Journal of Business Strategy

CORPORATE STRATEGY: Integrating Strategy Formulation with Organizational Culture

Paul Shrivastava
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Integrating Strategy Formulation with Organizational Culture/
Paul Shrivastava
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Managers, consultants, and management re-
searchers are increasingly realizing the important
role of organizational culture in determining the
decision-making patterns and the long-term suc-
cess of organizations. A unique characteristic of
most continuously successful organizations, ac-
cording to Peters and Waterman [21], is that they
possess consciously developed recognizable cul-
tures that support innovation and strategic ac-
tions.
What are oganizational cultures and how do
they influence strategic decisions? To answer this
question, one must begin by examining organiza-
tional cultures as shared systems of meanings that
convey significance to events and circumstances.
Organizational culture can be described with a set
of concrete products through which this system is
stabilized and perpetuated. These products in-
clude myths, sagas, language systems, meta-
phors, symbols, ceremonies, rituals, value sys-
tems, and behavior norms [1, 22, 23]. Pettigrew
describes organizational cultures in the following
terms [22:572]:
[P]urpose, commitment, and order are gener-
ated in an organization both through the feel-
ings and actions of its founder and through the
amalgam of beliefs, ideology, language, ritual,
Paul Shrivastava is an Assistant Professor at New York Univer-
sity. The author gratefully acknowledges the comments pro-
vided by Professors Jane Dutton and Roger Dunbar on an earlier
draft of this article.
CORPORATE STRATEGY
and myth we collapse into the label organiza-
tional culture.
Shared assumptions determine the nature of
cultural products. For example, some assump-
tions deal with the concept of a hero or a role
model to be emulated. Other sets of assumptions
create norms for dealing with repetitive problems
(rituals) or norms for rewarding performance
(awards and ceremonies). Still others constitute
the organization's value systems or its preference
for outcomes and means of achieving the out-
comes. The process of sharing assumptions and
the degree of consensus or homogeneity of these
assumptions determine the strength and unique-
ness of cultural products and processes. Jointly
these products and processes constitute the cul-
ture of the organization. As an illustration of two
contrasting cultures consider the cases of J.C.
Penney Company and PepsiCo.
J.C. Penney Co. cares about its employees and
customers. J.C. Penney is a great place to
work, and its customers will always receive
satisfaction. These are the dominant values in
Penney's corporate culture. Management ac-
tions have reinforced these values since foun-
der James Cash Penney laid down the seven
guiding principles, called "the Penney idea."
These principles have brought forth tremend-
ous loyalty from staff and customers. One store
manager was reprimanded by the President for
making too much profit, which was unfair to
103
 104 THE JOURNAL OF BUSINESS STRATEGY
customers. Customers can return merchandise
with no questions asked. Everyone is treated as
an individual. Employees are encouraged to
participate in the decision making process.
Layoffs are avoided at all costs. Unsuccessful
employees are transferred to new jobs instead
of being fired. Long-term employee loyalty is
especially valued.
PepsiCo. has a completely different value sys-
tem. Pepsi is in hot competition with Coke for a
larger share of the soft drink market. Pepsi's
values reflect the desire to overtake Coke.
Managers engage in fierce competition against
each other to acquire market share, to squeeze
more profits out of their business, and to work
harder. Employees who do not succeed are
terminated. They must win to get ahead. A
career can be made or broken on one-tenth of a
point of market share. Everyone knows the
corporate culture and thrives on the creative
tension thus generated. The internal structure
is lean and adaptable. The company picnic is
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characterized by intensely competitive team
sports. Managers change jobs frequently and
are motivated to excel. The culture is charac-
terized by a go-go atmosphere and success at
all costs.
One tangible indicator of the difference in cul-
ture between J.C. Penney and PepsiCo. is the
length of employee tenure. Penney's execu-
tives have been with the company thirty-three
years on average, while Pepsi's executives
have averaged only ten years [6].
Assumptions related to strategic issues are
rarely articulated. Often, managers are not con-
sciously aware of their own assumptions. These
assumptions surface and are shared through per-
sonal interactions and socialization processes.
