Tag Archives: Strategy

Corporate Culture Directly Affects Financial Performance

The question as to whether corporate culture has an effect on financial performance has been asked before and it will likely be asked again. In a study published in the Cornell Hospitality Quarterly, research demonstrated a link between corporate culture and financial performance. However, not all corporate cultures are created equal. Some corporate cultures had a positive effect, some had no effect, and some even had a negative effect.

First, let’s look at the 4 kinds of corporate culture from this study (there’s a picture above for those that prefer to see it visually):

  • Market – (External, Controlled) – Tend to be results-oriented, with a focus on competition.
  • Adhocracy – (External, Flexible) – Tend to be dynamic and entrepreneurial, with a focus on innovation.
  • Clan – (Internal, Flexible) – Tend to be family-like, with a focus on mentoring.
  • Hierarchy – (Internal, Controlled) – Tend to be structured and formalized, with a focus on efficiency.

It’s important to note that the research was conducted on a group of hotels in South Korea, so the generalizability of the findings is a bit limited. Nonetheless, this research could provide a foundation from which future studies can be conducted. Here are the findings between culture and financial performance:

  • Market – no significant effect on financial performance.
  • Adhocracy – positive effect on financial performance.
  • Clan – positive effect on financial performance.
  • Hierarchy – negative effect on financial performance.

The researcher went one step further and tested how strategic orientation effected financial performance in the context of these corporate cultures. Before we look at the effect strategic orientation had on corporate culture, we need to look at how the researcher delineated strategic orientation:

  • Leading: always trying to innovate
  • Future analytic: focusing on research for future activities
  • Aggressive: undercutting competitors
  • Defensive: maintaining careful control
  • Adventurous: risk taking
  • Conservative: avoiding risk

Some of the strategic orientations have obvious clashes with corporate culture. For instance, a Hierarchy culture would be ill-advised to try and implement a Leading strategic orientation. Likewise, we wouldn’t expect an Adhocracy culture to successfully implement a Conservative strategic orientation. The research found that Clan, Adhocracy, and Hierarchical cultures could improve their financial performance if the adopted a Leading or Defensive strategic orientation.

The one finding that I found interesting had to do with the Aggressive strategic orientation. The researcher found that this strategic orientation didn’t have a significant impact on any of the culture’s financial performance. Meaning, undercutting a competitor in an effort to gain market share was not an optimal strategy for any of the corporate cultures. Of course, as stated earlier, this study was only conducted on Korean hotels, but it would be very interesting to see if this particular finding help up when studying hotels in a different part of the world. Moreover, I’d be interested to see if this finding would also remain true across industries. That is, some folks think that competing on price is the way to go (Hi Walmart!), so if this study’s findings can be replicated in another industry, it might have an effect on the way that some firms compete. In particular, it might dissuade some from competing on price.

ResearchBlogging.orgHan, H. (2012). The Relationship among Corporate Culture, Strategic Orientation, and Financial Performance Cornell Hospitality Quarterly, 53 (3), 207-219 DOI: 10.1177/1938965512443505

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Labor is the Superior of Capital, and Deserves Much the Higher Consideration

Do you recognize those words? Scholars (and/or) American history buffs just might. They were spoken by one Abraham Lincoln on December 3rd, 1861, as part of his first State of the Union address. The quote comes from very near to the end of the speech; the beginning of the third last paragraph. The sentence on its own is worth pondering, but let’s put it in context:

Now there is no such relation between capital and labor as assumed, nor is there any such thing as a free man being fixed for life in the condition of a hired laborer. Both these assumptions are false, and all inferences from them are groundless.

Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration. Capital has its rights, which are as worthy of protection as any other rights. Nor is it denied that there is, and probably always will be, a relation between labor and capital producing mutual benefits. The error is in assuming that the whole labor of community exists within that relation. A few men own capital, and that few avoid labor themselves, and with their capital hire or buy another few to labor for them.

As is clear, Lincoln is referring to what was a major problem at the time — slavery. While those words were initially spoken with regard to slavery, I think that they have a broader application. That is, labor really is the superior of capital and not just in the context of slavery. Without labor, there’d be no capital. Labor is the backbone of any economy — local or global. As a result, it’s frustrating to see how poorly mismanaged the workforce can be.

From a business standpoint, I can understand why managers would want to crimp on labor, both in the number of employees and their However, I see this as extremely short-sighted. Whatever short-term gains are made from this strategy, they’re lost in the longer term when one has to replace the employee because they’ve either quit or because they’re overworked (and needed time off because of stress and/or fatigue).

