The competitive Advantage of corporate cultures Daniel Denison, IMD Business School Levi Nieminen, Denison Consulting Lindsey Kotrba, Denison Consulting What is Corporate Culture? At the climax of the annual holiday party in one rapidly growing American company, hundreds of balloons are released from the ceiling. Inside each balloon is a crisp new $100 bill and whoever scrambles the hardest, gets the most money! The lesson is simple, fun, and more powerful than all the personnel policy handbooks in the world. It helps capture the essence of some of the key definitions of corporate culture: Culture is “the way we do things around here,” and “what we do when we think no one is looking.”1 Most scholars further describe culture in terms of two important definitional fea tures, 1) culture has multiple layers or levels, and 2) culture is learned. Schein’s classic approach divides culture into three levels.2 He argues that basic, underlying assumptions lie at the root of culture and are “uncon scious, taken-for-granted beliefs, perceptions, thoughts, and feelings.” Espoused values are Artifacts, behaviors, and derived from basic underlying assumptions and are the “espoused justifications of strate gies, goals and philosophies.” Finally, at the top level are “artifacts,” that are defined as “visible, yet hard to decipher organizational structures and processes.” Like the iceberg norms are visible and tangible. Personal values and attitudes are presented in Figure 1, only about 10 percent of an organization’s culture is visible, whereas 90 percent is below the surface. However, it is the part of the culture that we can’t see—the less visible, but can be talked about. Underlying fundamental beliefs and assumptions—that often sinks the ship. beliefs and assumptions are Figure 2 reminds us that culture is learned—it includes “the lessons that we have learned that are important enough to pass on to the next generation.”3 The lessons from subconscious,invisible, and rarely questioned. Figure 1 Schein’s Three Layers of Organizational Culture the Visible Symbols cultural values that are important are reflected in the visible symbols that surround us, which further reinforce and shape our culture into the future, and so on. Winston Churchill made a similar point about architecture, stating that, “We shape our buildings; thereafter they shape us.”4 Returning to our discussion from above, it is almost always easier to change the buildings than it is to modify the cultural values that guided their construction. In other words, the stuff that resides below the surface of an organization’s culture—the fun damental beliefs and assumptions—is the core of what is learned over time and what comes to guide behaviors and visible structures and processes. Survival Figure 2 Diagram of Culture as Learned Why is Corporate Culture Important? Many top executives attest that shaping and managing their organization’s culture is one of their most important challenges. As ...

1. The competitive Advantage of corporate cultures
Daniel Denison, IMD Business School
Levi Nieminen, Denison Consulting
Lindsey Kotrba, Denison Consulting
What is Corporate Culture? At the climax of the annual holiday
party in one rapidly growing American company, hundreds of
balloons are released from the ceiling. Inside each balloon is a
crisp new $100 bill and whoever scrambles the hardest, gets the
most money! The lesson is simple, fun, and more powerful than
all the personnel policy handbooks in the world. It helps capture
the essence of some of the key definitions of corporate culture:
Culture is “the way we do things around here,” and “what we do
when we think no one is looking.”1 Most scholars further
describe culture in terms of two important definitional fea tures,
1) culture has multiple layers or levels, and 2) culture is
learned. Schein’s classic approach divides culture into three
levels.2 He argues that basic, underlying assumptions lie at the
root of culture and are “uncon scious, taken-for-granted beliefs,
perceptions, thoughts, and feelings.” Espoused values are
Artifacts, behaviors, and derived from basic underlying
assumptions and are the “espoused justifications of strate gies,
goals and philosophies.” Finally, at the top level are “artifacts,”
that are defined as “visible, yet hard to decipher organizational
structures and processes.” Like the iceberg norms are visible
and tangible. Personal values and attitudes are presented in
Figure 1, only about 10 percent of an organization’s culture is
visible, whereas 90 percent is below the surface. However, it is
the part of the culture that we can’t see—the less visible, but
can be talked about. Underlying fundamental beliefs and
assumptions—that often sinks the ship. beliefs and assumptions
are Figure 2 reminds us that culture is learned—it includes “the
lessons that we have learned that are important enough to pass
on to the next generation.”3 The lessons from
subconscious,invisible, and rarely questioned. Figure 1 Schein’s

