| Dr Andrew M Jones of Lancaster University Management School says that an organisation must understand the core ingredients of its culture better than anything or anyone else. Without that understanding, any strategic initiatives will be very risky. |
| Neglect cultural issues at your peril
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| | By Andrew M Jones
Over the past couple
of months, journalists,
managers and consultants
have been responding to
comments made recently
by Merck CEO, Dick
Clark. In an interview
Clark suggested that
“culture eats strategy
for lunch” if a firm
does not possess the
“enabling systems and
structures” that support
and co-ordinate with a
desired strategic
direction. For some
observers, the comment
might seem surprising,
or even provocative. For
those who appreciate
that culture is often a
significant driver of
behaviour and
performance in firms,
Clark’s comments are
common sense. Wherever
one stands on these
issues today, Clark’s
comments are important
as they have sparked a
conversation that is
long overdue.
Recent studies by
KPMG, Booz Allen
Hamilton and the
Conference Board suggest
that somewhere between
50% and 80% of M&As
result in decreased
shareholder value for
acquiring firms. In a
2001 Conference Board
report, Managing
Culture in Mergers and
Acquisitions, the most
cited reasons for this
failure were the “people
problems” associated
with the integration
process. Yet, among
those senior managers
interviewed in the
Conference Board report,
only 20% said they
committed any financial
or strategic resources
to the people issues
before the
acquisitions went
forward.
More recently, as
firms seek cost
advantages through
aggressive outsourcing,
which results in new
types of organisational
change, systematic
neglect of cultural
issues continues. Often,
firms address ‘pesky’
people issues only after
the fact, when they
become acute and costly.
Yet, and even the most
hard-boiled manager
would probably agree,
attending to these | |
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| | provide comfort and
security that develop
over time into an
inertia which can take
on a life of its own.
When an
organisation’s culture
becomes out of sync with
its strategic objectives
or even outright
dysfunctional, changing
the culture (or
leveraging a desired
culture) is rarely an
easy proposition. A
necessary first step,
then, is to acknowledge
that change is neither
easy nor natural, and
that those who resist
change are not bad
people. Often, the older
and more successful a
firm, the greater the
resistance and the more
difficult the culture
journey may be.
To deal with this
head on, firms must
first recognise that
culture is a driver of
behaviour as much as it
is a reflection of
behaviour. The hardware
in a computer is
worthless without the
software to drive it to
action. Similarly,
corporate culture is the
software that drives the
systems and hardware of
the organisation.
Consider, for example,
the cultural
transformation currently
taking place at GE. For
a generation, under the
leadership of Jack
Welch, GE developed to
great effect a Six Sigma
culture, the
quintessential
operational culture.
Strategically, this
manifested itself in a
continuous succession of
strategic acquisitions,
followed by process
squeezing for maximum
efficiency, and then by
sending that successful
manager on to another
similar challenge. In
the old GE culture, a
manager who stayed in
one business for more
than three years was
considered a failure.
Successful managers in
the culture were
constantly on the move.
In the Welch era, only
about 5% of the firm’s
growth was achieved
organically by growing
the company’s internal
businesses, the rest
being derived through | |
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| | acquisitions and
roll-ups. Current CEO,
Jeffery Immelt, has set
a goal to increase that
to 10%, which means that
GE’s managers are now
being challenged to grow
new businesses in a way
that has not been asked
of them before. Immelt
recognises that the
future of growth lies in
new business creation
and that transforming
GE’s core culture is in
fact one of the most
significant risk
management projects that
the company faces.
Business Week’s Jena
McGregor writes about
GE’s cultural risk
management in the
following way:
“That’s one reason
the bastion of Six
Sigma-dom, GE, has begun
evaluating its top 5,000
managers on ‘growth
traits’ that include
innovation-oriented
themes such as ‘external
focus’ and ‘imagination
and courage’. GE has
also added more
flexibility to its
traditionally rigid
performance rankings. GE
will now have to square
its traditional Six
Sigma metrics, which are
all about control, with
its new emphasis on
innovation, which is
more about managing
risk. That’s a major
change in culture.’
‘The world’s Most
Innovative Companies’,
Business Week online,
April 2006
What are the
opportunity costs for GE
if it does not change
the hearts, minds,
values and career
aspirations of its top
managers to work towards
the ‘external focus’ and
innovation that define
the ‘Immelt revolution’?
Immelt knows that he
cannot just claim that
this change needs to
happen; he has to make
it happen. This entails
recruiting new types of
professionals into the
company, as well as
enabling more
traditional managers
(who are wedded to the
old culture and refuse
to change) to exit the
company with grace. Only
with the right people in | |
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| | place, people who
possess the desired
cultural values, can the
new GE culture of
innovation be achieved.
That is, culture is
driving strategy at GE,
not trailing it. Without
managing the transfusion
of both people and
values at GE, the (old)
culture might eat the
(new) strategy.
Merck’s CEO, Dick
Clark, states it even
more bluntly:
“The fact is culture
eats strategy for lunch.
You can have a good
strategy in place, but
if you don’t have the
culture and enabling
systems that allow you
to successfully
implement that strategy,
the culture of the
organisation will defeat
the strategy,”
INSEAD’s John Weeks
reflects on Clark’s
adage, saying in World
Business, May 2006,
that “strategic moves
that build on an
organisation’s existing
cultural strengths are
less risky, and deliver
returns more quickly”.
First, however, an
organisation must
identify, define and
understand the core
ingredients of its
culture better than
anything or anyone else.
Strategic imperatives
must be built from
there. To proceed in any
other way is one of the
riskiest moves an
organisation can make.
● Join Andrew Jones,
Cathy Glass, director of
consulting–Mettle Group
and fellow consultants
for an evening
presentation and drinks
reception as they
explore the ways in
which you can ensure
your strategy is fully
supported by your
business systems and
corporate culture, and
the type of success this
can bring to you
business. For more
information about this
complimentary event,
please email Rhian
Coward at
rcoward@mettle.biz or
telephone 01483 243440,
www.mettle.biz
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| | organisational cultural
issues as part of (as
opposed to after) the
changes themselves is
something that would
appear to make sense.
Why, though, are these
types of cultural and
human issues not more
systematically
pre-empted? What are the
risks, and the
opportunity costs,
associated with
neglecting the cultural
dimension of
organisational change?
In the language of
aeroplane pilots,
embarking on a culture
journey without a
clearly defined starting
point and end goal would
be considered ‘dead
reckoning’ or ‘flying
blind’. Once a change
journey has been decided
on, ‘journey management’
becomes a necessity to
stay on course. When
mountain climbers set
out to reach the summit
of a difficult peak,
every step of the
journey is managed as
closely as possible,
with clear goals, stages
and objectives. For all
of the recent talk in
organisations about
performance and
performance measurement,
simple cultural planning
is often one of the
first elements of
planning to be
neglected. Again, why?
And at what cost?
Evolutionary
psychologists have
recently taught us that
change itself is not
natural. Humans quickly
and very adeptly
establish routines and
behavioural patterns to
accomplish the things
they need to carry out
on a daily basis. In an
evolutionary sense,
routines provide us with
great comfort and a
sense of security that
our basic survival needs
are being met. This is
true both outside and
within organisations.
Within organisations,
particularly, routines | |
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