Lussier, R.N., & Achua, C.F. (2013). Leadership: Theory, application& skill development (5th ed.). Mason, OH: South-Western.

The Power of Culture

An organization’s culture determines the way that it responds to changes in its external and internal environments. The response to changes in the external environment such as emerging opportunities and threats are reflected in the organization’s vision, mission, objectives, and core strategies. The response to internal matters such as how power and status are determined, how resources are allocated, membership criteria, or how leaders and followers relate and interact with each other, is reflected in the organization’s policies, procedures, and principles. Organizational performance is enhanced when strategy, structure, and capabilities are aligned to culture.15 Experts and scholars on organizational culture have long maintained that culture serves two important functions in organizations: (1) it creates internal unity, and (2) it helps the organization adapt to the external environment.16

Internal Unity

Organizational culture defines a normative order that serves as a source of consistent behavior inside an organization. To the extent that culture provides organizational members with a way of making sense of their daily lives and establishes guidelines and rules for how to behave, it is a social control mechanism. A supportive culture provides a system of informal rules and peer pressures, which can be very powerful in influencing behavior, thus affecting organizational performance.17 A strong culture provides a value system that regulates behavior and promotes strong employee identification with the organization’s vision, mission, goals, and strategy. Culturally approved behavior thrives and is rewarded, while culturally disapproved behavior is discouraged and even punished. Culture offers a shared understanding about the identity of an organization. The right culture can make employees feel that they are valued participants and, as such, 359360become self-motivated to take on the challenge of realizing the organization’s mission and work together as a team. It can transform an organization’s workforce into a source of creativity and innovative solutions.

External Adaptation

Culture determines how the organization responds to changes in its external environment. Depending on the volatility in the business environment, some changes are significant enough to force members to question aspects of their organization’s identity and purpose. Culture plays a role in informing and supporting sense-making or meaning when external changes are severe enough to force members to re-evaluate aspects of their organizational identity and purpose. Having the right culture can ensure that an organization responds quickly to rapidly changing customer needs or the actions of a competitor. For example, if the competitive environment requires a strategy of superior customer service, the organizational culture should encourage and support such values as listening to customers, empowering employees to make decisions, and rewarding employees for outstanding customer service deeds.18 The power of culture is in its

potential to bring employees together to create a team rather than a collection of isolated individuals or factions when faced with threats from the external environment.19

Despite the empirical evidence of a positive relationship between organizational culture and performance, not too many organizations have credible claims to owning a high-performing culture. The next section focuses the discussion on the characteristics of low- and high- performing cultures.

Low- and High-Performing Cultures

A growing body of literature documents the economic benefits of investing in a performance- oriented culture.20 A unique corporate culture is hard to duplicate or 360361imitate and thus helps to sustain a firm’s competitive advantage. Organizational cultures vary widely in the extent to which they are woven into the fabric of the organization’s practices and behavioral norms. The strength of any culture depends on the degree to which these norms and practices are widely shared and strongly held throughout the organization. A weak culture symbolizes a lack of agreement or shared mind-set on key values and norms; a strong culture symbolizes a strong agreement or shared mind-set on key values and norms, with leaders playing a key role. The strong culture is described as distinctive and very tight—so much so, that members whose values don’t match the organization’s are more likely to have a short tenure because they are either forced to quit or voluntarily quit. Strong cultures are generally associated with high performance and weak cultures are generally associated with low performance.

The reference to performance is in terms of the many studies that have investigated the impact of organizational culture on performance indicators such as revenue and profit growth, quality,21 customer satisfaction, innovation,22 turnover and absenteeism rates, workforce productivity, employee job satisfaction,23,24 creativity,25,26,27 commitment,28,29 and learning outcomes. Weak(low)-performing cultures share certain characteristics that distinguish them from strong(high)-performing cultures.

Characteristics of Low-Performing Cultures

Weak cultures are more likely to be associated with low performance. As mentioned above, an organization’s culture is weak when there is little agreement on the values, beliefs, and norms governing member behavior. This could be because the leader has not effectively implanted the right culture or because members have not bought into the existing culture. In a weak culture, members of the organization typically show no deeply felt sense of identity with the organization’s vision, mission, long-term objectives, and strategy. In such organizations, culture has no meaning to the employees and managers. In a weak culture, negative behaviors like gossiping, manipulation, favoritism, lack of communication, and internal conflict prevail. Without knowledge of what the organization stands for, weak cultures work against or hinder strategy implementation and thus are low performers. See the characteristics shared by low- performing cultures in Exhibit 10.1 and a brief discussion of each.

Insular Thinking

In a low-performing culture, there is a tendency to become insular. Managerial arrogance and inward thinking often prevent the organization from making the necessary cultural adaptation as external conditions change, thus leading to a decline in company performance.

Resistance to Change

Low-performing cultures tend to resist change when confronted by fast-changing domestic and global business conditions. The lack of leadership in encouraging and supporting employee initiatives or new ideas destroys creativity. Low-performing cultures want to 361362maintain the status quo; as a result, avoiding risk and not making mistakes become more important to a person’s career advancement than entrepreneurial successes and innovative accomplishments.

Politicized Internal Environment

Low performing cultures are characterized by a political environment that allows influential managers to operate their units autonomously—like personal kingdoms. In a politically charged culture, many issues or problems get resolved along the lines of power. Vocal support or opposition by powerful executives, as well as personal lobbying by key individuals or groups with vested interests in a particular outcome, may stifle important change. Such a culture has low performance because what’s best for the organization is secondary to the self-interests of individual players.

Unhealthy Promotion Practices

Low-performance cultures tend to promote employees into higher leadership positions without serious consideration to abilities, experiences, and training. No effort is made to match the skills and capabilities of the appointee to the tasks requirements of the new position; instead, promotions are based on personal considerations (friendship, family ties, favoritism, and so forth).30

Characteristics of High-Performing Cultures

An organization’s culture is considered strong and cohesive when it conducts its business according to a clear and explicit set of principles and values that are widely shared. In this culture, management commits considerable time to communicating these principles and values and explaining how they relate to the mission and strategies of the organization.

Ultimately, high-performing cultures have what some have described as a culture of discipline— where everyone is responsible to the values of the company, to its expectations, and to the

purpose it serves. See the characteristics shared by high-performing cultures in Exhibit 10.2 and a brief discussion of each.

EXHIBIT 10.2: Characteristics of High-Performing Cultures

 Effective use of culture reinforcement tools    Intensely people oriented    Results oriented    Emphasis on excellence  

Effective Use of Culture-Reinforcement Tools

Culture-reinforcement tools include ceremonies, rewards, rituals, symbols, stories, language, and policies. High-performing cultures use ceremonies and other social events to reinforce dramatic examples of what the company values. Ceremonies recognize and celebrate high-performing employees. Also, in high-performing cultures, leaders tell stories to new employees to illustrate the company’s primary values, which then create a shared understanding among workers. They also use symbols, rituals, and specialized language (such as slogans) to convey meaning and values. These mechanisms are the means by which high-performing cultures ensure that accepted norms and values are maintained and transmitted.

362363  

Intensely People Oriented

Organizations with high-performing cultures see their employees as their number one asset. They treat employees with dignity and respect, grant them greater autonomy, involve them in decision making, celebrate individual and team achievements, and use the full range of rewards and punishment to enforce high performance standards.