I wonder if treating labor as if it’s another “expense” or “liability” is endemic to the culture of work in America. If we revisit the chart about vacation from this past summer, we see that just about every country on that list is in Europe and from what we know about the culture of many European countries, there’s an air of slowness that you just don’t find in America. Maybe it’s that European businesses have already learned this lesson of treating the workforce like an expense and realizing that it’s just easier to pay up front. How different would business look like in the US if the workweek went from 40 to 30 and the number of mandatory paid vacation days went from 0 to 20? Even if the US workweek went from 40 to 37.5 as is the case in Canada, how different would things be, then?

This focus on the short-term seems to be in more places than one. It’s even present in the way public companies are structured — they have to report their earnings every quarter. That is, every 90 days — 90! — a company gives a report to their shareholders (and the public) about their earnings. Predominantly, people are looking to see whether a company “beat” estimates. If (when?) a company doesn’t meet estimates, the stock price usually takes a tumble. But what if this incessant push to meet estimates and focus on these 90-day windows doesn’t allow for an appropriate longer term strategy? What if this 90-day crunch is preventing a company from pursuing a strategy that would make it far more sustainable in the long run and if they attempted to pursue that strategy, their stock price would plummet?

I don’t have all the answers to these questions, but I believe the beginning of the answer starts with labor. Companies that honor and respect their workforce tend to perform better.

The Problem With Facebook: Young People Really Are Social Networking Elsewhere

Remember yesterday when I was talking about Facebook’s “young person” problem? It turns out, there’s actually data to back this up. It turns out, there was actually an article in TIME that I didn’t realize had data when I was writing my post yesterday:

According to iStrategy, Facebook has 4,292,080 fewer high-school aged users and 6,948,848 college-aged users than it did in 2011.

That amounts to more than 11 million users gone in the past 3 years. While Facebook has more than 1 billion people, so 11 million might not seem like much, but is it a trend? That is, should this be something that the folks over at Facebook should be worried about. Well, there’s a handy graphic that can also be found in the TIME article, (but it comes from iStrategy):

Two of the cells I want to draw your attention to are already conveniently highlighted in red: the ages 13-17 and 18-24. If you’ll notice, both of these age groups are experiencing negative growth. Of particular noteworthiness is the 13-17 age group, which is down 25% over the last 3 years. Again, as I said earlier, Facebook’s user base is rather large right now, so it might not have that big of an effect anytime soon, but it is something to watch out for.

In the article, the author also points out that part of the reason people advertise with Facebook isn’t necessarily for the volume of its users, but because of all the information that it has on its users making microtargeting that much more effective. Maybe this information is enough to overcome the decline in new users, who knows. As I said yesterday, if I were part of Facebook’s team, I would be worried about the continued decline in my user base — especially because it’s the younger folks who are leaving. Why?

Pretty soon, these young folks are going to be reaching those prime marketing age groups (18-34) and if they’re already not using Facebook, that could be bad news. In fact, if they’re not using Facebook, they’re probably using some other social network to communicate and that is where the marketing dollars are going to go. I suppose only time will tell.

Can an Holacratic Organization Be Successful?

Because of some of the work that I’ve done, one of the things that really interests me is organizational structure. I like peeking into the ways in which an organization functions because I think that we can learn a lot about how and why they succeed. As a result, when I heard that Zappos was going to be transferring over to an holacratic organization, I was very interested:

During the 4-hour meeting, Hsieh talked about how Zappos’ traditional organizational structure is being replaced with Holacracy, a radical “self-governing” operating system where there are no job titles and no managers. The term Holacracy is derived from the Greek word holon, which means a whole that’s part of a greater whole. Instead of a top-down hierarchy, there’s a flatter “holarchy” that distributes power more evenly. The company will be made up of different circles—there will be around 400 circles at Zappos once the rollout is complete in December 2014—and employees can have any number of roles within those circles. This way, there’s no hiding under titles; radical transparency is the goal.

Typically, when people think about organizational structure, three systems come to mind: divisional, functional, and matrix. [Note: as an aside, I wrote an answer for a question on Quora a couple of weeks back about how organizational structure can support an organization’s strategy.] A divisional structure is one in which there is a degree of redundancy to the organization (each division has their own HR, accounting, etc.). A functional structure is one in which there are “shared services,” such that there would be only one HR, accounting, etc. Lastly, a matrix structure is a hybrid of the two.

Now, Zappos is throwing all that out the window and is adopting a new kind of organizational structure: holacracy. To be perfectly honest, I have no idea if they’re going to be successful. I don’t think anyone can honestly say whether Zappos will be successful in this change and in fact, I don’t think we could definitively say that this organizational structure works (or doesn’t) based on how Zappos performs under this structure. However, it’ll certainly give us a window into how a bigger organization (1500+) functions in this kind of structure. From what I’ve read, this is the biggest organization to attempt to use a holacratic system.

