The Soul of the Corporation: Managing Your Company's IdentityPublished: December 06, 2007 in Knowledge@Wharton
McDonald's operates the biggest restaurant chain in France, which is run by French managers. The company's franchisees are French, as are their employees, and they also source their supplies from France. And yet, most people in France regard McDonald's as an American firm that is selling junk food and undermining the French way of life. That is a good example of how the question of corporate identity has become complex and confused today because of globalization, according to Hamid Bouchikhi, professor of management and entrepreneurship at ESSEC, and Wharton management professor John Kimberly. The two are authors of a new book titled, The Soul of the Corporation: How to Manage the Identity of Your Company (Wharton School Publishing). How can a company cut through this confusion and use the notion of identity as a source of competitive advantage? Kimberly answers that question and others in an interview with Knowledge@Wharton.
Knowledge@Wharton: You write in your book that in the past, most people in groups were clear about their identity, but now the question has become much more confused. Why is that so, and how does it affect companies such as McDonald's, for example?
Kimberly: We have to start with confusion of identity at the individual level and then work up to the company level. McDonald's, by the way, is a great example of a company-level issue. But it seems to us -- to my co-author Hamid Bouchikhi and me -- that whereas in the past identities have tended to be relatively clear, relatively consistent and relatively continuous at the individual level, today, things that used to be sort of settled and certain are up for grabs. Gender, for example. The fact that there is, in some cases, ambiguity about identity and the possibility for questions about identity at the individual level -- when you ratchet it up to issues that unfold at the organizational level, you see a similar sort of phenomenon, and you see identity becoming problematic in the current context in ways that it hasn't been historically.
Now, the example of McDonald's is a terrific one, because McDonald's, which we all know and love so well, is a quintessentially American company which faced an interesting problem when it expanded overseas, and particularly in the context of France.
It started in France in 1975, and I will never forget seeing the first McDonald's restaurant on the Boulevard Saint-Michel in Paris and saying to myself, "This will never fly." "Fast food" and "French" -- they don't go together in the same sentence. Well, it turns out that now, McDonald's is the largest purchaser of food in France; it has grown phenomenally. But at the same time, it hasn't grown without problems.
It's problem in the context of France is: Who is it? Is it an American company that is doing business in France, or is it a French company that is doing business in France? There have been demonstrations led by Jose Bove, who is a colorful personality in the French political scene, an activist who has raised real serious questions about that.
And McDonald's has struggled with this because at one level, if you look at who they hire, they hire French employees. If you look at the structure at the top of the company in France, it is all French. They do all of their sourcing for products in France. So at one level, it is a very French company, but at another level, the identity is ambiguous because of its roots and origins in United States.
So, I think this is just one example of how an identity issue is playing out at the level of companies and corporations.
Knowledge@Wharton: What is the "I dimension?" Could you explain that, and why it should matter to a company like Coca-Cola, for instance?
Kimberly: Sure. The "I dimension" is simply a term that we came up with to encompass what we mean by identity. Companies can have a variety of phenomena in which their identity is anchored: It may be a brand, it may be a mission, it may be a particular form of business.
But every company has a constellation of things which, together, define an answer to the question, "Who are we?" So that term, "I dimension," is designed to capture all of those things that together define a company's identity....
Coca-Cola, as most people who follow the beverage industry know, has been locked in a competitive struggle with Pepsi for a long, long time, and recently Coke has suffered some real setbacks and has lost market share to Pepsi. Pepsi has really gained a lot of ground on Cola-Cola. And in a recent shareholders meeting, the CEO of Coke raised the question in a way which, to Hamid and me, spoke volumes about identity -- [that is,] the question of whether those things that have made Coke a remarkably successful company throughout its history are the same things that are going to carry Coke forward and make it successful in the future.
So, the company had to face some questions about whether it stays in the drinks business, whether it moves outside the drinks business, whether it begins to make investments in, for example, water. And we know that they just a made a huge investment, the largest investment the company has ever made in an acquisition, in the water business.
They are struggling with the question of "Who are we?" and "Who do we need to be in order to be successful in the future?" And I think the fact that [Neville] Isdell was willing to bring that up and raise that in a shareholders meeting and confront it head on spoke volumes about how some companies, some leaders, are what we would call "identity sensitive," and are really beginning to frame strategic issues in identity terms.