A reciprocal relationship develops when organizations are able to attract, retain, and reward outstanding performers. Such employees are more likely to behave in ways that help the organization succeed. This cycle of success is like a “virtuous spiral” that reinforces the reciprocal pattern again and again. Trust, responsibility, accountability, and integrity are defining features of relationships between leaders and their followers in high-performing cultures. These culture attributes are firm-specific assets that provide unique value, and because they are hard for competitors to imitate, offer the best means for building and sustaining a competitive advantage.

Results Oriented

High-performing cultures are very results oriented. Controls are developed to collect, analyze, and interpret employee performance data. High-performing cultures have a strong desire to establish linkages between reward systems and performance.31 All employees and their managers are trained in the goal-setting process. Employees take ownership of their goals and as such demonstrate a higher commitment and motivation to achieve them. These goals form the basis of

leader–follower performance evaluations and feedback. In high-performing cultures, leaders seek out reasons and opportunities to give out pins, buttons, badges, certificates, and medals to those who stand out in their performance.

Emphasis on Excellence

High-performing cultures create an atmosphere in which there is constructive pressure to be the best. Management pursues policies that benchmark best practices in the industry. When an organization performs consistently at or near peak levels, over time the pursuit of excellence becomes a way of life and a key part of the culture.

The Leader’s Role in Influencing Culture

Influencing the culture of an organization so that it aligns with strategy, structure, and HR policies and practices is a vital leadership responsibility.32 Also, it is important for organizations to consider the “fit” between the current or desired organizational culture and CEO characteristics when it comes to new appointments. Studies on the subject have found that matching CEO personality traits and values to an organization’s cultural values enhances successful outcomes.33

Leaders can initiate many different types of policies, programs, and practices to change, modify, or sustain an organization’s culture. Some of these actions are substantive, while others are simply symbolic; yet taken together, they can shape the culture of an organization according to the expectations of the leader.34 Substantive actions are explicit and highly visible and are indicative of management’s commitment to a new way of doing things. These are actions that everyone will understand are intended to establish a new culture more in tune with the organization’s mission and strategy. Symbolic actions are valuable for the signals they send about the kinds of behavior and expectations leaders wish to encourage and promote. In his book, Schein uses the terms primary and secondary mechanisms to distinguish between symbolic and substantive actions.35

Substantive Actions

Substantive actions that a leader can employ to influence culture include aligning culture to HR policies and practices, strategy, and structure; matching rewards/incentives to the culture outcomes; and designing physical work environments that match espoused cultural norms.36,37

The strongest sign that management is truly committed to creating a new culture is replacing old- culture members who are unwilling to change with a new breed of 364365employees. This can be accomplished through new HR criteria for recruiting, selecting, promoting, and firing employees. These new criteria should match the values and expectations of the new culture. This matching process is what some have described as an HR-organizational culture fit and an HR- business strategy fit.38 Existing policies and practices that impede the execution of new strategies must be changed. Through these actions, leaders let other members know what is important.

In rapidly changing business environments, the capacity to introduce new strategies is a necessity if a company is to perform well over long periods of time. Strategic agility and fast organizational response to new opportunities require a culture that quickly adapts to environmental change rather than a culture that resists change. Another name for this type of culture is the organizational learning culture.39 It is the leader’s responsibility to select a strategy that is compatible with the prevailing culture or to change the culture to fit the chosen strategy. The lack of a “fit” will hinder or constrain strategy execution. The culture of an organization naturally evolves over time, and without strong leadership it can change in the wrong direction. For example, incompatible subcultures may develop in various departments of the organization, leading to a culture of isolation rather than teamwork and cooperation.

Tying rewards and incentive programs directly to new measures of strategic performance is a culture-shaping action because it gives the leader leverage to reward only those performances that are supportive of the strategy and culture.40 It is often the case that in many organizations, when strategies change, changes in the reward structure tend to lag behind. Imagine an organization in which the CEO has articulated an integration-based strategy that will require leaders at all levels to think and act across departmental or divisional boundaries and act on behalf of the entire enterprise. However, the organizational reward system only offers incentives for achieving unit success. Such reward/incentive misalignments weaken an organization’s culture.41

Finally, leaders can design the physical work environment to reflect the values they want to promote within the organization. For example, having common eating facilities for all employees, no special parking areas, and similar offices is consistent with a value of equality. An open office layout with fewer walls separating employees is consistent with a value for open communication. In designing its headquarters, Google wanted to provide open work spaces and an environment that promoted coworker contact and interaction. By providing a clear sense of place and purpose for its employees, Google succeeded in communicating an employee-friendly culture through its facility design, with the architecture and comfort of the setting reinforced by the cultural and aesthetic elements in the building.

Symbolic Actions

Symbolic actions that a leader can employ to influence culture include modeling expected behavior, recognizing and celebrating accomplishments, and being visible. Senior executives are role models, and the stories they tell, decisions they make, and actions they take reveal an implicit cultural expectation for followers. Employees learn what is valued most in an organization by watching what attitudes and behaviors leaders pay attention to and reward, and whether the leaders’ own behaviors match the espoused values. Employees want to see that their leaders “walk the walk.” For example, when top executives lead a cost-reduction effort by curtailing executive perks, or when they emphasize the importance of responding to customers’ needs by requiring members of the top management team to spend a portion of each week talking with customers and understanding their needs, these actions set a good example. The message employees get when a leader institutes a policy but fails to act in accordance with it is that the policy is really not important or necessary.42

365366  

Leaders can schedule ceremonies to celebrate and honor people whose actions and performance exemplify what is called for in the new culture. Ceremonies reinforce specific values and create emotional bonds by allowing employees to share in important moments. A culture that celebrates accomplishments helps to retain valued employees. Ceremonies often include the presentation of awards.

Another symbolic action a leader can use to influence culture is simply being visible. A leader who appears at ceremonial functions to praise followers who exemplify the values and practices of the new culture is making a symbolic, yet instructive gesture. Effective leaders will also make special appearances at nonceremonial events (such as employee training workshops) to stress key priorities, values, cultural norms, and ethical principles. To followers, the mere appearance of the executive—and the things he or she chooses to emphasize—clearly communicates management’s commitment to the new culture. Exhibit 10.3 summarizes the substantive and symbolic actions that leaders can use to influence or shape organizational culture.

EXHIBIT 10.3: Leadership Actions for Shaping Culture

Substantive Actions

a. Instituting new policies and practices  

b. Aligning strategy and structure to culture  

c. Matching rewards/incentives to the culture  

d. Matching work environment design to culture  

Symbolic Actions

a. Modeling expected behavior

b. Recognizing and celebrating accomplishments

c. Being visible

Types of Culture

Rather than looking at culture as either good or bad, it should be viewed as a construct that varies according to an organization’s business environment, the leader’s personality, past history, and attitudes of current employees. There is no one best organizational culture. The ideal culture is that which supports the organization’s mission and strategy. Organizational culture types such as

the learning, innovative, team, clan, market, or adhocracy cultures have been studied for their impact on employee outcomes such as creativity,43 productivity, job satisfaction,44 or turnover.45,46 Other names used to describe an organization’s culture include the cooperative, adaptive, competitive, and bureaucratic cultures.47 We will focus our discussion on this later group. These culture types are not mutually exclusive; an organization’s culture may reveal characteristics that will fit one or more of these groupings. However, high-performing organizations with strong cohesive cultures tend to emphasize or lean more toward one particular culture type—a shared mind-set.

