Leadership in Organization Culture

Leadership in Organization Culture

Earlier, the concept of leadership was popular in fields like military operations, politics, and religious activities. However, over the years, the need for leadership is also realized in the business environment for the long-term sustainability of organizations.

Leadership can be defined as a process of influencing individuals to maximize their efforts toward the accomplishment of organizational goals. According to Katz and Kahn (1978), Leadership is the influential increment over and above mechanical compliance with the routine directives of the organization.

Effective leadership is of paramount importance for an organization to direct and mold the thoughts, attitudes, and behavior of people toward organizational goals. In the absence of good leadership, employees may remain unaware of their job responsibilities, goals to be achieved, and processes to be completed.

However, effective leadership hinges on the skills, abilities, and knowledge of leaders.

A leader is a person who prioritizes the individual objectives of employees and guides them toward attaining the overall corporate vision. The relationship between a leader and employees is centered on the achievement of common goals.

Leaders are generally the top executives of organizations. They act as a cohesive force and encourage employees to work as a unified group. Leaders are often confused with managers; however, they are different.

Leaders provide direction to people, encourage them to embrace change, and set long-term goals for the future. On the other hand, managers are concerned with the formulation and monitoring of plans and procedures and have short-term horizons.

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Importance of Leadership

With the advent of globalization, many organizations have decentralized their work processes. This has created a need for effective leadership skills at all levels in organizations.

For this, organizations need to create a culture that provides more opportunities for individuals to develop their leadership qualities. Effective leadership enables employees to improve their performance and work as a team.

The following points explain the importance of leadership in organizations:

• Leaders motivate employees to work efficiently by recognizing the performance of employees and rewarding them.
  
  
• Leaders provide instructions to their employees so that they can perform their tasks in an organized manner.
  
  
• Leaders build trust among employees by addressing their concerns and grievances.
  
  
• Leaders ensure coordination in organizations by aligning the personal interests of employees with organizational goals.
  
  
• Leaders ensure that employees receive equal growth opportunities as per their skills and abilities.

Thus, from the discussion so far, it can be said that effective leadership results in the smooth functioning of an organization.

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Role of Leaders in Creating Organisational Culture

In an organization, culture is exhibited in the behavior and attitude of leaders. Effective leaders inspire employees to utilize their capabilities in the best possible way to attain organizational goals; thereby developing a strong organizational culture.

The following points explain the roles of leaders in creating a strong organizational culture:

• Communicating With Employees
  
• Building Trust
  
• Valuing Employees
  
• Defining Criteria for Recruitment and Selection

Communicating With Employees

Maintaining an open communication channel has always been a challenge for most organizations. However, effective communication is a key to strong corporate culture. In an organization, establishing an open communication channel and maintaining a smooth flow of information depends a great deal on organizational leaders.

Leaders can maintain effective communication in an organization by:

• Conducting periodic meetings (monthly or quarterly) with staff members to discuss issues faced by them and suggest new ideas for improving their performance.
  
  
• Keeping employees informed about organizational policies, strategies, and future plans so that they can perform their jobs as per the expected requirements.
  
  
• Asking for feedback from employees on existing cultural practices and suggestions to rectify them.
  
  
• Organizing team outings for employees so that they get a chance to communicate with each other.
  
  
• Socializing with employees to gain acceptance from them.

Building Trust

Trust is considered to be an integral element of organizational culture. Therefore, leaders should inculcate trust among their team members by empowering them to make independent decisions. Moreover, leaders should treat employees on humanitarian terms so that they remain committed to their jobs.

Valuing Employees

Employees always expect to feel valued for their efforts and contribution to the accomplishment of organizational goals. This can be possible if leaders recognize the performance of employees and reward them appropriately.

Moreover, leaders must encourage employees to participate in problem-solving and decision-making. This boosts employees’ morale and self-esteem, which further facilitates a positive organizational culture.

Defining Criteria for Recruitment and Selection

Leaders can establish a strong culture by bringing in people who are compatible with the existing values, beliefs, and assumptions of the organization. Therefore, they should define the criteria for hiring and retaining employees that best match organizational requirements.

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Role of Leaders in Modern Organisations

Earlier, the role of leaders was restricted to giving instructions to subordinates so that they can perform their work in a specific way. Moreover, leaders had limited communication with subordinates. However, with changing times, the role of leaders is modified greatly.

• Designer of Culture
  
• Creator of Culture
  
• Preserver of Culture
  
• Modifier of Culture

With the advent of new technologies and an increase in competition, it has become difficult for leaders to adhere to traditional ways of leadership. In terms of culture too, leaders are no longer treated as followers.

They have a significant role in the development, modification, and sustenance of organizational culture. Let us discuss how the role of leaders is changed in present times.

Designer of Culture

Leaders work to achieve the vision and goals of an organization. They infuse a great deal of energy in their efforts towards the attainment of organizational goals and inspire subordinates to do the same.

Creator of Culture

Leaders are also responsible for creating the culture in an organization by hiring the right people and inspiring them to adhere to organizational values and beliefs.

Preserver of Culture

With the passage of time, a new role that has been added to the leaders’ profile is that of a preserver of organizational culture. Leaders who have the desire to grow with the organization and accept their own shortcomings help the organization to respond to changes quickly.

Modifier of Culture

Leaders also act as agents of change when the current organizational culture fails to deliver the expected results. With frequent changes in technological, economic, political, and social environment, it has become a need for leaders to acquire new skills and expertise.

In addition, leaders must know how to eliminate those trends that have become obsolete and are no longer required in organizational culture.

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Learning Culture and Learning Leader

A learning culture can be defined as a set of organizational values, beliefs, and practices that inspire individuals—and the organization as a whole—to improve knowledge, competence, and performance.

