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Managing Organizational Culture

Organizational culture includes a large and complex set of elements, many that are difficult to identify, such as values, norms and cultural forms, and these elements can be found embedded across all organizational activities and practices (e.g., direction and control processes, reward systems, communication patterns etc.).  The organizational founders and other original members of the organization play an important role in establishing the foundations of an enduring organizational culture; however, organizational culture is also influenced by continuously changing external factors outside of the control of the founding group and by new members who join the organization as time goes by.   While the complex nature of organizational culture makes it difficult to “manage”, the importance of culture to the performance and success of the organization means that attention should and must be paid to how culture is passed on and reinforced within the organization and when and how changes in the culture must be introduced in order to cope with changes in the external environment, new types of work activities and different expectations and needs of organizational members. 

The International Center for Growth-Oriented Entrepreneurship has just released a chapter on "Managing Organizational Culture" from its Library of Resources for Growth-Oriented Entrepreneurs on Organizational Culture which is available for free downloading and sharing by clicking here.  Also, take a look at the Center's article on LinkedIn Pulse discussing important ideas for managing your organizational culture.


Business Counselor’s Need to Understand and Respect Organizational Culture

Organizational culture should not be underestimated and, in fact, in most cases it is a more influential force than any other set of internal laws—rules and procedures—applicable to the members of the organization.  Research has indicated that the culture of an organization has a strong influence on how the organization tackles problems and questions, sets strategy and creates the structures that determine the work activities and relationships of organizational members and also on how members behave when carrying out their organizational activities.  There is also evidence that organizational culture plays a big part in defining the competitive position of the organization in its environment and the way in which the organization is perceived by external stakeholders. – See more at the Legal Solutions Blog


The “Strategic Palette”: Inspiration with Caution

In their 2015 book, “Your Strategy Needs a Strategy”, Reeves et al., all of whom were serving as consultants for Boston Consulting Group at the time, identified a small number of primary strategies that leaders should include in their “strategic palette” and thus have available for deployment in appropriate situations.  The consultants argued that visualizing strategy based on the palette approach was an appropriate acknowledgement that no single strategy fit every scenario and that leaders would need to be able to both switch between strategies and artfully blend strategies to create new approaches. 

The primary strategies that should be included on the palette were described as follows in a review of the book that appeared in The Economist

  • The “classical strategy”: This strategy was traced back to the 1950s and was succinctly described in the review as “find a good niche, develop a plan to dominate it, then muscle up”.  Such a strategy, long popular in business school classes, requires developing and maintaining core competencies that are competitive advantages (e.g., cost controls, logistical savvy etc.) and a sustainable network of suppliers, distributors and customers.  Typical practitioners of the strategy mentioned in the review included Procter & Gamble, Walmart and UPS.  The problem with relying too much on this strategy is that it assumes stable markets, an environment that is increasingly harder to find in today’s competitive world.
  • The “adaptive, evolutionary approach”:  A strategy that has become popular among technology firms, this approach was described in the review as “trying lots of small things and then backing whichever ones work”.  In practice, a fashion retailer might first produce a new line of clothing in small batches and then transition quickly to “scaled up” production if and when market interest is confirmed.  Central to this strategy is investing resources in explaining new ideas and products to the market when they first come out in order to both generate potential interest and collect feedback necessary to implement changes before additional cash and other resources are ploughed into production.
  • The “blue-ocean approach”:  Described as a “visionary approach”, this strategy calls for the firm to “generate a compelling new idea—a whole new market, with you at its center”.  While Apple’s development of the iPhone and iPad are certainly compelling and spectacular examples of the successful application of this strategy, the obvious challenge is educating potential customers that they really do need the proposed product or service and building sufficient excitement and demand.
  • The “shaping approach”: The review described this strategy as “working with partners to create new markets”.  The review pointed out that firms may turn to either private- or public-sector partners.  One example of private partnerships was the way that Apple and Google have worked with small developers to create ecosystems of applications for their respective mobile services.  An illustration of public-sector partnering was the success of Novo Nordisk, a Danish pharmaceutical company, in capturing a large percentage of the insulin market in China by working with physicians and health authorities in that country to increase awareness of diabetes and encourage diagnosis and treatment.
  • “Renewal”: This strategy is generally reserved for firms that have gotten into trouble and calls for the following: “refocus the business decisively, preserve capital, free resources to apply to areas of growth”.  One illustration provided was AIG, the large insurance conglomerate bailed out by the US government during the depths of the Great Recession in the 2000s.  In order to survive AIG divested a number of businesses and product lines and rigorously restructured its remaining units to reduce overlap and rivalry.
  • The “ambidextrous” approach: This approach encourages and expects that firms can and will be able to shift quickly and efficiently among two or more of the strategies described above and even use multiple strategies at the same time for different purposes.  The review described how each division of PepsiCo had two groups: one group was tasked with remaining competitive using a strategy of continuously improving the efficiency of businesses that were to be maintained their current form and the other group was looking for ways to “disrupt” current ways of doing business before competitors found the answer.