Cooperative Culture

The cooperative culture represents a leadership belief in strong, mutually reinforcing exchanges and linkages between employees and departments. In this type of culture, 366367operating policies, procedures, and practices are all designed with one goal in mind—to encourage cooperation, teamwork, power sharing, and camaraderie among employees. Management thinking is predicated on the belief that organizational success is influenced more by effective cooperative relationships inside the organization than by external relationships (resource-based view theory of the firm). It is an internally focused culture. Proponents of the cooperative culture argue that in today’s dynamic work environment—characterized by constant changes and fluid projects—creating a work environment in which workers collaborate with each other and work in highly effective teams creates synergy and increases productivity.48 It is a culture where employees are empowered to act and think like owners rather than hired hands.

Adaptive Culture

The adaptive culture represents a leadership belief in active monitoring of the external environment for emerging opportunities and threats and adapting to them. This culture is made up of policies, procedures, and practices that support employees’ ability to respond quickly to changing environmental conditions. In adaptive cultures, members are encouraged to take risks, experiment, innovate, and learn from these experiences.49 Management thinking is based on the belief that organizational success is influenced more by events outside the organization than by internal factors (the industrial organization view theory of the firm). Therefore, employees are empowered to make decisions and act quickly to take advantage of emerging opportunities and avoid threats. There is greater individual autonomy and tolerance for failure. There is a spirit of doing what is necessary to ensure both short-term and long-term organizational success, provided core values and business principles are upheld in the process. The adaptive culture is generally known for its flexibility and innovativeness.50 The core principles of the adaptive culture are similar to those of organizational learning culture (OLC)51 discussed in Chapter 12.

Competitive Culture

The competitive culture represents a leadership mind-set that encourages and values a highly competitive work environment. Organizational policies, procedures, work practices, and rules are all designed to foster both internal competition (employee versus employee, department versus department, or division versus division) and external competition (company versus competitors).

An organization with a competitive culture operates in a mature market environment in which competition is intense. Competitive cultures focus on specific targets such as growth in market share, revenue, or profitability. This is a numbers-driven culture that values competitiveness, personal initiative, aggressiveness, achievement, and the willingness to work long and hard for you or your team. The drive to win either against one another internally or against an external competitor is what holds the organization together.

PepsiCo and Coca-Cola are two companies that exemplify the competitive culture. Each company socializes its members to view the other’s employees as enemies and to do whatever is necessary to defeat them in the marketplace. High performance standards and tough reviews are used to weed out the weak and reward the strong. At PepsiCo, for example, former CEO Wayne Calloway was known to set backbreaking standards and then systematically raise them each year. Executives who met his standards were generously rewarded—stock options, bonuses, rapid promotions—and those who did not felt the pressure to produce or risk negative consequences such as demotions, transfers, or job termination.

Bureaucratic Culture

The bureaucratic culture represents a leadership mind-set that values order, stability, status, and efficiency. Bureaucratic cultures emphasizes strict adherence to set rules, 367368policies, and procedures, which ensure an orderly way of doing business. Organizations with bureaucratic cultures are highly structured and efficiency driven. The bureaucratic culture may work for an organization pursuing a low-cost leadership strategy but not for one pursuing a differentiation strategy. The bureaucratic culture is becoming increasingly difficult to sustain even for low-cost driven companies. Faced with the increasing threat of globalization, many leaders are forced to make the shift away from bureaucratic cultures because of the need for greater flexibility and adaptation.

National Culture Identities—Hofstede’s Value Dimensions

Whether culture is analyzed from an organizational or national context, it is still a product of values, beliefs, and norms that people use to guide and control behavior. Relationships between leaders and members of an organization are based on shared values and norms. On a national level, a country’s values and norms determine what kinds of attitudes and behaviors are acceptable or appropriate. There are significant interaction effects between organizational practices and national culture.52 An organization’s cultural archetype may have its roots or some of its roots in the national culture. The people of a particular country are socialized into the national culture as they grow up and thus, are influenced by it.53 A well-known study on this subject is that of Geert Hofstede. Hofstede developed five key dimensions that distinguish a nation’s culture from other nations.54 Exhibit 10.4 summarizes these value dimensions, which are briefly discussed along with leadership implications. Each of these five dimensions is broken down into two opposing variables that are at opposite ends of a continuum.

EXHIBIT 10.4: A Framework of Value Dimensions for Understanding Cultural Differences

Source: From G. Hofstede, “Cultural Constraints in Management Theories,” Academy of Management Executive 7 (1993), pp. 81–94. The Academy of Management review by Academy of Management. Copyright 1993. Reproduced with permission of Academy of Management (NY) in the format Textbook via Copyright Clearance Center.

Individualistic to Collectivistic Cultures

This dimension involves a person’s source of identity in society. Some societies value individualism more than collectivism, and vice versa. Individualism is a psychological state in which people see themselves first as individuals and believe their own interest and values are primary. Other names for the individualistic culture are the autonomy culture or the self- expression culture. Collectivism is the state of mind wherein the values and goals of the group— whether extended family, ethnic group, or company—are primary.55 The United States, Great Britain, and Canada have been described as individualistic cultures, while Greece, Japan, and Mexico are said to have collectivistic cultures.

High- to Low-Uncertainty-Avoidance Cultures

A society with a high-uncertainty-avoidance culture has a majority of people who do not tolerate risk, avoid the unknown, and are comfortable when the future is relatively predictable and certain. In a high-uncertainty-avoidance country like Japan, managers prefer well-structured and predictable situations. The other end of the continuum is a society 369370where the majority of the people have low uncertainty avoidance. A low-uncertainty-avoidance culture has a majority of people who are comfortable with and accepting of the unknown, and tolerate risk and unpredictability. The United States, Australia, and Canada are associated with low-uncertainty-

avoidance cultures while Argentina, Italy, Japan, and Israel are associated with high-uncertainty- avoidance cultures.

High- to Low-Power-Distance Cultures

This dimension deals with a society’s view on power and status. The way in which people of different status, power, or authority should relate to each other as equals or unequals is referred to as power distance. In a high-power-distance culture leaders and followers rarely interact as equals; while in a low-power-distance culture leaders and their followers interact on several levels as equals. It is also called the egalitarian culture. High-power-distance cultures include Mexico, Japan, Spain, and France. Low-power-distance cultures include Germany, the United States, and Ireland.

Long-Term to Short-Term Orientation Cultures

This dimension refers to a society’s long- or short-term orientation toward life and work. People from a culture with a long-term orientation have a future-oriented view of life and thus are thrifty (saving for the future) and persistent in achieving goals. A short-term orientation derives from values that express a concern for maintaining personal happiness and living in the present. Immediate gratification is a priority. Most Asian countries, known for their long-term orientation, are also known for their high rate of per capita savings, whereas most European countries and the United States tend to spend more, save less, and have a short-term orientation.

Masculine to Feminine Cultures

This value dimension was used by Hofstede to make the distinction between the quest for material assets (which he called masculinity) and the quest for social connections with people (which he called femininity). In this context, masculinity describes a culture that emphasizes assertiveness and a competitive drive for money and material objects. At the other end of the continuum is femininity which describes a culture that emphasizes developing and nurturing personal relationships and a high quality of life.56 Countries with masculine cultures include Japan and Italy; feminine cultures include Sweden and Denmark.