Knowledge@Wharton: How does a company's identity differ from its reputation or its brand?
Kimberly: That is a great question. In fact, we have an entire chapter in the book that tries to answer that question. Let me give you the abbreviated version here.
In some cases, brand and identity are basically convergent in a particular company, but in some cases they are very, very different. Let me give you an example of the latter -- where they're different -- just to give you an idea of how we are framing the issue.
There is a Chinese company called TCL, which is the largest manufacturer of TVs in the world. When you, as a consumer, go into a retailer and look to buy a TV, you are probably unaware of the fact that there is a better than even chance that the TV you buy will actually be manufactured by TCL, the Chinese company, even though the brand maybe RCA. So strategically, in some cases, a company puts brands out and in a sense makes the brands visible, but keeps its identity as a company relatively invisible.
Let me give you another example of where this was a problem. It was a problem with Lenovo. As you know, Lenovo is a Chinese computer company, which acquired IBM's PC business about five years ago. And recently, Lenovo responded to an RFP from the Department of Defense for supplying computers to the DOD. When some senators got wind of the fact that this was a Chinese company, there was a huge outcry. Do we want a company whose identity and branding are Chinese supplying computers to our Department of Defense? Huge issue there, and they ultimately didn't get the contract.
Where brands and identities converge, a great example is Harley Davidson. In contrast to when you buy a TV, you really may not care who the manufacturer or who the organization is behind the TV set itself. In the case of a company like Harley Davidson, there is a really interesting joining of brand identity and organizational identity. When you buy a Harley Davidson, you are buying more than a bike. You're buying almost a way of life. And as you probably know, Harley makes almost as much money selling things that are branded but are not bikes. They make a lot of money selling leather jackets and so forth.
But it's a great example of a company where the organizational identity is tightly coupled to the brand identity. And in the mind of the consumer, when you buy a Harley-Davidson, you're buying into the organization that is behind the brand.
So, we have some great examples, if we look around the business landscape, of companies in which there's this tight coupling between brand identity and corporate identity, organizational identity, and other cases in which there is deliberate separation between the two.
Knowledge@Wharton: What was very interesting about your Lenovo example is that, before Lenovo bought IBM's PC business, the same ThinkPads would have been probably quite acceptable to the Department of Defense.
Kimberly: That's right.
Knowledge@Wharton: And the computer is still the same.
Kimberly: And the computer is still the same.
Knowledge@Wharton: Or maybe better. [laughs]
Kimberly: Exactly right.
Knowledge@Wharton: I was reminded by what you said about a lecture I once heard by Amartya Sen, the Nobel Prize-winning economist, who said that, as an individual, he is the intersection of many identities. Does that also apply to organizations?
Kimberly: Sure. I think it does. And in fact, one of the interesting things is the way in which companies deal with the fact that, in any company, almost by definition, there are multiple identities at work. There are identities at the sub-unit level, at the divisional level--or there can be--and at the parent level as well.
And it's a real challenge, I think, for companies to manage the intersection between what I'll call, for the purposes of argument here, "local identities" -- that is, identities of the organizational sub-unit in which you spend most of your time -- and the identity of the mother ship, as it were.
Let me give an example that, to me, illustrates very effective management of these multiple intersecting identities: Johnson & Johnson. J&J, as you know, is a company that's historically grown through acquisition, and it has a reputation for being a company that is highly decentralized. But it's also a company that has managed this issue of the identity of the mother ship, of the company as a whole, and the identity of organizational sub-units in a very effective way.
A company that's acquired by J&J keeps its name, and typically will keep many of the top management people. What the corporate parent does is, obviously, install some systems for monitoring performance and rewarding employees. But in each one of J&J's subsidiaries, there's what would be called in French a "double appartenance." That means, in the minds of people who work in the subsidiaries, they belong both to the subsidiary and to J&J as a whole.
It's a very interesting arrangement that J&J has developed over time, where people who work in the subsidiaries are able, simultaneously, to carry the identity of their organization at the same time they carry the identity of the parent. And this has worked to J&J's advantage, because they are able to, through the J&J credo and other devices, keep the identity of the mother ship very much alive and present in the minds of their subsidiary employees, while at the same time creating space for the identity of the subsidiary to play an important role as well.