The review complimented Reeves et al. for offering a clear taxonomy of strategies; however, it is also pointed out that the success of the “palette approach” depended heavily on the ability of leaders to recognize and overcome difficult contradictions.  For example, while the niche-domination approach suggested by the classical strategy often turns on reducing choices for consumers in order to keep costs down the adaptive strategy is based on offering several new choices in order to find the best product or service option to focus on in the future.  The review also noted that firms used to practicing the classical strategy tend to prefer being closed and acting defensively and that these characteristics will make it difficult for them to engage in the sharing with outside partners that is required in order to pursue a shaping strategy.  Another impediment to ease of use for the palette approach is the inevitable mistrust and rivalries between managers pursuing different strategies in the same market at the same time.  Certainly a group tasked with maintaining the status quo through cost reductions and incremental changes to an existing product will be loath to share information with another group established to topple the traditional foundation in the same market and roll out new products and solutions.  The result will be internal stress and strain and wasteful investment of cash and other resources. 

Sources: “A palette of plans”, The Economist (May 30, 2015), 66; M. Reeves, K. Haanaes and J. Sinha, Your Strategy Needs a Strategy: How to Choose and Execute the Right Approach (Cambridge MA: Harvard Business Press, 2015).


Introduction to Organizational Culture

A number of definitions of organizational culture have been offered; however, if managers and employees are consulted they may simply respond that culture is “how we do things around here”.  There is obviously truth to such a statement but it would be a mistake to ignore the breadth and scope of the issues that are influenced by an organization’s cultural norms and values—how activities within the organization are carried out, how members communicate with one another, who is accepted into the organization and who is ostracized, and what is the organization’s overall morale.  The culture of a particular organization is created and maintained by its members, particularly the founders and senior managers, based on a variety of influencing factors—both external and internal—and they are also the ones who can change and transform the culture when they are convinced that such actions are necessary in light of the then-current environment that the organization is facing.  Organizational culture should not be underestimated and research has indicated that the culture of an organization has a strong influence on how the organization tackles problems and questions, sets strategy and creates the structures that determine the work activities and relationships of organizational members and also on how members behave when carrying out their organizational activities.  There is no single culture that is universally appropriate for all organizations and there is clearly substantial diversity with respect to the dominant cultural attributes among successful and effective organizations.  The challenge is to construct a culture that fits well with the overall strategic goals and objectives of the organization and hopefully becomes a core competency for the organization and can be used to distinguish it from competitors in the minds of customers and prospective members. 

The International Center for Growth-Oriented Entrepreneurship has just released a chapter on "Introduction to Organizational Culture" from its Library of Resources for Growth-Oriented Entrepreneurs on Organizational Culture which is available for free downloading and sharing by clicking here.   Also, take a look at the Center's article on LinkedIn Pulse discussing important things you need to know about organizational culture.


