The Successful Expatriate Leader in China

With cheap labor, the world’s largest work force, and the United States as one of its principal trading partners, China offers boundless opportunities to global corporations.[1] The economic advantages of operating in China are great; however, the foreign business community faces unique challenges there, as qualified Chinese business leaders are virtually non-existent within the country’s corporate world.[2]





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Given the dearth of national leadership experience in China, companies are turning to expatriates to fill critical leadership roles, and promoting these leaders very quickly.[3] Consider the story of Wilson, a 35-year-old manager who was pressured to accept a promotion only one week after taking a position with a major company. The lack of national leadership was directly related to Wilson’s immediate promotion.

This pressure to ascend and lead larger divisions can be difficult for an expatriate manager who does not understand the cultural nuances of operating in China. Expatriates who are unable to adapt to the country’s different cultural values and interpersonal relationships suffer immediately. In fact, interpersonal relationships are often cited as a major reason for leaving a company.[4]

The cultural dimensions of leadership developed by Hofstede help provide a foundation for business leaders operating in foreign territories.[5] These dimensions of leadership include power distance, individualism, uncertainty avoidance, and masculinity.[6] For an expatriate leading a national team in China, it is essential to understand the cultural dimensions of leadership to improve productivity, increase company profits, and improve interpersonal relationships.

Power Distance

Power distance, the extent to which a society accepts that power is distributed unequally, is established through subordinates and superiors.[7] In societies with high power distance, such as China, individuals with power enjoy greater status and privilege than those without power, and subordinates are less likely to challenge or express disagreement with superiors.[8] In other words, the rank structure is clearly delineated between management and subordinates, and disagreement with management is frowned upon.

In low power distance cultures, the prevalent belief is that power corrupts and those without power have no remedy for those with power thus the belief in communal leadership.[9] In a low power distance society, communal leadership and subordinates offering greater input into decisions is a normal and accepted practice.

A leader’s decision-making style varies based on several external factors that determine the amount of power distance in an organization. They include: organizational structure, culture, external threats, relationships with subordinates, and the degree of formality of the situation.[10] In high power distance relationships, there is virtually no rapport between the leader and subordinate, and a formal contract is used to achieve goals.[11] As members of a high power distance society, Chinese managers demand unquestionable respect and loyalty, and rank structure is formalized and clearly delineated between employees and management.

China has many of the tenets of the high power distance relationships listed above, although superiors are expected to develop relationships with subordinates. This is known as “Guanxi.”[12] This principle, based deeply on Confucianism, allows for a weaker member to call on a superior for favors; the superior is then obligated to respond.[13] In other words, Chinese managers are expected to operate within clearly defined lines establishing their authority, while at the same time building a rapport with workers wherein workers can ask, and expect to receive, favors. This principle allows managers to help those in weaker positions by offering support. Managers operating in China must establish clear managerial power, while concurrently developing relationships that allow subordinates to request and receive assistance when the need arises.

Consider the example of Tim, an operations manager working for a U.S. corporation in China. Tim nearly quit his lucrative position for one reason: he could not garner the respect of his employees or superiors. He was attempting to lead based on his managerial experience in the United States, a lower-middle power distance culture.[14] Tim did not understand that as a manager he needed to convey a strong presence, and that stating “I don’t know” was not an acceptable answer to his subordinates who demanded leadership from him. His Chinese workers considered him the company authority with all of the answers; when Tim could not provide all of the answers, he immediately lost their respect. In addition, Tim did not understand the principle of Guanxi. By refusing requests for assistance, Tim was not able to earn the trust and respect of his employees or gain the assistance of management.

Tim was not prepared for the cultural facets of managing in China, and his lack of knowledge regarding the country’s cultural nuances prevented him from achieving immediate success. If Tim had understood the principles of power distance and Guanxi, he could have established a relationship of trust and respect with his employees and with management.

Individualism

Individualism describes the relationship between the individual and the immediate community.[15] In organizations, individualism has been linked to a preference for individual decision-making; in contrast, in societies with collective values, such as China, interpersonal relationships and group affiliation are the focus.[16] In individualistic cultures, members view themselves as autonomous from the organization, whereas in collective cultures, the organization comprises part of the member’s identity.[17] Studies have found that collective organizational cultures possess stronger reward systems than similar individualistic organizational cultures, and in collective cultures, managers typically give higher performance evaluations and rewards.[18]

Leadership has been linked to individualism and collectivism and varies across cultures; for example, autonomy is linked positively to leadership in some cultures and negatively in others.[19] In China, a collectivistic culture, individuals are willing to sacrifice personal goals for the good of the group. This loyalty is promoted across all aspects of Chinese culture, including the workplace. For example, a Chinese worker that has developed strong ties to the team will often not abandon the team in the midst of a project to pursue individual goals. In fact, a Chinese worker may forgo a promotion to continue work on a project, a concept that is foreign to many Western expatriates working in China. The motto of the Chinese worker is often that the needs of the many outweigh personal desires. American expatriates operating in China need to be cognizant of this principle and understand the ramifications of pursing personal agendas over those of the team.





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Uncertainty Avoidance

Uncertainty avoidance is the degree to which members in a society feel uncomfortable with ambiguous situations and take steps to avoid them.[20] Uncertainty avoidance occurs at various levels of an organization. For example, senior management may refuse to pursue a project with uncertain outcomes.[21] Uncertainty avoidance has many implications for leadership characteristics and leadership traits such as habitual, formal, cautious, and orderly is perceived as an outstanding form of leadership in some countries while a negative form in others.[22]

In China, a country with high uncertainty avoidance, managers are more controlling, less approachable, and less likely to delegate to subordinates than their low-avoidance counterparts.[23] In other words, managers in China do not place as much trust in their employees as managers in other countries, such as the United States, France, or Sweden.

Heather, an expatriate human resource manager for a U.S. company operating in China, experienced this. She reported to a Chinese manager, Mr. Liu, who epitomized the characteristics of high uncertainty avoidance. Mr. Liu was unwilling to relinquish control of projects that were Heather’s responsibility. Because Mr. Lui did not know Heather and her abilities, he felt that by relinquishing control, he was placing the company in jeopardy. Heather knew that if she confronted Mr. Lui, she would have received a response along the lines of; “The only way that I will be confident that the project will not fail is if I am in control.” Instead of facing a difficult confrontation with Mr. Lui, Heather asked headquarters to clearly explain their roles and to make the power-sharing requirement clear to all parties.