Cultural Products and Processes in
Organizations
The sharing of assumptions and their in-
stitutionalization in the organization result in a
variety of cultural products. Four important cate-
gories of cultural products include:
Myths and sagas
Language systems and metaphors
Symbolism, ceremony, and rituals
Value systems and behavior norms
These are briefly described below. Other cul-
tural products also exist in organizations. How-
ever, these four have been singled out to illustrate
their crucial influence on strategic decision-
making processes.
Myths and sagas. Myths, sagas, stories, tales,
legends, and rumors about organizational life are
an integral feature of organizational cultures.
They reflect the members' shared interpretations
of critical organizational events. Myths contain
knowledge of past organizational events cast into
a stylized causal form. They express relationships
between organizational and environmental vari-
ables, and personalities, and show how perfor-
mance or decisions are linked to these variables.
These myths are often passed on to new members
to illustrate specific aspects of the organization's
history. They are carriers of the organization's
history which allow the meaningful interpretation
of current events [16, 19].
Myths grow differently across departmental, di-
visional, and hierarchical boundaries. For exam-
ple, the myths that one might hear in the market-
ing department would focus on the heroic sales
efforts of some salesperson or the vicious price
wars with some competitor. In contrast, the
stories in the R&D department would myth-
ologize about critical technical design prob-
lems that were faced and how they were resolved,
or stories about how "pushy" marketing/sales
people tried to dominate the development of new
product specifications and how these efforts were
thwarted.
Organizational myths describe heroes (CEOs,
"favorites," fast-track executives) and villains
(representatives of controversial departments
like internal audit or industrial relations). Myths
describe battlegrounds (board meetings, annual
meetings, departmental or divisional committees)
in which wars are waged and organizational is-
sues are resolved. The role of organizational
myths in initiating recruits into the organization
is crucial. The new members' attitudes and dis-
positions toward others are shaped by the stories
they are told at the time they join the organization
[5, 14].
Language systems and metaphors. Organizational
cultures are orally manifested in the language sys-
tem, metaphors, or jargon used by members in
communicating with each other. Language sys-
tem characteristics of organizations vary widely
from having a high emphasis on subjective, qual-
itative, personalized, nonstandard vocabulary to
an emphasis on technical, objective, scientific,
standardized vocabulary. The metaphors used to
understand organizational reality also vary from
organization to organization. Metaphors provide
 THE JOURNAL OF BUSINESS STRATEGY
an intuitive understanding of social organizational
events by linking them to different aspects of the
broader social reality [12, 20].
Thus, some organizations (especially business
firms) use metaphors that reflect the warlike na-
ture of the business environment. Managers
speak of "fighting" competitive battles, "captur-
ing" market share, "recruiting and training"
workers, "firing" employees, developing "strat-
egies and tactics" for gaining profits, etc. Other
organizations use the organism metaphor to de-
scribe their functioning in terms of "compo-
nents" of the organizational system, the "main-
tenance of relationships" with the environment,
and the "growth" and "evolution" of the organi-
zation [11].
Symbolism, ceremony, and rituals. An important
cultural process in organizations is the use of
symbols to convey special significance and mean-
ing to specific ideas, events, or individuals. Sym-
bols such as organizational logos, slogans, flags,
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and songs, stand for the fundamental and eternal
commitments of the organization. Symbols help
in conveying this commitment to members of the
organization and to the public at large [23, 24].
For example, Avis's "we try harder" slogan si-
multaneously reflects the company's consumer
orientation and the work ethic implicit in its cul-
ture.
Special ceremonies such as awards or honors,
dinners, and annual gatherings can symbolically
convey organizational values and priorities to
members. The location of these meetings, the
invitees, and the agenda all communicate signals
to organizational members as to what and who is
regarded as important. Thomas Watson, former
chairman of IBM, installed elaborate rituals to
convey the importance of aggressive salesman-
ship. He instituted the "Hundred Percent Club"
for salespersons who continually achieved or ex-
ceeded 100 percent of their yearly sales targets.
Club members were treated as an elite group enti-
tled to special vacations, conventions, and
awards. Attaining targets thus became the domi-
nant value in the IBM culture.
