Innovation and Organizational Culture

They need to appreciate the role of leadership in an organization makes it imperative to look at the actual performance of companies in the market place as a source of learning for organizational leadership. This paper relates to four case studies from some of the most successful companies in the world. These companies have received various awards for outstanding performance in various elements of their operations. Hewlett Packard provides a vital lesson from transitional planning in leadership in the wake of growth. Google and CarMax provide perfect examples for the role of innovation in business Google is a business based on a new concept while CarMax innovates on its operation adopting strategies used in other sectors of the economy to revolutionize the sale of used cars. The last company reviewed is Harley Davidson that provides lessons on long-term business leadership. This paper looks at the role of HR, Innovation, and organizational culture in organizational leadership.

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HP

Hewlett Packard, better known simply as HP, provides IT-based solutions for clients worldwide. HP founders, Bill Hewlett and Dave Packard came together in 1935 to found one of the most enduring technology companies to date. HP has several divisions. HP provides solutions to individuals, small and medium-sized companies, and large multinational companies. They provide an array of products but chiefly computers and printers. They produce both hardware solutions, such as personal computers, servers, and routers, and software solutions, such as drivers and user interfaces. Their biggest competitors are Dell and IBM that also produce computers and related hardware. HP merged with Compaq in 2002 to make it the biggest IT-related company in the world. This merger brought with it several challenges and opportunities. The most serious challenge was how to handle the resultant giant entity, which threatened to choke operations.

There are some milestones in his recent history warranting review as a basis for understanding its current business form. Former HP CEO Carly Fiorina took over in 1999 to

become the first female CEO of HP. Fiorina engineered the Compaq acquisition and saw it through despite heavy opposition notably from Walter Hewlett (Bill Hewlett’s son) who controlled about 25% of the vote. Also, the technology industry faced a difficult economic period in the years up to the merger and later on. The shares of most companies slumped and saw shareholders see their investments dwindle. This set the stage for some leadership and business challenges for HP in the middle years of 2003 to 2007 These challenges included managing change, ethical issues relating to the conduct of its board members, and serious human resource issues in all ranks of the organization.

The merger with Compaq instigated unprecedented changes in operating practices in the IT industry. This is because the merger ended up producing the largest IT Company on earth (Loomis & Ryan, 2005). Operational systems became overwhelmed since each of the two previous companies had a distinct organizational culture. Merging their vision and direction became more than just a boardroom affair, but interested the shareholders and clients too. All this took place in the middle of a very competitive sector. When the merger took place, Sun Microsystems placed newspaper adverts persuading HP and Compaq customers to switch their allegiance to Sun Microsystems because, in their view, the merger meant a loss of quality (Loomis & Ryan, 2005).

The next challenge that sent ripples right through the entire HP community was that of the ethical conduct of the board members around the time when it wanted to fire Fiorina in January 2005. There was a leak to the press detailing board deliberations (Hyatt, 2007). This made it difficult to manage successfully the transition. The then board Chairman, Patricia Dunn, sought to investigate the board to find out how that leak occurred amid other leaks to the press. The other board members took issue with the methods employed, which included phone taps, illegally obtaining phone records of employees, and surveillance activities. Hyatt (2007) argues that Dunn’s actions were well-meaning, but the methods were not.

The third major challenge HP dealt with in the same season was that of human resources. Amidst all this transitioning, there were major differences between the board and the CEO about how to organize the company’s corporate structure. The board wanted some division heads to move up the ladder to support Fiorina, but she insisted that it was the CEO’s duty to handle management issues. The issue was not completely resolved with her resignation. When the new CEO took over, he laid off 15,000 employees compared to Fiorina’s target of 11000-12000. This shows that the merger brought about many human resource management challenges.

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Recommendations

From these observations, three key issues stand out as possible ways of ensuring that HP and other similar companies have smoother transition planning. The first recommendation is the enforcement of transition planning policies. It is poignant that the firing of Fiorina came about in a short period. The decision to let her go came through so quickly that it gave the board no time to prepare itself adequately for a transitional phase in its planning. Ideally, a board ought to have plans for how to manage its executive recruitment process, whether under normal transitional circumstances or in the case of sudden departures such as Fiorina’s. They seemed to lack a viable replacement for her internally meaning that the board may have failed to prepare for such an eventuality.