Prior to headquarters’ taking an active role in the situation, the high degree of uncertainty avoidance created a very difficult work environment for Heather as she did not understand the cultural influences guiding Mr. Lui’s behavior. With an understanding of Mr. Lui’s cultural influences, Heather might have been able to avoid an unpleasant work environment and persuade Mr. Lui to relinquish some control. Heather would have understood Mr. Lui’s cultural frame of reference and would have asked headquarters to clarify their role differences. Understanding the cultural dimensions of leadership, specifically uncertainty avoidance, would have served Heather well in this situation.

Masculinity

Masculinity is the extent to which the dominant values in a society are assertiveness, money, and material possessions; caring for others and quality of life tend to be subordinate in such societies.[24] In masculine cultures, such as China, the “heroic” manager is decisive, assertive, and aggressive.[25] The manager makes decisions with confidence and directness and does not allow employees to question authority.

Although certain feminine characteristics, such as being indirect and evasive and using intuitive reasoning, are often valued in leadership, they are rejected in masculine cultures like China’s.[26] However, it is important to note that honor and saving face are extremely important concepts to Chinese business people, and a direct style may be viewed as insulting and can harm employee/manager relationships.[27]

As a U.S. expatriate, Justin quickly realized that he needed to approach his employees in a different manner than he would back home. Justin knew that China, a highly masculine culture, demanded decisive action and aggressive behavior toward employees. As such, Justin was extremely direct with all of his employees and with management, despite his natural tendency to evade conflict. This approach allowed him to garner respect from his employees in a way that would not have been possible otherwise. Additionally, Justin knew that saving face was extremely important to his employees, and he knew that when he showed aggressiveness and directness, he had to do so in a way that did not insult the individual. In one situation, after a Chinese worker had installed an incorrect part on the assembly line, Justin took the blame for the incorrect part, but still demanded that the employee fix the mistake. By taking this approach, Justin allowed the worker to save face without compromising his authority. Justin’s knowledge of Chinese culture allowed him to develop a strong rapport with his workers.

Conclusion

As studies have shown, there is a strong correlation between cultural dimensions and successful performance in organizations in different societies, which makes it extremely important to consider and perhaps modify one’s management style to fit the societal norms and culture of the foreign country.[28] The cultural dimensions of leadership—power distance, individualism, uncertainty avoidance, and masculinity—are important for the U.S. businessperson to recognize and apply while operating in China. Expatriate managers should be able to identify the different cultural nuances between China and their homeland and adjust their management styles to fit cultural and business situations. Sensitivity to different cultures is also necessary to successfully establish relationships with employees and management. Imagine life as an expatriate operating in China, where employees treat you as a member of the family and are willing to do anything to ensure your success and the success of the company. A multinational company’s success hinges on managers’ abilities to be cognizant of different cultural values; understanding Hofstede’s cultural dimensions is just the beginning.


[1] Ed Frauenheim, “Closing China’s Leadership Gap: A dearth of experienced leaders has led many organizations in China’s booming economy to hastily promote young, unseasoned employees—a practice that jeopardizes business strategy and global succession plan. Can a stronger focus on development and corporate culture help meet the nation’s critical need for skilled managers?” Workforce Management, 86, no.5 (2007): 16-27.

[2] F. Gandolfi, and C. Bekker, “Guanzi: The Art of Finesse and Relationship Building When Conducting Business in China,” Regent Global Business Review, 2, no. 1, (2008): 513.

[3] Frauenheim, “Closing China’s Leadership Gap.”

[4] S. Cote, L. Morgan, “A Longitudinal Analysis of the Association Between Emotion Regulation, Job Satisfaction and Intentions to Quit,” Journal of Organizational Behavior,23, no. 8, (2002): 947-962.

[5] Philip Harris, Robert Moran, and Sarah Moran, Managing Cultural Differences: Global Leadership Strategies for the Twenty-First Century, (6th ed.), (Boston, MA: Elsevier, 2004). (link no longer accessible).

[6] G. Hofstede, “National Cultures in Four Dimensions: A Research-Based Theory of Cultural Differences among Nations,” International Studies of Management and Organizations, 13, no. 1/2, (1983): 4674.

[7] Ibid.

[8] Robert House, Paul J. Hanges, Mansour Javidan, Peter Dorfman, and Vipin Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies, (Thousand Oaks, CA: Sage Publications, 2004).

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] J. P. Alston, “Wa, Guanxi, and Inhwa: Managerial Principles in Japan, China and Korea,” Business Horizons, 32 no. 2, (1989), 2631.

[13] J. L. Farh, R. D. Hackett, and J. Liang, “Individual-Level Cultural Values as Moderators of Perceived Organizational Support-Employee Outcome Relationships in China: Comparing the Effects of Power Distance and Traditionality,” Academy of Management Journal, 50, no. 3, (2007): 715729.

[14] House, Hanges, Javidan, Dorfman, and Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies.

[15] Amal R. Karunaratna, Lester W. Johnson, and C.P. Rao, “The Exporter-Import Agent Contract and the Influence of Cultural Dimensions,” Journal of Marketing Management, 17, nos. 1-2, (2001): 137158.

[16] M. Geletkanycz, “The Salience of Culture’s Consequences: The Effects of Cultural Values on Top Executive Commitment to the Status Quo,” Strategic Management Journal, 18, no. 8, (1997): 615623.

[17] House, Hanges, Javidan, Dorfman, and Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies.

[18] Carolina Gomez, Bradley L. Kirkman, and Debra L. Shapiro, “The Impact of Collectivism and In-Group/Out-Group Membership on the Evaluation Generosity of Team Members,” Academy of Management Journal 43, no. 6, (2000): 10971106.

[19] House, Hanges, Javidan, Dorfman, and Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies.

[20] Marcus W. Dickson, Deanne N. Den Hartog, and Jacqueline K. Mitchelson, “Research on Leadership in a Cross-Cultural Context: Making Progress, and Raising New Questions,” Leadership Quarterly, 14, no. 6, (2003):729768.

[21] House, Hanges, Javidan, Dorfman, and Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies.

[22] Deanne N. Den Hartog, Robert J. House, Paul J. Hanges, S. Antonio Ruiz-Quintanilla, and Peter W. Dorfman, “Culture Specific and Cross-Culturally Generalizable Implicit Leadership Theories: Are Attributes of Charismatic/Transformational Leadership Universally Endorsed?” Leadership Quarterly, 10, no. 2, (1999): 219.

[23] House, Hanges, Javidan, Dorfman, and Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies.

[24] Harris, Moran, and Moran, Managing Cultural Differences: Global Leadership Strategies for the Twenty-First Century. (link no longer accessible).

[25] Marcus W. Dickson, Deanne N. Den Hartog, and Jacqueline K. Mitchelson, “Research on Leadership in a Cross-Cultural Context: Making Progress, and Raising New Questions,” Leadership Quarterly, 14, no. 6, (2003): 729768.