Implications for Leadership

The growing diversity of the workforce and the increasing globalization of the marketplace create the need for leaders with multicultural backgrounds and experiences. This trend explains why the AACSB list among required knowledge and skill areas the dynamics of the global economy and multicultural and diversity understanding.57 In the academic community, there is greater recognition that future leaders need diversity competencies—in order to leverage a diverse workforce to create tangible benefits for their organizations.58,59 Leaders have to recognize, for example, that although organizations in the United States may reward and encourage individual achievements, a different norm may apply in Japan, where the group makes important decisions. In the United States, competition between work-group members for career

advancement is desirable. In collectivistic cultures however, members may resist competing with peers for rewards or promotions in order to avoid disrupting the harmony of the group or appearing self-centered.

Cross-cultural and international joint venture (IJV) studies often identify cultural differences as the cause of many interpersonal difficulties, including conflict and poor performance in postmerger and acquisition deals.60 More and more organizations are relying on leaders with international experience to lead a multicultural workforce and compete in the global marketplace.61

Ethics Leadership

The importance of ethical leadership can be seen in the crises of the recent past. These crises revealed huge, and in some cases criminal, failures of both ethics and leadership in the banking and finance industry, the real estate subprime market, and government. The AACSB lists ethical understanding as an important competency.62 This may explain why quite a few colleges and universities are adding ethics courses in their curriculum.63 Ethics are the standards of right and wrong that influence behavior. Ethics provides guidelines for judging conduct and decision making. The discussion of ethics in Chapter 3 was from the individual’s perspective. The emphasis was on how an individual’s personality traits and attitudes, level of moral development, and the situational context affect ethical behavior.

In this section, we examine ethics from an organizational perspective: the role of leadership in creating an ethical work environment.64 It is a concept that applies not only to larger corporations but also small and medium-sized enterprises. We also discuss the relatively new concept of authentic leadership—what it is, characteristics of authentic leaders, and how they influence follower behavior and attitudes. Before we begin, complete Self-Assessment 1 to determine your personal values in eight areas.

Organizational Practices That Foster an Ethical Work Environment

For an organization to display consistently high ethical and socially responsible behavior, effective leaders must create and maintain a culture of ethics that permeates the entire organization.65 An ethical work environment emphasizes openness and integrity.66 One study suggested that an ethical work environment is mission- and values-driven, stakeholder balanced, and effectively managed.67 Some of the tools available for creating and maintaining this type of ethical work environment are discussed below.

Code of Ethics

Many organizations have a written code of ethics or code of conduct that displays the values and principles governing employee behavior. Written statements have the advantage of explicitly stating the company’s position on ethical and moral issues, and they serve as benchmarks for

judging both company decisions and actions and individual conduct. A growing number of organizations have added a code of ethics to their list of formal statements and public pronouncements.68 They are seen as tools for highlighting an organization’s socially responsible culture.

Leaders must constantly communicate to members the value of not only observing ethical codes but also reporting ethical violations. “Gray areas” must be identified and openly discussed with members, and offer guidelines when disagreements arise.69 It is generally believed that the more an organization’s employees are informed of ethical expectations, the more likely they are to do the right thing. A code of ethics is of no consequence if an ethical corporate culture and top management support are lacking.70

Ethics Committees

Having a code of ethics is no guarantee that everyone will behave ethically. Enforcing the ethical code is critical. In order to ensure consistency and keep the ethical culture an ongoing part of organizational life, effective leaders are also requiring the creation of ethics committees 372373charged with resolving ethical violations and updating ethical standards. In other organizations the responsibility is given to an ombudsperson. An ethics ombudsperson is a single person entrusted with the responsibility of acting as the organization’s conscience. He or she hears and investigates complaints and points out potential ethics failures to top management. In many large corporations, ethics departments with full-time staff are now part of the organizational structure and charged with helping employees deal with day-to-day ethical problems or questions.

Training and Education Programs

Training and education provide the opportunity for everyone in the organization to be informed and educated on the company’s code of ethics and social responsibility obligations. Training teaches employees how to incorporate ethics into daily behavior. In short, training helps to align member behaviors with the organization’s values. As mentioned earlier, the AACSB has included ethical understanding and reasoning abilities as one of its knowledge and skill areas and encouraged business schools to add it to the curriculum. Many scholars and practitioners now believe that business schools need to play a greater role in instilling ethical values in their students, who are, after all, future business leaders. Organizations must train their employees to focus not only on the economic imperative of profit generation but also the fiduciary imperative of ethically anchored and socially responsible behavior.

Disclosure Mechanisms

As part of enforcing ethical conduct, proactive organizations have also instituted disclosure mechanisms to encourage employees to report any knowledge of ethical violations. Whistle- blowing is employee disclosure of illegal or unethical practices on the part of the organization. In 2002, the scandals surrounding companies such as Enron and WorldCom left many people wondering why no one blew the whistle on these practices sooner. Later that year, Time

magazine named three women, including Sherron Watkins of Enron Corporation, as People of the Year. Sherron Watkins is the one who first attempted to blow the whistle on the Enron scandal but no one would listen. Whistle-blowing can be risky for those who choose to do it— they have been known to suffer consequences including being ostracized by coworkers, demoted or transferred to less-desirable jobs, and even losing their jobs. Policies that protect employees from going through these setbacks will signal management’s genuine commitment to enforce ethical behavior. Some organizations have done this by setting up hotlines to give employees a confidential way to report unethical or illegal actions.

Authentic Leadership

In the wake of corporate scandals involving companies like Enron, WorldCom, Siemens, Samsung, and Tyco—not to mention the severe economic crises we are all currently living through—the need to have confidence in institutions and leaders is ever more critical. Reliability, integrity, and authenticity will be especially required of our business leaders.72 Many people now say we need authentic leaders, people of the highest integrity, committed to building enduring organizations—leaders who have a deep sense of purpose and are true to their values. We need leaders who have the courage to tell their followers the hard truths even if it’s not what they want to hear.73 The interest in authentic leadership has led some to pose the question whether authentic leadership is the next big thing in leadership, or just wishful thinking.74 To fully appreciate this new leadership model, we focus on three questions: what is authentic leadership, what are the characteristics of the authentic leader, and what is its impact on follower behavior, attitudes, and performance?

What Is Authentic Leadership?

Authenticity is about genuineness. It is a psychological construct that focuses on knowing, accepting, and acting in accordance with one’s core values, beliefs, emotions, and preferences. The authentic leader holds him- or herself to a higher standard of integrity, character, and accountability. It is rooted in the notion of a “true self.”75 Authentic leadership has an introspective quality that allows leaders to reflect on whether their actions are consistent with who they are, ensuring that their values and ethics take precedence over external pressures, and not vice versa.76 Authentic leaders try to convey a message of hopefulness, optimism, and resiliency to their followers. The authentic leader is driven by a value system that calls for being visible to others, focusing on what is ethical or the 374375right thing to do, staying the course even at personal risk, making empowerment of others a priority, and maintaining open communication with all followers.77 Authentic leadership theory is grounded in moral and ethical foundations of leadership. It is closely associated with other positive leadership models such as charismatic, transformational, servant, and values-based leadership.78

In their study on authentic leadership theory, Gardner and his associates describe four underlying components of authentic leadership: self-awareness, balanced information processing, authentic behavior, and relational transparency.79 Self-awareness is defined as a process where one continually comes to understand his or her unique talents, strengths, sense of purpose, core values, beliefs and desires.80 Balanced information processing is the second component of

authentic leadership. Leaders form an objective view of their “true self” by balancing both positive and negative attributes and qualities. They try to be realistic and genuine in their self- assessment. The third component, authentic behavior, is a desire by the leader to match his or her espoused values to actions. This builds the leader’s integrity and credibility with followers. The fourth and final component, relational transparency, is about openness and self-disclosure. This enhances followers’ trust in the leader, and trust happens to be the cornerstone of authentic leadership.

