Lesson 6: Analysing the cultural context

Question 1

What is strategic drift?

Answer 1

Tendency for strategies to develop incrementally via historical and cultural influences –> fail to keep pace with changing environment.

Eg Kodak: Failed to see the digital transformation of change in consumer preferences.

4 phases:

1) Incremental change
2) Strategic drift
3) Flux
4) Transformational change or death

Strategic drift happens as organisations come out of step with stakeholders’ expectations.

Strategic drift often implies decreasing turnover, increasing turnover of employees, decresed income and dissatisfied customers and employees.

Question 2

Why do strategies change incrementally?

Answer 2

Gradual changes within the environment influence the development of organisations.

Previous successes ties the organisation to specific patterns of actions and thoughts that might be difficult to change.

Often managers experiment around a theme and becom familiar with a certain way of doing things.

Question 3

What are the reasons for strategic drift?

Answer 3

Difficult to foresee changes within the environment.

People tend to stick to the well-known under uncertainty.

It takes time to change strategies, as they are connected to structures, systems, norms, values and routines.

It takes time to change relationships to owners, managers, employees and customers.

Strategic drift is rerely visible in the beginning.

Question 4

Why is if hard to avoid strategic drift?

Answer 4

1) Uncertainty: takes time to see direction and significance of environmental changes. Hindsight is easier.
2) Path dependency and lock-in: costly to change core competences in the short term = core rigidities. Existing relationships can inhibit significant change.
3) Cultural entrenchment: paradigmatic set of taken-for-granted assumptions. Organisational identities = performance measures are lagged.
4) Powerful people

Question 5

Why is history important?

Answer 5

Managers are influenced by the history of both the industry and the organisation.

New issues ought to be seen within a historical perspective in order to be fully understood.

It is important to understand the reasons for previous successes and pitfalls as it can be an indicator for future problems.

History can make managers reflect and ask: What if..?

History can show if an organisation is facing a strategic drift.

Question 6

What is path-depedency?

Answer 6

Early events and decisions establish “policy paths” which influence future events and decisions.

The relationships between strategy, systems, structures, management and culture can create path-dependency, as these might “freeze” each other.

Strategies are built around competences, institutionalised behaviour developed over time.

Competences can be innovative solutions to historical problems and events.

History is not passive, it is created/recreated in order to contstruct/reconstruct the present and the future.

Question 7

What are the methods of historical analysis?

Answer 7

Chronological overview over relations between the environment, strategies and organisations.

Cyclical influences by focusing on repeating events (patterns of competition and earnings).

Critical decisions

Narratives and stories.

Question 8

What is organisational culture?

Answer 8

The basic assumptions and beliefs that are shared by members of an organsation, that operate unconsciously and define in a basic taken-for-granted fashion concerning the organsation’s view of itself and its environment.

Unconciously: people are not award = hard to handle.

Question 9

Why do we need to analyse culture?

Answer 9

Culture demarcates what we see and think.

Culture demarcates what can be implemented = difficult to get strategies implemented if they are against culture.

Culture makes firms efficient and hard to change.

Question 10

What are the levels to find culture?

Answer 10

1) National and regional level:
Hostede recognised that organsational culture conceptualised as attitutes towards work and authority differ across countries.

2) Industry and sector level:
A) Organsational field: shared understanding between interacting organisations
B) INdustry recipes: shared assumptions, norms and beliefs across organsation within an organsational field
C) Legitimacy: trustworthiness acquired by meeting the stakeholders expectations.

3) Culture at the profession level
4) Organsational culture in general
5) The culture of a particular department/unit

Question 11

What are the elements within organsational culture?

Answer 11

1) Values
2) Beliefs
3) Behaviours
4) Paradigm or taken-for-granted assumptions

Question 12

What are the values

Answer 12

Written values

Mission and vision statement

Often vague and very broad statements, does not reflect how things really are, but how they ought to be.

We can ask into and discuss the values

Question 13

What are beliefs

Answer 13

More specific than values, does not necessarily reflect the real conditions

We can ask into and talk about the beliefs

Question 14

What is behaviour

Answer 14

What people do, behaviour is guided by our perception of reality.

Behaviour visualises the taken-for-granted assumptions

Can be observed

Question 15

What are the taken-for-granted assumptions

Answer 15

All aspects of the organsational life, the way we do things around here.

Often both conscious and unconscious.

Can only be made explicit through observation and analysis from outstiders.

Question 16

What is the cultural influence on strategy and changes?

Answer 16

1) First a strategy is created based on the paradigm of the organsation
2) If the strategy does not succeed, the contorl is tightened.
3) If the strategy still does not succeed, then the strategy is changed, however, still in the same culture.
4) Only when the strategy still does not work, and the existence of the organisation is at stake, can it be possible to change the organsational culture = paradigm.

Question 17

What is the cultural web?

Answer 17

Paradigm in the middle. Around it:

1) Rituals and routines: special occasions, receptions where special values are made explicit, actions/talks, the way we do things here.
2) Stories = significant events, the heroes and villains.
3) Symbols = logo, offices, buildings, cars, languages/technical terms. Concentrated information about the organisation.
4) Power structures = the most influential group or profession within the organsation
5) Control systems = underline what is most important, focus the attention of the organsation, governs the behaviour of the employees.
6) Organsational structure = reflects the formal power structure, makes important units and relations visible.