[26] Ibid.

[27] House, Hanges, Javidan, Dorfman, and Gupta, Culture, Leadership and Organizations: The GLOBE Study of 62 Societies.

[28] G. Hofstede, “National Cultures in Four Dimensions: A Research-Based Theory of Cultural Differences Among Nations,” International Studies of Management and Organizations, 13, no. 1/2, (1983): 4674.

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Recognizing Organizational Culture in Managing Change

The dramatic increase in products, markets, enhanced technology, and robust competition has led to a dynamic global business environment. Companies that have flourished in the 21st century are those that have learned to respond to turbulence by managing change effectively.[1] Most organizations are aware of the need for change; however, the challenge lies in implementing strategies that stick. For a number of reasons, including a lack of understanding of deeper organizational issues or a failure to recognize the cross-functional implications of change,[2] system-wide change often goes awry.





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The purpose of this article is to examine how organizational culture influences the likelihood of success for change strategies, and to provide tools for the reader to apply within his or her organization. Evidence suggests that organization members are more inclined to embrace change when the organization’s culture is aligned with the mission and goals of the company.[3] Although senior management may espouse a set of values that they assume defines the organizational culture, the reality is that the way members perceive what is rewardedand what they believe to be the underlying messagewill constitute the “real,” in-use culture of how things are accomplished.[4] Therefore, we suggest that a cultural analysis be undertaken to facilitate the planning and implementation of organizational change.

Understanding culture can be useful in two ways. First, cultural insight provides awareness of the extent to which organization members are willing to accept change; and second, a cultural assessment is likely to determine the root cause of the problems that impede stronger performance.[5]

Measurement of Organizational Culture

By investigating two disparate organizationsa family-owned business and a global manufacturing companythis article describes ways that management can utilize cultural assessments to increase the likelihood of success in managing change. The Goodwin Company, an organization specializing in contract packaging of household and automotive cleaning products, and Patagonia, a global brand supplying high-quality outdoor clothing and equipment, provide examples of this phenomenon. In both cases, the instrument used to assess culture was the Integrated Cultural Framework (ICF), which was adapted by the authors from the work of Hofstede[6] and Kluckhohn and Strodtbeck.[7] The ICF has been used to analyze culture across a number of companies and industries and stands up to reliability and validity testing.[8] The dimensions of measurement include:

  • Ability to Influence: The extent to which organization members have an opportunity to influence decision making.
  • Comfort with Ambiguity: The extent to which members are comfortable with uncertainty and risk taking.
  • Achievement Orientation: The extent to which members are assertive, goal-directed, and achievement-oriented.
  • Individualism versus Collectivism: The extent to which individual versus group loyalty exists.
  • Egalitarianism: The extent to which equal opportunity exists for advancement.
  • Time Orientation: The extent to which the organizational goal/mission is focused on values from the past, present, or future.
  • Space Orientation: The extent to which the physical layout of the organization is public, private, or a mix of both.

The 35-item ICF survey was initially used to collect responses from organization members. Following the collection of survey data, an extensive number of interviews were carried out to provide more substantive information concerning organizational culture.

Goodwin Company

For several years, Goodwin Company, founded in 1922 by Thomas A. Goodwin, manufactured and sold its own line of household cleaning products. However, due to the competitiveness of the retail market, its focus shifted to contract packaging and distribution in the household, industrial, and automotive cleaning markets. Only the original product, Goodwin’s Ammonia, maintains the Goodwin label. Still a family enterprise, Goodwin Company currently has approximately 300 employees and manufacturing and distribution facilities in Los Angeles, California, and Atlanta, Georgia.

In response to concerns about increased labor costs and stagnant revenues, an organizational culture study was launched to determine the appropriate change strategy. Forty-three members of the organization, including managerial and clerical staff, completed the ICF survey and 13 one-on-one interviews were conducted.

The results revealed the following key findings:

  • Ability to Influence: The data indicated that the ability of employees to propose and implement change in the company was low. The interviews suggested that marginal regard for input had caused the staff to become discouraged and had reduced motivation for process improvements.
  • Individualism/Collectivism: Although Goodwin Company espoused teamwork as a core value, feedback from the management teams in California and Georgia indicated a low level of trust among management, which resulted in a lack of collaboration among the managers.
  • Time Orientation: The data showed that employees viewed the company as focused on the past and present while lacking a strategic plan for the future.

Proposed Structural Changes

Given the results of the study, three recommendations were presented to the management team:

  1. Establish a strategic management group that meets weekly to address business challenges, coordinate travel between facilities, and find common ground to build trust.
  2. Give employees, customers, and suppliers a voice and increase their ability to influence policy and procedures. Initiate an electronic comment box for employees, and implement surveys on customer service and supplier satisfaction.
  3. Establish a company vision and mission statement to encourage a sense of ownership, and incorporate management teams from Atlanta and Los Angeles to spearhead this effort. Relocate artifacts, such as company photos from the early years and bottles from the product lines of the 1930s and 1940s, to both facilities in order to acknowledge the company’s history and longevity and encourage teamwork between members of the two offices.

Outcomes

The establishment of the strategic management team proved to be very beneficial. By having the management team travel between facilities, the group developed a better understanding of the challenges at both locations, and they began to build a baseline of trust. The resulting collaborative effort of the team yielded two new contracts. In addition, Goodwin Company was certified by a major chemical manufacturer as a top facility in the nation, which resulted in requests for manufacturing proposals that would not have been possible without improvements in cooperation among regional managers.

Challenges

Goodwin Company was able to correlate changes that emerged in response to the organizational culture study; however, not all of the recommendations produced the desired results. For example, the customer service surveys did not yield the expected outcomes due to a lack of customer response. Additional customer contact will likely be necessary for future surveys to be effective. And although the recommendation to create a vision, mission, and values statement was originally well received, the management team eventually backed off the project, deciding that the company vision should come from its CEO.

Patagonia

Patagonia’s corporate headquarters are located in southern California and the company has overseas offices in Japan and France. Revenues in 2007 totaled $275 million and the firm currently has 1,300 employees worldwide, with 382 located in the corporate office. In 1966, founder Yvon Chouinard was dissatisfied with the conventional equipment used in adventure climbing and so he redesigned and manufactured almost every climbing tool to make each stronger, simpler, more functional, and environmentally friendly. From that operational base, Chouinard Equipment, which later became Patagonia, expanded to include outdoor and casual clothing and a line of underwear. The unique mission and focus of the organization was to make the best products, cause no unnecessary harm, and rely on the business model to inspire and implement solutions to the environmental crisis. Chouinard’s management principles were captured in a self-published book, Let My People Go Surfing: The Education of a Reluctant Businessman.[9]

Although the essence of Patagonia’s initial philosophy has survived, increased growth and operational complexity have created challenges for the organization in its quest to remain committed to the mission. To better understand the underlying issues and develop a strategic direction, an organizational culture study was initiated. Using the ICF, 27 surveys were completed at the corporate office along with 15 one-on-one interviews with 4 senior managers and 11 mid-level managers from 8 departments.

