THE STRATEGIC POSITION

ENVIRONMENTAL ANALYSIS

Strategic analysis is concerned with understanding the relationship between the different forces affecting the organisation and its choice of strategies.

The business environment will influence the form of strategy to be pursued. Strategic analysis involves examining the internal and external environment and the impact various activities have upon the success or failure of the organisation, the following tools may be used in analysing the environment before choosing a strategy,

Macro Environment External Analysis: 

Understanding the environment in which your business operates is a critical component of business planning, strategy and sustainability. An external assessment explores factors that are beyond your control and that affect your business. The more relevant information you have concerning your business community the better able you will be to plan your business strategy and react to changing consumer demand.

National Competitive Advantage

According to Michael Porter, a nation attains a competitive advantage if its firms are competitive. Firms become competitive through innovation. Innovation can include technical improvements to the product or to the production process.

Porter suggests that there are four determinants of National Competitive Advantage, as illustrated in Porters Diamond below. 

 

  • Factor conditions (i.e. the nation’s position in factors of production, such as skilled labour, raw materials and infrastructure),
  • Demand conditions (i.e. sophisticated customers in home market).
  • Related and supporting industries.
  • Firm strategy, structure and rivalry (i.e. conditions for organisation of companies, and the nature of domestic rivalry).
  • Factor Conditions

 

Factor conditions refers to inputs used as factors of production – such as labour, land, natural resources, capital and infrastructure. This sounds similar to standard economic theory, but Porter argues that the “key” factors of production (or specialised factors) are created, not inherited.

Specialised factors of production are skilled labour, capital and infrastructure.

Porter argues that a lack of resources often actually helps countries to become competitive (call it selected factor disadvantage). Abundance generates waste and scarcity generates an innovative mind-set. Such countries are forced to innovate to overcome their problem of scarce resources. How true is this?

 

Switzerland was the first country to experience labour shortages. They abandoned labourintensive watches and concentrated on innovative/high-end watches.

Japan has high priced land and so its factory space is at a premium. This lead to just-in-time inventory techniques (Japanese firms can’t have a lot of stock taking up space, so to cope with the potential of not have goods around when they need it, they innovated traditional inventory techniques).

Sweden has a short building season and high construction costs. These two things combined created a need for pre-fabricated houses.

 

Demand Conditions

 

Porter argues that a sophisticated domestic market is an important element to producing competitiveness. Firms that face a sophisticated domestic market are likely to sell superior products because the market demands high quality and a close proximity to such consumers enables the firm to better understand the needs and desires of the customers. If the nation’s discriminating values spread to other countries, then the local firms will be competitive in the global market. One example is the French wine industry. The French are sophisticated wine consumers. These consumers force and help French wineries to produce high quality wines.

 

Related and Supporting Industries

 

Porter also argues that a set of strong related and supporting industries is important to the competitiveness of firms. This includes suppliers and related industries. This usually occurs at a regional level as opposed to a national level. Examples include Silicon Valley in the U.S., Detroit (for the auto industry) and Italy (leather-shoes-other leather goods industry).

The phenomenon of competitors (and upstream and/or downstream industries) locating in the same area is known as clustering or agglomeration.

 

Some advantages to locating close to your rivals may be potential technology knowledge spill-overs, an association of a region on the part of consumers with a product and high quality and therefore some market power, or an association of a region on the part of applicable labour force.

Some disadvantages to locating close to your rivals are potential poaching of your employees by rival companies and obvious increase in competition, possibly decreasing mark-ups.

Firm Strategy, Structure and Rivalry

 

Strategy 

  • Capital Markets

Domestic capital markets affect the strategy of firms. Some countries’ capital markets have a long-run outlook, while others have a short-run outlook. Industries vary in how long the longrun is. Countries with a short-run outlook (like the U.S.) will tend to be more competitive in industries where investment is short-term (like the computer industry). Countries with a long run outlook (like Switzerland) will tend to be more competitive in industries where investment is long term (like the pharmaceutical industry).

 

  • Individuals’ Career Choices

Individuals base their career decisions on opportunities and prestige. A country will be competitive in an industry whose key personnel hold positions that are considered prestigious.