2. Three Layers of Organizational Culture the Visible Symbols
cultural values that are important are reflected in the visible
symbols that surround us, which further reinforce and shape our
culture into the future, and so on. Winston Churchill made a
similar point about architecture, stating that, “We shape our
buildings; thereafter they shape us.”4 Returning to our
discussion from above, it is almost always easier to change the
buildings than it is to modify the cultural values that guided
their construction. In other words, the stuff that resides below
the surface of an organization’s culture—the fun damental
beliefs and assumptions—is the core of what is learned over
time and what comes to guide behaviors and visible structures
and processes. Survival Figure 2 Diagram of Culture as Learned
Why is Corporate Culture Important? Many top executives attest
that shaping and managing their organization’s culture is one of
their most important challenges. As Wells Fargo Bank CEO
John Stumpf said, “It’s about the culture. I could leave our
strategy on an airplane seat and have a competitor read it and it
would not make any difference.”5 When asked to name the top
two or three challenges fac ing Daniel Akerson in his new role
as CEO following the 2009 bail out of General Motors
corporation, he listed culture first [after indicating, “I worry
about everything...”].6 Former IBM Chairman Lou Gerstner
made a similar point: “culture isn’t just one aspect of the
game—it IS the game. In the end, an organization is no more
than the collective capacity of its people to create value.”7 And
the list could go on and on from here...But, why do leaders
typically view harnessing culture as the key to unleashing
business performance? And what does research have to say
about the role of corporate culture in business performance?
The importance of corporate culture has a lot to do with the
alignment of stated values with the actual behaviors of leaders
and followers on a day-to-day basis. Bank of America’s website
lists “Doing the right thing,” as one of their core values. They
elaborate: “We have the responsibility to do the right thing for
our customers, shareholders, com munities, and one another.”8

3. Nonetheless, recent media reports have argued that in prac tice,
BoA appears to resist efforts to modify delinquent loans
because of the fee income associated with late payments and
foreclosures.9 These and many other examples from the recent
past10 illustrate how a corporation’s stated values or mission
can sometimes bear little resemblance to what happens on the
ground. Beyond what is advertised, what ultimately drives the
organization’s performance is the collective capability of its
people to deliver on its objectives. As stated by one influential
organizational scholar (B. Schneider), “The people make the
place.”11 People create the orga nization and its structures and
processes, gather the necessary funding, develop the markets,
and implement the strategies. An organization’s culture is
inextricably intertwined with its people, past and present. Going
forward, it provides the social context that guides people’s
actions. As with the above examples, people can choose to the
do the “right” or “wrong” thing, and the culture not only shapes
how deviations will be handled, but also what actions should be
regarded as the appropriate ones—for example, because certain
actions worked in the past or because they reinforce a
commonly held belief or value. Is it better to act in a way that
maximizes profit in the short term or works to ensure a lesser,
but safer, return over the long haul? Should decision power be
held by the most experienced and qualified few at the top or
distributed equally throughout? Who is accountable for getting
the work done—leaders, individual contributors, or teams? The
people on the ground doing the orga nization’s work face these
questions and numerous others on a daily basis. Culture shapes
the answers to these questions and helps to explain why some
organizations tend to prefer short term payoffs, decision-making
from the top, and individual accountability, whereas others tend
to prefer long-term strategies, distributed decision-making, and
team accountability. Given that organizational cultures can
reinforce different behaviors in people, scholars have long been
interested in studying culture’s impact on performance
outcomes, includ ing financial metrics such as profitability,

4. sales growth, and market value, as well as non financial metrics
such as safety, employee satisfaction, quality, and innovation.
Today, the research evidence that has accumulated suggests that
culture does affect organizational performance across a range of
the metrics noted above, but that the nature of the relation ship
can take several forms.12 The most straightforward is a direct
effect, whereby certain cultures (or cultural configurations) tend
to promote higher performance. For example, research indicates
that organizations with stronger externally oriented cultures—or
which focus on anticipating and responding effectively to the
marketplace and the customer’s needs—tend to outperform
organizations with weaker external orientations. More complex
relationships have also been observed, although the research
evidence in support of these is preliminary. A moderated effect
suggests that organizational culture may impact performance
differently within certain industries or geo-political regions. For
example, proponents of this perspective might suggest that an
external orientation is somewhat less important in industries
where the marketplace has remained highly stable over many
years. Finally, a non-linear effect suggests that the direction of
the culture performance relationship changes at a certain point,
such as the inverse u-shaped trend. Proponents of this
relationship might suggest, for example, that increasing the
external focus of a culture is beneficial only up to a certain
point, beyond which further increase might actually harm
performance. Although there are a handful of studies that show
a moderated or non-linear pattern, the bulk of research evidence
points to certain cultural characteristics as being generally
associated with higher organizational performance. What
Aspects of Corporate Culture Are Worth Paying Attention to?
Although corporate culture underlies many aspects of the
workplace, research has pointed to four main ways that culture
impacts business performance: through an or ganization’s sense
of mission; through its level of adaptability; through the
involvement of its people; and through the consistency provided
by the foundation of beliefs and core values.13 Each is defined