Key Findings

  • Ability to influence: The data showed that organization members felt they had a moderately high degree of opportunity to influence, but the inclusion of their input also led to a prolonged decision-making process.
  • Comfort with ambiguity: Although the climate seemed to foster innovation and encourage risk taking, the lack of a systematic feedback process minimized the flow of ideas. In addition, the dilemma of attending to what appear to be dichotomous goalsattaining a profitable return while maintaining a commitment to environmentally safe productscreated a challenge.
  • Individualism/Collectivism: Patagonia attempted to build community by establishing an on-site childcare center, comprehensive health insurance, and a family setting. However, the company employs a large number of unique and creative independent-minded people, and in supporting innovation, it created a sense of individualism, as well as a limited incentive for teamwork.

Although Patagonia has been successful, the study indicated that to remain competitive, the organization needed to address the duality of encouraging individual creativity and promoting a collaborative work environment, particularly as this duality related to the corporate mission. In addition, it appeared that information flow and decision-making efficiency needed to be addressed.

Outcomes

The organizational culture study was presented to the Board of Directors, who recognized the need to enhance productivity by reinforcing the organization’s mission and emphasizing the importance of a collaborative environment. The following structural changes emerged:

  1. The human resources director was appointed to the senior management steering team to assist in the development of a strategic training initiative. Training courses were developed to provide skills directed toward facilitating performance management feedback, improving communication skills, and enhancing negotiation capability in dealing with suppliers.
  2. A new employee training manual was created to better educate new hires regarding the organizational structure and the flow of product lines from development to sales. The purpose was to build teamwork and collaboration and to emphasize the company’s core values related to quality, integrity, environmentalism, and the desire to not be bound by convention. In addition, Yvon Chouinard’s book[10] was presented to each hire with the hope of inculcating new members to the principles associated with the organization’s mission.
  3. All employees are now encouraged to participate in the Patagonia National Park protection program in Chile and Argentina to reinforce the importance of the mission statement and its meaning in their work. Employees receive a salary and all related expenses are paid by the organization during the three-week program.
  4. The selection process for hiring new members was reviewed with a focus on measuring candidates’ knowledge and skills, particularly their ability to work in a team.

Challenges

Shifting a culture that has to some extent moved away from the values established by its founder is always a challenge. A number of Patagonia’s high performers have been successful because of their innovative talents. However, unless these individuals are also able to recognize the importance of collaboration, in the long term, the organization may not be able to respond in a timely manner to competitive pressure.





Image: Andrew Johnson





Lessons Learned

The article examined two distinct organizations, a family-owned operation and a global manufacturer, which utilized a cultural framework to determine underlying organizational issues. In both cases, the plans of action were system-wide and strategic. Although each company experienced favorable outcomes, considerable follow-up strategies must still be implemented before significant change is realized.

Cameron and Quinn[11] claim that organizational improvements are unlikely without culture change as an initial step in the process. But culture change is illusive, requires lengthy interventions, and, for many organizations, is either too costly or too time-consuming, making successful transformation problematic. This study offers another perspective. Although culture change is necessary in creating and reinforcing organizational transformation, our position is that making necessary structural changes may serve as the initial intervention for shifting culture. At Patagonia, changes in how new members are socialized may bring about a commitment to organizational values and encourage a team-oriented mindset. The impact of these initiatives is likely to result in norms that reflect organizational objectives. Goodwin Company’s focus on enhancing collaboration, particularly among the management team, may result in continued dialogue between members, which will hopefully become embedded in their working relationships. In conclusion, the creation of structural initiatives that incentivize the desired ways of accomplishing goals may be more effective in responding to inefficiencies than a commitment to changing culture, which, over time, may naturally occur as shifts in behavior emerge.


[1] John Kotter, The Heart of Change: Real Life Stories of How People Change Their Organizations, (Harvard Business School Press, 2002).

[2] Janet Parish, Susan Cadwallader, and Paul Busch, “Want to, Need to, Ought to: Employee Commitment to Organizational Change,” Journal of Organizational Change Management, 21, no. 1 (2008).

[3] Edgar Schein, The Corporate Culture Survival Guide, (California: Jossey-Bass, 1999); Sally Riad, “Of Mergers and Cultures: What Happened to Shared Values and Joint Assumptions,” Journal of Organizational Change Management, 20, no. 1 (2007).

[4] Chris Argyris, “Teaching Smart People How to Learn,” Harvard Business Review, 14 (1991).

[5] Celeste Wilderom, Ursula Glunk, and Ralf Maslowski, “Organizational Culture as a Predictor of Organizational Performance,” in the Handbook of Organizational Culture and Climate, Eds. Neal Ashkanasy, Celeste Wilderom, and Mark Peterson, (California: Sage Publications, 2000).

[6] Geret Hofstede, Culture’s Consequences: International Differences in Work-Related Values, (London: Sage Publications, 2001).

[7] F. Kluchhohn and F.Strodtbeck, Variations in Value Orientation, (Illinois: Row, Peterson, 1961).

[8] Mark Mallinger and Gerard Rossy, “Film as a Lens for Studying Culture and its Implications for Management,” lecture, presented at the Western Academy of Management, (Redondo Beach, CA: 1999); Mark Mallinger and Gerard Rossy, “The Trader Joe’s Experience: The Impact of Corporate Culture on Business Strategy,” Graziadio Business Report, 10, no. 2 (2007); Mark Mallinger and Lindsley Boiney, “An Interdisciplinary Approach to Teaching Organizational Culture,” presented at the Western Academy of Management, (2002).

[9] Yvon Chouinard, Let My People Go Surfing: The Education of a Reluctant Businessman, (Penguin Press HC, 2005).

[10] Ibid.

[11] Kim Cameron and Robert Quinn, Diagnosing and Changing Organizational Culture: Based on the Competing Values Framework, (California: Jossey-Bass, 2006).

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Driving Growth through Innovation: How Leading Firms are Transforming their Futures, 2nd ed. By Robert B. Tucker

Driving Growth through Innovation: How Leading Firms are Transforming their Futures, 2nd ed.