This multiple intersecting of identities, of course, we see at the individual level all the time. At one in the same time, we have a gender, we have a race, we have lots of things that distinguish us -- perhaps some sort of religious affiliation -- lots of things that distinguish us that, at various moments intime, we sort of resonate to.
At one moment in time, my maleness may dominate in a particular relationship, whereas, at another moment in time my age may dominate. I don't think it's quite that complex at the level of organizations, at least the way Hamid and I see it. We don't need to thin slice the company identities in quite that fashion.
Knowledge@Wharton: How, then, does identity become a source of competitive advantage for companies, organizations?
Kimberly: Well, it can become a huge source of competitive advantage because it acts as a focal point for people's motivation and energy, where there is a convergence internally around this question of "Who are we?" -- where there's a relatively strong and consistent sense, internally, within a company, with respect to this answer of "Who are we?" and basically "Why are we here?"
What that does is act as a force for bringing people together around a common purpose. And at the end of the day, that's what makes a company go, when people come together around a common purpose and are motivated in the same direction. It sounds very simple. Of course, it's a lot more complex than that, but at the most general level, that is, I think, the answer to the question.
Knowledge@Wharton: Could it also extend further, beyond companies -- to, say, cities?
Kimberly: Well, interesting you should ask that question. I was very struck by our mayor-elect Michael Nutter's speech in Philadelphia on Monday, three days ago, where he called on the city and the citizens of Philadelphia to remember that the city has an important identity, which, in his view, has been under-leveraged in the past and can be a great source of advantage going forward.
So, what Nutter is doing -- and if he manages it correctly -- can, I think, be a hugely powerful device for galvanizing the citizens of the city around common purpose. What he next needs to do is articulate what he thinks that identity is and make sure that there's a substantial amount of agreement. When asked the question -- "What does it mean to be a Philadelphian?" -- people will have a sense of, probably, tradition and history, a sense of perhaps, currently, economic vitality, and will be able to get behind the Nutter agenda, whatever the Nutter agenda, in specific terms, turns out to be. I think he's onto something here, and I'm looking forward to seeing how it plays out.
Knowledge@Wharton: Does identity have a dark side as well?
Kimberly: Identity can have a dark side. And historically, if we look at the corporate landscape, there are many examples where identity, which can be a huge asset, can also become a huge liability. It becomes a liability when you get stuck in an identity, committed to a particular answer to this question of "Who are we?" -- when the answer to that question, in the marketplace, is no longer viable.
And we have some great examples. I'll just give you one example. There are literally dozens of them out there. But take the example of Polaroid, which, historically, in the response to the question of "Who are we?" the answer was very clear and unambiguous: "We are the world's premiere manufacturer of cameras in the instant film business. We produce instant photography."
And despite signals from the environment that new technology was emerging which threatened the preeminence of Polaroid in that instant photography space, they were unable to turn the ship and stayed with the historical identity, at a time when the competition was moving toward digital photography. And the result was not pretty. They were one of the corporate icons of the 1960s; today--well, you know the story. It's, in a sense, a tragic story.
Other companies have been able to respond. Although, let's take the example of Eastman Kodak. It took Kodak a long time to turn the ship. It wasn't clear in the latter part of the 1990s and the early part of this century that they were going to be able to turn it and make the move to digital. But it now appears as though they have made that shift and what could have been an identity trap for them -- trapped in the old definition of what photography is and what a company that's in that business needs to be doing -- they seem to have escaped the trap, and are presumably on the road to a bright future.
Knowledge@Wharton: What happens if a CEO fails to appreciate the significance of his or her company's identity? Are there examples of companies?
Kimberly: Actually, one of the reasons that we wrote the book in the first place was our feeling that there are enough examples around of incredibly talented, bright and accomplished leaders who are not sensitive to the "I dimension," to the significance of organizational identity, and enough examples of CEOs who've tripped, stumbled and fallen over this lack of recognition of the significance of identity, to make it worthwhile raising the issue.
Just to give you one example of a CEO who, in our view, tripped over identity -- that is, didn't have a deep enough appreciation of the significance of identity -- is Carly Fiorina at HP. There are lots of reasons why Fiorina lost her job, and we're not so presumptuous to think that the fact that she was not identity-sensitive is the only reason. Please understand that.
On the other hand, our view is that, had she been more aware of the significance of HP's historical identity, not only for the employees of HP but for the world outside HP, she might have been more successful in her efforts to be an effective leader of that company. I still believe that her strategy was a very smart strategy. She did not trip over strategy, in my view; she tripped over identity and a lack of awareness of the significance of identity.