New Business Counselor’s Guides on Strategic Planning

New practice tools have been added to Chapter 22 (§§ 22:1 et seq.) of Business Transactions Solutions, which discusses the key steps in designing, implementing and administering a formal strategic planning process and preparing the desired outputs of the process including a mission statement, a strategy statement, strategic goals and objectives, tactical and operational plans and an effective business plan.  The chapter covers the various phases of the strategic planning process including collecting and analyzing information, strategy development using “situation” analysis, preparation of the mission and strategy statements, establishing strategic goals and objectives, preparation of a strategic plan and implementation and monitoring of the company’s strategic plan.  In addition, the chapter provides extensive practical guidance on the development and implementation of a business plan including a description of the purposes and uses of a business plan; the steps in collecting and analyzing information to be used to prepare the business plan (i.e., industry analysis, product and market analysis, competitive analysis, financial planning and analysis, organizational analysis and risk analysis) and a description of the main sections of a typical business plan.  Of particular interest and value are the guides relating to various aspects of strategic and business planning from the Business Counselor’s Mini-MBA Program.  See more at the Legal Solutions Blog




Business Strategies for Fast-Growth Small Firms

Storey reviewed and analyzed a dozen studies of “growing small firms” conducted during the late 1980s and 1990s to identify which specific elements of business strategy were most characteristic of a fast-growth small firm, with the criterion for growth generally being an increase in employment.  The researchers focused on thirteen elements and found that only the following four stood out as having a demonstrably strong positive relationship to growth: 

  • External equity ownership:  Entrepreneurs who shared equity ownership with external individuals and/or organizations were more likely to see their firms achieve rapid growth.  A number of small business owners are reluctant to share equity for fear of diluting their control and limit their external financing to short-term debt from banks and other financial institutions, strategies that limit the resources available as a foundation for growth and access to advice and contacts of outside investors.
  • Market positioning:  Faster growth was found among small firms who made a conscious choice to concentrate their efforts on specific niches or segments in which they were best positioned to leverage and exploit their core competencies and competitive advantage.  Generally such firms had an advantage with respect to quality and technological sophistication; however, Storey pointed out that it was difficult to identify a particular niche strategy that was most successful and that firms may position themselves in a number of different ways (i.e., quality, price etc.).
  • New product introduction:  Consistent with the importance of market positioning (i.e., identifying and exploiting a particular niche), the fastest growing firms tended to be those who were willing and able to introduce new products, preferably products that reflected some level of genuine, rather than “mundane”, innovation (i.e., products that were wholly new as opposed to products that were new to the firm but already well-known in the marketplace in which the firm was competing). 
  • Recruitment of non-founder managers: Entrepreneurs who were willing to recruit non-founder managers and delegate authority to those managers saw their businesses achieve more rapid rates of growth.  Expanding the management team and delegation was seen as necessary for entrepreneurs to cope with the increased complexity of decision making that accompanies growth and failure of the entrepreneur to reach out to others was likely to result in missed opportunities that would eventually stymie growth.  However, Storey noted that further research was needed on the best methods for selecting, motivating and retaining such individuals and creating a strong management team (e.g., what disciplinary or functional specializations are most necessary for growth; what are the preferred experiences and backgrounds; should management recruitment occur internally or externally and, if externally, from what types of firms).

Among the other elements of business strategy that were found to either not have a significant influence on growth or to have a negative relationship to growth were workforce training, management training, technological sophistication, use of “formal” strategic planning, state support, customer concentration (i.e., dependence on a single customer or a narrow customer case, the nature and/or intensity of competition, the collection and use of information and advice provided by private sector sources (i.e., attorneys, accountants, banks, consultants etc.) and the level of reliance on exporting activities.  Storey cautioned, however, that all of these elements were relevant to some aspect of the evolution of the firms that were part of the various studies.  For example, while workforce training did not appear to have an impact on the initial growth of firms, even among those who perceived their “skill base” as a competitive advantage, training become more important as firms successfully achieved their initial growth targets and sought to establish stability and continuity as larger companies.  Similarly, while the evidence was unclear to whether fast-growing firms were actually devising and implementing more sophisticated planning processes, it could be expected that once formal planning would increase as firm attained greater size and formality.   Finally, while there was no clear evidence that access to outside advice caused growth, the information from the studies confirmed that fast-growing firms were more likely to tap into information and experience available from private sector advisers.

Storey also reported the results of a survey conducted by the Cambridge Small Business Research Centre in the early 1990s that assessed constraints on the ability of fast-growth small firms to meet their business objectives.  According to that survey the biggest challenges were the availability and costs of finance for expansion and overdraft facilities and access to management and marketing/sales skills.  Overall growth of market demand and increasing competition, while problematic for small firms that were stable or in decline, demanded less attention from the leaders of fast-growth firms than the issues mentioned above.  Another survey showed that as fast-growth firms matured they began to change the mix of elements in their strategies.  For example, while initial growth may have come from introduction of new products, further expansion was often driven by building on the original product base by identifying new markets in which to exploit existing products.  Exporting also became a more important part of firm strategy as companies completed their initial growth phases.