By Robert B. Tucker,
Berrett-Koehler Publishers, 2008

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3 stars: Valuable information and a good readBooks, seminars, and articles on innovation abound. No wonder: Innovation is the competitive edge. Authors approach the topic from various vantage points, including that of leadership (initiative and guidance toward innovation), strategy (organizing and focusing for innovation), and creativity (the spark that produces innovation). Tucker’s declared touchstone is growth. However, the book turns out to be a rather comprehensive summary of key concepts culled from a broad spectrum and clumped under the umbrella of “growth.”

If you fancy lists, you are in for an abundant experience: eleven paths to improve your company’s culture; six strategies for “filling the idea funnel”; six guidelines for producing powerful products; seven ways to sell new ideas; and so forth. The virtues of Tucker’s approach include the crisp style manifested in such lists and the overall applied, rather than theoretical, nature of the book. Congruent with this practical emphasis, and affording considerable credibility, is Tucker’s frequent reference to particular products, services, and processes as they relate to specific corporations. These range from the oft-celebrated, such as 3M and its legendary Post-Its, to the less familiar, including Appleton Papers’ “GO Process” (growth opportunities), which produced 700 new product ideas in one year within a company of only 2,500 employees.

An interesting and apt concept derived from a business-oriented “pencil-and-paper test” known as the Strength Deployment Inventory is presented as the difference between strength and weakness. Here, a weakness is defined as an overdone strength. Driving Innovation offers a handy guide to hundreds of keen practices that can aid in building organizational growth through the development of a multifaceted, pervasive corporate innovation program. However, the compendious and pragmatic nature of the book keeps it out of the league that might be termed “intellectual” or “profound.” Many a harried corporate leader who seeks guidance for implementing a tried-and-true program to foster innovation will find this work valuable; research scholars mining for golden nuggets had best dig elsewhere.

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The Trader Joe’s Experience

The success of Trader Joe’s (TJ) markets is the result of unique business model that has built a national chain of neighborhood grocery stores. This apparent paradox requires the organization to be growth-oriented yet perceived by shoppers as customer-focused similar to “mom-and-pop” operations of the past. They have accomplished this by basing their strategy on the alignment of their unique corporate culture with a clearly defined competitive space. The purpose of this article is to explore the relationship between organizational culture and business strategy that has propelled TJ to extraordinary success. The article also offers a model for readers to consider in creating a culture within their own organization that provides a defensible competitive position by incorporating value, rareness, inimitability, and non-substitutability.[1]






Photo: johannalg






History/Background

Started in 1967 by Joe Coulombe, Trader Joe’s began as a convenience store but quickly migrated to a more novel design for adventurous food and beverage shoppers. Initially, TJ was comprised of 17 stores in the southern California area. By the early 1980s additional food products were introduced as the number of stores grew to 26. In 1988 they expanded to northern California. The combination of innovative products along with a service-oriented culture has created a loyal customer base that continues to grow nationally. Today, TJ has over 270 stores in 22 states with revenues exceeding $5 billion.

Coulombe sold the business in 1978 to the Albrecht family, owners of a multi-billion dollar retail chain in the EU. However, the company remains private. The Albrechts are passive investors—operating control was left in Joe’s hands who continued as CEO until he retired in 1988. John Shields, whose background includes retail and merchandising, and who provided the operational know-how to expand the business, became CEO, a position he held until 2001. Dan Bane is the current CEO.

TJ offers an array of products that are distinct from those sold in traditional supermarkets. They do not carry national brands, but rather a host of food and beverage products along with a number of healthcare selections. Products include cheese, wine, ready-to-prepare foods, frozen items, produce, and ethnic choices, of which 75 percent carry the TJ label. Most products are offered at low prices (which differentiates TJ from competitors such as Whole Foods and Bristol Farms) but are considered to be of high quality, both in terms of taste and healthfulness. Because their stores are generally in the 15,000 square foot range, TJ offers about five times fewer products than conventional supermarkets, and new products are continuously brought in as others are phased out. To stimulate customer interest, TJ focuses on a constantly changing product mix, which further adds to their uniqueness. This continuous rotation of distinct food and beverage products creates a sense of adventure that appeals to customers, who look forward to new items.

The Mission

The TJ mantra is to offer value and a dedication to quality service through warm, friendly, committed employees along with a pledge to offer quality products. This mission requires a culture that supports loyalty and customer service through personal contact with the consumer. The commitment to the customer is captured on the TJ website, “Our Product Guarantee: We tried it! We liked it! If you don’t, bring it back for a full refund, no questions asked.” The underlying message is that TJ desires to establish a personal relationship with the customer.

Major decisions are carefully scrutinized to determine the extent to which each directly maintains a neighborhood store feel. For example, for a number of years TJ resisted incorporating scanners at their check-out stands. The concern was that customers would consider the technology a move toward becoming a traditional supermarket, and thus risk losing its image. Continuous change in their inventory mix, however, demanded that they scan bar codes at check-out. Eight years ago TJ began experimenting with this shift in technology. Piloting the technology at a few northern California stores, they were careful to be sure the sound of the ping during check-out did not get in the way of cashier/customer conversation. After several weeks of testing, the organization launched the system throughout its store operations.






Photo: Sanja Gjenero






Another example of the determination with which TJ committed to its mission was the decision, over 10 years ago, to construct its check-out kiosks such that customers could push shopping carts through the line rather than having to back the cart out of check out before exiting the store. The former model was aligned with small store, customer oriented operations, but with increasing shoppers became unwieldy. Again, TJ carefully assessed the impact the change would have on customers before implementing the new model. This approach to merchandising provides the customer with an adventure in shopping;[2] is, the TJ model attempts to make grocery shopping an exotic experience rather than an obligatory visit to market for staples.

The success of their model is evidenced by the measure of sales per square foot. TJ believes that the combination of its product line and customer service culture is responsible for revenues that are triple the square foot sales of a typical supermarket.

Growth

The growth of the organization has been achieved without debt; TJ expansion is fully self-financed. The operation remains free of union involvement—salaries and benefits are sufficient to ward off labor unrest. Advertising is limited: modest radio exposure and no television or newspaper ads. TJ does not rely on publicity, coupons, or store cards. A newsletter, the Frequent Flyer, featuring new products and store locations is mailed to customers three times each year and during holiday periods. They do not rely on email advertising.

Expansion is cautiously executed because the challenge associated with migrating its unique culture requires a meticulous selection and training process. Store location is determined by three key factors: density of population, educational level of the consumer, and distribution efficiencies. Market research has revealed a relationship between education and consumer choices: The more highly educated tend to travel more and, hence, are more inclined to be attracted to the unique product lines offered by TJ.