Value systems and behavior norms. Shared values
or preferences about means and ends of action in
organizations form an integral part of organiza-
tional cultures. Value systems reflect a ration-
alized conception of what is considered desir-
able by organizational members. They influence
the organization's choice of goals and strategies
and affect the norms of social behavior. Sociocul-
tural norms describe acceptable behavior in cir-
cumstances where no explicit guides to behavior
105
exist. They make it possible to judge the appro-
priateness or "goodness" of an individual's con-
duct by comparing it with the organizational val-
ues. Norms also describe standards of perfor-
mance and reward systems for tasks not normally
included in formal job descriptions.
Influence of Culture on Strategy
Formulation
Cultural products mediate or substitute for ra-
tionality in strategic decisionmaking. Since
strategic decisions deal with ill-structured and
novel problems, they involve intricate inter-
pretation tasks [26]. Their interpretations in-
volve subjective judgments by managers which
are shaped by cultural norms of the organization.
Facit Inc., the manufacturer of mechanical cal-
culators, provides a good example of how this
occurs. When Facit managers were faced with
initial information on the electronic calculator
technology, they did not interpret it as a strategic
opportunity or as a threat. They just disregarded
it as unimportant. This interpretation was consis-
tent with the existing "mechanical engineering"
culture of Facit. Since many top managers were
themselves mechanical engineers and Facit Inc.
had one of the most advanced and successful
production facilities for manufacturing mechan-
ical calculators, they had all come to believe in
the superiority and invulnerability of their prod-
ucts. In reality, the electronic revolution virtually
destroyed the mechanical calculator industry and
Facit, of course, incurred huge losses.
Strategic decisionmaking often provides a
milieu in which cultural assumptions are expli-
cated and cultural products are recreated.
The strategic decision-making process has been
described by several researchers as consisting of
the following basic steps: (1) formulating the
problem and setting objectives, (2) generating so-
lution alternatives, (3) reaching a consensual un-
derstanding of problems and solutions, and (4)
choosing the most feasible solution [3, 7, 18].
Although the actual process varies from this
idealized conception in several ways [30, 35], this
general description is used here to examine the
influence of organizational culture on strategic
decisions. These stages of strategic decisionmak-
ing are directly or indirectly shaped by the cul-
tural products described above. Because each
stage begins with a different set of assumptions
and information and processes them differently,
cultural product affects each stage differently.
These influences are shown schematically in
 106 THE JOURNAL OF BUSINESS STRATEGY
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Exhibit 1. The dark lines show the dominant ef-
fects and the dotted lines reflect secondary effects
of cultural products on different phases of de-
cisionmaking. By influencing strategic decision
processes, organizational cultures also indirectly
influence the content of strategy. They affect the
organization's orientation toward the future, its
planning horizons, its view of the environment,
and, consequently, its perceptions of oppor-
tunities and threats.
Myths and sagas that affect problem formulation.
The process of organizational problem formula-
tion is shaped by social interactions in which in-
dividual managers' awareness of problems is
shared by other organizational members over a
gestation or incubation period. In this gestation
period, managers casually scan for information
about their hunches concerning problems and try
to clarify for themselves and others the exact
nature of issues. This period is characterized by
informal, undirected scanning for information,
and imprecise communications among peers and
subordinates [15, 25]. The problem formulation
occurs based on the information that is freely
available in the form of organizational myths and
sagas. This happens because the issues are un-
clear, the incubation period is unstructured, and
there is little systematic effort at collecting accu-
rate and verified information. Myths provide a
convenient and abundant source of information in
ill-structured situations. They lend themselves to
easy and multiple interpretations to suit different
circumstances.
How myths shape strategic problem formula-
tion is shown in the case of a company that pur-
 THE JOURNAL OF BUSINESS STRATEGY
chased a large-scale computer system to develop
a computerized management information system
(MIS). Regarding computers, the dominant myth
held by top managers in this company was that
computers were a panacea for all organizational
problems. They believed that all their problems
related to inventory management, sales manage-
ment, and administration would be resolved if a
computerized MIS were installed. The myth was
established over the years as management
observed the computerized operations of success-
ful competitors. It was further reinforced inter-
nally by the data processing department person-
nel who were interested in acquiring a large com-
puter system. They argued that the larger the
system, the more problems it would be able to
solve. Instead of formulating the strategic prob-
lem as one of assessing the organization's infor-
mation needs and finding suitable means for fulfil-
ling them, the organization viewed the problem as
one of purchasing a computer system with the
lowest cost/performance ratio. This formulation
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of the problem precluded certain solution alterna-
tives (such as hiring computer time, using data
processing service bureaus, or implementing
computerized MIS in phases) from being seri-
ously considered [29].