 

Structure 

Porter argues that the best management styles vary among industries. Some countries may be oriented toward a particular style of management. Those countries will tend to be more competitive in industries for which that style of management is suited.

For example, Germany tends to have hierarchical management structures composed of managers with strong technical backgrounds and Italy has smaller, family-run firms.

 

Rivalry 

Porter argues that intense competition spurs innovation. Competition is particularly fierce in Japan, where many companies compete vigorously in most industries.

International competition is not as intense and motivating. With international competition, there are enough differences between companies and their environments to provide handy excuses to managers who were outperformed by their competitors.

The more dynamic and complex the environment becomes the greater the uncertainty about the future market conditions.

 

We can therefore classify environmental conditions into three distinct areas,

 

  • Simplistic – relatively straightforward to understand and not undergoing significant change.
  • Dynamic – management need to consider the environment of the future and ignore the past.
  • Complex – environmental change is occurring at a fast rate through technological or market forces; organisational flexibility and speed of response are critical in this type of environment.

By auditing the macro environment through analysis of the forces at work an organisation can best determine the effects on its current competitive position. These forces may be analysed using PEST analysis, political, economic, social and technical.

 

PEST (PESTEL) Analysis

 

Political/legal– Taxation, Foreign trade regulations, Gov’t stability, Monopolies, Environment protection, Market De-regulation.

 

Economic- Business cycles, GNP trends, Interest rates, Inflation, Unemployment, Disposable income, energy availability/cost.

 

Socio-cultural-  Population demographics, Income distribution, Social mobility, Attitudes to work and leisure, Levels of education, Levels of consumerism.

 

Technological- Gov’t spending on research, Support for new discoveries, Patent rights. Investment in Colleges/Universities facilities. Transport/communication infrastructure.

 

Environmental-  Green issues.

 

Legal– Legislative issues that may impact the business e.g. Government bills.

 

The Influence Impact Matrix

 

The Influence/Impact matrix is a useful tool to assist the strategic analyst prioritise the drivers identified in the PEST analysis and subsequent analysis. However, it is important to note that if the drivers are not clear or definite, then the process of prioritising the factors becomes much more difficult. The user must identify the key drivers that are affecting the industry. Assess the influence that these drivers will have on the industry, a high score should be applied where the influence is greatest. The impact of the driver on the business may be positive or negative, give the impact a weighting and multiply the influence by the impact. A positive scoring is an opportunity for the business where a negative scoring will force the business to take action to reduce or eliminate the threat.

Five forces analysis helps management to contrast the organisations with that of the competitive environment. It has similarities with other tools for environmental audit, such as PEST analysis, but tends to focus on the single, stand alone, businesses or SBU (Strategic Business Unit) rather than a single product or range of products.

For example, Dell Computers would analyse the market for Business Computers i.e. one of its SBUs.

 

Five forces looks at five key areas namely the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.

 

The Threat of Entry

 

  • Economies of scale, e.g. the benefits associated with bulk purchasing, reduces overall production costs which may act as a barrier to new entrants that are not bulk purchasing.
  • The high cost of entry e.g. how much will it cost for the latest technology?
  • Ease of access to distribution channels e.g. Do our competitors have the distribution channels sewn up and thereby prevent entry to the industry?
  • Cost advantages not related to the size of the company e.g. personal contacts or knowledge that larger companies do not own or learning curve effects.
  • Will competitors retaliate if you enter the market?
  • Government action e.g. will new laws be introduced that will weaken our competitive position?
  • How important is differentiation? e.g. The Champagne brand cannot be copied, this protects champagne producers from strong competition.

 

The Power of Buyers 

Consider this in the context of the ratio of buyers to suppliers. The higher the ratio of suppliers to buyers the greater the power of the buyers.

If there are a large number of undifferentiated small suppliers e.g. small farming businesses such as coffee growers, supplying the fewer and larger exporters may not have the same influence as farming co-ops when negotiating with the large exporters for better prices.

The cost of switching between suppliers can be low e.g. the ability of a transport company to move from one fleet supplier of trucks to another with relative ease. Manufacturers of generic products are in a weaker position than manufacturers of differentiated products as buyers have greater choice in the purchases they make.