Building the Culture

“Crew members” (the moniker for store employees) are selected, in part, because of their expressed enthusiasm and energy. Training includes skills in communication, teamwork, leadership and product knowledge. Crew members handle a multitude of responsibilities including, cashier, stocker, customer interface, and are evaluated on a quarterly basis. Turnover among full-time crew is 4 percent yearly, substantially below that of traditional supermarkets. Part-time employees comprise 70 percent of the crew members, and those wishing to be promoted to full-time can apply for the position. The managerial structure is relatively flat. Crew members report to the “first mate” (assistant store manager), who, in turn, reports to the “captain” (store manager). The store atmosphere is highlighted by a South Seas motif, crew members often wear Hawaiian shirts and banners throughout the store convey that theme. There is a casual ambiance; new products are identified on chalk boards arranged in key locations.

The first author of this article had the opportunity to study the TJ organizational culture.[3] The purpose was to assess the extent to which the espoused culture as described by management did, indeed, match the in-use culture,[4] that is, the climate as expressed by employees. The study was carried out in the greater Los Angeles area. Using the “Integrated Culture Framework” created by Mallinger and Rossy,[5] surveys and interviews were collected from crew members, first mates, and captains in five stores. The data revealed that for the most part, the espoused and in-use cultures were aligned.

Specifically, as predicted, the ability to influence, the commitment to teamwork, and an elevated level of achievement orientation was reported. Crew members indicated that they felt empowered to make decisions, were collaborative in their relationship with others, and were motivated to high levels of performance. These characteristics were demonstrated in the extent to which they were enthusiastic, hardworking, outgoing, team and customer oriented.

An unexpected finding, however, was the extent to which they were uncomfortable with ambiguity. Given the stated mission of the organization along with the relatively flat organizational design, it was thought that crew members would be encouraged to take risks and be tolerant of uncertainty. However, the relatively thin profit margins associated with the retail grocery business, along with a structured set of customer policies, requires a commitment to the Trader Joe’s way of doing business, and following rules and regulations is emphasized.

In general, the data suggests that, for the most part, the in-use culture is consistent with culture espoused by management and, more critically, with the values of its unique customer base. John Shields, the former CEO, in a conversation with the authors, stated that he would address crew members at the opening of each new store to talk about TJ values and would tell them that if they were not having fun at the end of 30 days to please resign.

Implications for Practice: Competitive Space and Defensible Strategy

To be successful over the long term such a strategy has to be defensible. Jay Barney[6] in describing his resource-based view of the firm identifies four requirements for defensibility: value (in the eyes of the customer), rareness, inimitability, and non-substitutability. In today’s global marketplace with its rapid flow of information, these conditions are increasingly difficult to achieve through the traditional four P’s of marketing—product, place, price, and promotion. What TJ has done is to erect barriers around its competitive space with a unique fifth P—”culture.”
While other retailers have developed internal organization cultures that are unique and support their products, service, and internal management philosophy (e.g. Whole Food’s “highest quality,” “least processed,” naturally preserved,” “self-managed teams”; and Bristol Farm’s “finest assortment,” “freshness,” “assortment”) the TJ culture is one in which customers are integral to creating the shopping experience. By delivering a shopping experience that is “innovative,” “unique,” and “interesting,” and products that are “hard-to-find,” “great tasting” from “around the world,” they have been able to differentiate themselves from their closest competitors.

How they accomplish this is also markedly different from their most obvious competitors, Whole Foods (WF) and Bristol Farms (BF). For their customers TJ provides value not primarily through the quality of its products, as with WF and BF, but rather through their distinct shopping experience. Shopping becomes an adventure that takes them into a store whose characteristics are often in opposition to those of traditional markets: casual, low price, high service with a constantly changing and somewhat unpredictable product mix. Their culture, because it involves the customers in an ongoing sense of discovery and adventure, is both unique and difficult to copy. And because it is aligned to their specific target market rather than broad differentiation built around quality and service, it is more difficult to replicate by those companies that are serving a more expansive competitive space. Finally, at least at this time, there are no substitutes for the combination of attributes provided by the TJ culture and customer experience, because at TJ, customers become part of the culture rather than merely experiencing it.

What Trader Joe’s Success Can Teach Us

As competition in every industry intensifies, being good (or even great) at executing your strategy will no longer be good enough. This is even truer for retailers and service providers that cannot erect patent or other barriers to competition. What Trader Joe’s teaches us is that a unique organization culture that is carefully aligned with both its own competitive business strategy and with the values of the customers, can provide an effective defense against incipient competitors. Such a strong and targeted organization culture takes time to develop and provides customers with a valuable and difficult to copy experience. It is always more complicated for competitors to imitate who you are than what you do. As with Trader Joe’s, you want to make your identity and not just your products your major competitive advantage.

Challenges Facing Trader Joe’s

As TJ continues its growth a number of concerns emerge. Probably most notable is the extent to which they can continue to successfully export their Crew Member culture to other, more geographically dispersed locations. To mitigate this risk, the organization brings in a cadre of experienced crew members to embed the culture in new locations.

The organization may also be limited in its ability to find rental properties at reasonable prices in areas that fit its current customer base. At present their success has minimized this threat because of negotiating strength.

While at present TJ has no plans for international expansion, the pressure to expand domestically may at some time reach an end point. TJ management, however, believes there are sufficient markets that will offer store sites for years to come. Finally, until recently TJ has not experienced any significant direct competition. This advantage, however, may be about to end. Tesco, the UK $90 billion grocery and general merchandise chain, announced plans to open one-hundred, 10,000 square foot stores that will offer products similar to those available at TJ. Openings in February 2008 are planned for Los Angeles, San Diego, Las Vegas and Phoenix[7] and may present the first real threat to TJ markets and could be the initial test of the sustainability of its competitive advantage.

Additional Resources

Edgar H. Schein. The Corporate Culture Survival Guide, (San Francisco: Jossey-Bass Publishers, 1999).


[1] Jay Barney. “Special Theory Forum The Resource-Based Model of the Firm: Origins, Implications, and Prospects,” Journal of Management, 17, (1991): 97-98.

[2] Len Lewis. The Trader Joe’s Adventure: A Unique Approach to Business into a Retail and Cultural Phenomenon, (Chicago: Dearborn Trade Publication, 2005).

[3] Mark Mallinger, Timothy Walter. “Climate versus Culture: Duality in the Consulting Intervention,” presented at the Academy of Management, Denver, August 2001.

[4] Chris Argyris. “Teaching Smart People How to Learn,” Harvard Business Review, (1991) 14.

[5] Mark Mallinger, Gerard Rossy. “Film as a Lens for Studying Culture and Its Implications for Management,” presented at the Western Academy of Management meeting, Redondo Beach, March, 1999.

[6] Barney.

