Corporate Culture as a Core Strategy

LOS ANGELES - June 18, 2014 - PRLog -- Management Systems has previously written about the role of corporate culture as a strategic asset and its impact upon financial performance. This article examines the role of culture from a different perspective. Specifically, it examines culture as a "core strategy."

What Is A "Core Strategy"?

A "core strategy" is the way in which an organization plans to achieve its strategic mission and differentiate itself from other organizations. It a central theme around which all other strategies are (or ought to be) developed.

Based upon our experience, most companies have many strategies but not a "core strategy." If a core strategy exists in a company it will be fairly clear and recognizable. If not, the organizations' strategies are like a donut with a hole at the center. Examples of companies with core strategies include Southwest Airlines, Starbucks, and American Express. All are highly successful companies.

During its initial growth phase, the core strategy of Southwest Airlines was "low cost, no frills air fare." Everything was about being a low cost-low price airline. The company's supporting strategies in all aspects of its business (market selection, "product" resources, operational systems, management systems, and culture) were all based upon this core strategy. A detailed examination of this is beyond the score of this article, but can be found elsewhere.  The core strategy of American Express is all about the 'brand.' The firm abandoned its strategic mission of becoming a "one stop financial supermarket" (crafted under the leadership of Jim Robinson), and under former CEO Harvey Golub repositioned itself and its core strategy as "all about the brand." This led to the divesture of several units of AMEX.

Corporate Culture As A Core Strategy

Many companies have great difficulty articulating a core strategy. For some, the problem is that they are essentially producing commodity products or services. With respect to Gertrude Stein, in some ways "a bank is a bank is a  bank"; "an airline is an airline is an airline"; and "a silicon chip is a silicon chip is a silicon chip".

This is because most companies look at product as the key factor for competitive differentiation. However, there is, at a deeper level, always the possibility of differentiation in an organization through other means.

A relatively neglected source of differentiation is corporate culture.  Corporate culture can be used to differential an organization in two key ways: 1) in the treatment of customers or client, and 2) in the treatment of its employees.

This dual strategy of using culture as a differentiating factors or core strategy is captured best by Starbucks. As Howard Schultz, founder and Chairman of Starbucks, clearly one of the great entrepreneurs and architect of arguably the most dramatic corporate success story of the last 25 years, states: "When people ask me the reasons for Starbucks success it tell them something that surprises the, the real reason for the company's success its people." Schultz's view of the underlying reason for SBUX's success is more clearly stated in the title of the book written by Howard Behar, who was the head of retail operations during the company's great growth and an iconic brand. As the books title states:

It's not the Coffee!  As Behar explains, it is the leadership and culture of Starbucks that is the real reason for it great success.

Culture As A Core Strategy And "The Bottom Line"

The underlying message is captured in the implicit core strategy articulated by Starbucks: "the way we treat our people influences the way they treat our customers, and in turn, our financial performance". Today SBUX has more than $15 billion in revenues, is a recognized global brand, a respected corporate leader. Yet it was all done with a commodity product. Coffee is coffee is coffee! The nominal product (coffee) comes from Arabica coffee beans which are gown in many places.  The real product is the experience of customers, and that is the product of Starbuck's core strategy based upon its leadership and culture.

For further information about Corporate Culture and Culture Management, see http://www.mgtsystems.com/culture-management-tools. See also Eric Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011 available on the Management Systems website (https://www.mgtsystems.com/content/corporate-culture-ulti...) or on Amazon.com.

For more information on Starbucks Culture see: http://www.cbsnews.com/news/the-making-of-howard-schultz/


Footnotes


1 Eric Flamholtz and Yvonne Randle, Corporate Culture: The Ultimate Strategic Asset, Stanford University Press, 2011.

2 See Eric Flamholtz and Yvonne Randle, Growing Pains, Jossey-Bass Publishers, 2006, chapter 7.

3 Howard Behar with Janet Goldstein, "It's Not About The Coffee: Leadership Principles From A life At Starbucks," Portfolio, 2007.