To maintain such a culture, organizations require learning leaders who possess the skills and knowledge to perceive and predict future needs. In addition, they adapt to changes proactively and do not believe in exercising control over their subordinates.

In today’s dynamic scenario, it has become important that the culture of organizations favors perpetual learning.

Let us discuss how learning leaders can help in developing a learning culture in an organization:

• A learning leader believes in the potential of subordinates and focuses on developing their skills and capabilities.
  
  
• He/she accepts feedback, analyses it, and implements feasible suggestions.
  
  
• A leader encourages employees to experiment and devise new ways to improve their performance.
  
  
• He/she has a vision for the future and encourages his/her subordinates to achieve the same.
  
  
• He/she creates an open communication system to connect all employees with each other.
  
  
• A leader should think rationally, analyze the forces of change, and understand the possible consequences of that change.

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Leadership and Culture in Mergers and Acquisitions

Business expansion is an important phase of an organization’s life cycle. Although expansion leads to an increase in the financial fortunes of an organization, it poses a number of challenges for the organization.

Organizations adopt various strategies to expand their businesses, such as franchising, strategic alliances, joint ventures, and mergers and acquisitions (M&A). Among all these, the most commonly used strategy is M&A.

Mergers occur when two organizations combine into a single business entity willingly by entering into an agreement and blending their management. On the other hand, acquisitions occur when one organization acquires control of another organization through the acquisition of either assets or stocks.

While making M&A decisions, an organization needs to assess various factors, such as its financial and market position and employee strength. Another important aspect that an organization must consider is whether its values, beliefs, philosophy, and traditions are compatible with the other organization to be merged with or acquired. This is because different organizations have varied culture that is reflected in their businesses. A cultural mismatch during M&A can pose a high risk for organizations expanding their businesses.

Let us understand the impact of cultural failure on M&A efforts with the help of an example. In 1968, General Foods (GF) acquired Burger Chef. However, after 10 years of dedicated efforts, GF was unable to make a successful acquisition due to cultural differences.

First of all, GF failed to predict that the best managers at Burger Chef left as they did not like GF’s philosophy. Moreover, GF did not hire new managers with experience in the fast food business but assigned its existing business managers to run the new business. This was another major mistake as GF’s managers failed to understand the technology of the fast food industry and utilize marketing techniques that proved effective for the parent company. Eventually, GF had to sell out Burger Chef and bear heavy losses.

Many a time, top management successfully identifies cultural incompatibility but fails to give due importance to that issue during M&A. In such cases, the role of leaders comes into the picture.

The following are the roles of leaders to be performed during M&A:

• Having a clear understanding of their own culture in order to determine the compatibility of their culture with that of the other organization.
  
  
• Understanding potential incompatibilities so that they can help others deal with cultural realities.
  
  
• Convincing employees and the management to take the required steps to establish cultural compatibility; thereby making M&A a real success.

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Failure of Mergers and Acquisitions Due to Culture Clashes

New York Central Railroad and Pennsylvania Railroad

New York Central Railroad and Pennsylvania Railroad, the two biggest railways rival in the mid-1960s, merged to become Penn Central and became the sixth largest rail corporation in America. After the merger, both companies realized that fierce competition did not allow them to work cooperatively with each other. As a result, the company was forced to file for bankruptcy within two years.

• New York Central Railroad and Pennsylvania Railroad
  
• Daimler and Chrysler
  
• American Online (AOL) and Time Warner
  
• Sprint and Nextel
  
• HP and Compaq

Daimler and Chrysler

A ‘merger of equals’ was attained when the German automobile manufacturer Daimler merged with the American automobile giant Chrysler in the late 1990s. After a few years of the merger, it was referred to as a fiasco.

Their cultures were so incompatible that both divisions were at war as soon as they merged. There were differences in the levels of formality, philosophy, and operating styles.

The German organizational culture of Daimler overpowered the American culture of Chrysler, which resulted in employee dissatisfaction at Chrysler.

American Online (AOL) and Time Warner

Time Warner’s stock dipped from $71.88 in 2001 to only $15 in 2008 due to the failed merger of about $350 billion with AOL. Cultural conflicts and the incompatibility of values and beliefs were the main reason for the failure of this merger.

Sprint and Nextel

In order to match pace with industry giants like Verizon and AT&T, Sprint acquired its competitor Nextel for $35 billion in 2005. The merger had been confirmed as a failure by 2008 as the company had written down 80% of the value of Nextel.

The main reason behind the failure was a culture clash between the entrepreneurial, khaki culture of Nextel and the buttoned-down formality of bureaucratic Sprint.

HP and Compaq

In 2001, both Hewlett-Packard and Compaq were struggling to achieve market leadership. At that time, HP decided to acquire Compaq to gain leadership. The merger proved to be a failure right from the beginning when critics pointed out the differences in their cultures.

HP was having an engineering-driven culture based on consensus, while Compaq’s culture was based on rapid decision-making. The merger resulted in a loss of 13 billion dollars in market capitalization for the new company.

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Symbolic Leadership

The symbolic leadership theory lays emphasis on the fact that communication takes place not only in a spoken or written way but also through actions. Hence, leaders should be wary of their actions, especially during interaction with their subordinates, as they can be interpreted in many different ways.

What one thinks or believes in is manifested in one’s actions. Therefore, leaders must be cautious about their words, gestures, choices, and decisions, for these reflect their personalities.

In symbolic leadership theory, actions performed by leaders are symbols that are interpreted by their followers.

Some of the attributes of leaders who display symbolic leadership are as follows:

• They lead by example by showing the audacity to take risks
  
  
• They use symbols to attract the attention of their subordinates
  
  
• They communicate their experiences to the subordinates to help them to assess the situation and take necessary actions.
  
  
• They narrate stories to the subordinates to make them understand the vision of the organization.