Here is what we know about the relationship between strategy, culture, and firm performance:

Firms with strategies and cultures that are aligned
outperform firms with strategies and cultures that are not aligned.

 So, for example, if your organization’s strategy focuses on product or technological innovation, then you need an organizational culture that values risk-taking, learning from failure, and teamwork. And if your organization’s strategy focuses on selling highly differentiated products, then you need an organizational culture that values anticipating customer preferences, exceeding customer expectations, and doing so with style and grace.

Firms with strategies and cultures that are not aligned will face challenges in implementing their strategies. And, as Peter Drucker is alleged to have said, when there is a conflict between a firm’s strategy and its culture: 

Culture eats strategy for breakfast!

 So, to optimize your performance, your strategy and culture need to be aligned. Here are three questions you need to ask (and answer) to know whether or not your strategy and culture are aligned:  

1. What is Your Strategy? 

We are constantly amazed by the number of firms that do not know what their strategy is. A company’s strategy is its theory of how it will gain a competitive advantage in its markets. A firm has a competitive advantage in a market when it is creating more economic value—defined as the difference between a customer’s willingness to pay and a firm’s costs—than at least some other firms in that market. 

To gain and sustain a competitive advantage, your strategies must create economic value, they must be rare among competing firms, they must be costly for other firms to imitate, and you must be organized to efficiently implement these actions.   

Taken together, these ideas are summarized in what is known as the VRIO framework—for Valuable, Rare, costly to Imitate, and Organized efficiently. This framework and its implications for the performance of your firm are further discussed in Strategic Management and Competitive Advantage by Jay Barney and William Hesterly.  

So, when you are trying to identify your strategy, ask yourself: “What do we do (or could we do) to increase the difference between the willingness of our customers to pay and our costs, which is also rare and costly for our competitors to imitate?” Whatever those actions are, they are your strategy. 

2. What is Your Culture? 

Your culture plays two possible roles in generating and sustaining a competitive advantage. First, culture is important in implementing your strategies efficiently. Thus, culture is part of the “organizing” dimension of the VRIO framework.

 Second, because other firms will often have difficulty imitating your culture, to the extent that it enables you to engage in economically valuable activities, your culture can also be a source of sustained competitive advantages. This logic is explored in more detail in “Organizational Culture: Can It Be a Source of Sustained Competitive Advantage?” by Jay Barney. In this sense, culture is part of the R and I elements of the VRIO framework. 

Some firms spend a great deal of time and money trying to identify the critical elements of their culture, but these efforts are rarely helpful. 

A really simple way of defining your culture is to ask employees, in informal settings, what they think the company values are and what stories they have heard that created those impressions for them. Culture is communicated through stories, not through a list of four or five “critical values” generated by surveys of employees—lists that are more often mocked than taken seriously. 

3. Are Your Strategies and Culture Aligned?  

Once you understand what your strategies and culture are, then you can see if they are aligned. Usually, this is fairly straightforward, although there can be surprises as well.

In a story told in our book, The Secret of Culture Change, a senior manager was asked to take over Gillette’s emerging markets business—a business that, frankly, was not going well. This manager’s hunch was that Gillette’s product development culture—a culture that emphasized technology development without regard to consumer preferences—was not likely to be successful in developing markets. On a trip to India, he found out that Gillette’s products—although they tested well among Indians in the US and UK—did not meet consumer needs in India. For example, most Indian consumers did not have room to store their razors in the box the razors came in and, instead, hung their razors on a small nail in the room where they shaved. Gillette’s product for the Indian market did not have a hole in the handle.

Gillette’s technology-driven product development culture might work in developed markets, but it didn’t work in developing markets. By recognizing a mismatch between its strategy of growing developing markets and its culture of technology-driven product innovation, Gillette was able to adopt a new innovation culture that generated products that sold well in India. In fact, in a matter of a few years, Gillette went from essentially zero percent market share to 18% market share in the Indian market, and millions of Indian men were now using their products.

In the end, to know whether or not your strategy and culture are aligned, you need to (1) know what your strategy is, (2) know what your culture is, and (3) evaluate the extent to which these are aligned. If you don’t address all three of these facets of your organization, you could easily end up with a strategy and culture that are misaligned. And when culture and strategy are misaligned, well—Peter Drucker is right: Culture eats strategy for breakfast.