The second recommendation relates to the ethical conduct of board members. The board member must always remain accountable to the board itself in as far as their conduct is concerned. Otherwise, a full-scale implosion such as the one that made Dunn go to court is the likely result. The board members’ appointment process ought to consider the capacity for discretion for all candidates, and thereafter, it must stick to the code of ethics governing the board.

The final recommendation is that there is a need to update corporate governance structures to match growth and expansion (Hyatt, 2007). Key to this process is the delineation of the authority of the board vis-à-vis the CEO to reduce the likelihood of conflict on such issues as who holds appointing authority and the jurisdiction on administrative issues.

CarMax

The success of CarMax brings to mind similar success by Wal-Mart, which revolutionized retail with innovative concepts. Wal-Mart sought to alter the customer experience when buying goods and therefore developed an ingenious system allowing for a very efficient inventory management system supported by a counterintuitive marketing model. Wal-Mart went for rural markets that did not have the “superstore” experience. However, rural areas could provide sufficient markets. CarMax’s entry into the used car market did not worry many of the used car dealers at the time. However, nineteen years later, CarMax boasts of pride of place among not just used car dealers, but amongst the very best companies to work for in the United States. As one of the Forbes “100 best companies to work” for five years straight, CarMax indeed is a testament to the place of ingenuity in business based on solid research and headed by focused leadership. Its innovative model warrants study to determine the place of leadership in an organization.

CarMax has over 15000 associates in over 100 stores spread throughout the United States (CarMax, 2011). Latest reports indicate that they have plans to open up at least ten more stores in the coming year. This expansion will seek to leverage the emerging market for used cars because consumers have more confidence in buying used cars through CarMax compared to the traditionally used car dealerships.

The cornerstone of CarMax’s business is customer service based on a robust business system. The founders of the company successfully defined a new way to sell used cars and made the experience of buying used cars much less frightful for buyers. They removed the barriers that made people fear buying used cars such as haggling over prices, risk of getting poor quality cars with no clearly defined recourse for the buyer, insurance, financing among others. CarMax revolutionized the buying and selling of used cars.

To reduce the stress of pricing, CarMax uses fixed prices for all their cars. All the customers are sure that the price on the sticker is the price of the car. This relieves both the sales associates and the client of price-related worries that come with the ordinary used car buying experience. CarMax pays a fixed commission on unit sales to the associates thereby eliminating the pressure on them to push the pricier cars. The associates can therefore concentrate on supporting the customer to get the best car for their needs than on getting them to buy the most expensive cars in the yard. This ensures that the cars sold respond to real demand rather than being a reflection of the selling prowess of the sales associates.

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CarMax also offers a wide inventory usually consisting of more than 500 cars in a single store (CarMax, 2011). This inventory surpasses the total annual sales of some dealerships. The decision to maintain this level of inventory makes it possible for the client to have variety at any CarMax store. Besides, the outlets maintain an inventory showing the brands of cars available regionally hence if the client wants a car not present in a particular store, CarMax can arrange for its transfer to the client at a fee.

Also, the company arranges financing and insurance making it possible for a client to walk in and leave with a car in a few short hours. They offer a five-day money-back guarantee (CarMax, 2011). If within the five days after the purchase of the car the client feels that the deal is not proper, the client can return the car and get back their money with no questions asked. Also, the company offers a 30-day warranty on all cars sold. The offers make the company stand out because normally, used car dealers sell cars on an ‘as-is’ basis. Many of them do not have a refund policy unless mediated by regulators, and they do not provide any kind of guarantee on the cars. The employment policy of the company does not lean towards experienced used car salespeople. The company prefers to employ inexperienced persons whom it takes through a two-week training program to enable them to sell the cars. They look out for presentable people who are apt to listen and can win the confidence of potential clients.

