On Management: Culture eats strategy

An organisation's cultural strengths are the crucial elements in the successful implementation of its strategy.

by John Weeks, INSEAD
Last Updated: 23 Jul 2013

Dick Clark, Merck's new CEO, was recently 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.

His strategy, he said, 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."

Gone are the days when organisational culture could be dismissed as a fad; gone too are naive notions that any one type of organisational culture is best. Rex Tillerson, CEO of ExxonMobil, describes that company's top-down command and control culture of consistency and discipline as "the source of our competitive advantage" and has made reinforcement of it a priority. But Robert Iger and Steve Jobs, in their discussions about the acquisition of Pixar by Disney, have been concerned to avoid that kind of command and control culture. Jobs says: "We have spent the time talking about preserving the Pixar culture because we all know that's the thing that's going to determine the success here in the long run."

When is a culture worth preserving and when should it be changed? The answer is found in an understanding of the strengths of a company's culture and an analysis of whether the particular strategic moves a company makes play to its cultural strengths. This means asking whether the decisions that a company makes are consistent with its values. Equally importantly, it means recognising that the beliefs and assumptions in any company make some things easy and natural, and others difficult and alien. This is what determines whether, as Clark says, the culture defeats the strategy or enables it.

The emphasis on the strengths of a culture represents an important shift away from the argument about the strength of organisational culture that has occupied academics and consultants alike for over two decades - the question of whether strong cultures are good for company performance.

This debate started in 1982 with the publication by two McKinsey consultants, Tom Peters and Robert Waterman, of the best-selling book that introduced the idea of organisational culture to managers worldwide, In Search of Excellence.

This was the first business book to sell more than a million copies, and it marked the coming of age of the genre. Its claim was that America's best-run companies, such as IBM, had something in common. They were "marked by very strong cultures, so strong that you either buy into their norms or get out". The book's success launched two parallel industries, one of consultants selling corporate culture services and another of academics debunking claims about corporate culture.

Round one went to the academics. The performance of the 62 companies that Peters and Waterman had identified as excellent was, on average, mediocre over the next 10 years. In 1992 Peters wrote Liberation Management, in which he argued that strong culture was out and weak culture was in.

McKinsey replaced IBM as the role model of the age - a firm that operated as a decentralised network of distinctive, agile, modest-sized units.

When, in 1993, a former McKinsey partner, Lou Gerstner, was brought in to break up IBM, the transformation of the received wisdom from strong to weak seemed complete.

But 10 years later, strong culture companies such as ExxonMobil and WalMart were thriving, the best-selling business book of the time, Built to Last, paid homage to the wisdom of Peters' and Waterman's book, and Gerstner had revived IBM. Gerstner said that when he was at McKinsey, "I probably would have told you that culture was just one among several important elements in any organisation's make-up and success. I came to see in my time at IBM that culture isn't just one aspect of the game - it is the game."

Strong and weak culture each have their place. The question for CEOs is more granular: for each strategic move they want to make, does it play to their company's strengths culturally? Does it fit the pattern of values and beliefs held across the company? If not, then either they must be clear about the new values and new beliefs that will be needed to support the move, and prepared to invest the substantial time and energy required to cultivate them, or it will fail.

Strategic moves that build on an organisation's existing cultural strengths are less risky and deliver returns more quickly. The goal should be to identify these cultural seams and mine them. Both strong and weak culture are important for success. If you find your organisation drawing on the same strengths too often, beware: the valuable coin of cultural strength has complacency and insularity stamped on its back.

John Weeks is assistant professor of organisational behaviour at INSEAD Fontainebleau

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