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The Soul of a Corporation: Managing the Identity of Your Company

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A sustainable competitive advantage cannot be built on easy-to-imitate business strategies or operating systems. Instead, a company's identity can be an enduring, hard-to-imitate source of competitive advantage. The authors of The Soul of the Corporation explore the internal and external benefits of clear and consistent identities.

Think of companies as diverse as IKEA, The Body Shop, Bang & Olufsen, Harley-Davidson, Southwest Airlines, Starbucks, Ben & Jerry’s, McKinsey, W.L. Gore, and Toyota. All operate in intensely competitive markets through increasingly commoditized products or services. Yet all are enduring global leaders in their respective industries. Unsurprisingly, these companies, and many others that share the same attributes, have generated a great amount of interest among managers, consultants, journalists, and management researchers. The “secret” of their enduring market leadership and economic performance has been explored in hundreds of books, articles, and case studies. This activity has created a “market” of business success factors where the products, or theories of success, are profoundly marked by the disciplinary or professional backgrounds of their authors: strategic innovation, superior execution, progressive human resources management, effective knowledge management, customer relationships management, smart branding, charismatic leadership, cohesive organizational culture, lean manufacturing, and efficient supply-chain management, to name only a few.

Although each of these factors can be found in one or more of the companies in the preceding list, none by itself captures the whole picture. Take the example of Southwest Airlines. Does it owe its success to its low-cost business model, to the way it targets particular geographic markets and routes, to its branding and marketing strategy, to its people-oriented human resources management, to its fun culture, or to the personality of its founder? The answer is probably all of the above.

Now think of Toyota. Does it owe its success to the much praised and copied lean manufacturing system, to its volume-driven strategy, to its obsession with quality, to its Japanese roots, to its emphasis on job design and training, to its brand management, to its tight management of distribution channels, or to its human resources management system? Again, the answer is all of the above, enveloped in the legendary “Toyota Way.”

This exercise can be repeated endlessly, but you can see where we are heading. The success of these firms is not to be found in single factors but in the way all dimensions of the firm are held together and mutually support one another. In other words, success is systemic and lies deeper than its superficial manifestations. If it were otherwise, many competitors would have been able to imitate and supersede Toyota, IKEA, Starbucks, McKinsey, or Southwest Airlines.

These companies have remained out of the reach of their competitors because during several decades of consistent behavior vis-à-vis their internal and external constituencies, they have acquired a unique and enduring identity that sets them apart from their competitors and makes them difficult to imitate. For example, many Western managers have learned that Toyota’s lean manufacturing model is not easy to emulate because it is part of a system that goes beyond manufacturing. You can copy Toyota’s manufacturing model, but you cannot copy the special status the firm has acquired in the eyes of its employees, customers, suppliers, distributors, and investors.

The examples mentioned here suggest that as technologies and industries mature, and as products and services become increasingly comparable, sustainable competitive advantage cannot be built on easy-to-imitate business strategies or operating systems. The more comparable products and services are, the more managers will have to build competitive advantage on inimitable attributes of the firm or, we contend, its identity.

In the remainder of this chapter, we explain in more detail how identity can be an enduring, hard-to-imitate source of competitive advantage by exploring the internal and external benefits of clear and consistent identities.

The Internal Benefits of Clear, Consistent, and Valued Identities

Identification

People who work for companies that have a clear, consistent, and valued identity are easily induced to identify strongly with their employer and to draw a significant part of their personal identity from the firm. The beneficial by-products of strong identification are many. Employees draw a feeling of pride from belonging to a particular organization and are encouraged to project a positive image of the organization to the outside world. An organization that enjoys strong identification among its employees has many ambassadors and advocates and needs less help from PR (public relations) experts to project a positive company image.

W.L. Gore, the company that invented the GoreTex fabric, has no advertising or corporate branding budget. Yet, the firm has enjoyed a great amount of positive free publicity thanks to its consistent ranking at the top of the “Best Companies to Work for” in the United States and Europe.1 Why should the managers of W.L. Gore spend money to promote the company when it is so well promoted by its employees?

On the opposite side, firms with an unclear, inconsistent, or socially problematic identity cannot enjoy positive identification from their employees and may even suffer from deliberate efforts of their members to distance their self-identity from that of their employer. These firms cannot fully engage the hearts and souls of their employees and have to invest time and resources in promoting themselves to not only external but also internal constituencies.

Loyalty and Commitment

Organizations with a clear and valued identity inspire feelings of loyalty and commitment among their employees because their consistency fosters trust and reliability. The behavioral manifestations of loyalty and commitment are multiple and beneficial. Loyal employees are less easily lured away from their employer by other employers for a higher salary. Hence, the firm can invest confidently in the development of its people’s technical and managerial skills. Loyal employees are also mindful of the interests of their firm without being guided or constrained to do so. Loyal employees can make concessions and sacrifices more easily when the company faces difficulties. For example, to help Southwest Airlines2 cope with the difficulties challenging the airline industry, the unions made salary concessions without going through the usual labor/management arm-twisting so characteristic of the U.S. airline industry.

Cooperation

When employees at all levels identify with and have a strong sense of belonging to the same organization, management needs to spend less time and energy designing and enforcing formal systems and procedures of cooperation. The sense of common destiny and the willingness to preserve the interests of the organization provide natural incentives for cooperation. The strength of the organization’s identity works as insurance against the emergence of parochial ways of thinking and doing that are so common in organizations with highly fragmented identities.

A Guide for Problem Solving and Decision Making

A clear and consistent organizational identity provides employees with a framework for decision making and problem solving. Because managers cannot and should not specify how employees should make decisions in every possible circumstance, a clear organizational identity is an effective guide for dealing with problems and decisions. For example, the centrality of the environment and social responsibility theme in the identity of the Body Shop sets clear boundaries regarding which strategic and operational decisions can be made by employees in different roles and capacities throughout the organization.

People who have a clear understanding of and agreement with their firm’s identity do not need to be told what they should do in particular circumstances. The answers lie in their interpretation of their company’s soul.

Legitimacy

Because managing a firm requires establishing priorities and sometimes making tough decisions, the perceived legitimacy of priorities and decisions is vital to their acceptance and implementation. In this respect, companies that have a clear, consistent, and socially valued identity worry less than others about the legitimacy of their managers and the decisions they make for the organization. The managers are promoted on the basis of their identification with the organization and embody it. The legitimacy of their decisions is unquestioned because their decisions are aligned with the firm’s established identity.

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