Selling cars is one-half of the operations of the company. CarMax buys cars to resell them. It buys them either from individuals or in bulk from organizations getting rid of their fleets. It makes an offer for a car in as little as 30 minutes and the offer stands for up to seven days, allowing prospective sellers to weigh their options. This is similar to their stress-free shopping policy it extends to buyers. The organizational culture does not support pressure tactics in any of its operations. There is however disquiet that it offers lower prices than a seller can get from other buyers. In this case, the benefit they offer is that it is less stressful to deal with CarMax even when they are offering a lower price for the car than most other sellers are. For people who value that, CarMax is a good business partner.

The current head of CarMax is Thomas J. Folliard. He took over the leadership of the company in 2006 (CarMax, 2011). He is a long-term employee of the company who has worked in various departments since its inception in 1993. Folliard has a motivational leadership style crucial for a sales-driven entity. His appointment as CEO shows that the company recognizes the value of transition planning and has a robust system to allow for internal development of talent (Burns, 1979). It also shows that the company appreciates that the business is innovative hence; it requires someone familiar with its organizational history and steeped in its organizational culture to run it profitably. This increases consumer and investor confidence.

CarMax Strengths

CarMax has some definite advantages in the used car dealership segment. Among these, there is the national presence of the company, the strong brand image, its reputation for superior customer focus, and its well-optimized business model that matches inventory with demand. A national presence is an asset for the company because it increases the visibility of the company. Its nationwide operations make it work as though it were one large store, at least regionally. A client can get whatever car is required provided it is available in one CarMax store within the region (CarMax, 2011). This increases sales volumes and makes inventory management much easier than for individual dealerships. Also, the size of the operations makes it easier to analyze demand trends, which influences how the company acquires new stock.

It is clear from the previous analysis that the optimization of the CarMax business model covers all fronts. In particular, maintaining the critical balance between inventory and demand ensures it has healthy turnover ratios. This limits the quantity of dead stock and increases the ability of the company to respond to shifts in consumer demand at short notice. Other elements that demonstrate this balance is the ability of the company to provide guarantees to its customers. Guarantees on products only come with a clear understanding of how the products move and the proper management of their quality. Offering guarantees without a strong quality and inventory management system, a business unit risks collapsing based on the possible costs associated with a returned stock.

CarMax is a strong brand. Apart from originating a very innovative business concept, it has also managed to provide services at a level that has given it positive visibility. The accolades that contributing to the company’s strong brand image includes the recognition by Forbes magazine as “America’s Most Admired Company in Automotive Retailing” and also, the company has consistently been on Fortunes list of “100 Best Companies to Work For” since 2005. This is good publicity, which speaks of the brand strength of the company and which, also enhances the brand image. Its unrivaled business system guarantees its place in the used car segment of the automotive retail industry.

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Without a doubt, CarMax is a customer-oriented organization. Its business system does not focus on the bottom line only but focuses on the customer experience while dealing with it. This is probably its greatest strength and its key selling point because a satisfied customer shares their experience with other people, who become potential customers. CarMax seems to offer everything that conventionally used car dealers fail to offer, except the cars. They understand that they are not just selling cars, but are providing an experience for their clients. This is revolutionary. Unlike profit-focused, commissions-chasing conventional car salespersons, CarMax sales associates come out as trustworthy, well trained, and presentable. They have the requisite training in the business system that they form part of and besides, they work in an environment that stresses customer satisfaction.

Challenges

The most serious challenge that CarMax has is getting good quality cars to put on sale. In as much as the core business of the company is the selling of used cars, the quality of used cars bought by the company present a serious risk to the business both in terms of customer satisfaction and in terms of cost. The company cannot lax in any way when it comes to inspecting the cars bought for resale. Poor quality cars may lead to high refurbishment costs and eventually high resale prices, which may out-price the market.