Sources: D. Storey, Understanding the Small Business Sector (London: Chapman and Hall, 1994), 144-156; The State of British Enterprise: Growth, innovation and competitive advantage in small and medium sized firms (Cambridge: Small Business Research Centre, Department of Applied Economics, University of Cambridge, 1992); and D. Smallbone, D. North and R. Leigh, "Growth Characteristics of Mature Small and Medium Sized Manufacturing Enterprises" in M. Robertson, E. Chell and C. Mason (Eds.), Towards the 21st Century: the Challenge for Small Business (Manchester, UK: Nadamal Books, 1992).


Understanding the Strategic Planning Process

Even though the evidence is strong that the likelihood of success for a new business increases when the members of the management team embrace some sort of formal planning process from the outset, it is still tempting for entrepreneurs to charge bravely into the fray in pursuit of their dreams of a successful new product or service that will immediately attract the interest of thousands or even millions of customers.  Certainly their examples of “instant successes” where companies seemingly appear from nowhere, create new markets and enjoy staggering levels of early growth.  However, the more prudent course for successful and sustainable entrepreneurship is the time-consuming, and admittedly sometimes tedious, process of collecting information relevant to the proposed business and developing clear ideas about how the company’s product or service will be positioned, marketed and distributed in the marketplace that appears to be best suited for early acceptance of the product or service.  The process has been analogized to an architect creating a blue print for a new building before construction begins—in the case of a new business or an existing business looking to expand significant, that blue print is the strategic business plan.  While the primary goal of the strategic planning process is the end product—the tangible business planning document—the journey itself provides the participants with an invaluable opportunity to collect information and knowledge about the proposed business and grapple with and resolve the fundamental issues that need to be addressed in order to determine the best way for the company to operate and compete in its chosen markets.

The International Center for Growth-Oriented Entrepreneurship has just released a chapter on "Strategic Planning Processes" from its Library of Resources for Growth-Oriented Entrepreneurs on Strategic Planning which is available for free downloading and sharing by clicking here.  Also, take a look at the Center's article on LinkedIn Pulse discussing important things you need to know about implementing a strategic planning process for your business.


Counseling the Purchasing Function

Learn about the business counselor's practice toolkit for counseling the purchasing function at the Legal Solutions Blog.


Business Plans are Dinosaurs? Ignore Them at Your Peril

Once a foundational principle and milestone in the launch of a new business, business plans have been criticized as dinosaurs and symbols of old and stale management practices.  Just push forward and fix mistakes as they come up is often the wisdom imparted by entrepreneurial gurus.  While it may be true that investing six months to create a thick document that could run hundreds of pages can cause an entrepreneur to miss a promising “market window”, the fact of the matter is that it is still true that no business should be started or operated without a clear plan of what it intends to do and how it intends to accomplish its goals.  In fact, the business plan is a byproduct of a company’s larger strategic planning process which should be undertaken to assist management in articulating the main mission of the firm as well as the key objectives of the company’s productive activities, facilitate the formulation of short and long-term growth strategies, and develop and implement programs for enhancing operational efficiencies and reducing the waste of available manpower, capital and other scarce resources.  A business plan transforms the company’s initial ideas into specific action plans for achieving its goals and monitoring the progress of the company toward its identified destination.  The planning process will force the company to determine the specifications for the products and services it intends to sell, how those products and services will be marketed, how the business will be financed and managed and what human resources will be required in order to make the company’s strategic initiatives successful. A well written and carefully researched business plan may also serve as a useful report card that allows managers to compare what actually happens to what was predicted at the time the plan was first written. 

The International Center for Growth-Oriented Entrepreneurship has just released a chapter on "Business Plan Preparation" from its Library of Resources for Growth-Oriented Entrepreneurs on Strategic Planning which is available for free downloading and sharing by clicking here.   Also, take a look at the Center's article on LinkedIn Pulse discussing important things you need to know about preparing and implementing an effective business plan.