 

The Power of Suppliers

 The power of suppliers tends to be a reversal of the power of buyers.

Where the switching costs are high e.g. switching from one software supplier to another can be costly in money and adapting to new software..

Power is high where the brand is powerful e.g. DHL or Microsoft, customers may have little option in choosing another supplier.

There is a possibility of the supplier integrating forward e.g. A coffee exporter buying up coffee farms.

Customers are fragmented (not in clusters) so that they have little bargaining power e.g. Petrol stations in remote parts of Rwanda will tend to charge higher prices than those in Kigali.

 

The Threat of Substitutes

Where there is product-for-product substitution e.g. email for fax or where there is substitution of need e.g. a clinically tested toothpaste reduces the need for frequent dentist visits.

Where there is generic substitution (competing for the currency in your pocket) e.g. Bicycle shops compete with bus companies for disposable income.

  

Competitive Rivalry

This is most likely to be high where entry is likely; there is the threat of substitute products and suppliers and buyers in the market attempt to control. This is why it is always seen in the centre of the diagram.  

 

When using this model consider the barriers that may exist which prevent a potential competitor entering the industry or the lack of barriers which could expose the business to aggressive tactics being employed by a competitor.

Comparative Analysis and Benchmarking

 

An organisation’s strategic capability is ultimately assessed in relative terms, i.e. we assess our organisation’s ability to compete through comparison with industry norms.

The analysis starts by assessing current measurements with that of previous years, usually financial ratios such as sales/capital or sales/employees. For an organisation’s results to improve it therefore must have a process of continuous improvement.

Industry norms help to put the organisation’s resources and performance into perspective and the analysis needs to be undertaken in relation to the organisation’s separate activities and not just the overall product or market position.

The danger with this form of analysis is that if the industry as a whole is performing poorly the organisation may lose its competitive position to similar industries that can satisfy customer needs.

 

Bench marking should seek to assess the competences of the organisation against the best-inclass. This means the organisation must seek to implement industry best practices and benchmarks of performance.

Benchmarking is normally executed through assessing resources, the competences in separate activities and competences through managing linkages (overall performance), i.e. market share, profitability, productivity.

 

 ASSESSING STRATEGIC CAPABILITY

 

Strategic Capability is the resources, skills and competencies that create a long-term competitive advantage for an organisation. The following tools aid in assessing the capability of an organisation to operate in the business environment.

 

Resource Audit

 

A resource audit is an attempt to assess the strength of the resources available to the organisation, e.g.

 

  • Physical resources, machines equipment, facilities etc.,
  • Human resources, skills base and adaptability to change,
  • Financial resources, ability to obtain capital, debtor and creditor control, shareholders interest etc.
  • Intangibles, goodwill, reputation, organisation culture, etc.

 

A resource audit will help to identify the strengths and weaknesses of the organisation. 

 

Strengths Weakness Opportunities and Threats – SWOT Analysis

 

SWOT analysis is a systematic evaluation of an organisations strengths and weakness in relation to its environmental opportunities and threats.

 

SWOT brings together the results of all aspects of strategic analysis.

 

SWOT is not just  an activity of  listing  bullet points  but rather a meaningful identification of summarised facts that may lead to the formulation of a robust strategy, otherwise it can be misleading and dangerous.

 

A comprehensive SWOT analysis will identify where an organisation’s strengths are and highlight the minimum requirements to succeed in the market place.

Strengths are regarded as Core Competencies whilst minimum requirements are Critical (key) Success Factors.

 

Core Competency

 

Core competencies are: The distinctive group of skills and technologies that enable an organisation to provide particular benefits to customers and deliver competitive advantage. Together, they form key resources of the organisation that assist it in being distinct from its competitors.

 

A company’s core competency must meet the following three conditions as specified by Hamel and Prahalad (1990).

 

  • It provides customer benefits,
  • It is hard for competitors to imitate, and
  • It can be disseminated widely to many products and markets. A core competency can take various forms, including technical/subject matter know how, a reliable process, and/or close relationships with customers and suppliers. It may also include product development or culture such as employee dedication.

