In the 1980s, Motorola was the global leader in the market for mobile phones and pagers. The company employed some of the best engineers in the world, famous for their technical wizardry and ability to come up with new products that no one else could match. Even Japanese firms like Matsushita and Sony, dominant in other consumer electronics sectors, could not match Motorola, says Morgen Witzel, honorary senior fellow at the University of Exeter Business School, writing for FSN.
At Motorola the engineers were the stars, and the culture of the company was very much led by its engineering divisions. There was an emphasis on technical perfection, on getting products 100 per cent right before launching them on the market – no matter how long this took. The company told its distributors how to handle products, and gave instructions to retailers on how to display them and to customers on how to use them. Motorola was the best in the world, and it knew it.
Perhaps as a result of complacency, Motorola’s engineers did not take sufficient heed of the digital revolution. When this came, it was new and agile companies like Ericsson and Nokia that grabbed the market lead. Belatedly, Motorola set to work on a new generation mobile phone, and a publicity campaign was developed to coincide with the release of the film Mission: Impossible 2. But the engineers took too long to develop the phone, and it was not ready in time for the film’s release. The costly publicity campaign had to be cancelled. That year Motorola’s shares lost three-quarters of their value.
The Japanese professors Ikujiro Nonaka and Hirotaka Takeuchi, who studied the cultures of Japanese businesses and how these use knowledge in their book The Knowledge-Creating Company (1995), assert that ‘organizational culture orients the mindset and actions of every employee’. This is true of every employee of every business, east or west. And it follows that while some organisations have ‘enabling’ cultures that encourage change and flexible thinking, others have ‘constraining’ cultures that narrow or restrict the choices of thought and action.
Culture constrains strategy in two important ways. First, it can limit an organisation’s ability to take in or process information, meaning quite simply that organisations do not know what is going on around them, or inside them. This in turn limits the range of strategic options available. Second, even when a range of strategic options is known, managers may find their actual choice of options restricted by the culture of the company. Options that might look good in theory are impossible in practice for no other reason than ‘that is not the way we do things around here.’
This first group of organisations are like a horse wearing blinkers; they can only see straight ahead of them, and have little or no idea as to what may be happening in other directions. In the 1930s the government of France, still traumatised by the First World War, nearly bankrupted the country to build a series of impregnable fortifications along the frontier with Germany. The government believed that the next war would be fought using the same weapons and tactics as the last one. France was totally unprepared when, in 1940, German tanks simply drove around the end of the fortifications, crushing the French army and forcing the country to surrender in a matter of weeks.
Analogue technology was Motorola’s equivalent to the Maginot Line. While the company spent millions improving and developing its existing technology, it did not pay sufficient regard to the gathering threat of the digital revolution. Motorola did recover from its losses, but it has never regained its market supremacy.
When we think of these blinkered companies we often think of bureaucracies. The US-based academic Professor Jagdish Sheth refers to bureaucracy as kind of ‘tyranny’, in which it becomes more important to do things the right way than to get the right result. Forms have to be filled out, boxes have to be ticked, permission has to be granted before anything can be done. But in his book The Self-Destructive Habits of Good Companies (2007), Professor Sheth warns that companies that consult their staff and make decisions based on consensus can be blinkered too. While the idea that ‘we need to have everyone on board before we make the decision’ is laudable in theory, in practice the consultation can take weeks or months. By the time people finally sit down to make a decision, their information may well be out of date.
The second group of organisations comprises those that are aware of strategic options but constrained by culture from taking them up. Every firm has what Professor Michael Jarrett of London Business School describes as a ‘dominant logic’. In his book Changeability (2008), he describes this dominant logic as ‘the recipe for success in the form of business models, processes and approaches to competition’, which ‘become embedded in the organisation and represent its underlying and basic assumptions.’ These can be a source of great strength, but as Professor Jarrett goes on to say: ‘A dominant logic can become a core rigidity that inhibits the organisation’s people and processes... It can become faulty logic, and lead to organisational demise.’
This kind of faulty logic stemming from the company’s culture has a long history. In the nineteenth century the American railway companies achieved great things, building an entire industry from nothing and running train services across thousands of miles of wilderness. Pride in their heritage plus an innate belief in the superiority of trains over other forms of transport – cars, lorries, airplanes – led railway company executives to the mistaken belief that these other forms posed no competitive threat. By the time they realised their error, it was too late. Virtually every company went bankrupt in the first half of the twentieth century, and today the American railway industry is a shadow of its former self.
Often, though, the dominant logic is perfectly sound. In these cases, companies and managers would do well to obey it. For example, some companies have a cultural bias against growth by acquisition and are only really comfortable when growing organically. This means that acquiring another company, even if it makes strategic sense on paper, is not an option. This may sound perverse, but there is plenty of evidence to show that when executives defy their own business culture and embark on acquisitions, they very often fail.
The car-maker Daimler, whose growth had been largely organic for many decades, changed its strategy in the 1990s and began a series of acquisitions, most (in)famously Chrysler. Most of these failed; the strong Daimler culture simply could not accommodate the cultures of other companies like Chrysler. The fact that the Germans were paid considerably more than their American counterparts became another bone of contention. The DaimlerChrysler merger stalled, and eventually had to be taken apart.
The strategic choices open to any company are inevitably constrained by that company’s culture. Its skills, its attitudes, its mindsets and ways of doing things will inevitably drive the company in the direction of certain strategic options towards which it has a natural bias. Some companies never realise this. Others do, and either learn how to use their culture as a source of competitive advantage – or set about changing the culture. Neither of these things is easy; the only thing that can be said is that they are preferable to the alternative.