Characteristics of Authentic Leaders

Authentic leaders are effective communicators and good decision makers. They don’t shy away from making tough decisions, because they are motivated not by the desire to be liked, but by their values and purpose. They know who they are and are not afraid of being themselves. Authentic leaders are also known to exhibit a strong commitment to achieving their organization’s goals and the premiums they place on the contribution their followers make to achieve such goals. Because it is a leadership model that centers on trust and keeping one’s word, authentic leaders don’t want to fail; they don’t want to risk letting down the people who have invested so much trust in them.81

Authentic leadership is also about courage and character. Character provides the moral compass for decision making, especially for the tough decisions. When faced with difficult decisions, authentic leaders know what they stand for, and they have the courage to act on their principles even if the decision is unpopular. Courageous leaders are able to speak out to right wrongs, admit to personal weaknesses, and own up to mistakes.

How Authentic Leaders Influence Follower Behaviors and Attitudes

How a leader’s authenticity influences follower behavior and attitudes is really the essence of authentic leadership. Followers take their cue from the leader, which is why the role of the leader in creating an ethical work environment is so critical. Trust is seen as the primary intervening variable linking authentic leadership to follower attitudes and behaviors.82,83 Authentic leadership emphasizes a transparent and high-quality exchange relationship between leaders and followers. This allows for the formation of positive leader–member exchange relationships. This increases follower organizational citizenship behavior, job satisfaction, and retention. Because authentic leaders are consistent in their behavior, followers know what to expect from their leader and what is expected of them. Leader authenticity leads to higher levels of identification with the leader. The findings of one study revealed that leader authenticity is associated with higher ratings of transformational leadership behaviors.84 The significance of authentic leadership in enhancing team and individual performance has been widely debated, with some studies finding strong support and others only partial support.

375376  

Diversity Leadership

Diversity is the inclusion of all groups at all levels in an organization. During the past three decades, the U.S. workplace has become more multiculturally diverse. A number of factors have contributed to this trend; among these are the Civil Rights Acts, which outlawed most types of employment discrimination; increased immigration, which has resulted in a more racially and ethnically mixed population; and changing demographics and the passage of the Americans with Disabilities Act (ADA) which has further broadened the scope of diversity in the workplace.

In this section, we explore changing demographics and its impact on workforce diversity, the benefits of embracing diversity, creating a culture the supports diversity, and the effects of globalization on diversity leadership.85

Changing Demographics and Workforce Diversity

Demographic diversity is any characteristic that serves as a basis for social categorization and self-identification. Demographic diversity describes differences resulting from age, gender, race, ethnicity, religion, and sexual orientation. National demographic changes, as well as greater minority representation in the workforce, have accounted for the most significant increase in workforce diversity.86 The latest census revealed an increasing number of Hispanics, African- Americans, and Asians in the U.S. workforce. The population of these minority groups is growing at a faster rate than the overall population. This is accelerating what has been called the cultural diversity of the U.S. population.87 The 2010 U.S. Census revealed that the number of Hispanics now stands at 16.3 percent (a 43 percent increase from 2000–2010). It is now the largest minority group and growing the fastest. The percentage of African-Americans is 12.6 percent, a 12.3 percent increase from 2000–2010. Longer term, Caucasians are projected to become a minority by 2050. Four states (California, Hawaii, New Mexico, and Texas) currently have the distinction of having a combined minority population greater than white populations, which only grew by 5.7 percent in the last census.

In the new work environment, workers must often share work duties and space with the handicapped. The passage of the Americans with Disabilities Act (ADA) has further broadened the scope of diversity in the workplace. Today, the chances of working with a disabled coworker are much higher than a decade ago.88

Another demographic trend is the age mix. The aging trend has now created what some have called generational or age diversity in the workplace.89 For the first time, four distinct generations comprise today’s workforce—the Traditionalists (1900–1945), the Baby Boomers (1946–1964), the Generation Xers (1965–1980), and the Millennials (1981–2000). Different generations have different attitudes and values, making the job of managing a team of mixed generations challenging to say the least.90

A greater likelihood exists that individuals will find themselves leading or under the leadership of someone demographically different from them.91 As the U.S. workforce diversity continues to grow rapidly, effective leaders must create a workplace culture that allows workers from diverse

backgrounds to succeed.92 There is a growing interest in adding diversity management competency as part of leadership development programs.93 Diversity competency training will enable leaders to understand how various leadership styles interact with followers’ cultural value orientations to influence follower affective, cognitive, and behavioral outcomes.94 Also, more corporate boards are recommending that top management teams be diversified.95

Benefits of Embracing Diversity

Decades of research have confirmed what many in the business world already know—that diversity makes for good business.96,97 From a purely humanistic perspective, some believe that there is an ethical and moral imperative to pursue a policy of inclusion rather than exclusion. Advocates of this position believe that it is a matter of fairness, and that an inclusionary policy signals a company’s commitment to uphold the dignity of every person regardless of their circumstance.

From a legal perspective, embracing diversity is in compliance with laws that have precedent and historical foundations. From a practical perspective, shifting demographics and increasing globalization have significantly changed the composition of the workforce, forcing corporations to respond or suffer economic loss. Organizations are forced to change their views and their approach to diversity in order to reflect this new reality.

Regardless of the moral, legal, or practical imperative of diversity, it must also have a positive link to the “bottom line.” Many studies have examined the relationship between workforce diversity and organizational performance. There is a general acknowledgment that effective management of diversity initiatives/programs does produce positive outcomes.98 Diversity initiatives that succeed in the short and long term are those that have a tangible impact on shareholder, customer, and employee values.99,100 Some of the economic benefits that make the case for embracing diversity include the following:101,102

1. Embracing diversity can offer a company a marketing advantage.103 More organizations are  highlighting diversity in their advertising, because they are competing for talent in a tight labor  market, and they recognize that demographic shifts are going to dramatically change their  marketplace over the next 20 years. A diversified workforce may offer insight into understanding  and meeting the needs of diverse customers. A diversified workforce is suitable to serve a diversified  market place because employees who share similar cultural traits with the customers may be able to  develop better, longer‐lasting customer relationships.104 Diversity, therefore, can enable a company  to gain access in markets that others may not find easy to access.  

2. Companies that embrace diversity will be able to recruit from a larger pool, train and retain  superior performers, and maximize the benefits of a diverse workforce. When an organization has a  reputation for valuing diversity, it tends to attract the best job candidates among women and other  culturally diverse groups. For example, many HR recruiters have discovered that focusing on  diversity in recruitment advertising helps attract more applicants from diverse backgrounds.  Minority job seekers may feel more comfortable applying for employment with companies that have  a proven diversity record.  

3. Embracing diversity can be cost effective. Organizations that wholeheartedly embrace diversity  and make everyone feel valued for their contributions can increase the job satisfaction of diverse  groups, thus decreasing turnover and absenteeism and their associated costs. Diversity  management practices can lead to positive effects on employees’ organizational commitment.105  

4. Embracing diversity may provide a broader and deeper base of creative problem solving and  decision making. Creative solutions to problems are more likely to be reached in diverse work  groups than homogeneous groups. In diverse groups, people bring different perspectives,  knowledge, information, expertise, and skills to problems—resulting in better solutions and greater  innovation. In innovative companies, leaders are challenged to create organizational environments  that nurture and support creative thinking and the sharing of diverse viewpoints.  