 

Core Competencies are,

  • Internal to an organisation
  • Vary between organisations
  • Key strengths of an organisation

 

Critical Success Factors are those aspects of a strategy that must be achieved successfully to meet objectives and, if possible, to secure competitive advantage.

 

Critical Success Factors are,

  • External to an organisation
  • Determined by forces within the industry
  • Minimum requirements a firm must meet in order to be competitive

 

 

Value Chain Analysis

 

Value chain analysis is used to describe the activities within and around the organisation and relating them to an assessment of the organisation’s strengths. Value analysis was originally used as an accounting analysis to shed light on the value added by the separate steps in the manufacture process.

 

Michael Porter argues that the understanding of strategic capability must start with an identification of these activities. By identifying these separate activities and assessing the value added from each an overall analysis of a firm’s competitive advantage is gleaned.

 

These activities are grouped under primary and secondary (support activities) activities.

 

Primary: Inbound logistics, Operations, Outbound logistics, Marketing and Sales.

 

Secondary: Procurement (The process of acquiring the resource inputs to primary activities), Technology development (Knowledge, R&D specialisation), Human resource management, Firm Infrastructure (planning, finance, quality control).

 

The value chain emphasises that an organisation is more than a random collection of machines, people and systems and, unless these activities are deployed into efficient routines and processes, they will not be valued by the customer/user.

 

A feature of many organisations is that as activities are outsourced therefore consideration should be given to those activities that are not apparent yet still are part of the value chain, e.g. in manufacturing the production of component parts is outsourced to those organisations that can leverage greater economies of scale.

How managers can use the value chain

 

The value chain can be used in many ways including the following.

 

  • Value drivers and cost drivers can be identified.
  • Costs can be identified and located to particular processes
  • Opportunities for improved quality, speed or delivery might be identified
  • It might become clear that some elements in the chain are not significant in terms of improving quality or reducing costs
  • Stages can be timed to isolate blockages or lags in the production system. The linkages and co-ordination between stages might be sources of delay and inefficiency
  • Links with the value chains of suppliers and customers, who are components in the total value system, can be located and improved
  • The analysis could show that diversification or alliances might be advantageous

 

The Boston Consulting Group’s Product Portfolio Matrix

 

The Boston Matrix or Growth Share Matrix is a well-known analytical tool for organisations. It was developed by the large US consulting group and is an approach to product portfolio planning. It has two controlling aspect namely relative market share (meaning relative to your competition) and market growth.

 

You would look at each individual product in your range (or portfolio) and place it onto the matrix. You would do this for every product in the range. You can then plot the products of your rivals to give relative market share.

 

This is simplistic in many ways and the matrix has some understandable limitations that will be considered later. Each cell has its own name as follows.

Included in the above matrix are the stages of the product life cycle to demonstrate the linkage between market share, growth and product development.

 

Dogs

These are products with a low share of a low growth market. They do not generate cash for the company, they tend to absorb it. Get rid of these products.

 

Cash Cows

These are products with a high share of a slow growth market. Cash Cows generate more than is invested in them. So keep them in your portfolio of products for the time being. Problem Children

These are products with a low share of a high growth market. They consume resources and generate little in return. They absorb most money as you attempt to increase market share.

 

Stars

These are products that are in high growth markets with a relatively high share of that market.

Stars tend to generate high amounts of income. Keep and build your stars.

Look for some kind of balance within your portfolio. Try not to have any Dogs.

Cash Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds generated by your Cash Cows can be used to turn problem children into Stars, which may eventually become Cash Cows. Some of the Problem Children will become Dogs and this means that you will need a larger contribution from the successful products to compensate for the failures.

 

Problems with the Boston Matrix

 

  • There is an assumption that higher rates of profit are directly related to high rates of market share. This may not always be the case. When Apple launches a new device, it may gain a high market share quickly but it still has to cover very high development costs.
  • It is normally applied to Strategic Business Units (SBUs). These are areas of the business rather than products. For example, Tata Group of India owns Land Rover and Jaguar as well as Tata Motors and steel plants. These are all SBUs not a single product.
  • There is another assumption that SBUs will co-operate. This is not always the case.
  • The main problem is that it can oversimplify a complex set of decisions. Be careful. Use the Matrix as a planning tool and don’t forget on your gut feeling.