The company risks turning its employees into robots acting in specific ways because of the high level of optimization so far achieved. While this works perfectly for innovative business models, it also brings about the risk of aversion to innovation. In the long term, it can kill the business because the entity must continually evolve (Murthy, 2007). It may lead to the loss of employees who no longer feel challenged and consequently, a pool of staff unsupportive to change will emerge. This means that the company must remain vigilant during promotions to ensure that the people who hold supervisory roles are supportive of change and accommodative to new ideas (Murthy, 2007). The way to ensure long-term success is to retain the most innovative people in the ranks since the CarMax business model is inherently innovative.

One of the things that may erode the brand image because of unresolved poor customer experiences is a class action against the company. As a used car dealership, there is a possibility that some of the cars that pass through CarMax have certain defects that the company cannot detect or solve. If these defects are not declared in advance, a recourse action established in advance, the result can be a pool of unsatisfied customers. If they come together to sue the company, the corresponding publicity may lead to erosion of the brand’s image and subsequently loss of market share.

In light of the mission of CarMax which is ‘To provide our customers great quality cars at great prices with exceptional customer service’, CarMax must do everything in its power to ensure that the challenges it faces do not weaken its efforts to achieve the mission. CarMax must ensure that it’s quality control procedures work perfectly because it is the business’ lifeline. Ignoring quality in the business processes will effectively derail the organization’s mission. On the second issue of innovation, the company stands on a foundation of innovation. Its business processes are very innovative and therefore it requires innovative people throughout the system to maintain and improve it. The risk of class action threatens to rob the company of its brand image. In this case, the company must ensure that it communicates as clearly as possible to all its clientele on the possible defects in the cars it sells and all other business terms to reduce the risk of lawsuits. In the case that they come about, the business must handle them as amicably as possible to ensure it retains the confidence of present and future clients.

CarMax needs to devote its attention to some three areas that are likely to influence its leadership position in the automotive retail sector. They include mainstreaming innovative practices, strengthening quality control, and maintaining the obvious strength it possesses in customer service. The underlying aspect of the organizational culture of CarMax is innovation. The business model is innovative blending aspects that other businesses such as Wal-Mart demonstrated. It amalgamated careful research in testing and establishing the model as viable. Its implementation was also very innovative, ensuring that all the stores offered the same standard of service. If the company loses this innovative edge because of its highly streamlined operational process, it risks losing this aspect of its organizational culture (Murthy, 2007). This recommendation requires the alignment of the HR policies of the company towards innovation.

The second recommendation is that in light of the focus on quality that the company works with, there are risks associated with deteriorating quality standards. Quality standards keep changing towards a more stringent stance by both regulators and by market forces. The company must remain at the forefront of developing acceptable quality standards in all its operations to ensure that it remains reliable as a provider of quality products and services. A possible approach towards ensuring that quality standards remain high is adapting the kaizen practices popularized by Toyota that among other things, stresses continuous quality improvement.

The third recommendation is that the company must do everything in its power to ensure that it maintains a good public image at all times. The Harvard Business School ( 2005) encourages every organization to leverage on the key aspects of growth to take advantage of the strategic position provided by its sources of competitive advantage. With growth, there is always the risk of suits and claims of dissatisfaction among customers. The process used in handling complaints must have the robustness required. As the company expands, a proportional expansion of its services must be part of the company’s policy.

Conclusion

The cases above show that despite the success of an organization at any point, there is always a clear need to maintain an innovative edge in business practices to maintain a competitive advantage. The role of innovation comes out very clearly in the case of CarMax that now boasts pride of place in the automobile retail sector. Google also shows the place of innovation in the development of organizational culture and the need for strategic thought at all times. As a market leader, HP provides plenty of lessons in the need for enforcement of strict ethical procedures in all organizations, especially by the top leadership organs. These cases show the importance of the leadership concepts identified in chapter one.

Google

Google is a relatively young company for an establishment of its size. The company’s incorporation in 1998 marks its beginning as a formal entity. The company grew out of the market demand for an internet search engine that would make looking for information on the internet more organized (Hartley, 2009). The solution to the problem of meaningless search results that web surfers encountered came by way of the optimized search results provided by Google’s search engine that two Ph.D. students at Stanford University developed.