Language systems and metaphors that shape deci-
sion alternatives. The generation and evaluation
of solution alternatives are constrained by the
language systems in use. The analysis of solution
alternatives involves creating a deeper under-
standing of issues through the use of finer and
more specialized categories. The sophistication
and analytical rigor of evaluation procedures is
dependent on the sophistication of the metaphors
and linguistic norms prevalent in the organiza-
tion.
Analytical evaluation procedures are devel-
oped and implemented through the use of profes-
sional terminology and jargon. Such specialized
language systems emerge as a result of the com-
mon professional education and training of man-
agers.
Organizations make conscious efforts to de-
velop specialized language systems to deal with
critical activities such as strategic planning, con-
trol, project management, and research and de-
velopment. For example, the profit impact of mar-
ket strategies (PIMS) project provides its users
with a vocabulary, a conceptual framework, and
empirical data for formulating and testing compet-
itive strategies at the business unit level. Simi-
larly, accounting jargon and systems provide
convenient ways of monitoring and controlling
107
performance.
Organizational members share their under-
standing of decision alternatives with others
through the use of metaphors. Metaphors allow
the understanding of issues by comparison with
other more accessible and known objects.
Metaphors embedded in organizational language
generate and support certain images of solutions
to organizational problems. Similarly, they de-
emphasize or even preclude the generation of
other alternative solutions. These metaphors
guide the creation and selection of strategic alter-
natives [2].
The metaphor of business as war is often used
by managers. The use of terms like attacking
competition, capturing market share, gathering
competitive intelligence, firing employees, front-
line sales force is common in strategic decision-
making. These terms allow managers to under-
stand business strategy as a war strategy. Such an
understanding of strategy allows managers to use
war tactics and their knowledge of military ma-
neuvers for analyzing business decisions. How-
ever, such a metaphorical understanding of busi-
ness as a war precludes other forms of metaphor-
ical understandings of business as a "game,"
business organizations as "machines," etc. Thus
metaphors allow managers to view their organiza-
tion and its environment in certain limited ways.
Symbolism, rituals, and ceremonies that influence
strategic understanding and response. Organiza-
tional symbolism and ceremonies are effective
means of promoting the organizationwide under-
standing of solutions to strategic issues. The in-
effable complexities of strategic issues are not
likely to be articulated in explicit terms because
of their sensitive nature. Reaching a common un-
derstanding of such complexities is made possible
by the presence of symbolic objects, ceremonial
events, and ritual processes which help members
in interpreting the true meaning and significance
of events [24]. For example, if the CEO suddenly
decides to attend the otherwise routine monthly
meeting of the quality control department, his
mere presence symbolically reinforces the in-
creased importance of that function. Similarly,
company slogans, logos. and songs serve a criti-
cal function in uniformly conveying important
priorities and solution approaches to all employ-
ees, building the company's self-image, and draw-
ing individual commitment to organizational
goals.
Rituals and standard operating procedures rep-
resent behavior programs that create automatic
responses to frequently occurring organizational
 108 THE JOURNAL OF BUSINESS STRATEGY
situations. They promote inflexible actions that
have been legitimized in the organization by years
of unquestioning acceptance [33]. Ritualized pro-
cedures sometimes stifle innovative responses.
They act as inertial forces that support status
quo. Since these procedures are regarded as
"adequate" for organizational purposes, man-
agers are not motivated to try new ways of re-
sponding.
Large bureaucratic organizations often make a
virtue of ritualized behavior on the part of their
members. They have well-developed procedures
for almost every important contingency that
might arise under normal circumstances. Both
cultural norms and official rules dictate that these
procedures be followed regardless of their appro-
priateness for resolving the problems at hand. In
some instances, strategic planning systems have
been found to become ritualized into a set of
activities that create "strategic plans" but do not
lead to strategic actions [4].