 

Ansoff Matrix

This well known marketing tool was first published in the Harvard Business Review (1957) in an article called ‘Strategies for Diversification’. It is used by marketers who have objectives for growth.

Ansoff’s matrix offers strategic choices to achieve the objectives. There are four main categories for selection.

Market Penetration

Here we market our existing products to our existing customers. This means increasing our revenue by, for example, promoting the product, repositioning the brand, and so on. However, the product is not altered and we do not seek any new customers.

Market Development

Here we market our existing product range in a new market. This means that the product remains the same, but it is marketed to a new audience. Exporting the product or marketing it in a new region are examples of market development.

Product Development

This is a new product to be marketed to our existing customers. Here we develop and innovate new product offerings to replace existing ones. Such products are then marketed to our existing customers. This often happens with the auto markets where existing models are updated or replaced and then marketed to existing customers.

Diversification 

This is where we market completely new products to new customers. There are four types of diversification, namely related, unrelated, vertical and horizontal diversification. Related diversification means that we remain in a market or industry with which we are familiar. For example, a soup manufacturer diversifies into cake manufacture (i.e. within the food industry). Unrelated diversification is where we have no previous industry or market experience. For example a coffee grower invests in a motor-bike business. Vertical integration may be forward (Coffee grower acquiring the exporting business) or backward integration (a tea exporter growing tea).

Ansoff’s matrix is one of the most well know frameworks for deciding upon strategies for growth.

 

The Product Life Cycle (PLC)

 

The Product Life Cycle (PLC) is based upon the biological life cycle. For example, a seed is planted (introduction); it begins to sprout (growth); it shoots out leaves and puts down roots as it becomes an adult (maturity); after a long period as an adult the plant begins to shrink and die out (decline).

 

In theory it’s the same for a product. After a period of development it is introduced or launched into the market; it gains more and more customers as it grows. Eventually the market stabilises and the product becomes mature; then after a period of time the product is overtaken by developments and the introduction of superior competitors, it goes into decline and is eventually withdrawn. However, some products fail in the introduction phase. Others have very cyclical maturity phases where declines see the product promoted to regain customers.

 

Strategies for the differing stages of the PLC

 

Introduction

The need for immediate profit is not a pressure. The product is promoted to create awareness. If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution.

 

Growth

Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilise.

 

Maturity

Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and uses a greater variety of media.

 

Decline

At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.

 

Problems with PLC

In reality very few products follow such a prescriptive cycle. The length of each stage varies enormously. The decisions of marketers can change the stage, for example, from maturity to decline, by price-cutting. Not all products go through each stage. Some go from introduction to decline. It is not easy to tell which stage the product is in. Remember that PLC is like all other tools. Use it to inform your gut feeling.

 

  MEASURING STAKEHOLDER EXPECTATIONS

Stakeholder Mapping 

  

When analysing the organisation’s competitive position and environment there is a temptation to look only at company resources or strategic capability and ignore the complex role which people play in the strategy formulation. Stakeholder mapping is about the political and cultural aspects of strategic formulation, the organisation’s purpose and what are people’s expectations of the organisation.

Stakeholder Mapping: the power/interest matrix

Stakeholder mapping is about identifying individuals or groups that are affected by the activities directly or indirectly by the organisation and politically prioritising them.  There is a common mistake when analysing organisations only to address those individuals in the formal structure of the organisation.

 

The power/interest matrix classifies stakeholders in relation to the power they hold and the extent to which the organisation’s strategies impact upon them. It is therefore an analytical tool.

For example, the form of strategy would be of greater interest to stakeholders in segment D, whereas stakeholders in C segment will need close attention (institutional shareholders). B segment will need information as they may be allies to the implementation of the strategy.

 

Power is the mechanism by which expectations are able to influence strategies. This is evident in organisations where certain groups or departments can veto decisions. There are four indicators of power

 

  • Status of individuals/groups, e.g. position within hierarchy or reputation.
  • The claim on resources – some departments may be allocated a larger budget and therefore have greater spending power.
  • Representation in powerful positions – Some functions such as operations may suffer due to a weakness on the part of senior management at board level.
  • Symbols of power – this is evident with some groups having larger offices in better locations, type of furniture, facilities or car parking spaces.