One interesting tangent I find to this discussion about holacratic organizational structure is this idea of holons and who’s associated with this idea. I first heard about “holons” in conjunction with Ken Wilber. I’ve written about Wilber only a few times here, but he’s someone who’s certainly worth checking out, if you haven’t already. He presents some fascinating ideas on a number of topics. That’s not to say that he’s right or wrong, but he’ll certainly present a perspective that you likely hadn’t considered. And if you’ve been reading me long enough, you know that I’m a major proponent of perspective. With regard to Wilber, I’m, in particular, thinking about the work he’s done with Spiral Dynamics. That is, I wonder if, in order to ensure that an holacratic organizational structure is successful, would the “participants” of said organizational structure need to be from 2nd or 3rd tier of development or the “yellow” or “green” memes in spiral dynamics.

Revisiting Using Pitchers on Short Rest: Long-Term Ramifications

A couple of weeks ago, I wrote about the Los Angeles Dodgers’ strategy of using their best pitcher (and one of the best pitchers in baseball) on short rest to pitch in a non-elimination game. The Dodgers ended up winning that game and the series, but the debate over the strategy doesn’t end there.

In my post from a couple of weeks ago, I compared the Dodgers’ decision to my younger years when I was playing baseball in double elimination tournaments. This wasn’t a perfect comparison, but I the spirit of the decision to use your best pitcher was there in both. A few nights ago, the Los Angeles Dodgers were eliminated from the postseason. All but one of the thirty teams are eliminated, so this isn’t earth-shattering news. However, the fashion in which they lost is.

In Game 6 of the National League Championship Series, the Dodgers started Clayton Kershaw. Yes, the same one who started in Game 4 for the Dodgers in the National League Divisional Series. This time, Kershaw’s start didn’t go so well. In fact, Kershaw only pitched 4 innings before pulled by the manager, Don Mattingly, but not before Kershaw gave up 7 runs. So, the question might be warranted: did using Kershaw on short rest affect his ability in Game 6? It turns out, this was a thought that had crossed some minds before Kershaw made the start in Game 4.

As they say, hindsight is 20-20, but it does seem a bit prescient. McCarthy’s hypothesis makes sense, but it’d be hard to test. One may point to Kershaw’s start in Game 2 of the NLCS. He tossed 6 innings and allowed 1 unearned run. Shouldn’t he have unravelled in that game if he were fatigued from the short rest start in the NLDS? One could argue that, but the way that McCarthy’s argument is setup leads one to believe that the “fatigue” could happen later and later. So, if the Dodgers won Game 6 and won Game 7, would McCarthy have expected Kershaw to unravel during one of his starts in the World Series?

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Let’s see if we can apply this lesson to decisions in other arenas. The analogy I used for the other post doesn’t really hold anymore. We’d be better off thinking about a decision for a business. Using Kershaw in the way the Dodgers did was almost like using a certain machine in the factory to fill some rush orders. The machine might only be able to fill a certain number of orders per week, but because it’s the holiday season, the boss thinks that running it on overdrive is necessary. Initially, the machine churns out the widgets just the way the boss would have expected, but next week when you use the machine, the widgets aren’t as high a quality. And then the week after that, the widgets aren’t even of a high enough quality to give away. It’s clear, the machine needs a break and some recalibration. In weighing the risk, the boss thought that using the machine more than usual was worth it for it potentially shutting down.

There are other ways we can map out this scenario, but I want you to think about how you might be overdoing it. Maybe the machine you use at work is fatiguing. Maybe you are fatiguing from working too hard.

Should the Los Angeles Dodgers Have Started Clayton Kershaw on 4 Days Rest?

A few days ago, there was a bit of a hullabaloo as the Los Angeles Dodgers decided they were going to start their star pitcher, Clayton Kershaw, in Game 4 on short rest. Let me back up for a second and explain a few things. Typically, starting pitchers in MLB get 5 days between starts. Meaning, if you pitched on Monday, you wouldn’t pitch again until Saturday. As we’re now into postseason baseball, some of the typical norms aren’t followed very closely. For example, last night in the elimination game between the Rays and the Red Sox, the Rays’ manager, Joe Maddon, changed the pitcher after the first inning even though the Red Sox hadn’t scored any runs! This is highly unorthodox. The Rays went on to lose last night, but as to whether that was a result of Maddon’s strategy is a post for another. Getting back to Kershaw and the Dodgers…

The Dodgers were up 2-1 in the series against the Atlanta Braves. Game 4 was to be played in Los Angeles. If the Dodgers won, they would move onto the next round of the playoffs. If the Braves won, there would be another game in Atlanta — Game 5 — to decide which of the two teams would advance. Kershaw pitched in Game 1 of the series, October 3rd, (and won). It was now October 7th, and the Dodgers’ manager, Don Mattingly, had decided that Kershaw was going to pitch in Game 4 that night.