5. in greater detail in Table 1. To illustrate how central these four
traits are to real-world business success, let’s now consider four
well-known examples: IKEA, Apple, Domino’s, and Toyota.
ikeA: mission grows out of core Beliefs and Assumptions IKEA
founder Ingwar Kamprad became an entrepreneur at an early
age. By 1976, he was well established in the Swedish furniture
business and summarized his key principles for 1. mission.
Successful organizations have a clear sense of purpose and
direction that allows them to define organizational goals and
strategies and to create a compelling vision of the
organization’s future. Leaders play a critical role in defining the
mission, but for this to have a positive impact it must be well
understood top to bottom. Three aspects of mission are
particularly important and are il lustrated in the business case of
IKEA: strategic direction and intent, goals and objectives, and
vision. 2. Adaptability. A strong sense of purpose and direction
must be complemented by a high degree of flexibility and
responsiveness to the business environment. Organizations with
a strong sense of pur pose and direction can often be the ones
that are the least adaptive and the most difficult to change.
Adaptable organizations quickly translate the demands of the
organizational environment into action. Three aspects of
adaptability are particularly important and are illustrated in the
business case of Apple. creating change, customer focus, and
organizational learning. 3. Involvement. Effective organizations
empower and engage their people, build their organization
around teams, and develop human capability at all levels.
Organizational members are highly commit ted to their work
and feel a strong sense of engagement and ownership. People at
all levels feel that they have input into the decisions that affect
their work and feel that their work is directly connected to the
goals of the organization. Three aspects of involvement are
particularly important and are illus trated in the business case of
Domino’s: empowerment, team orientation, and capability
development. 4. Consistency. Organizations are most effective
when they are consistent and well integrated. Behavior must be

6. rooted in a set of core values and people must be skilled at
putting these values into action by reaching an agreement while
incorporating diverse points of view. These organiza tions have
highly committed employees, a distinct method of doing
business, a tendency to promote from within, and a clear set of
“do’s” and “don’ts.” This type of consistency is a powerful
source of stability and internal integration. Three aspects of
consistency are particularly important and are il lustrated in the
business case of Toyota; core values, agreement, and
coordination and integration. So, how should this organization
use the survey results to drive positive change? Where are the
strengths and weaknesses in the current culture? When the
executive team looked at their results, there was a long
silence—the un-freezing process was beginning. The President,
who had spent his career in operations, said, “Well, I’m not a
visionary or a strategist—I’m the guy who makes the trains run
on time.” When they focused on the results for consistency,
they agreed that their emphasis on internal control made it
difficult to react to the marketplace. They agreed that they had
strong core values, but also questioned whether they were
appropriate for the future. Finally, when they looked at their
results on team orientation, one of them concluded, “We’re a
team alright—we’re going down together!” IKEA in a
manuscript titled, “A furniture dealer’s testament.”14 Like most
great organiza tions, his company did not just produce profits,
but rather was designed to serve a higher purpose in society.
IKEA brought style, value, and a better life to many. Their
products were designed for the global everyman, combining
frugality, innovation, and style. Kamprad also expressed strong
beliefs about how IKEA should operate, stressing simplic ity
and self-reliance as the main guiding principles: Bureaucracy
complicates and paralyzes! Exaggerated planning is the most
com mon cause of corporate death. We do not need fancy cars,
posh titles, tailor made uniforms or other status symbols. We
rely on our strength and our will.15 IKEA is a terrific example
of how a global business strategy can grow from the core beliefs

