Year in and year out, cars manufactured by Toyota Motor Corp. are praised by automobile critics and lauded by loyal customers. The cars sell extraordinarily well and, come year's end, can almost always be found at the top of the rankings in reliability, quality and customer satisfaction. What's Toyota's secret? Surprisingly, according to management experts Gerry Keim and Angelo Kinicki at the W. P. Carey School of Business, it's not engineering."/> Effective leadership: Building a successful corporate culture

Effective leadership: Building a successful corporate culture

October 25, 2006

Year in and year out, cars manufactured by Toyota Motor Corp. are praised by automobile critics and lauded by loyal customers. The cars sell extraordinarily well and, come year's end, can almost always be found at the top of the rankings in reliability, quality and customer satisfaction.

What's Toyota's secret?

Surprisingly, says Gerry Keim, it's not engineering.

"You look at a company like Toyota, which outperforms every other automobile maker every year, and it's really not the engineers," says Keim, a professor of management at the W. P. Carey School of Business and associate dean of the W. P. Carey MBA. "They've been reverse-engineering [those processes] for 20 years in Detroit, but they can't recreate the products. It's really about the 'Toyota way' -- and that's a much more complicated system than engineering."

Understanding the 'Toyota way,' says Keim, means understanding the company's highly complex, and highly successful, corporate culture. It's a culture that has helped Toyota excel in technology, sales and marketing, and become the most respected automaker in the world. It's also a culture that did not develop by accident: The company's leaders made it happen.

Successful business culture -- whether found at Toyota or Southwest Airlines, General Electric or Intel -- result directly from the confluence of effective leadership and smart strategy. It's a confluence that Keim and colleague Angelo Kinicki, also a management professor, have explored extensively. Their ideas come together in a class called "Leadership: Aligning Strategy, Talent and Culture" offered regularly by Executive Education at the W. P. Carey School of Business.

Through their research with companies large and small, Kinicki and Keim have learned that top executives today are not just "bean counters" or decision-makers. Instead, their every action helps lay the groundwork for a company's culture, contributes to the development of all-important long-term strategy and, ultimately, can impact an organization's ability to succeed for years after they've left the executive suite.

In an age when companies can no longer depend solely on the old competitive advantages -- whether it's engineering or technology or manufacturing processes -- for market edge, Keim and Kinicki say strong leadership and smart strategy may be more important than ever before.

"The leaders of an organization are the people who are responsible for formulating and implementing the strategy -- they're the ones deciding what they're going to do and then actually figuring out how they're going to do it," Keim says. "That involves having a skill set that allows them to analyze the opportunities and the threats that may exist, both currently and going forward, and then being able to analyze the resources and abilities that an organization possesses to deal with those opportunities and threats. It also involves figuring out which resources and abilities must be developed to deal with future opportunities and threats."

Commoditization: a challenging environment

The business world has changed, says Keim, thanks in large part to the information revolution.

"The level of competition is higher than it's ever been," Keim says. "It's so much easier to get information about what other people are doing, and the older sources of competitive advantage are less likely to be lasting."

In the old days, says Keim, a company could capitalize on a great technology, or an efficient manufacturing process, and use it to ward off competition for years. Today, however, patents can easily be replicated (or nearly replicated), processes can be copied and technologies shared. It's a dynamic that has evened the playing field and taken those old advantages out of the equation.

"Executives are learning that the world, because of globalization, is moving much faster," Kinicki says. "Because of that, they don't know it all anymore."

"The sources of competitive advantage today have more to do with the way you manage people and the way those people interact," adds Keim. "Anything else that would be a source of competitive advantage -- a new technology, or a patent -- can be copied. It's very easy to go around most patents today. Most processes, most new features, those things can be duplicated. The fast followers will be able to do the same thing at low cost in a month."

Keim offers the enduring success of Southwest Airlines as an example.

The amazingly powerful discount airline seemed to come out of nowhere in the 1990s to turn the entire American airline industry on its head. Today, no airline exerts more power over the industry than Southwest.

One might think that competitors could copy Southwest's success, Keim says. Its business practices -- buying only Boeing 737 aircraft, for instance, or offering cheap, no-frills flights -- are well-known. The problem, Keim says, is that Southwest's winning ways are much more complicated than that.