Question 18

How can we implement the cultural analysis?

Answer 18

The articulated values and beliefs are only a limited part of the organsation’s culture.

The cultural web focuses on the behavioural and taken-for-granted part of the culture.

The paradigm is an aggregation of the other six parts of the cultural web = it expresses how the organsations perceives itself and its environment.

According to Schein, the taken-for-granted assumptions of an organsation is about how it perceives time, space, relations and its own identity.

Question 19

How can we apply the analysis?

Answer 19

Mapping the organsational culture

Make potentioal resistance towards visible changes

Find potential facilitators for change

Question 20

What can the management do within a historical and cultural context?

Answer 20

Three classical questions in strategic management:

1) Where does our company come from?
2) Who are we?
3) Where are we going in the future?

Focusing on the organsational history and culture helps answering these questions.

Great state and governement leaders often re-interpret the history and culture in order to justify future goals and actions.

The academic question is if we can put ourselves in a position outside our history and culture by htinking that we can analyse and even change history and culture?

History and culture might be better tools for managers in order to lead and chang the organisation, rathan than for optimisation and organsational design.

Question 21

WHat is the starting point of neo-institutional theory?

Answer 21

Based on a functional explanation implying that a phenomenon is explained by its good qualities.

Focus on a certain state instead of an equilibrium or a process view.

Focus on markets, institutions and the context instead of individuals and decision-making.

Focus on the Chicago-school and the ‘as if’ maximization

The reason why markets are actually functioning is because of social rules, conventions and institutions.

Question 22

What is the mdoel of explanation in neo-institutional theory?

Answer 22

We try to explain the economic value of social institutuions, conventions and rules in specific situations.

On one hand social institutions limit our freedom of actions

On the other hand social institutions reduces our insecurity and make the society more efficient

Institutions exhange freedom with security and efficency = eg. Traffic rules.

Examples of social institutions: traffic laws, trade laws, corproations, patent rights,…

Question 23

What is the property right tradition

Answer 23

Markets cannot function efficient without institutions

Property right is an example of a fundamental instutiton in capitalistic societies.

Property right pressuposed a national governement to control and maintain the property right.

The property right reduces the owners and users insecurity of the right.

Question 24

What is the nexus of contract theory?

Answer 24

Firms exist as instutitutions because of market failures.

Firms exist because they solve a fundamental problem of collaboration and coordination.

In order to profit from specialisation we need to work in teams.

A fundamental problem of team work is to identify the marginal production of each team member.

Not only humans create wealth in teams, materials do so too.

As a consequence, we need some rules (an institution) for how to account for the value creation.

Question 25

How do Alchiean and Demsetz view the firm?

Answer 25

The look at the firm as a nexus of contracts with:
Joint input and production

Several input owners

One party who are common to all the joint input contracts

That party has the right to renegotiate any inpu’s contaxts independently of contracts with other input owners.

That party holds the residual claim

That party has the right to sell his central contracual residual status.

Question 26

Why look at the firm in this way

Answer 26

Explains why firms exists

Escapes an overly simplified view of the company, as an individual decision-maker with only one goal.

Firms as a nexus of contracts explain why stakeholders collaborate over long time in order to benefit from specialisation.

The problem with this view is that the firm does not differ from the market.

The institution of firms developed, as the above dilemma’s of collaboration, coordination and distribution of values among stakeholders, rise again and again over time.

Question 27

How do instutions emerge?

Answer 27

When there is a shortage of resources = behavioural problem

When actors need a regulation for the common good

Evolve over a long period of time, when the situation repeats.

Evolve through an evolutionary process, even though they might be decided by humans.

Not always the best solution, but the most efficient solution.

Institutional theory does not describe the evolution of institutions, only the benefits of their existence.

Therefore still a functional explanation.

Question 28

What characterises agency theory as a research?

Answer 28

Agency theory aims to explain how people in practive have prepared contracts (institutions) in order to minimize agency costs.

Agency costs are the principal’s cost of monitoring, as well as the agent’s guarantee costs and the total due cost.

Contracts (the institutions) are open contracts where the principal hires an agent to make decisions on his behalf.

Both agents (citizens) and principals (the state) have limited knowledge and they are assumed to maximize their own utility function and act in a potential opportunistically way.

Question 29

What impact has theory on industrical policy strategy?

Answer 29

The neo-institutional theory (The Chicago School) has led to a laissez-faire view towards anti-trust problems

This is because institutions are assumed to occur because of their good qualities, which is not always the case.

within the strategy management theory Neo-institituionalism has helped explain why manager-controlled firms, rather than owner-controlled firms, choose unrelated diversification

Question 30

How can the theory be criticised

Answer 30

By using this theory we can argue (legitimate) that all institutions are good, because they are beneficial and efficient = agents act as if they optimise

However, in each case we need to examine why it is the most efficient institution that has been selected (formed).