In studying the planning practices in a large
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multinational bank, the author found that it had
well-established procedures for developing stra-
tegic plans. The plans generated through these
procedures were rarely implemented because the
environment was changing so rapidly that it made
the plans obsolete even before they were circu-
lated to managers. The planning cycle had be-
come a mere ritual in this case, and it never led to
any concrete strategic action.
Value systems that determine strategic choices.
Personal values of top management involved in
strategy formulation can influence corporate
strategies. To the extent that corporate strategies
contain the visions and ambitions of the CEO and
other top managers, they are in effect statements
of personal goals and desires. Due to the subjective
and evaluative nature of strategic analysis, it is
virtually impossible to make strategic economic
choices purely on an analytical computational
basis. Managerial judgment and discretion are
necessary in order to resolve deadlocks and inde-
cisions prompted by the lack of complete and
objective information on strategic issues. These
judgments are based on the assumptions, beliefs,
and personal values of strategy makers [10]. For
example, Howard Head, founder of Head Ski
Company, decided to manufacture high-quality,
expensive metal skis because of his personal belief
in innovation and quality products. He struggled
hard for many years to develop a new ski. The
result was the first successful metal ski.
Personal values influence not only the economic
choices made by the organization but also its
posture toward social responsibilities. These val-
ues determine the organization's moral commit-
ments toward fulfilling its social and cultural
roles. The organization's concept of its social role
determines its choice of domain, its basic policies
that govern how it impacts on its environment,
and its attitudes and policies toward its employ-
ees.
Marks & Spencer, Inc. has instituted generous
personnel benefit policies to create a friendly,
familylike work environment in all its retail
stores. This reflects top management's social val-
ues which encourage cohesiveness, mutual trust,
support, and security.
Integrating Culture With Strategy
Formulation
Although organizational cultures are conceptu-
ally elusive, they have important influences on
corporate strategy. Hence, managers need to as-
sess their impact in qualitative terms and try to
integrate cultural products and processes with
corporate strategy formulation.
Acknowledging and examining values and beliefs of
stakeholders. The first step in dealing with cul-
tural influences on the organization is acknowl-
edging their presence. Few organizations make
any explicit effort to identify and study their own
cultural characteristics. One way of assessing
these characteristics is by surfacing and critically
examining the personal assumptions and beliefs
on which organizational cultures are based. As-
sumptions and beliefs of all key stakeholders are
important for understanding organizational cul-
tures.
Several techniques are now available for sur-
facing and examining assumptions in the context
of strategic decisionmaking. The strategic as-
sumption surfacing and testing (SAST) procedure
[17] allows organizational members to jointly
explore each other's assumptions regarding stra-
tegic issues through a controlled dialectical
debate. These assumptions can be prioritized and
their patterns studied to achieve an understanding
of the organization's culture. Argyris and Schon
describe another methodology for assessing and
changing assumptions by institutionalizing "orga-
nizational learning" processes. This involves re-
structuring assumptions that managers jointly hold
about action-outcome relationships and the impact
of the environment on these relationships.
In addition to studying and understanding or-
ganizational cultures, managers can foster the
 THE JOURNAL OF BUSINESS STRATEGY
development of cultural processes that support
strategic decisionmaking. Strategic knowledge sys-
tems, described below, are one set of cultural
systems that could be useful.
Development of strategic knowledge systems. Since
organizational cultures influence the meaning at-
tributed to information in decision-making con-
texts, the design of strategic information systems
should explicitly consider cultural factors. The
knowledge needed for making strategic decisions
can be systematically generated by developing a
new class of information systems known as stra-
tegic knowledge systems, described by Shriva-
stava [28]. A strategic knowledge system consists
of a network of trusted managers, business asso-
ciates, and management information systems that
provide sensitive information needed for strategic
decisionmaking. These systems provide the crit-
ical knowledge needed to conceptualize organiza-
tional problems and also serve as a forum for
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discursively resolving assumptional differences
among strategy makers.
While strategic knowledge systems are "infor-
mation systems" (consisting of information
sources, channels, inputs, outputs, etc.) in which
knowledge is created and disseminated, they also
serve to institutionalize the process of sharing
assumptions and frames of reference among man-
agers. They utilize individuals' insights and per-
sonal subjective knowledge as inputs, provide for
the sharing and objectification of these insights,
and generate consensually validated sets of
action-outcome heuristics which guide strategic
choices.