 

No single indicator is likely to uncover the structure of power, however by examining all four indicators it may be possible to identify the more powerful ones.

This matrix is also useful when analysing external stake and the power of stakeholders , e.g. supplier power etc.

 

Cultural Considerations

Culture is an important aspect to strategic management with a variety of influences affecting  the efficiency and effectiveness of the organisation. Companies have come to accept that an organisation that has a strong culture tends to  be successful.

 

A Strong Culture is said to exist where staff respond to stimuli because of their alignment to organisational values.

Conversely, a Weak Culture exists where there is little alignment with organisational values and control must be exercised through extensive procedures and bureaucracy.

Where culture is strong, people do things because they believe it is the right thing to do.  

 

Definition:

 

Siehl C, Martin J, (1984, 227), …organisational culture can be thought of as the glue that holds the organisation together through a sharing of a pattern of meaning. The culture focuses on the values, beliefs and expectations that members come to share.

 

Schein E, (1985,169 ), suggests that organisational culture refers to a system of shared meaning held by the members that distinguishes the organisation from other organisations. This system of shared meaning essentially represents a critical set of characteristics that the organisation values.

 

Jaques E,(1952, 251), The culture of the factory is its customary and traditional way of thinking and doing of things , which is shared to a greater or lesser degree by all its members, and which new members must learn and at least practically accept in order to be accepted into the services of the firm.

 

It has been suggested that the culture of an organisation consists of four layers,

 

  • Values may be easy to identify in an organisation and are often written down as statements about the organisations, its mission, objectives or strategies; however they tend to be vague e.g. cherish the community etc.

 

  • Beliefs are more specific but again they are issues people in the organisation can talk about, e.g. the company should not trade with the government of a particular country.

 

  • Behaviours are the day to day  way in which the organisation operates; this includes organisational structure and control mechanisms.

 

  • Assumptions which are taken for granted and are the core of the organisation. They are aspects of the organisation life which people find difficult to explain and are known as the paradigm.

 

Source: Adapted  from Johnson  & Scholes, Exploring Corporate Strategy 2005.

 

Trying to understand the culture of the organisation is important, but it is not straightforward.  The strategy and values of the organisation may be written down but the underlying assumptions which make up the paradigm are usually evident only in the day-to-day conversation or discussion of people or maybe so taken for granted that they can be observed only in what people actually do.

 

The Cultural Web

 

Different aspects of organisation culture together with the paradigm comprise to make the cultural web.

 

The cultural web of an organisation consists of:

 

  • Stories told by members of the organisation to outsiders, new recruits, about successes and disasters, heroes and villains.
  • Symbols – offices, cars, and titles.
  • Rituals and routines – organisation member’s behaviour to each other and to outsiders.

Rituals can include training programmes, conferences, assessment procedures.

  • Power structures – how is the power distributed in the organisation.
  • Control systems – measurement and reward systems, performance related pay, discipline and punishment.
  • Organisation structure is likely to reflect power structures, relationships and an emphasis of what is important to the organisation.

 

The issue of defining organisational or corporate culture remains contentious. Hofstede suggests that culture is about the collective programming of the mind which distinguishes the member of one group of people from another.

 

Robbins,(1991), identifies ten characteristics that when mixed and matched tap the  essence of an organisational culture,

 

  • Individual initiative – the degree of responsibility, freedom and independence an individual has.
  • Risk tolerance – the degree to which employees are encouraged to be aggressive innovative and risk seeking.
  • Direction – the degree to which the organisation creates clear objectives and performance expectations.
  • Integration – the degree to which units in the organisation is encouraged to operate in a co-ordinated manner.
  • Management support – the degree to which they provide communications, assistance and support to subordinates.
  • Control – the number of rules and regulations and the amount of direct supervision.
  • Identity – the degree to which members identify with the organisation as a whole rather than a particular work group.
  • Reward system – the degree to which the reward allocations are based on performance criteria in contrast to  seniority or favouritism.
  • Conflict tolerance – the degree to which employees are encouraged to air conflicts and criticisms openly.
  • Communication patterns – the degree to which organisational communications are restricted to the formal hierarchy of authority.