There is no consensus on the direct effects of diversity on the business bottom line (profitability). There are those who feel that diversity leads to better outcomes (such as those listed above) because of the richness of diverse perspectives and these benefits indirectly affect the bottom line; however, there are also those who feel that diversity impedes performance because diverse teams may be less cohesive and that there is no direct link between diversity and profitability. The latter group belongs to the minority. The majority of opinions support the hypothesis that effective diversity leadership is good for business. The next section takes a look at the downside of diversity.

The Downside of Diversity

Despite its benefits, diversity, if not effectively managed, can also bring about negative outcomes. Research suggests that, left unmanaged, workforce diversity is more likely to damage morale, increase turnover, and cause communication difficulties and ultimately conflict. This may occur because, in general, people feel more comfortable dealing with others who are like themselves. It has often been suggested that heterogeneity in teams can reduce intra-group cohesiveness, resulting in conflicts and misunderstandings which, in turn, can negatively impact employee satisfaction, citizenship behaviors, and turnover. Rather than a unified team, competition with and even distrust toward one another may characterize a diverse work environment; and ultimately lead to a decline in performance.106

A leader in a diverse work unit may spend more of his or her time and energy dealing with interpersonal conflicts than trying to achieve organizational objectives. Therefore, effective management of diversity requires creating an environment where all workers can succeed professionally and personally. Managing diversity has emerged as a much sought-after managerial skill and has spawned an industry of diversity training programs.

Experts caution that simply responding to legislative mandates does not seem to automatically result in meaningful, substantive changes in behaviors and attitudes. Rather, change aimed at valuing diversity must have top management support and commitment, have broad participation through empowerment, involve multiple initiatives, and require constant reinforcement.

Dell Computers. (2002). Michael Dell—The man behind Dell: Leading Dell into the future. IBS Center for Management Research. Retrieved from: http://www.icmrindia.org/free%20resources/casestudies/Leadership%20and% 20Entrepreneurship%20freecasestudyp7.htm[icmrindia.org]

The story of the world's No 1 retailer of PCs over the Internet, Dell Computer Corporation (DELL) goes back to 1984, when Michael S. Dell (Michael) established the company with a start-up capital of $1,000, in a 1000 square foot office space, in a small business center in North Austin, Texas. Michael, then a freshman pre-medicine student at the University of Texas, began his business by selling computer chips and disk drives for IBM PCs at meetings of computer users in Austin. In its first year of operations itself, DELL achieved sales of approximately $ 6 million, which grew to $ 257 million in the next four years. By 1987, DELL opened a sales subsidiary in the United Kingdom to tap the growing European market. European countries had a lower PC saturation rate than the US and there were no large PC manufacturers in Europe. In the same year, DELL went public. During 1988-1991, DELL expanded its operations worldwide and set up wholly-owned sales subsidiaries in Canada, France, Italy, Sweden, Germany, Finland, and the Netherlands (Refer Table I).

Table I Worldwide Presence of Dell

CONTINENT HEADQUARTER MANUFACTURING FACILITIES

OPERATING SUBSIDIES

America Austin, Texas Austin, Texas; Nashville, Tennessee, Eldora do Sul, Brazil

Canada, Chile, Mexico, Colombia, Brazil, Argentina

AAsia Pacific / Japan

Singapore, Japan

Malaysia, China

Australia, China, Japan, India, Malaysia, New Zealand, Thailand, South Korea

Europe, Middle East & Africa

England Ireland

Austria, Belgium, Czech Republic, Denmark, England, France, Germany, Italy, Ireland, Netherlands, Norway, S. Africa, Spain, Sweden, Switzerland

Source: www.dell.com, * This list is not exhaustive.  

In 1990, DELL recorded sales of $ 546 million in PCs and peripherals; in the same year it entered the 

retail business. Soft Warehouse Superstores, now CompUSA agreed to sell its PCs. The company struck a 

similar deal in 1991 with Staples, an office supply chain. DELL reported a 109% growth in international 

sales but recorded a 64% dip in profits in 1990‐91. The company's costs had increased as a result of its 

attempts to design a PC using proprietary components. This approach increased inventory levels in the 

warehouses. To deal with this dip in profits, DELL implemented drastic inventory control measures and 

accelerated product development. In 1992, the company's sales grossed $2 billion (Refer Exhibit I). 

 In late 1993, DELL faced a serious cash crunch and was not able to cope with increased complexity as it 

expanded its product range and moved into various product areas. In 1993‐94, the company recorded a 

loss of $ 36 million. DELL's management realized that lack of senior managers was one of the main 

reasons for the company's poor performance. Soon, the company recruited many senior managers from 

the industry. It also abandoned its retail business in order to refocus on its mail‐order business.  

 DELL offered Servers, Storage products, Desktops, Switches, Latitude notebooks, Precision 

workstations, Notebooks and Monitors. By 2001, DELL had emerged as one of the top five computer 

firms worldwide, with revenues of $ 31 billion ($ 25 billion in 2000). Its net income increased to $ 2.3 

billion in 2001 from $ 1.8 billion in 2000 (Refer Table II for DELL's financial performance). 

Table II Dell - Financial Performance

1997 1998 1999 2000 2001 Net revenue $7,759 $12,327 $18,243 $25,265 $31,888 Gross margin $1,666 $2,722 $4,106 $5,218 $6,443 Income before extraordinary loss

$531 $944 $1,460 $1,860 $2,310

Operating Income $714 $1,316 $2,046 $2,457 $2,769 Net Income $518 $944 $1,460 $1,860 $2,310

Source: www.dell.com According to most DELL observers, the entrepreneurship and leadership qualities of the company's 

founder, Michael, provided DELL with a distinct competitive edge over other players in the PC industry. 

According to an article in the Sunday Times, 1999, "Michael Dell is the only entrepreneur who was not 

eclipsed by the hardware giants. Today...his firm is bigger in personal computers than IBM." 

Michael – The Entrepreneur 

Michael's entrepreneurial skills were evident very early on. At the age of twelve, he created his own 

'auction business' for philatelists. He got a few people in his neighborhood to give their stamps to him, 

advertised 'Dell's Stamps,' in a trade journal and earned $ 2,000 from this venture. According to Michael, 

it was then that he learnt the importance of eliminating the middleman. This became a guiding principle 

for all his ventures. 

Michael got a chance to seize greater opportunities and learn important business lessons when he was 

sixteen. He got a summer job selling newspaper subscriptions to The Houston Post. The newspaper gave 

its salespeople a list of new phone numbers to be called. Dell thought that this was a random method 

for acquiring new business. On the basis of feedback from potential customers, he soon noticed a 

pattern. He found that there were two kinds of people who usually bought subscriptions to the Houston 

Post: people who had just moved into new houses or apartments and people who were newly married. 

Michael discovered that couples who planned to get married had to register their names and addresses 

in the country courthouse for getting a marriage license. 

Soon, Michael, along with some of his high school friends collected the names and addresses of such 

couples and started targeting them through personalized letters offering them a subscription to the 

newspaper. Even after he went back to school, Michael continued with this work. Soon thousands of 

subscriptions poured in and he earned $18,000, more than what his teacher earned in a year. 

Michael's fascination for machines that could compute things started when he was in junior high school, 

when his mathematics teacher installed the first Teletype terminal in their school. By the time he was in 

high school, computers had become a hobby. On his fifteenth birthday he got an Apple computer ‐ he 

promptly tore it apart to understand it's functioning. In 1981, Michael replaced his Apple computer with 

the newly introduced IBM PC. He was enamored by the software and programs available for business 

purposes. It did not take Michael long to realize that the PC would become an integral part of businesses 

in the future.  