In a pharmaceutical company, a strategic
knowledge system consisted of a network of ad
hoc committees. Each committee included man-
agers from all key departments and staff spec-
ialists. These committees focused on iden-
tifying, studying, and resolving strategic and oper-
ational problems in different areas of business
such as product-line diversification, mergers and
acquisitions, technology strategy, and long-term
financial planning. Most decisions were made by
these committees. Each manager simultaneously
served on many committees, thus acting as an
information link between committees. These
committees were never permanent. They were
formed very informally as "issues" arose and they
dissolved informally as the problems being ad-
dressed were solved. The committees helped each
other by freely sharing information, and they were
supported by more formal information systems
which provided necessary data.
109
Institutionalizing innovation through cultural sup-
port. Innovative actions in organizations are ran-
dom creative events which do not easily lend
themselves to systematic planning efforts. More-
over, since anticipating the usefulness or efficacy
of innovations is difficult, developing a standard-
ized reward system to promote such actions is not
practical. In the absence of systematic ways of
planning and rewarding innovations, there is little
motivation on the part of members to try new
ideas [4]. Managers also realize that open and
explicit support for risky innovative behavior can
have dangerous consequences. For example, or-
ganizational members might be encouraged to
embark upon fanciful projects of little value to the
organization. Hence, any support for innovative
behavior necessarily has to be implicit and all-
pervading.
To support innovation in technical and admin-
istrative matters, it is essential to have a suppor-
tive culture that implicitly promotes freedom of
thought and action. Cultural support for innova-
tive behavior can be provided by informally en-
couraging such behavior and rewarding it through
symbolic means. Symbolic rewards are those that
do not have a high material (dollar) value but
mean a lot to managers. For example, individuals
may be rewarded symbolically by giving them
offices on executive floors, plush furnishings,
more frequent or open access to the top manage-
ment, access to facilities and information re-
served for selected important members of the or-
ganization, and by encouraging their participation
in executive committees in charge of making
strategic decisions.
Token rewards and personal recognition can be
given for acknowledging the significance of inno-
vations that have an uncertain future. When the
innovation proves to be truly useful, such sym-
bolic rewards can be supplemented by substan-
tive material rewards.
Myths are also powerful means of insti-
tutionalizing innovative behaviors. Myths can
create heroes out of innovators and hold them up
as role models for other organizational members
to follow.
Strategic understanding and conflict management.
Conflicts over strategic issues are commonplace
in organizations. The political processes by which
strategic conflicts get resolved have detrimental
effects on individual managers as well as the or-
ganization. For example, politics may cause
frustration and anxiety among managers and lead
to the eventual choice of suboptimal solutions.
Politics may also create permanent factions
 110 THE JOURNAL OF BUSINESS STRATEGY

among managers who try to keep information
from each other. At the heart of such conflicts is a
failure on the part of strategy issues. Conflicts
arise because managers hold different assump-
tions, interpret information differently, and fail to
share their understanding of events.
Reaching consensual strategic understanding
can be aided by encouraging participative deci-
sion making. By putting managers in face-to-face
contact with each other, they get an opportunity
to exchange viewpoints and debate their assump-
tions. However, this type of participation is pos-
sible only in an open, trusting, and supportive
culture. Such trust and openness can be made a
part of an organization's culture by systemat-
ically making accessible to all relevant members
information necessary for strategic decisionmak-
ing, while at the same time guarding against the
flow of information to competitors. The control
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over information and the use of information as a
power resource can lead to mistrust and secrecy
in strategy making. To avoid this, organizations
need to discourage the tendency of managers to
hoard and manipulate information.
Conclusion
Organizational culture is a critical variable for
effective strategy making. It influences the vari-
ous phases of the strategic decision process and
consequently affects the content of corporate
strategies. The challenge facing managers in
charge of strategy making is to examine cultural
products and their impact on strategy. While
many cultural characteristics may be difficult to
change, managers can at least be aware of them
and attempt to develop strategies consistent with
organizational culture.

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