| 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 organisational | |
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| | 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
acquisitions and
roll-ups. Current CEO, | |
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| | 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 place, people
who possess the desired | |
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| | 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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| | 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
provide comfort and
security that develop | |
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