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Managing Corporate Culture to Create "Alpha"

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Investment professionals of all stripes including Warren Buffett, Carl Icahn, Mario Gabelli, and George Soros are typically engaged in the search for what is termed "Alpha."

How Does Corporate Culture Become "Alpha?"

A culture can become a source of Alpha when it becomes a "strong-functional culture." A "strong" culture is one that people clearly understand and can articulate.

Empirical Research Supports Statistically Significant Relationship of Culture to Financial Performance

There is evidence that culture impact bottom line financial performance. our published empirical research in peer reviewed journals has found that corporate culture has a statistically significant impact on financial results measured in terms of "EBIT" (Earnings Before Interest and Taxes). Specifically, our research indicated that found that culture can account for as much as 46% of "EBIT."

Culture as the Ultimate Source of Alpha

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Corporate culture is without doubt one of the few things (and quite possibly the only truly unique thing) a company can create that is a sustainable advantage over time. Culture cannot be copied. That is why we have termed it "the ultimate strategic asset."

How to Manage Corporate Culture to Create "Alpha"

Accordingly, the existence of a culture management system is a necessary tool for effective management of corporate values.  We have developed a proven six step process of culture management:

      Step 1:  The culture management process to create Alpha begins with the identification of the existing corporate culture.

      Step 2: The next step is to formulate the ideal or desired culture of the organization.

      Step 3: The third step in the culture management process is to assess the extent to which the current and desired culture are consistent and identify any "cultural gaps."

Step 4: The fourth step is to develop a plan to actually mange the corporate culture including cultural change.

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Step 5: The fifth step is to execute the culture management plan.

Step 6: The sixth (and nominally the final step) is monitoring cultural changes to assess the effectiveness of the culture management program and determine the necessary future interventions.

Culture management is not a six-steps and done process; the process is an on-going iterative process. It is, or must become, a way of life in an organization.

The Bottom Line: Culture as the Ultimate Source of Alpha

The bottom line is that while investors such as Buffett, et. al. search for Alpha, you can actually create it in your company by using the framework, methods and tools we have developed and applied.

In addition, the bottom line is that corporate culture can be viewed as the "the ultimate source of alpha." http://www.mgtsystems.com

Media Contact
Laurie Flamholtz
310 477 0444

Source: Management Systems
Filed Under: Business

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