Leading by Leveraging Culture

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Leading by Leveraging Culture

Jennifer A. Chatman1 Sandra E. Cha

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The first author wrote this chapter while a Marvin Bower Fellow at the Harvard Business School, and is grateful for their support.

Copyright © 2002 by Jennifer A. Chatman and Sandra E. Cha Working papers are in draft form. This working paper is distributed for purposes of comment and discussion only. It may not be reproduced without permission of the copyright holder. Copies of working papers are available from the author.

Leading by Leveraging Culture

Jennifer A. Chatman1 Haas School of Business University of California Berkeley, CA 94720-1900 chatman@haas.berkeley.edu And Sandra E. Cha Harvard Business School Soldiers Field, Sherman Hall 102 Harvard University Boston, MA 02163 scha@hbs.edu

December 11, 2001

To appear in, Subir Chowdhury (Ed), Next Generation Business Series: Leadership, Financial Times-Prentice Hall Publishers, forthcoming, 2003.

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The first author wrote this chapter while a Marvin Bower Fellow at the Harvard Business School, and is grateful for their support.

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We occasionally get calls from prospective clients who, having heard that we consult with organizations to improve their cultures, ask us to “come on down to our organization and get us a better one.” Perhaps they are thinking that, somehow, after we have worked our culture magic, employees will be singing and dancing in their cubicles. Although this is a nice image, simply trying to make employees happy misses the power of leveraging culture. The problem is that organizational culture has become faddish, and as such, it has been over-applied and underspecified. Our goal in this chapter is to precisely clarify why culture is powerful, and provide specific criteria for developing a strong, strategically relevant culture that is likely to enhance your organization’s performance over the long haul. A few caveats apply to our discussion. First we won’t claim that by simply managing culture, leaders will be assured of organizational success, or by neglecting culture, doomed to fail. As this volume illustrates, leveraging culture is but one of a number of key leadership tools. We will claim, however, that by actively managing culture, your organization, and the people working within it, will be more likely to deliver on your strategic objectives over the long run. We begin by defining organizational culture and psychological basis of its powerful effects on performance. We then discuss how emphasizing innovation enhances long-term strategic success. Next, we present a set of managerial practices—recruiting and selecting employees for culture fit, intensive socialization and training, and the use of formal and informal rewards—that leverage culture for performance. Throughout the chapter, we show that culture boosts organizational performance when it (1) is strategically relevant, (2) is strong, and (3) emphasizes innovation and change. We conclude that culture “works” when it is clear, consistent and comprehensive, particularly during challenging times. Why is Organizational Culture Powerful? Focusing People Intensely on Strategy Execution A Fortune magazine article highlighting path-breaking research by Ram Charan and Geoffrey Colvin (1999) led with a provocative cover – “Why CEOs Fail.” The definitive answer

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had been found, and it was notoriously simple: CEOs failed when they failed to execute their strategy. This was an amazing conclusion because, in contrast to what industrial economists have been telling us for years–that firms with well-formulated and hard-to-imitate business strategies emerge as the winners (e.g., Porter, 1980)—Charan and Colvin’s article suggested that firms with merely reasonable strategies who execute fully on those could be the most successful. This shifts our focus from strategy formulation to strategy execution, and culture is all about execution. Consider the often-cited example of Southwest Airlines,...
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