7. and assumptions of the founder. Consider just one key element
of the system, the “flatpack.” Where did this brilliant strategic
innovation come from? In 1952, one of IKEA’s first employees,
Gillis Lundgren, had a problem. He was trying to load a table in
his Volvo to deliver to a customer. It didn’t fit. Gillis thought,
“God, what a lot of space that takes up! Let’s take the legs off
and put them under the table top.”16 Voilà! Global strategy.
The rest is just implementation. By 1956, this practice was
standardized and has been an essential part of the IKEA
experience ever since. The current system has contin ued to
build upon these key principles established in the early days.
IKEA’s strong sense of mission and powerful corporate culture
is not without its limi tations. Growth has been steady, but
relatively slow, especially given the dramatic enthu siasm of
their customer. IKEA has never made much of an impact in the
office furniture market, mostly since very few corporations
want to assemble their own office furniture. Expanding to
countries that are further away from their Swedish homeland
has also pre sented some challenges. Overall, “The IKEA Way”
has been a central part of the 50-year journey of an
entrepreneur’s dream to a global icon. Apple: Adaptability leads
the marketplace into the Future Since its founding in 1976 in a
garage in Cupertino, California, Apple has built their suc cess
around an unparalleled understanding of their customer’s needs.
It is a fascinating example of the competitive advantage created
by adaptability. Time and again, they have developed new
products that their customers didn’t really know they needed
until they found out that they couldn’t live without them.
Building on their spectacular success with iPod and iTunes,
Apple set about develop ing the hardware and software to create
another new market that didn’t exist before: the smartphone and
the “App” Store (for purchasing software Applications for the
smart phone). The iPhone turned an iPod into a touchscreen
cellphone with Internet access. People would no longer need to
carry a phone and an iPod and still find themselves in need of
access to the Internet to look up movie times or restaurant

8. locations. And it was a big bet that the future of cellphones
would be differentiated not by “radios and anten nas and things
like that,” but instead by software.17 The bet paid off
handsomely—by the fourth quarter of 2008 Apple surpassed
Blackberry to become the world’s third largest phone maker
after Nokia and Samsung. At first, developers created their own
unsanctioned apps for the iPhone. But in March 2008, Apple
released a Software Development Kit to help developers create
their own apps. They also created a radical set of rules for the
App Store18 which would cost developers $99 to submit an app
and they could charge whatever they wanted for downloads.
Apple would retain 30 percent of the sale price for
administration. The remaining 70 percent would go to the
developer. If the app was offered for free, Apple would take no
commission. Apple itself would maintain the App Store, control
the approval process, and support the whole thing through
iTunes. In July 2008, the App Store was launched with 500 apps
to coincide with the global launch of the 3G iPhone in 22
countries. Just over one year later, there were nearly 100,000
apps with 2 billion downloads to over 20 million iPhones
worldwide. Apple’s approach to innovation is deeply rooted in
their DNA. It has always been informed by a unique mindset
that focuses on the ecosystem that surrounds their custom ers.
Their innovations combine hardware and software with
developers and consumers in de velopers with consumers’
endless demand for software solutions, starting at a price point
of $.99 or less—with Apple as the intermediary! Domino’s
Pizza: involvement Builds Your Ability to Deliver Domino’s
Pizza was founded in 1960 by two brothers, Tom and Jim
Monaghan, who each kicked in $500 to buy a pizza shop. Before
long, Jim wanted out, so he traded his half of the store to Tom
in exchange for Tom’s well-used Volkswagen Beetle. In his 39
years of leading the company, Tom Monaghan transformed his
pizza delivery shop into one of the world’s top brands. In 1999,
with 6,000 stores and over $3 billion in revenues, Monaghan
sold 93 percent of the company to Bain Capital, who soon