[7] Tim Gaynor. “Tesco Aims for 100 U.S. Stores by February,” Reuters via Yahoo! News, April 25, 2007.

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Build a Culture of Value Creation

A successful Value-Based Management program requires the entire organization’s participation.

Over the last 20 years, the field of value-based management (VBM) has changed significantly. VBM began with a breakthrough performance metric and has matured into an entire management framework that focuses organizations around value creation. Companies such as Coca-Cola, DuPont, and Cadbury are often hailed for the great results they have achieved since implementing a VBM framework into their organization. Recently, studies have shown that VBM companies outperform their peers by 8.25% per year.[2] Not surprisingly, many companies already have or are adopting a “Managing for Value” mindset hoping to achieve similar results. In fact, one is hard pressed to read through a company’s annual report and not find a reference to how the firm is managing for value.

There is a complication with value-based management, however. Doing it right is not easy. Recent reports have indicated that almost half of the companies that have adopted a VBM metric have had mediocre success. The difference between success and failure with VBM depends on how well a firm integrates VBM into the culture of the organization. A recent study by Haspeslagh, Noda, and Boulos touts that the difference between successful and unsuccessful companies is that successful companies realize that VBM is not simply about the numbers; it is about building a culture around value creation.[3] In other words, VBM has to become a way of life in your organization. Anything less will lead to the creation of another tombstone in your company’s junkyard of failed initiatives.

What is VBM?

Value-based management is the alignment of key organizational processes such as strategic planning, budgeting, compensation, performance measurement, training, and communication around value creation. The organization needs this alignment and consistency to develop a culture whereby individuals, at all levels, will make decisions focused on sustainable long-term value creation. Value is created when owners receive a return that more than compensates them for the perceived risk of the investment. For example, if I offered you an investment opportunity that would pay $100 in one year, would you accept? Maybe, but you would first want to know at least two other pieces of information: required investment and estimated project risk. Then, if you deemed that the potential reward compensated you for the perceived risk, you would accept the investment opportunity. With VBM, employees need to engage in the same thought process when considering investment/allocation of the firm’s resources and ultimately when considering how to allocate their own time. The basic questions that need to be answered are:

  1. How much do I have to invest in this project/activity?
  2. What will my returns be for the project/activity?
  3. Do the returns from the project/activity compensate me for the perceived risk?

A few key events have shaped VBM into a financial management framework. The seminal event was the movement from accounting-based measures of performance such as net income to value-based metrics, such as economic profit. Traditional accounting-based measures such as net income provide information on a company’s book returns but do not address how much economic capital was invested, or amount of risk exposed to, to generate the returns on the investment. Economic profit addresses these shortcomings by including a capital charge. A capital charge is in essence a rental charge for the capital used to generate the firm’s profits. To calculate the capital charge, you multiply the investment in the business by the investors’ expected percentage returns. If your profits are more than the capital charge, then value is being created since investor expectations were exceeded. Alternatively, if the profits do not cover the capital charge then value is destroyed since the profits did not cover the capital charge.

Let’s take a quick look at a simple example to gain some insight into the benefits of economic profit. We will build on the example from above where we had the opportunity to earn $100. Let’s assume that instead of one opportunity that we actually have two opportunities to earn $100. Should we pursue one, both, or neither?

If we are just concerned with growing net income, then our decision is easy. We would pursue both projects if each had positive net income. However, if we are concerned with value creation, we must find out how much we have to invest in each project and the expected return. Suppose the first project requires an investment of $500 while the second project requires an investment of $1,500. We also find out that both investments are of similar risk and require a 10% return. Let’s now look at the analysis and make a decision:

Project 1:

Profit – Capital charge = Economic profit.

Profit – (Investment x investors’ return expectations) = Economic profit.

$100 – ($500 x 10%) = $50.

Since economic profit is positive, we should pursue project 1.

Project 2:

Profit – Capital charge = Economic profit.

Profit – (Investment x investors’ return expectations) = Economic profit.

$100 – ($1,500 x 10%) = ($50).

Since economic profit is negative we should not pursue project 2.

It did not take long for practitioners to realize that on its own, a performance-based metric was interesting, but for it to truly take hold, incentive programs would need to be redesigned. Thus, incentive plans were redesigned to pay people for value creation represented by improvement in economic profit.

Initially, companies thought that implementing a new metric, tying incentives to the metric, and providing some initial training was all that was necessary for a successful VBM program. These are all necessary but not sufficient conditions for VBM to be successful. Rather they represent the price of admission to developing a VBM culture. The true gains are made when companies integrate VBM into their culture. The HBR Study highlights this importance: 62% of the successful VBM companies report training more than 75% of their managers in VBM concepts, whereas only 27% of the unsuccessful companies trained that great a proportion of their management staffs. Realizing that VBM is a cultural change is the key to lasting change that will create sustainable improvements in shareholder value.

The Implementation Process

As a company implements VBM, it will need to accomplish three steps: gain senior team commitment; customize the VBM framework; and finally, make VBM a way of life in the organization. The chart below highlights that companies create the most value when VBM is integrated into the culture of the organization.

The remainder of this article provides an overview of these three steps with a detailed review of Step 2: Customizing the VBM Framework. This will provide insight into the changes required of key management to reach the ultimate goal of Step 3: Make VBM a Way of Life.

Step 1. Gain Senior Management Commitment: VBM is similar to all other initiatives in one respect: Senior management needs to support VBM with their words and ultimately with their actions. It is up to the senior team to create a sense of urgency around the initiative and clearly communicate a vision of the impact that VBM will have on the organization. In short, they must make the reasons for VBM simple, clear and compelling.

The following example illustrates the importance of senior management commitment. A CEO of a VBM company had done an excellent job of integrating VBM into all levels of the organization. His strong conviction and charismatic style had been one of the major reasons that the improvement of economic profit was being taking seriously at all levels of the organization. The company had seen excellent results in improved working capital management and even more impressive was the change in the sales team negotiation style from a volume focus to an account profitability focus.

The turning point came when the CEO was meeting with his senior team to decide whether or not to pursue a major acquisition. There was a lot of open debate around the synergies that might be realized in the merger and how to best integrate the target company. When all the financial analysis had been debated and modeled, the CEO was told that based on the current offer price the deal would most likely not create value. His response was simply, “I don’t care about the economic profit impact, is the deal accretive?” This one statement sent the organization back significantly in their effort to truly become a VBM company. As people in the company realized that the CEO was not making decisions based on economic profit, they no longer felt compelled to worry about economic profit. It took the company a considerable amount of time and effort to recover from the comments made by the CEO.

