IS YOUR COMPANY'S CULTURE HELPING OR HINDERING?

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1 IS YOUR COMPANY'S CULTURE HELPING OR HINDERING? Diagnosing By Professor Dan Denison. (August, 2007) IMD Chemin de Bellerive 23 PO Box 915, CH-1001 Lausanne Switzerland Tel: Fax:

2 Although it might seem soft and fuzzy, company culture is extremely important. The underlying principles and values of an organization drive everything from innovation and staff satisfaction to the customer s experience and perception of the company. My research demonstrates too that culture relates directly to bottom line organizational performance. But while many organizations have done a good job of defining corporate values and principles to guide them into the future, the understanding, management, and leadership of company culture remains a challenge. What counts in culture? Four key traits shape company culture: 1. Mission: A company s mission serves as a blueprint for the future, providing purpose and direction. A good mission articulates a vision, strategic direction, and clear goals and objectives that everyone, from the lowest to the highest levels, can understand in order to move forward on the same path. 2. Adaptability: This relates to how well a company listens to the marketplace and translates new demands into action. Adaptability requires a customer focus as well as organizational learning and the ability to create change. 3. Involvement: A mission by itself will not achieve much unless everyone within the organization is aligned and engaged, and feels ownership and responsibility. This requires empowerment, team orientation, and capability development among all staff. 4. Consistency: This aspect of culture relates to internal integration, coordination, and control, and ultimately to delivery of the product in a distinct way. Through coordination and integration, agreement, and key central values, consistent organizations develop organizational systems, processes, and structures that create an internal system of governance based on consensual support. Strengths in the first two traits give companies more of an external focus, while strengths in the second two give more of an internal focus. Similarly, adaptability with a high level of involvement makes a company flexible, while a strong mission and good consistency lead to stability. IMD - IS YOUR COMPANY'S CULTURE HELPING OR HINDERING? Page 2/5

My research demonstrates too that culture relates directly to bottom line organizational performance.

3 Clearly, the four traits compete to some extent. Is it more important to be flexible or stable? To focus on internal or external factors? How can you maintain internal control while remaining dynamic? Managing the trade-offs between the four traits forms part of an organization s core beliefs. And whatever the official corporate values may promise, strengths and weakness in these traits affect the company s real values and principles and hence its culture. Relating culture to performance The crucial question is: does company culture have any link with bottom line performance? And the resounding answer is: YES. Analysis of over 900 companies with respect to their strengths in the four culture traits clearly demonstrates that culture is an asset, with the results showing over time. Companies with the highest scores in all four traits show significantly higher performance on multiple indicators, including return on equity for shareholders, customer satisfaction, return on assets, and sales growth. Strengths in particular traits also correlate with general company characteristics. For example, companies with high scores in adaptability and mission tend to be growth companies. Similarly, those with high scores in adaptability and involvement tend to be innovative; those with high scores in mission and consistency tend to show stable performance over time; and those with high scores in involvement and consistency tend to have good operating performance and high employee satisfaction. Building a high-performance business culture The scores from these 900 companies form a benchmark database against which other organizations can diagnose their own culture to identify weakness that may be affecting performance. This need not even be for the company as a whole: the analysis can be taken at any level, such as for different subsidiaries, divisions, and even operation sites. By comparing their score for each of the culture traits against the benchmark, companies can easily spot weaknesses and see where to focus attention in order to improve performance. For example, a low score in the mission trait indicates a need to focus the IMD - IS YOUR COMPANY'S CULTURE HELPING OR HINDERING? Page 3/5

And whatever the official corporate values may promise, strengths and weakness in these traits affect the company s real values and principles and hence its culture.

4 learning agenda on strategy development. Likewise, a low score in consistency indicates a need to build internal systems and values for more reliable delivery of the product. Understanding culture is also useful for business transformations as well as mergers and acquisitions. For example, identifying the strengths of the parent and target companies involved in a merger can help the parent company to maintain the synergy offered by the target company. Without this understanding, the parent company runs the risk of squashing the competitive advantage of the target company for which it probably paid a high price during the assimilation. Swiss Re Americas: a striking example The Swiss Re Americas Division provides a striking example of culture change and subsequent improved performance. In 2000, the division scored in the lowest percentile for each of the four culture traits, and was running at a loss. Following a series of substantial changes, by 2002 the organization had improved its strategic mission, level of adaptability, degree of involvement of its people, and its internal consistency. It now scored highly in the four culture traits and made a profit. This is an extreme example, but nevertheless shows the value of getting company culture right. Dan Denison is IMD Professor of Management and Organization at IMD. His work on organizational culture and business performance is well known around the world. He teaches on the Mastering Technology Enterprise (MTE) Orchestrating Winning Performance (OWP) programs. IMD - IS YOUR COMPANY'S CULTURE HELPING OR HINDERING? Page 4/5

For example, identifying the strengths of the parent and target companies involved in a merger can help the parent company to maintain the synergy offered by the target company.

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Seifert - Prepares technically trained managers from technology or knowledge-based industries to be company leaders - Gives you a deeper understanding of the business functions, processes and

LEARNING FROM MERGERS & ACQUISITIONS

LEARNING FROM MERGERS & ACQUISITIONS Beware of biases By Professor Philip Rosenzweig (December, 2006) IMD Chemin de Bellerive 23 PO Box 915, CH-1001 Lausanne Switzerland Tel: +41 21 618 01 11 Fax: +41