Let me just make a point here, if I could. The way we think about organizational life and corporate life, and in the way leaders typically approach the challenge of managing in this age of identity, is we think of an outer layer in a company consisting of, basically, operational issues: operations, decisions about operations. And typically, when there's a performance problem, the initial response -- and it often is appropriate -- is to change something in the operations, the way a company does its business.
If those efforts are unsuccessful, then you go to the next level, which is the strategic level, and you say, "Well, we've changed our operations. We've tried to make some adjustments there. They haven't been successful. Maybe we ought to rethink our strategy." So there are some strategic changes that are introduced. In some cases, those strategic changes result in positive change, but the record there is not terribly strong.
So there are lots of cases where efforts to change strategy have crashed. And what we would argue is that they've crashed on the shoals of identity, which we think lies deeper in an organization. On the outer layer, you've got operations. At the next deeper level, you've got strategy. At the deepest level, you've got identity, which is the answer to the question, "Who are we?"
And so, it's just useful, I think, for people who are leading organizations to be aware of this deeper level. And our argument is that if they have some awareness of this deeper level, they are less likely to run into the Carly Fiorina problem than they would otherwise.
Knowledge@Wharton: Lots of companies have been merging. What happens to identity during and after a merger?
Kimberly: Well, if we had a couple of hours...
Kimberly: It would be fun to really take a deep swing at that, but let me just try to answer the question quickly. There are all sorts of issues when two companies merge, which Hamid and I would define as identity issues -- which, if the parties involved are identity-sensitive, they can manage effectively, but which, if they aren't, they don't, and there are ultimately problems.
Two companies merging that have been in the same industry are typically competitors, right? So the identity of company A has, in part, historically been not being company B. So when, all of a sudden, you put these two together, what do you have? Well, you can have a train wreck, if you're not careful.
And I think there are lots of examples of failed corporate marriages, failed mergers -- Daimler-Chrysler probably being one of the more obvious and visible ones. But there are many more that one could point out. I could give lots more examples.
I guess the point here that we would make is that when two companies merge, what you're merging is histories and answers to this question of "Who are we?" which are different in the two cases. And so, the people who are responsible for managing and leading the merged entity need to focus a lot of attention on what is the answer to the question "Who are we?" going to be going forward.
And there are lots of tools and techniques that one can use to try to come to a clear answer to that question. But it's about a whole lot more than simply integrating operations. Operational integration is problematic, for sure, but identity integration is what we think will ultimately determine whether a merger is successful or not.
Knowledge@Wharton: And then, what about the opposite situation? What happens during a spin-off?
Kimberly: Well, that's another interesting question. In spin-offs, the issue is how much of the identity of the parent is carried forward into the spun-off entity. And there are all sorts of interesting cases of where it's worked well and where it hasn't worked well.
One of the cases where it's been problematic is the spin-off of Agilent from HP, where the people who went with Agilent when it was spun-off from HP were mostly HP veterans, and it was never clear, particularly in the early days of that spin-off, whether Agilent was really HP in its soul. [laughs] This is what we're talking about, as soft as that may sound.
A company lives in the heads of those people who are a part of it. And the fact that the senior management team at Agilent was 90% ex-HP means that there's a lot of HP in the soul of Agilent.
If you look in the automotive industry -- the parts manufacturers, the Delphis and so on -- it's just interesting to see the extent to which spin-offs are really spun-off, or the extent to which the umbilical cord is never cut effectively. And our view is that if it's never cut, in identity terms, then there's likely to be an ambiguous relationship between the former parent and the spun-off entity, which is bound to complicate the leadership challenge substantially.
Knowledge@Wharton: How should a company manage its identity in the context of an alliance or a joint venture?
Kimberly: You had a twinkle in your eye when you asked that question. The fact that one of the hats I wear is as executive director of the alliance between the Wharton School and INSEAD... I'm sure your question was not accidental. It's interesting. In an alliance -- I'm going to speak a little bit about the one that is close to my heart here, which is the INSEAD/Wharton alliance, because this is an alliance which, my sense is, initially, many felt would probably not have much traction and would not go very far. And we've just learned a ton about what makes alliances successful and what some of the potential pitfalls are as we've gone ahead.
