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Relationship Between Organizational Culture & Business Strategy

written by: V!kas Shukla•edited by: Wendy Finn•updated: 4/26/2011

To realize the vision of the organization, and to execute the plans properly, a manager must understand the relationship between business strategy and organizational culture.

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    What Exactly is Culture?

    Culture 

    In layman's terms, organizational culture is a set of beliefs, values, habits, rules of conduct, jargons, jokes that are peculiar to an organization and are deeply rooted within the firm. The four dimensions of culture include teamwork, internal & external communication, reward & recognition, and training & development.

    Organizational culture profoundly influences the thoughts, interactions and overall performance of employees. The strategic success of an organization depends upon the manner in which its culture encourages risk-taking and acceptance of feedback in the organization.

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    Is There a Relationship Between Business Strategy and Organizational Culture?

    Business strategy 

    If you don’t understand the culture of your company, even your most brilliant strategies will fail. Your vision will be resisted, plans won’t get executed properly, and all kinds of things will start going wrong." Isadore Sharp, CEO, Four Seasons Hotels.

    This statement by a renowned businessman clearly indicates that there is some connection between culture and strategy. A business strategy stems from the organizational vision and mission. The implementation, evolution and effectiveness of strategies depends upon the people of the company. Culture plays an important role in strategy formulation and implementation, because the staff have to ‘fit’ in order to be able to deliver.

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    Finding the Fit Between Culture and Strategy

    Organizations usually adopt one of the four types of strategies -- prospectors, defenders, analyzers and reactors.

    Prospective organizations are innovative in nature and they always look for new opportunities in the market. They tend to have a developmental culture that values creativity, risk-taking and adaptability. Employees in such organizations follow a less routine-based approach and are always encouraged to come up with new ideas.

    Companies that operate in relatively narrower and clearly defined market segments are defenders. They achieve growth through development of unique technology and market penetration. Such businesses tend to have hierarchical culture in which routines and standardization are valued and technical knowledge is given more preference.

    Analyzers are the companies that operate in two market environments; one is relatively dynamic and the other stable. They operate effectively in the stable environment. In turbulent domains they critically scrutinize the competitors' ideas and opt for the one that seems most promising. Rational culture is best suited for companies with this strategy. Decisions are taken based on facts and observed evidences.

    A reactor strategy is the dynamic one. They do not form a specific corporate strategy and deal with the situations as they occur. This is why they do not have a unique culture. Sometimes they are innovative, sometimes defender, and sometimes both.

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    How Culture Alignment Stimulates Strategy Execution

    Through Goal Alignment

    Goal alignment focuses on ‘what is done’ in the organization on a day-to-day basis. It ensures that the task performed by each individual or group is focused on strategically important areas. Organizational culture aligns goals with structures, processes, and employee interaction, for successful strategy execution and goal achievement.

    By Enhancing Productivity

    When people in the organization act and interact in the same way, there is better mutual understanding among employees and they can work in a more efficient manner. According to a study by Kotter and Heskett, the organizations that aligned culture and strategy yielded a three times higher Return-On-Investment than those with a non-aligned culture and strategy.

    Mergers & Acquisitions

    In this age of cut-throat competition, large corporations are hungry for mergers & acquisitions. However the success of mergers and acquisitions solely depends on the integration of cultural parameters in the acquisition plans. The outstanding example of culture-strategy alignment is the merger of Hewlett Packard and Compaq Computers. Prior to merger both of these companies had their unique culture, work schedules and formalization. While merging, the top officials from both the companies came together to form an optimum culture that fits into both, without hindering the efficiency of individual employees.

    It does not matter what wonderful strategies your organization has formulated; if it doesn’t fit into the culture, it won’t be materialized. Misaligned organizational cultures mar the organization’s growth engines and prevent strategies from being achieved to their full potential. The strategic orientation of an organization is just another expression of its dominant cultural values.

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    Promoting Culture-Strategy Fit

    • Consistency is the key to hold the values true.

    • Keep making small but valuable changes over time.

    • Promote management groups and employees to come up with innovative ideas and practices.

    • Use effective communication practices to concentrate on what is important.

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    References

    • Edgar Schein, Organizational Culture and Leadership (1992). Jossey-Bass; 3 edition (September 1, 2004)
    • Madhukar Shukla, Understanding Organizations (2009). Prentice-Hall of India Ltd., New Delhi
    • http://www.culturestrategyfit.com/documents/Missing%20Link%2002%2009%2008.pdf

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