Strategy or Culture: Which Is More
Important?
“Culture eats strategy for
breakfast.” These words, often attributed to Peter Drucker, are frequently
quoted by people who see culture at the heart of all great companies. Those
same folks like to cite the likes of Southwest Airlines, Nordstrom, and Zappos,
whose leaders point to their companies’ cultures as the secret of their
success.
The argument goes something like
this: “Strategy is on paper whereas culture determines how things get done.
Anyone can come up with a fancy strategy, but it’s much harder to build a
winning culture. Moreover, a brilliant strategy without a great culture is ‘all
hat and no cattle,’ while a company with a winning culture can succeed even if
its strategy is mediocre. Plus, it’s much easier to change strategy than
culture.” The argument’s inevitable conclusion is that strategy is mere ham and
eggs for culture.
But this misses a big opportunity to
enhance the power of both culture and strategy. As I see it, the two most
fundamental strategy questions are:
1. For the company, what businesses
should you be in?
2. And for each of those businesses,
what value proposition should you go to market with?
A company’s specific cultural
strengths must be central to answering that first question. For example,
high-margin, premium-product companies that serve wealthy customers do not
belong in businesses where penny-pinching is a source of great pride and
celebrated behavior. Southwest has chosen not to enter a NetJets-like business,
and that’s a sound decision.
Likewise, companies whose identity
and worth are based on discovery and innovation do not belong in low-margin,
price-competitive businesses. For example, pharmaceutical companies that
traditionally compete by discovering novel, patentable drugs and therapies will
struggle to add value to businesses competing in generics. The cultural
requirements are just too different. This is why universal banks struggle to win in both
commercial and investment banking.
Whatever synergies they might enjoy (for instance, from common customers and
complementary capital needs) are more than offset by the cultural chasm between
these two businesses: the value commercial bankers put on containing
risk and knowing the customer, versus the value investment bankers have for taking
risk and selling innovative financial products.
Maintaining cultural coherence
across a company’s portfolio should be an essential factor when determining a
corporate strategy. No culture, however strong, can overcome poor choices when
it comes to corporate strategy. For example, GE has one of the most productive
cultures in the world, and its former leader, Jack Welch, concedes that his acquisition of Kidder
Peabody was a failure because its cultural
needs did not fit GE’s cultural strengths. The impact of culture on a company’s
success is only as good as its strategy is sound.
No culture, however strong, can
overcome poor choices when it comes to corporate strategy.
Culture also looms large in
answering the second question above. In most businesses, customers consider
more than concrete features and benefits when choosing between alternative
providers; they also consider “the intangibles.” In fact, these often become
the tiebreaker when tangible differences are difficult to discern. For example,
most wealthy individuals choose financial advisors more for their personal
chemistry or connections than their particular range of mutual funds. Virgin
Airlines tries to attract passengers who like its offbeat, non-establishment
attitude in how it operates. Culture experts are right to point out Southwest,
Nordstrom, and Zappos because these companies have instilled norms of behavior
that are essential features of their winning value propositions: from offering
consistently low-price, high-quality service in Southwest’s case, to
consistently delivering surprising staff service at Nordstrom and leading
customer satisfaction at Zappos. What these companies really demonstrate is how
culture is an essential variable—much like your product offering, pricing
policy, and distribution channels—that should be considered when choosing
strategies for your individual businesses. This is especially so when the behavior
of your people, and particularly your frontline staff, can give you an edge
with your customers.
Strategy must be rooted in the
cultural strengths you have and the cultural needs of your businesses. If
culture is hard to change, which it is, then strategy is too. Both take years
to build; both take years to change. This is one of the many reasons that
established companies struggle with big disruptions in their markets. For
example, all the major credit card companies are seeking to transition from traditional
payments to digital commerce. This shift in strategy will be difficult to pull
off. It not only requires a cultural change, but also a change in companies’
target customer, value propositions, and essential capabilities—the three most
fundamental choices a business strategy comprises!
Consigning strategy to just a
morning meal for culture does injustice to both. Confining culture to the
narrow role of “enabling” strategy prevents it from strengthening strategy by
being part of it. It also weakens the power of strategy to turn your company’s
cultural strengths into a source of enduring advantage.
Don’t let culture eat strategy for
breakfast. Have them feed each other.
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