There were many opinions about whether this was a good idea. There’s the “we’ve always done it this way” opinion that says you shouldn’t start Kershaw on short rest because that’s not how you do things. There’s also the mathematical opinion that starting Kershaw in Game 4 increased the Dodgers chances of winning Game 4.

In thinking about this decision that faced Mattingly, I was reminded of playing baseball when I was younger and being in double elimination tournaments. When it gets down near the end of the tournament, your pitchers are tired and some rules won’t let you pitch certain players more than a certain number of innings (depending on the league you’re playing in). So, coaches are often faced with the decision of starting their best pitcher in the semi-final game (or quarter-final) game to get onto the next round, where, quite possible, they won’t have anyone left to pitch. I’ve seen the strategy employed where one pitcher is held back in the “just in case” scenario. I understand why some coaches do this, but I don’t know that it’s the optimal strategy in most cases.

Elimination games are slightly different from games where you’re not facing elimination, but similar principles are used. Mattingly chose to use Kershaw in Game 4 instead of Game 5 because he thought it gave him the best chance to win. I totally respect that and if I were in his shoes, I think it’s the right call and the call that I would have made.

As it turns out, the Dodgers went on to win Game 4, so Mattingly’s use of Kershaw was vindicated. Even if the Dodgers lost, I still think that Mattingly would have made the right call in that situation. The mathematics supported Mattingly using Kershaw in Game 4 (to increase the Dodgers’ chances of winning Game 4).

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I wanted to use this sports example as a way to pivot towards strategy and decisions in your own life — personal or professional. I want you to think about decisions that are coming up in your life. Are you holding back your “Clayton Kershaw” for the “do-or-die” situation later or are you using him/her to close the deal or make the change right now? There’s not necessarily a right or wrong way to do it, but in reading this post, I hope that you’re able to map this scenario onto your own life to identify those instances where you might not be putting your best foot forward in the here and now because you’re saving it for tomorrow.

Canada Needs to Diversify its Export Strategy

During my last semester as an MBA student, I decided to take a class in International Relations theory. It was certainly a challenging class, especially considering I’d never had a course in political science. There was a steep learning curve in the beginning, but I learn very quickly, so I was able to stay right on track with the material. The last paper I wrote for that course had to do with Canada and NAFTA. I don’t think it’s a good idea to share the whole paper (22+ pages), but I thought I’d include pieces of the conclusion. Any hyperlinks below were added via WordPress’s “recommended links” and weren’t part of the original conclusion. Enjoy!

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At the outset, this paper attempted to shed some light on Canada’s relationship to NAFTA. After the literature review and subsequent analysis, there certainly seems to evidence that Canada made the choice that benefitted the country the most [economically] when it signed onto NAFTA. As the [academic] literature has shown, there will continue to be calls for the three North American countries to further integrate. This certainly may help all of the countries of NAFTA, but it is hard to say that with Mexico still far behind the US and Canada, economically. In time, one would expect that Mexico could become a global economic force, but for now, there is still much work to be done. As it stands now, Canada’s main purpose for being part of NAFTA seems to be because the US is involved. As a result, one would expect that Canada would continue to be part of NAFTA and continue to strengthen its relationship with the US. If NAFTA were just an agreement between Mexico and Canada, there probably would not be a NAFTA.

After analyzing the data, one of the most important takeaways is that Canada needs to continue to diversify its exports strategy. The vast majority of Canadian exports are to the US. In the beginning, this was probably out of convenience. The US market is much larger than Canada’s and it is right there. However, as events like the global financial crisis foreshadow the possibility of similar and bigger events, it is important for countries like Canada to ensure that they are not too invested in the success of one nation. If for instance something were to happen to the US such that it pulls them [the US] down into a recession like Japan saw in the 1990s, Canada would undoubtedly be affected. Although, some may argue that if this were to happen, the whole world would probably be pulled into a recession. However, as Canada demonstrated by its resilience during the financial crisis, it is possible to mitigate the effects of a catastrophic event. This is exactly why Canada needs to continue to seek out free trade agreements with other countries. The more free trade agreements that Canada can enter into, the more insulated it will be against a possible economic collapse in the US.