Implementation Tip: Anything less than the full commitment of the senior team will ultimately cause the initiative to fail and simply become another “program of the month” that does not achieve the intended results. If VBM does not have the backing of senior management and the Board of Directors, do not pursue it! Your organization will spend a lot of money, time, and energy without receiving adequate returns from your VBM investment.

Step 2. Develop a Customized VBM Framework: Implementing VBM requires an organization to redesign its management practices. The key management practices are performance measurement, compensation design, planning/budgeting, and training and communication programs. A brief overview of each of these areas along with some advice for each topic follows.

  • Performance measurement. The first step in customizing a VBM framework is to abandon accounting-based metrics and define a value-based measure, such as economic profit, as the key performance metric of the company. The overarching goal is to improve economic profit over the long-term. When a firm takes the long-term view, it is imperative to act in an ethical and socially responsible manner. Anything less may improve short term prospects but will not lead to long-term success.
  • Implementation Tip: Less is more when defining the measure. While the measure needs to be grounded in financial theory, keep the complexities to a minimum. Remember, if improving economic profit is the goal of the organization, then people need to understand how it is calculated and ultimately how they can make decisions that improve economic profit.

  • Pay for performance. In the early days of VBM, companies tried to move to a value-based focus, but they did not achieve the expected improvement in results. It was soon realized that if you wanted people in the organization to focus on economic profit, then you had to compensate people for improvements in economic profit. Some key characteristics of value-based incentive plans compared to traditional plans are uncapped bonuses, targets based on market expectations, and the use of a bonus bank. A plan with these characteristics encourages participants to think like, act like, and be paid like owners.
  • Implementation Tip: If the incentive plan is not adequately tied to value creation then a disconnect will occur between the creation of shareholder value and the manager’s compensation. This disconnect may cause the actions of the managers to not be in the best interests of the shareholders.

  • Integrate new performance measures into planning and budgeting: The new performance measure needs to be at the heart of key management processes, such as budgeting, planning, and capital allocation. The organization has to have consistency around all of its key management practices so that improvement in economic profit over the long-term is the goal of the organization. A good exercise during the budgeting and planning process is to have business units calculate what level of bonus will be paid out if projected performance is met. This is an excellent way to move from a “manager” mindset to an “owner” mindset.
  • Implementation Tip: When organizations do not consistently make decisions using the new performance measure, a mixed message is sent to the organization about the organization’s overarching goal. This mixed message will lead to confusion about what the key objective of the organization is.

  • Develop initial training and communication plans: The organization needs to develop a plan and the necessary material to communicate the importance of managing for value and the basic concepts of VBM. People in the organization need to understand the basics of economic profit before they can be able to apply the concepts to daily decisions. Communication is the critical feedback loop so people can learn which actions are working and, just as important, which actions are not working so they can adjust what they do to create more value. An organization needs to develop a new reporting package that is easily understood by finance and non-finance employees alike. The results need to be communicated visually, timely, and accurately.
  • Implementation Tip: Make sure your organization has a well-thought-out plan around both training and communication. The initial training provides the opportunity for employees to understand new concepts and begin to develop ideas around how they can make decisions that are more in line with value creation. Communication of results will provide the necessary feedback to the organization about how their actions are impacting shareholder value. Lack of feedback on how actions are impacting value will disrupt the learning process, signal a lack of importance around the initiative, and ultimately cause the initiative to lose momentum.

Step 3. Make VBM a Way of Life: The structure described above provides the necessary foundation for all organizations to begin the VBM journey. Now the hard work begins though. Companies must integrate VBM into their culture. VBM cannot be thought of as just an initiative but rather as a way of life. VBM needs to become a part of the drinking water, so to speak, meaning we have to turn our efforts to ensuring that everyone in the organization understands his o her role in creating value in the organization. This begins at the top of the organization and needs to be cascaded down the entire organization so each individual understands the big question, “How does our company create value?” — and the even more relevant question, “How does my role and the daily decisions that I make impact value?” To reach this level, the organization will need to devote a significant amount of resources to provide the necessary learning, tools and feedback required so all individuals can understand their role in value creation. If you can lead your company to a place where everyone in the organization can answer the above questions, you are well on your way towards developing a culture focused on value creation.

Implementation tip: Take this step seriously. It is easy to think the hard work is behind you after you have customized the framework. Haspeslagh, Noda, and Boulos in their article explain that this is the most critical portion of any VBM implementation and critical to a company outperforming its peers.

Summary

When done correctly, VBM provides an organization the opportunity to significantly improve performance by aligning the entire organization around value creation. In short, all employees will begin to make decisions like an owner of the firm. However, implementing VBM is not easy. In this article, we have highlighted three key steps for implementation:

  1. Gain Senior Management Commitment. Without this support, do not continue with the program.
  2. Customize VBM Framework. Be thorough and do not leave out any areas. Don’t get caught up in the numbers. The framework needs to be understandable at all levels. Strive to keep it simple, clear and compelling.
  3. Make VBM a Way of Life. Take this step very seriously because it will be the determining factor between the success or failure of VBM at your company.

By following these steps in an ethical and socially-responsible manner, your corporation will be well on its way to developing a successful VBM program, which can have a positive effect on the shareholders, employees, and the community in which the firm operates.


[1] Steve Chopp is Managing Director of EP Frontiers, Inc., a Los Angeles based VBM consulting firm. (www.epfrontiers.com).

[2] Stern Stewart & Company website (sternstewart.com/evaabout/evaworks.shtml).

[3] Haspeslagh, P., Noda, T., and Boulos, F. “Its Not Just About the Numbers,” Harvard Business Review 79, (7) Cover Story.

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2005 Volume 8 Issue 3

2005 Volume 8 Issue 2

2005 Volume 8 Issue 1

2004 Volume 7 Issue 3

2004 Volume 7 Issue 2

2004 Volume 7 Issue 1

2003 Volume 6 Issue 4

2003 Volume 6 Issue 3

2003 Volume 6 Issue 2

2003 Volume 6 Issue 1

2002 Volume 5 Issue 4

2002 Volume 5 Issue 3

2002 Volume 5 Issue 2

2002 Volume 5 Issue 1

2001 Volume 4 Issue 4

2001 Volume 4 Issue 3

2001 Volume 4 Issue 2

2001 Volume 4 Issue 1

2000 Volume 3 Issue 4

2000 Volume 3 Issue 3

2000 Volume 3 Issue 2

2000 Volume 3 Issue 1

1999 Volume 2 Issue 4

1999 Volume 2 Issue 3

1999 Volume 2 Issue 2

1999 Volume 2 Issue 1

1998 Volume 1 Issue 3

1998 Volume 1 Issue 2

1998 Volume 1 Issue 1