 

Each of these characteristics is seen to exist in a continuum from low to high and by examining and appraising the organisation on these characteristics an overall composite picture of the organisation’s culture can be gleaned.

 

Culture does not exist in a vacuum but is linked to a larger cultural process within the  Organisation’s environment.

Every organisation expresses aspects of the national regional, industrial, occupational and  professional cultures.

The most immediate source of outside influence on the organisation culture is found within  the organisation, its employees.

Before joining an organisation employees have already been influenced by family, community, nation, state, church, education, and other work organisations.

 

Charles Handy Four Common Cultural Types

 

Charles Handy, (1976), developed a four way typology of common cultural types,

 

His four cultural types are very easy for people to understand and groups readily identify with them. Handy also uses four Greek gods to illustrate his basic approaches and the organisational cultures that result.

 

  • Power orientation – (Zeus) In an organisation that demonstrates a power orientation, the organisation will attempt to dominate its environment and those who are powerful in the organisation strive to maintain power over subordinates.

Work is typically divided by function or product and the structure tends to be that of the traditional model.

While this type of organisation places a lot of faith in the individual the organisation operates with little regard for human values or welfare.

 

  • Role oriented – (Apollo) organisations aspire to be as rational as possible.

Rules and procedures dominate creating many bureaucratic characteristics, communications go up and down the organisation but are less likely to go across. Decisions continue to be the preserve of those at the top which may mean that leader satisfaction is high while people lower down may feel frustrated with the organisation.

 

  • Task oriented – (Athena) management in this culture is concerned with successful problem solving and performance is judged by the success of task outcomes. The attainment of goals is the persuasive ideology, nothing is allowed to get in the way of task achievement. If individuals do not have the necessary skills they are retrained or replaced. Emphasis is placed on flexibility organised around project teams and collaboration between groups is common. Individuals retain a high degree of control over their work.

 

  • People orientation – (Dionysus) exists to serve the needs of its members. In place of formalised authority individuals are expected to influence each other through example. Consensus methods of decision making are preferred, examples of this kind of organisation are clubs, professional bodies or societies.The Environment and Corporate Culture A big influence on internal corporate culture is the external environment. As already stated, culture varies widely across organisations and organisations within the same industries display similar cultures because they operate in similar environments. The internal culture should embody what it takes to succeed in the environment. If the external environment requires good customer service then the culture should encourage good service.

    According to Harvard research in 2007 US firms illustrated the relationship between corporate culture and the environment. It found that a strong corporate culture alone did not ensure business success unless the culture encouraged a healthy adaptation to the external environment.

    In the framework below adaptive culture managers are concerned with customers, employees and processes that bring about change whereas with unadaptive culture managers are concerned about themselves and their values and discourage risk taking and change. Healthy cultures help companies adapt to the environment.

    Types of Culture – Richard L Daft

     

    According to Daft in considering what cultural values are important for an organisation, managers must consider the external environment as well the company’s strategy and goals. Studies suggest that the right fit between culture, strategy and the environment is associated with four categories of culture types. These are based on the extent to which the external environment requires stability or flexibility and the extent to which the company’s strategic focus is internal or external.

    The relationship of environment and strategy to corporate culture:

     

    Adaptability Culture: Strategic focus on the external environment through flexibility and change to meet customer needs. The culture encourages entrepreneurial values, norms, and beliefs that support the capacity of the organisation to detect, interpret, and translate signals from the environment into new behaviour responses.

     

    Achievement Culture: Serving specific customers in the external environment, but without the needfor rapid change. Emphasis is on a clear vision of the organisation’s purpose and on the achievement of goals. This culture reflects a high level of competitiveness and a profitmaking orientation. A result oriented culture that values competitiveness and personal initiative.

     

    Involvement Culture: Primary focus on the involvement and participation of the organisation’s members and on rapidly changing expectations form the external environment.

    This culture focuses on the needs of employees as the route to high performance. Involvement and participation create a sense of responsibility and ownership and, hence, greater commitment to the organisation.