And I've got to say that this issue of identity really lies at the heart. These are two schools, both of which have very strong reputations in the marketplace, independently. So the question is, when you try to develop an alliance around certain activities, how do you maintain the separate identities, on the one hand, while working together and collaborating effectively in some other areas at the same time? You're walking a tightrope there.
The solution that I think we have, at least intuitively, arrived at, in the context of the Wharton/INSEAD alliance, is you need to let both partners maintain the strength of their independent identities; you don't want to compromise those. But you need to be able to build -- in areas where it looks like there's leverage that can be gained by cooperation, you need to merge the identities.
Now, let me give you a couple of concrete examples. To me, the example of executive education is one which is particularly interesting, because we both compete and cooperate in that space. Both schools have very strong executive education programs, and yet there are instances in which doing alliance-based programs -- that is, programs where the two of us work in concert -- really add value to the customer.
So, the fact that we have this sort of global design and delivery capability, if you put the two schools together, gives us an advantage over other competitors in the marketplace. So we try to leverage those. We still compete head-to-head for a lot of business, but clearly there's a set of potential customers out there that appreciate this global design and delivery capability, so that's where we can collaborate. And we do it in a way which allows the identities of both schools to be maintained, while at the same time being fused.
Knowledge@Wharton: How can a company get a handle on its own identity? Are there any tools they could use?
Kimberly: Well, we have a chapter in the book on that: it's called "The Identity Audit." And the idea here is that, for those leaders who are identity-sensitive -- that is, who understand the power of identity and the significance of identity -- and who want a way to get a concrete handle on identity, a question should be on their minds: Is our current identity serving us well, and is it likely to continue to serve us well going into the future? Or do we need to, in some ways, modify or change that identity, and in what direction?
There is what we call the identity audit, which involves developing an empirical answer to the two questions which are fundamental to any company. And those two questions are: internally, the amount of consensus, or lack thereof, around the question, "Who are we?" In some companies, there is very close convergence among folks internally, with respect to that answer. In other questions, the answer's all over the place. So that's the first question: "Who are we, internally?"
And the second question is: for external stakeholders, what's the answer to the question, "Who are they?" And there, again, in some cases, there's a great deal of consistency and convergence in the way outsiders see a company. But in other cases, there's great ambiguity about that -- "We're not really sure who the heck they are."
So we have some tools that can enable leaders to take the temperature, to diagnose both the internal and the external dimensions of identity, to assess the amount of convergence or divergence in that, and then to make some judgment calls about where they are. And that is in two respects.
Judgment call number one is: Are we satisfied with the amount of convergence around our internal identity, or not? Do we need to initiate some activities which lead to greater convergence around the question of "Who are we?"
And then, secondly, with respect to the outside world, to key stakeholders, are we satisfied with the amount of convergence there, with respect to the question of "Who are they?" or do we need to do some work? And we can thin slice that as much as a company would like, with respect to stakeholders and constituencies. So there is a methodology, for those who are interested, with respect to doing this identity audit.
Knowledge@Wharton: On something that's very much in the news, the former head of the New York Stock Exchange, John Thain, has a new job [as CEO of Merrill Lynch]. If he were in the room right now, what advice would you give him about thinking about identity?
Kimberly: I'd say, "John, let me give you a copy of 'The Soul of the Corporation...'"
And I'd say, "John, go right to the last chapter. Go to the epilogue, because that's where I think the question that you need to be thinking about is framed well. You're coming into a company that has a long history, which historically has had a pretty clear identity" -- although, recently, with the relatively aggressive acquisition strategy that Stan O'Neal had, my own sense is that identity is probably a little less clear now than it has been historically.
"As the new CEO of Merrill Lynch, the challenges are fairly substantial. What you need to do is, obviously, make sure that the morale of the troops is sort of re-energized. And fundamentally, I think what you need to do is understand the identity issues that you're facing. And as you go forward, your question is, 'Are you comfortable and confident about the current identity of Merrill Lynch, both as seen internally -- the troops internally -- and as seen by the outside world, or do you think you need to work on some identity re-engineering?'"
My guess, looking at what John did at the Stock Exchange, is that he has a pretty good grip on the significance of identity. And it's going to be very interesting to see what steps he takes to further define and clarify what I think now is a somewhat ambiguous identity in the outside world. I wish him, needless to say, good luck and good sailing.