Google comfortably occupies the market leader’s position in the search-engine service provision sector and internet advertising. Other big players in the field include Yahoo and Bing. Bing is Microsoft’s response to Google search after unsuccessful attempts to take over Yahoo. In China, Google faces competition from Baido, which enjoys the State’s support.

Google currently offers a wide range of search-related services. It earns its revenue by selling advertising opportunities to companies. Along with the entire technological innovation that Google search is, Google managed to develop a very innovative advertising model that allows advertisers to target their advertisements at the specific people who are interested in their products and services. This way, Google offers information search services free of charge to all users worldwide. The service range that Google offers includes the flagship Google search and its email service, G-mail. Besides, Google offers specialized services such as Google scholar targeted at academicians and blogging services for users interested in maintaining blogs, among other services. Google’s growth has had its share of challenges, some common to all startups and others related to its structure and composition.

The key challenges that Google’s founders, Larry Page and Sergey Brin faced included managing talent, raising capital, managing growth, and environmental challenges. Initially, the pair did not have much in terms of financial incentives that they required to attract and retain the kind of talent they needed to make Google a success (Hartley, 2009). The talent they needed put them in direct competition with entities like Microsoft, to say nothing of the demand for the same talent in the greater Silicon Valley in which Google-operated. This exemplifies the general challenge of raising capital for their operations. Google relied on borrowed capital and venture capitalists to get through the initial phases of its growth and development. While the founders showed extreme innovation and adaptation to the needs of their clients, they frequently ran into situations where they needed more money to facilitate expansion.

The management of growth characterized by a desire for close control of the company proved a challenge to the founders too. They were very calculated and guarded in their interaction with potential sponsors and associates. While both of them had strong credentials in technology, they lacked the prowess to offer operational leadership for the organization (Hartley, 2009). This becomes clear with the entry of Eric Schmidt as the CEO of Google when he provides the much-needed balance to the highly innovative duo at the helm of the fledgling company. They only gave in to the incessant requests by the capital venture firms that bankrolled Google’s critical growth stages to relinquish operational control to a CEO.

Despite its short time in operation, Google has dealt with two serious economic crises in the greater economy and survived. The first one was the IT bubble that burst in early 2000 and led to massive layoffs among the high tech firms of Silicon Valley. The other one was the economic meltdown in 2008 caused by a meltdown in the real estate sector. Google defied odds and came out of both crises stronger.

The keys strengths that Page and Brin have include innovativeness, strategic focus, and well-reasoned risk-taking. Their knack for innovation shows in the design of the Google search engine to solve a prevailing problem, and providing the conditions required for the maturity of the idea. Secondly, they show a lot of focus as they adapt to changing conditions and requirements by stakeholders. In any case, their philosophy of keeping their business fairly simple and straightforward and relinquishing control in very measured ways point to their depth of strategy and focus on the development of Google. They approach situations in unconventional ways and have been very successful as a result. The final key strength visible from the pair is their calculated risk-taking. They did not abandon their studies but took a study leave. They did not move straight into a business complex but grew from a student room to a garage before renting their first office. Besides, the decision to go public through an IPO came at a time when they had developed a considerable lead in the search engine business hence their potential rivals would not have an easy time catching up.

The two key recommendations to leaders based on the lessons of the growth of Google is the need for innovation and adaptability. Brin and Page did not invent an internet search. What they developed was a solution to search problems, and innovatively built a business around it. Secondly, organizational leaders need to maintain an aura of adaptability to the environment. This quality will allow them to survive pressures in their environment.

Harley-Davidson

The name Harley-Davidson inspires something akin to the reverence usually reserved for mythical figures. The jury is out as to whether the name, in reality, represents a product or a brand (Wicks & PR, 2010). Very few companies in the world enjoy the cult-like following that Harley-Davidson enjoys from its customers and enthusiasts. The company started operations in a garage in 1903 making customized motorbikes and has since established itself as the panacea for luxury biking. Harley-Davidson does not just sell motorbikes; it sells an experience, and a lifestyle to go with it. This makes it a unique company to study because of its success in building brand loyalty to such heights that it seems impossible to dismount the company from its leadership position. The issue of interest in this analysis is Harley-Davidsons response to the entry of Honda in the American motorbike market, and the results of that decision, and implications for organizational leaders.

