Executives can impact various aspects of financial and non-financial performance. This is a fact but it happens through the way a firm’s internal resources are reshaped by executives. Executives can, in fact, improve firm performance though building a strong corporate culture, structure and strategy that enable followers.
Corporate Culture and its Impact on Firm Performance
Organizational culture includes three dimensions: collaboration, trust and learning. Executives facilitate collaboration to develop relationships in organizations. An executive contributes to the cultural aspect of trust, through considering both employee’s individual interests and company’s essential needs. Also, executives identify individual needs of their employees and develop a learning culture by generating new knowledge and sharing it with others. Executives can, therefore, highly manipulate a firm’s culture to conform to the needs and expectations of strategic goals and objectives.
Both cultural aspects of collaboration and trust positively contribute to companies to effectively and actively respond to environmental changes and customer needs and employee growth needs through developing effective learning workplaces within these companies. This also helps companies to improve performance in terms of the quality of products and services. Learning culture as another cultural aspect sheds light on organizational capabilities to develop learning. It is quite understandable that this cultural aspect can particularly firm facilitate performance, by developing suitable workplaces for experts to effectively share their knowledge with others. People in fact recognize how old resources can address new and problematic situations by sharing their knowledge within companies, and this can help to create more innovative ideas for organizational problems. David Maister in his book, Managing the Professional Service Firm, says that innovative ideas generation can improve profitability for companies. Therefore, executives can reshape, and in some cases, manipulate organizational culture to improve firm performance.
Corporate Structure and its Impact on Firm Performance
Organizational structure can be also reshaped by executives when they develop knowledge sharing and inspire employees to create new ideas for a better environment among business-units and departments. Centralized versus decentralized decision making is a topic that executives must deal with. Scholars found that more emphasis on formalized and mechanistic structures can negatively impact the executive’s ability to exert such changes. On the contrary, a more decentralized and organic structure may enable executives to improve departmental and managerial interactions. The mechanical or centralization at the commanding level of leadership impairs the opportunity to develop relationships among managers, business units, and departments. Therefore, executives reshape organizational structures to be more effective when the command center of organizations can disseminate information in a decentralized and organic way as opposed to the mechanical and centralized command center.
A less emphasis on centralized structures develops communications within companies. This less emphasis on centralization also creates more appropriate and effective workplaces for developing learning and growth that in turn improves sustainable competitive advantage for companies. This effective learning environment is a by-product of the delegation of authorities that in turn inspires people to actively participate in organizational decisions. Decentralization within companies can also enable these companies to identify changes in external environments and then help them to actively and effectively response to these rapid changes. Less emphasis on formalization can also provide a freedom for experts to more innovatively handle their work operations that leads to higher job satisfaction within companies. James Heskett and his colleagues in their book, The Ownership Quotient: Putting the Service-Profit Chain to Work for Unbeatable Competitive Advantage, state that job satisfaction can stimulate the quality of products and services that potentially leads to higher degrees of customer satisfaction and profitability. Ergo, executives positively contribute to organizational performance through building more organic structures within organizations.
Corporate Strategy and its Impact on Firm Performance
Corporate strategy also embraces four aspects: analysis, pro-activeness, defensiveness and futurity. The first aspect, “analysis,” focuses on identifying the best solutions for the organizational problem. Executives apply this strategy to create more innovative solutions for organizational problems. The second aspect “futurity” emphasizes the effectiveness of long-term decisions. Executives employ this kind of strategy to develop a vision of adopting more comprehensive information about the future. The third aspect, “defensiveness” can also be applied by executives by taking into account the objectives of strategic implication that seeks to decrease organizational costs and redundancies. While executives focus on implementing changes, a defensive strategy can be used to modify the current processes to enhance organizational efficiencies. The fourth aspect, “futurity” incorporates a pro-active strategy that identifies the opportunities that are available but not always addressed in the business, the global environment, and the political regulation changes. The aspect can be enhanced by executives as they adopt a strategic posture that inspires employees to identify better opportunities in both the internal and external environment.
Moreover, executives that employ the four strategic aspects of analysis, defensiveness, futurity, and pro-activeness may enhance goal achievement. For example, analysis strategy can in turn develop opportunities for human resources development within organizations operating in industries, by assessing current situations in details. Analytical orientation has major effects on the performance of companies through focusing on analytical decision making process. Human resources development can potentially facilitate financial performance of companies, by improving profitability for these companies. Defensive strategy as a necessary requisite enhances profitability, which enhances efficiency in companies’ current positions in the hypercompetitive markets. Since pro-activeness manifests itself in behaviors such as continuously exploring the emerging opportunities to invest, this strategy can positively contribute to the efficiency of companies through helping companies to find better opportunities for investment that potentially leads to better financial performance for these companies in terms of return on investment (ROI) and profitability. Futurity strategy, which implements basic studies to develop an effective and comprehensive vision for future, can also enable companies to identify and actively response to the changes occurred in the external environment. Executives can, therefore, improve organizational performance through embracing the four strategic aspects of analysis, pro-activeness, defensiveness, and futurity.
In light of the increased pressures of the global workplace that inspires executives to exert effective change at the organizational level, this article points out the vital importance of leadership in reshaping an organization’s internal resources to enhance firm performance. This article advances the current literature on leadership by offering novel insights into how executives affect an organization’s internal resources. Particularly, I feel that executives enable organizational culture, structure and strategy. Without a grasp on these three tenets executives are bound to fail.
Mostafa Sayyadi, CAHRI, AFAIM, CPMgr, works with senior business leaders to effectively develop innovation in companies and helps companies—from start-ups to the Fortune 100—succeed by improving the effectiveness of their leaders. He is a business book author and a long-time contributor to HR.com and Consulting Magazine and his work has been featured in these top-flight business publications.