Thanks to smart, steady leadership, the company has carefully nurtured a culture that puts the wants and needs of employees first. In return, those employees are loyal to the company, happy with their jobs and remarkably pleasant to customers, even in stressful situations. Southwest is a place where people want to work -- and so the company has the luxury of being choosy about the people it hires.

That kind of reputation -- and that kind of culture -- can't be built overnight. But Southwest has shown that it can be built. All it takes, say Keim and Kinicki, is brilliant leadership.

"Culture is all about the values a organization subscribes to, which then creates norms throughout the organization," Kinicki adds. "And you can't get [strategy] done without changing culture, so leaders need to understand culture. They need to know how to assess it and how to influence it."

Leading through example

But what kind of leadership style works? Again, the success of Southwest holds clues.

Keim and Kinicki say the rapidly changing, highly competitive environment of the 21st century marketplace demands that executives be highly flexible and, though they may not like it, extremely humble. They suggest top execs welcome input -- including criticism of company strategy -- from all levels of an organization, right on down to street-level salespeople.

By doing so, executives can increase their knowledge base, build smarter strategy, and move forward with a plan to implement that strategy that actually works. If employees don't believe in a strategy, they're not likely to help make it work.

"The way you increase your knowledge base is to extend your feelers deeper, all through your organization, and get ideas from other people," Kinicki says.

"Frequently it's the employees on the outer perimeter of an organization, closer to the customer, who have some of the best ideas about opportunities, simply because they're out in the field."

That's exactly the path Jack Welch chose in his early days at GE.

When a meeting with some his top lieutenants revealed deep-seated discontent with company strategy, Welch began to wonder just how far down the company ladder that discontent reached. He decided to find out, and before long had crafted his famed "boundaryless corporation" initiative, which broke through long-standing internal GE walls and set the stage for the company's stunning turnaround.

"If the leader of an organization is somebody who tends to have a more consultative decision-making style, they send signals that they're interested in what others have to say," Keim says. "So then, the response of the people in the organization is not just to do their job, but also to raise questions and raise suggestions about how things can be done better. These [open] leaders are better equipped to increase the flow of information, and that in turn helps them formulate strategy in regard to the future."

As for those old-school, autocratic executives? They aren't necessarily doomed to failure, Kinicki says.

But both Kinicki and Keim agree that these isolated execs, acting without counsel from the employees who are charged with carrying out a strategy they had no hand in creating, risk stifling healthy dissent and, worse, losing ground to smarter, more open-minded competition.

"Leaders who tend to be autocratic in style, while they're very quick and don't waste a lot of time, send a signal to employees that what they have to say is less important to the people at the top," Keim says. "As a result of that, strategies that emerge there tend to be formulated at the top, and implemented at the top, and I think that makes it much more difficult to compete and be effective."

Sadly, says Kinicki, this type of leadership is not entirely uncommon.

"I have worked with some organizations both large and small who have executives who are just afraid -- whether because they're close-minded or they're old-school -- and just have too high a need for control," Kinicki says. "They don't see a lot of input down through the organization. I can only see that working in an industry that is more regulated, one that is not changing rapidly."

Kinicki adds that while it's not impossible to make money with an autocratic leadership approach, it's probably easier to make more money with a more open-minded one.

Some companies have woken up to that fact. Others remain skeptical.

"The people doing, for example, the manufacturing at your company, often have the best ideas, simply because they are regularly working on the process," Kinicki says. "The executives are not -- they're looking at the process from 30,000 feet. If you want good ideas, you get it by involving the whole organization. And there's a big movement for that right now."

Bottom line:

  • The information revolution has taken some old-time sources of competitive advantage -- technology, manufacturing processes, and others -- out of the equation. So more than ever, leadership, strategy and culture are important to a company's success.
  • Executives who seek input from all levels of their organization can build a knowledge base that allows them to formulate smarter strategy.
  • Smart leadership can also help produce strong, healthy business cultures that make those strategies easier to implement.
  • While autocratic leaders can help their companies make money, open-minded leaders are likely to help their companies make more money.