Michael spent a lot of his time learning about computers and he was soon able to 'enhance' PCs by 

adding more memory, disk drives and bigger monitors. Instead of buying components from retail stores, 

he bought them in bulk from distributors, thus reducing his costs significantly. In 1982, Michael went to 

the National Computer Conference at Houston and spent his time in computer stores learning about the 

latest prototypes and previewing technology that would soon be introduced in the market. Michael saw 

a big business opportunity in computers. He discovered that while an IBM PC was sold for about $ 3,000, 

its components were available for around $ 600 or $ 700 only. Michael also realized that the people who 

ran the computer stores were not familiar with PCs. He saw hundreds of computer stores in Houston 

selling PCs for a profit of $ 1000. These stores were very successful even though they did not offer any 

customer support. 

As Michael was already buying components, upgrading computers and selling them to people he knew, 

he realized that if he could sell a higher number, he could compete with these computer stores ‐ not 

only on price but also on quality, and earn good profit. At this stage, he joined the University of Texas. 

His obsession for the PC business continued and he started upgrading and selling computers there as 

well. The state of Texas had an open bidding process for which any vendor could bid. Michael applied for 

a vendor's license and started selling high‐performance computers much below the market prices. He 

soon won a lot of bids for selling computers. 

By December 1983, he realized that his fascination with computers was not just a hobby or passing 

phase. In January 1984, he registered a company 'PC's Limited' with the State of Texas. And through 

previous contacts with customers and small advertisements in the local newspaper, he began generating 

business. He sold between $50,000 to $80,000 worth of upgraded PCs, upgrade kits, and add‐on 

components in a month to people in the Austin area. In May 1984, he incorporated DELL and hired a few 

people to take orders over the telephone and to fill those orders. Though he began by buying computers 

from the 'IBM gray market,' Michael realized that it would be more profitable to make his own 

computers. He hired a few engineers and soon DELL's first 286‐based PC was built. As his business grew 

rapidly, he had to shift his office 4 times in the period of 3 years.  

Michael realized that his 'direct model' could easily become a strong differentiator for the company as it 

reduced unnecessary distribution overheads that logged other PC majors. Traditionally a long chain of 

partners was involved in delivering the product to the customer. 

Companies with long distribution systems had to fill their distribution channels with inventories in order 

to meet their financial targets. Such companies were also not aware of customer needs. According to 

Michael, because DELL was talking to both customers who bought their products and also prospective 

customers, it had clear idea about what customers wanted. This direct relationship with customers was 

built initially through telephone calls, then face to face interactions, and then through the Internet. 

The direct model was based on direct selling ‐ with no retail channel or reseller. The telephone operator 

used to take the order from the customer and his requirements for the system; sometimes he even 

helped the customer select a system that would meet his requirements. Then the order was passed on 

to the manufacturing people. When the system was assembled, the PC was delivered to the customer. 

This enabled the people at DELL to benefit from real‐time input from customers regarding products and 

services.  

In the early 1990s, business on the Internet was restricted to small tasks such as ordering T‐shirts. 

Michael thought that if one could order T‐shirts online, then anything could be ordered online ‐ 

including computers. Michael saw a huge untapped potential in the Internet and launched 

www.dell.com in June 1994. The website, containing technical support information and an e‐mail link for 

support, was aimed primarily at customers who were already familiar with computer systems. In 1995, 

an online configuration facility was introduced to calculate the cost of different PC configurations. 

Michael commented on his vision behind this initiative, "The Internet will fundamentally change the way 

that companies do business through its ability to enable people to conduct low‐cost, one‐to‐one 

customer interactions with rich content."  

Michael felt that direct marketing over the Internet would create strong relationships with customers. 

According to Michael, the direct model gave DELL a fundamental advantage, which was strengthened by 

the Internet. DELL's website not only enabled customers to research, configure, price and order 

products online, it also allowed them to check the status of their order online. If they had any questions 

about the way it worked, they could post their doubts on the technical support page, where they had 

access to all information which DELL's technical support teams had. Thus, the Internet made the direct 

model even more direct. 

DELL's business grew, Michael's transformation from an entrepreneur into a leader who guided, 

motivated and implemented innovative methods for surviving in the business was but natural. His vision 

for the company soon made DELL big enough to challenge industry giants. The Sunday Times said, 

"Michael Dell is the only entrepreneur who was not eclipsed by the hardware giants. Today his firm is 

bigger in personal computers than IBM." 

Michael – The Leader 

In 1993, DELL faced a cash crunch, because of which it had to cancel its plans to make an initial public 

offering. It also posted its first (and only) quarterly loss in its history. Michael realized that the company 

had been growing 'too quickly,' at a pace much faster than the market According to company sources, 

'The new order of the business was liquidity, profitability and growth ‐ in that order.' 

Instead of wasting time in denying that company had a problem or trying to explain it away, Michael 

decided to get outside help and appointed consultants Bain & Company. Soon, a set of metrics was 

developed to determine which business units were succeeding and which weren't. Groups identified as 

'not performing well' were examined closely. If they could be improved, they were informed how they 

could do so; and if they could not be improved, they were closed down to cut losses. A new framework, 

which was all about assigning responsibility and accountability to managers, was set in the company. 

Subsequently, DELL's business, and financial performance improved significantly.  

By the end of 1993, Michael was even awarded the 'Turnaround CEO of the year' by Upside Magazine 

(Refer Table III for various awards won by Michael). 

Table III Achievements of Michael Dell

YEAR AWARD 1993 Turnaround CEO of the Year by Upside Magazine. 1996 High Impact CEO - Heidrick & Struggles executive search firm

1997 High Impact CEO, 'The Top 25 managers of the Year' list of Business Week

1998 'The Top 25 managers of the Year' list of Business Week 1999 'The Top 25 managers of the Year' list of Business Week

2001

CEO of the Year, Chief Executive Magazine; Entrepreneur of the Year, Inc Magazine; High Impact CEO, Heidrick & Struggles; Top US CEO, Worth Magazine; 'CEO of the Year', Financial World & Industry Week Magazines; ' Man of the Year,' PC Magazine.

Source: ICMR  

Michael always believed that business was all about building teams and building talent in the 

organization. According to him, it was the most essential component of success as diversity of ideas and 

input helped a lot in making better decisions. Michael always encouraged his teams, even if some of 

their products failed or had to be scrapped. He tried to motivate them to work better on their next 

product. 

In April 1993, John Medica, who had led the development of Apple's PowerBook, put in charge of the 

Notebook division at DELL. By the time he took over, one product had already been canceled and the 

development of other products was taking longer than expected. After a realistic assessment of the 

situation, it was decided that only one of the products under development ‐ the Latitude XP ‐ would be 

competitive in the market. They had to cancel several products that were in the development stage and 

focus on the Latitude XP. This de‐motivated the engineers who had spent a lot of time and energy 

developing the products that had been canceled. To motivate them, Michael reinforced DELL's strategy 

to the notebook group and encouraged them to pull together to make the Latitude XP a success.  

Michael laid emphasis on implementation instead of mere planning. According to Michael, "Planning is 

nothing without execution." He informed his clients that strategy was all about what is being done and 

not about what is being said. He reflected the integration of doing with saying and believed that it was 

critical to know and understand customers and respond to their needs and wants. This belief formed the 

foundation of the direct model, which permitted customers to specify and design their own systems to 

meet their needs. 