9. brought in David Brandon as CEO.19 How do you go about
creating competitive advantage in the pizza delivery busi ness?
The new CEO and his team made the decision to focus squarely
on their people, as reflected by the “People First” guiding
principle that was put in place. In his first week on the job,
Brandon learned that the annual staff turnover was 158 percent.
He soon realized that with 150,000 employees, sustaining a
necessary workforce would require hiring nearly a quarter of a
million people each year! What stunned Brandon more was
Human Resources’ acceptance of the status quo. Brandon
quickly recruited a new HR Executive, Patti Wilmot, who was
ready for the challenge. New hiring procedures placed more
emphasis on employee attitudes because they felt that the skills
needed could be taught. Drug testing for delivery drivers and a
ban on hiring former employees were implemented to further
improve the quality of the workforce. A “pipeline” that defined
hiring criteria, developmental targets and investments, advanced
opportunities, and exit plans was created for all segments of the
employee population. Domino’s performance steadily improved.
After their 2004 IPO, Bain Capital noted that Domino’s was one
of the best private equity deals that they had ever done,
returning over 500 percent on their investment. Involvement,
capability, and teamwork were the hallmarks of their success.
toyota: consistency is the Foundation for Quality In 1937,
Toyota was created by the Toyoda Automatic Loom Works to
produce automo biles. Their early history was a difficult
struggle which required them to take advantage of every
opportunity to reduce waste and use resources efficiently.
Toyota’s culture grew organically for many years before they
attracted much attention. But by the 1980s, their world-class
quality and conspicuous success led many to try to capture their
essence and understand the huge leaps in competitive advantage
that Toyota had made within the manufacturing world. Today,
the Toyota Way is one of the most clearly articulated man
agement philosophies into the world. To quote former President
Fujio Cho: The key to the Toyota Way and what makes Toyota

10. stand out is not any of the individual elements. But what is
important is having all the elements together as a system. It
must be practiced every day in a very consistent manner, not in
spurts.20 There are fourteen elements to the Toyota Way that
have been clearly articulated in many different sources. A few
that have enabled Toyota to build a culture of consistency
include: • build a culture of stopping to fix problems, to get
quality right the first time; • standardized tasks are the
foundation for continuous improvement and employee
empowerment; • base your management decisions on a long-
term philosophy, even at the expense of short-term goals; •
grow leaders who thoroughly understand the work, live the
philosophy, and teach it to others. Each of these principles is
significant in its own right and is a required part of the overall
system. Perhaps the most difficult part of the Toyota Way is to
understand its emphasis on process thinking and production
flow. It is a system created to manage complexity in an efficient
and predictable way through nearly flawless lateral
coordination. Toyota has successfully transplanted the logic and
culture of their production system all over the world. This
evolving philosophy has led Toyota from a struggling
automaker in pre-war Japan to the largest and most profitable
automotive company in the world. How Can Organizations
Change their Cultures? These examples are success stories that
depict how culture can contribute positively to business
performance. But what happens when a culture change is
needed? Can orga nizations effectively manage and change their
cultures for the better? Doing so requires that organizations
have a clear understanding of their current culture and the
culture that is ultimately desired. Without this knowledge, the
organization may move in the wrong direction or fail to
understand where the critical needs are. Once organizations
under stand where to focus their efforts, they can begin the
arduous task of un-freezing the ways things operate, taking the
actions necessary to transition toward the desired culture, and
then re-freezing to ensure that the new culture takes hold in

11. daily organizational life.21 A number of tools are available to
practitioners as they embark on a culture change. One of the
most powerful tools is the diagnostic culture assessment. The
approach in volves administering surveys to employees to
gather their perceptions of the values and behavioral norms that
are reflected in the organization’s current culture. The results of
the survey are then organized into a diagnostic report that
shows the organizations strengths and weaknesses. The results
can be benchmarked relative to other organizations, as well as
over time so that progress can be tracked throughout the change
process. Conclusion All organizations develop a culture over
time as the people in the organization struggle as a group to
adapt, compete, and survive in the marketplace. Sometimes the
cultural values that develop serve as a potent source of
competitive advantage (e.g., IKEA, Apple, Domino’s, Toyota),
whereas in other cases, they can be maladaptive and even
contribute most deeply held elements of culture reside well
below the surface, it can be difficult to recog nize if and how
they impact what happens on a daily basis. However, closer
inspection reveals that culture is manifested in the values and
behavioral norms that guide actions of people in their day-to-
day work. Collectively, those actions determine whether an
organi zation sinks or swims in the increasingly competitive
global marketplace. This chapter described four characteristics
of corporate cultures that have been linked in research to
organizations’ bottom-line financial performance: mission,
adapt ability, involvement, and consistency. Although culture
change is a difficult and complex process, assessment of these
specific factors can provide a useful starting point for un
freezing the current culture, targeting key areas for
development, and moving the needle in a positive direction. Of
course, having a road map for where things are headed is cru
cial. The four mini-case studies illustrated the competitive
advantage that can follow when organizations foster a strong
mission, a great deal of flexibility and responsiveness to the

12. customer, high levels of employee involvement, and great care
toward core values and consistent delivery of results.22