The Need to Manage Organisational Culture

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1. high barriers to entry (eg., high costs inhibit other firms from entering the market, so few, if any, competitors exist),
2. non-substitutable products (e.g., others cannot duplicate the firm's product and no alternatives exist),
3. a large market share (e.g., the firm can capitalize of economies of scale and efficiencies by dominating the market),
4. buyers with low bargaining power (e.g., purchasers of the firm's products become dependent on the firm because they have no other alternative sources),
5. suppliers with low bargaining power (e.g., suppliers to the firm become dependent because they have no other alternative customers), and
6. rivalry among competitors (e.g., incentives to improve are a product of rigorous competition) (see Porter, 1980).

In other words, the commonly held view is that when firms enjoy these competitive advantages, they have high financial returns that last over the long-term.

Unquestionably, these are desirable features that clearly should enhance financial success. Having few competitors, dependent customers and suppliers, a large market share, and a unique product should surely lead to financial success. However, what is remarkable is that the most successful U.S. firms in the last 20 years have had none of these competitive advantages. The top five performers in the last two decades - who have literally blown away the competition in financial returns - have not been the recipients of any of the so-called prerequisites for success. These highly successful firms are Southwest Airlines (21,775% return), Wal-Mart (19,807% return), Tyson Foods (18,118% return), Circuit City (16,410% return), and Plenum Publishing (15,689% return).

Think of it. If you were going to start a business and wanted to make a killing, what markets will you most likely avoid! Airlines, discount retailing, consumer electronic sales, publishing. The list of industries represented by these five companies looks like an impending disaster for new entrants--massive competition, horrendous losses in the industry, widespread bankruptcy, virtually no barriers to entry, little unique technology, many substitute products and services, and a non-leadership position in market share. Yet, these five firms have out-performed everyone even with no special competitive advantages.

What differentiates these extraordinarily successful firms from others? How have they been able to make it when other have failed? How did Wal-Mart take on Sears and K-Mart, the two largest retailers in the world, and literally eat their lunch? While Wal-Mart prospered, its largest rivals were forced to sell-off divisions, replace CEOs (more than once), downsize dramatically, and close stores wholesale. How did Southwest thrive when several of its competitors went belly-up (e.g., Eastern, Pan-Am Texas Air, People Express)? How did Circuit City, Tyson Foods, and Plenum Publishing succeed when their competitors have gone out of business so rapidly that it's hard to keep up? The key ingredient in every case is something less tangible, less blatant, but more powerful than the market factors listed above. The major distinguishing feature in these companies, their most important competitive advantage, the factor that they all highlight as a key ingredient in their success, is their organisational culture.

The sustained success of these firms has had less to do with market forces than company values; less to do with competitive positioning than personal beliefs; less to do with resource advantages than vision. In fact, we defy you to name a single highly successful company, one that is a recognised leader in its industry, that does not have a distinctive, readily identifiable, organisational culture. Name the most successful firms you know today, from large behemoths to entrepreneurial start-ups - for example, Coca Cola, Disney, General Electric, Intel, McDonalds, Merck, Microsoft, Pixar, Rubbermaid, Sony, Toyota. Without exception, virtually every leading firm you can name has developed a distinctive culture that is clearly identifiable by its employees. This culture is sometimes created by the initial founder of the firm (eg. Walt Disney). Sometimes it is developed consciously by management teams who decide to improve their company's performance in systematic ways (eg., GE).

Simply stated, successful companies have developed something special that supersedes corporate strategy, market presence, or technological advantages. They have found the power that resides in developing and managing a unique corporate culture.