Michael felt that good strategy and planning was based on viability and implementability. In other words, a strategy must be backed by the right people, organization and motivational system to make it a success. He hired talented people to take his company to multi billion dollar revenue levels. Michael made it point to make sure that everyone at DELL felt that they were part of something great - something special - perhaps something even greater than themselves. He strongly believed that the ability to find and hire the right people. He always wanted to know if potential candidates were able to understand DELL's strategy and if they could help develop that strategy further. According to his recruitment principles, 'If you hire people with the potential to grow far beyond their current position, you build depth and additional capacity into your organization.' Recruitment in DELL was for succession and, in fact, everyone's job at DELL included finding and developing their successor as an ongoing performance plan.

Michael took part in the recruitment process of not only managers but also summer interns. He asked interns about their experiences at DELL and paid careful attention to their observations to see if they had any new perspectives on the company. If they had enjoyed their work at DELL and their strengths matched DELL's objectives, they were invited to join the company. Michael realized that with the growth of the company, people in many positions had to take on additional responsibility. To expect people to grow at the same rate as the company was, he knew, unrealistic. Michael believed that DELL's organizational structure should be flexible enough to evolve along with people. As a result, jobs were segmented and additional talent was brought in to fill new positions. In some cases, business units, product organizations or functional units were segmented to make them more manageable and sharply focused on opportunities. However, this job segmentation confused employees. To overcome employee concerns, Michael decided to inform them why these changes were being made. This greatly facilitated

incremental organizational adjustment. Michael believed that early communication about change would enable employees to see in advance the tangible impact of that change on their job opportunities and careers. Knowledge of their growth potential, he felt, would motivate them to work harder. Job segmentation was not restricted to the lower cadres alone. Even the CEO's job was segmented twice. In 1993-94, Michael realized that there were more opportunities than he could pursue himself, so he asked Mort Topfer to join the company as the Vice-Chairman. In 1997, the job was segmented again. Kevin Rollins, a key member of executive team, was promoted as Vice-Chairman, and in March 2001, he was promoted as President and Chief Operating Officer. Michael realized that aligning teams toward a common objective and creating same incentive system across the entire company would help direct everyone's talent toward creating value for customers and shareholders. At DELL, people worked in teams of two to receive, manufacture, and pack an order for delivery to a customer. The profit sharing incentive encouraged them to be productive as a team. Hourly metrics were posted on monitors on the factory floor so that each team could see if its performance met the company's goals. Michael also believed that 360° performance appraisals helped identify areas that might require further development or improvement and would also keep people focused on achieving their goals as a team. He believed that teamwork was all about people who were interested in each other's growth. According to Michael, information was the key to competitive advantage. He gathered information about the company by 'roaming around' in company premises. Michael also continually brought information into DELL. Michael also believed in creating a company of owners. He believed that a company with an individual owner would be less focused - so he created a culture that made every employee in the organization, at every level, think and act like an owner in order to connect individual performance with company's important objectives (Refer Exhibit II for DELL's cultural objectives). At DELL thinking like an owner meant creating the best customer experience and enhancing shareholder value. DELL's leader also believed in the philosophy of 'under promise and over deliver.' Generally most companies did the opposite - they made big promises to customers, but failed to deliver on those promises. This led to dissatisfied customers and the absence of repeat purchases. Michael firmly believed that the customer comes first. He believed that DELL's toughest customer was its best customer, as the toughest customer teaches the most. At DELL, employees not only respond to customer's problems but they are also willing to invest in coming up with a solution to the immediate problem. DELL built strong relationships with not only customers but also suppliers. Michael argued that 'No one company can succeed by itself. We need help from our partners." He therefore developed strong alliances with vendors and was willing to share his

knowledge with them. Suppliers were evaluated on cost, delivery, and availability of technology, inventory velocity, support to global business, and the ways business being done on the Internet, which emerged as terrific tool to elevate alliances to the greater efficiency levels. According to Michael these relationships were instrumental in the success of DELL; he even leveraged vendor relationships to achieve competitive advantage.  

Leading Dell Into the Future 

Though Michael had a huge fan following amongst business entrepreneurs and industry observers, he 

had a fair amount of critics as well. Many interviewers found Michael to be an extremely private person 

who, unlike many famous business leaders, never spoke much about his private life nor his daily and 

monthly routines. Analysts commented that this prevented people from understanding and learning 

from his leadership skills. 

More importantly, Michael was criticized for being a major reason for the lack of innovation in the PC 

industry. This was because the R&D budgets of all major PC makers had fallen as they raced to keep up 

with DELL. Michael was thus criticized for making the whole business of PC manufacturing a 'cost game,' 

and killing innovation. In the early 1990s, Michael launched a price war in the PC industry, forcing rival 

companies such as Compaq and IBM to develop strategies for lowering costs. In 2000, he launched 

another round of price wars. As a result, DELL's market share went up by four points and Compaq lost its 

position as the world's largest provider of PCs.  

 Some analysts went to the extent of claiming that Michael was never an innovator, but was only a 

businessman who was good at identifying innovative business models and executing them to perfection. 

Michael naturally looked at the situation from another point of view. He argued that his company had 

succeeded in producing cheap computers for buyers and earning huge returns for shareholders. 

Michael's 'direct model' had been criticized from the very beginning. When Michael entered foreign 

markets with the same model, critics said that it would not work in those markets because of certain 

cultural differences. Though Michael was warned that he would fail badly, he believed that customers 

would set their own rules and that the direct model would work cross‐culturally. Michael's assessment 

of the situation was correct. By the end of 2001, DELL earned most of its revenues from global markets 

(Refer Table IV for DELL's region‐wise revenues for 2001‐02). 

Table IV Quarterly Revenues - Region-Wise

Quarterly revenue by region as percentages of consolidated net revenue

Q4 FY02

Q3 FY02

Q4 FY01

Americas 70 70 70

Europe/Middle East/Africa

21 20 21

Asia-Pacific/Japan 9 10 9 Source: www.dell.com

Michael's supporters claimed his visionary leadership had not only maintained but also accelerated 

DELL's growth in spite of the global IT industry slowdown in the early 2000s. When PC shipments were 

coming down all over the world, DELL and IBM were the only vendors to record positive growth. DELL's 

growth rate even exceeded that of IBM (Refer Table V to compare market shares and growth shares). 

According to a study conducted by Gartner, leading IT research concern DELL was the market leader 

worldwide with a market share of 13.3% in 2001. Worldwide, Compaq's market share was only 11.1%. In 

the US, DELL had a 24.5% market share of the PC market, much more than Compaq's 12.5%. 

Table V Worldwide Server Unit Shipment Estimates for 2001

Company

2001 2000 Growth (%) Shipments

Market Share (%)

Shipments Market Share (%)

Compaq 1,026,025 23.3 1,068,436 24.7 -4 Dell 711,614 16.1 568,410 13.1 25.2 IBM 661,547 15 657,979 15.2 0.5 HP 428,104 9.7 440,512 10.2 -2.8 Sun 254,053 5.8 289,231 6.7 -12.2 Others 1,326,072 30.1 1,302,943 30.1 1.8 Total Market

4,407,416 100 4,327,511 100 1.8

Source: Gartner Dataquest (January 2002).  

Michael said that he would stick to his three golden rules for business, regardless of the downturn in the PC industry, namely, 'disdain inventory,' 'always listen to the customer' and 'never sell indirect.' Will these principles continue to provide DELL with a competitive edge in the PC industry? Only time will tell.