Harley-Davidson prides itself in the manufacture of unique luxury motorbikes that offer the customers an unrivaled experience. Its Mission statement in part reads, “we fulfill dreams inspired by the many roads of the world…” showing that the company recognizes the immense value of attaching its brand to the feelings of the customers (Harley-Davidson, 2011). The company goes beyond superior engineering to promise “extraordinary motorcycles and customer experiences” as part of its mission (Harley-Davidson, 2011). The last part of the mission statement stresses the company’s goal of fuelling “the passion for freedom” to enable its customers to “express their own individuality” (Harley-Davidson, 2011). This look at the company’s mission statement is a testament to the extraordinary emphasis on customer satisfaction in the operations of the company. It sells its bikes through dealers in different parts of the world and organizes events for owners, enthusiasts, and other interested people. This focus is not a recent phenomenon but a part of the original Harley-Davidson philosophy that made it possible for it to remain focused on its fundamental values when Honda entered the American Market in 1959 (Hopkins, 1999).

The entry of Honda in the American market came from a realization by the company that there was potential to sell smaller motorbikes to the American market. Harley traditionally produced larger capacity motorbikes with engine capacities greater than 850cc. However, Honda felt that the units they had which were in the 50cc range were too small for the American market and hence presented to the American market 250cc and the 305cc models (Hopkins, 1999). These units had innumerable mechanical faults which when coupled with disastrous marketing led to the utter failure of the first attempt to penetrate the targeted market segment. However, Honda soon started to get inquiries from companies in America about the 50cc model, which their staff used. Honda has wrongly assumed that the models were too small for American tastes. To their surprise, the demand for the smaller bikes soon became formidable enough, and henceforth they adjusted their product line to meet this demand.

At a similar time, Harley-Davidson was under pressure to produce low capacity motorbikes to meet the demand for them (Hopkins, 1999). However, the leadership steadfastly refused to alter the company’s business philosophy with reasons based on a previous failed attempt. Both companies went on to succeed in their chosen paths, each serving its niche market. This occurrence reveals the need for a consistent business philosophy and the ability to adapt to demand at different stages of business growth, Harley- Davidson was already serving a clear niche while Honda was looking for a position in the motorbike market. Their strategies served each company well and led to future profitability. For Harley Davidson, the challenge to diversify its portfolio continues to date. Customer needs continue to change and keeping up is the key to remain in business. However, by basing its business philosophy on unchanging values, the company is in a position to offer products that will satisfy its customers for a long time to come.

In conclusion, it is recommendable for Harley-Davidson to remain focused on its current market niche since it has a very strong reputation within the motorbike sporting and luxury market. It is almost impossible for any other player to come now and compete with Harley-Davidson because of its unique business philosophy (Wicks & PR, 2010). The company must continue its efforts to use events to create the product experience that it has used to market its products for a long time now (Wicks & PR, 2010). The next recommendation for the company is that leadership of the company needs to review continually new strategies for remaining in touch with the niche market since technological changes will make current methods obsolete in a short time (Ohmae, 1995). The company must remain innovative in its communication processes to ensure that it remains in touch with all the stakeholders. These measures will seal its leadership position in the motorbike industry.

Conclusion

In conclusion to this paper, it is clear that all organizations have challenges despite how successful they are in the market place. Most of the challenges come as a result of growth and in the pursuit of greater profitability. The need for focused leadership also stands out because, without it, no company can beat the competition. This paper makes it possible to appreciate the extraordinary achievements of the companies analyzed. Some of them have been around for very many years while others are new to the market place. On one hand, it takes a lot for a company to survive all the challenges it faces over many years and on the other hand, it takes a lot to raise a company from scratch to international status in a few years.

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