     

    Consistency Culture: Internal focus and a consistency orientation for a stable environment.

    This organisation has a culture that supports a methodical approach to doing business. Symbols, heroes, and ceremonies support cooperation, tradition, and following established policies and practices as ways to achieve goals.

     

    Shaping Corporate Culture for Innovative Response

     

    Managing the High Performance Culture

     

    Companies that succeed in turbulent environments are those that pay attention to culture values and to business performance. Culture values can energise and motivate employees by appealing to higher ideals and unifying people. In addition values boost performance by shaping and guiding employee behaviour so everyone is aligned to strategic priorities.

     

    In the matrix below four organisational outcomes are displayed based upon the relative attention the managers pay to culture values and business performance.

    A company in Quadrant A pays little attention to either values or business results and is unlikely to survive in the long term.

    Managers in Quadrant B organisations are highly focused on creating a strong culture but they don’t tie organisation values to goals and business results e.g. Levi Straus is highly focused on values and tie their managers’ pay to how well they are connected to the company values.

    Quadrant C represents organisations that are focused on ” bottom line results” and pay little attention to organisation values.

    Finally Quadrant D put a high emphasis on both culture and solid business performance as drivers of organisation success.

     

    One of the most important things managers do is to create and influence organisation culture to meet strategic goals, because culture has a significant impact on performance.

     

    Cultural Leadership

     

    A cultural leader defines and uses signals and symbols to influence corporate culture.

    Cultural leaders influence culture in two key ways,

     

    • The cultural leader articulates a vision for the organizational culture that employees can believe in. This means the leader defines and communicates central values that employees believe in and will rally around. Values are tied to a clear and compelling mission.

     

    • The cultural leader heads the day to day activities that reinforce the cultural vision. The leader makes sure that work procedures and reward systems match and reinforce the values i.e. they walk the talk.

     

    Excellence in Organizational Behaviour

     

    It has been suggested that strong culture can help an organisation successfully implement business strategy and help organisations achieve levels of excellence.

    The success of Japanese organisations is partly due to strong culture and management methods. If within the organisation there is wide consensus about the importance of values then it is deemed that the culture is strong.

     

    Peters and Waterman in their book In search of excellence argue that excellent organisations do not insist on sticking to rules but get on with the job.

    Managers in these organisations are in touch with the workforce and the organisations stick to what each knows best.

    Peters and Waterman studied more than 43 successful American companies. The companies specialised in a number of areas: consumer goods, high technology, and services. What they discovered was that regardless of how different each company was, they shared eight basic principles of management that anyone can use on their way to success.

     

    These principles characterise the cultures of successful organisations.

     

    • A bias for action – these organisations do not stick to rules. They believe in Do it, try it, fix it.
    • Close to the customer – customers are provided with quality, service and reliability.
    • Autonomy and entrepreneurial, risk taking and innovation are encouraged.
    • Productivity through people – employees are a key resource, therefore emphasis is on good management /employee relations.
    • Hands – on value driven – these organisations feel that their philosophy and values are tied in to success.
    • Stick to the knitting – organisations should concentrate on the business they are good at.
    • Simple form, lean staff – Some organisations are so large and complex that to be successful the organisations activities are arranged around a matrix e.g. Unilever, Proctor and Gamble.
    • Simultaneous loose-tight properties – Rigidly controlled but at the same time allow autonomy.

     

    These values found favour with many top managers who attempted to transform the culture of their organisations.

    However history was to demonstrate that many of the excellent organisations written about in the book were less than excellent two years later.

     

    Having found one way to excellence they must learn that sticking to the knitting will not,  necessarily, stand them in good stead even in the medium term.

     

    Managing organisation culture

     

    The human resource management (HRM) function is the most powerful management function to influence the organisation culture. For example the HRM function will determine organisational rituals, such as induction courses, training and appraisals as well as cultural symbols such as office allocation. If the culture emphasises the importance of team work and innovation as crucial for success, the management responsible will want to create one that rewards imaginative and inventive technical behaviour and co-operation and collaboration with others in the work place. This means that rewards, salaries, promotions and bonuses will have to reflect this focus.

     

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