … Distant places are culturally close for business executives …" Maybe there is a transcendent business culture but going too far down that road seems to lead to difficulties when a company sticks too rigidly to a business model that works in one geography – take WalMart pulling out of Germany, or the more recent pull back of Lenovo into its Chinese roots. (Economist August 13 2009). The global/local requires a nuance approach not a transcendent approach.

Moonshots for Management

"What needs to be done to create organizations that are truly fit for the future?" Gary Hamel asks this question in the article Moonshots for Management published in Harvard Business Review, February 2009.
Along with 34 other "management scholars and practitioners" he spent 2 days getting to an answer to the question. Out of the work comes 25 'moon shots' that "are neither mutually exclusive nor exhaustive". It's a laudable list for reforming management. But is it boring, pedestrian, and predictable? Could any group of 35 management practitioners come up with the same things? I thought it notable that the 35 contributors who call themselves the 'renegade brigade' are all established successful people, well known in the field. Also, they're predominantly Americans. Where is the global representation, the non business world mindsets, the generational mix that could contribute to the debate? Moon shot 8 is 'Expand and Exploit Diversity' – it would have been good to see some of that in the participant list. On the other hand, perhaps pedestrian is ok. People have been saying for decades, for example, that it is imperative to "reduce fear and increase trust" – ok. Maybe we do need to keep repeating the phrase but endless repetition has not had an effect as yet. A different approach to answering this type of question would be to open it up to hundreds of others globally using a technology like Imaginatik's Idea Central for example,
Getting to the moon in the same old way may get us there but there may be quicker, easier, and better ways now that we're actually in the 21st century.

How American is organization design?

I had lunch with someone today who contended that American companies are far too interested in quick fixes to have any wish to think systematically and sytemically about making their enterprises more effective. Her US clients all want the presenting problem solved with as little discussion and as much speed as possible regardless of the consequences. Her view is that Europeans are likely to be more interested in looking for the underlying causes of presenting symptoms. This may explain why my courses last week in the UK were both full and I am having an uphill battle in the US to get people here interested. At least it's one possible explanation.

Active steps to address trends

McKinsey published in March 2008 a survey reporting on how companies act on global trends. What's interesting is that whilst recognizing the importance of a trend, for example 'faster pace of technology' or 'increasing availability of knowledge' they are not, in fact, acting on that recognition (as least as far as the survey responses show). Why not? Well the survey suggests that they don't know how to, and/or lack the skills and resources. A reason not stated, which I am inclined to think is more likely but may not have been one of the survey questions, is that leadership teams don't spend enough time together thinking and talking about trends and how they could/should collectively respond to them. Their may be scenario planning exercises but these are not the same as trend spotting. The same week their was a two-part report released 'Trends Shaping Tomorrow's World' I wonder how many leaders have read this and how many are thinking how to act?