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The Role of Culture in Supply Chain Management Special Issue October, 2012

ONTARIO INSTITUTE

PMAC

PROFESSIONALS IN SUPPLY CHAIN MANAGEMENT


Special Issue Introduction – The Role of Culture in Supply Chain Management An emerging theme in the supply chain literature over the past decade concerns the role that culture has on effective supply chain management. While this focus has largely been precipitated by a vast expansion of globalization within supply chains, the research follows two distinct streams: the impact of national culture and the impact of organizational culture on supply chains. While both dimensions have been extensively studied in other disciplines, such as organizational behavior, its application to the supply chain literature is still developing, especially with respect to inter-firm relations. This month’s special issue seeks to bring together major themes that have emerged on this topic in order to provide useful insights that can inform current supply chain decision-making and identify future opportunities for research. The impact of organizational culture on firm behavior is well developed in the management field of organizational behavior. Perhaps one of the most seminal pieces of research on this topic came from Edgar Schein, who in the late 70’s and early 80’s conducted extensive field research on the topic. Many studies that delve into the impact of organizational culture cite Schein’s research and framework for understanding the relevant dimensions of culture. In this special issue Mello and Stank (2005) lay the groundwork for organizational cultural studies in SCM by applying the Schein framework to established assumptions, priorities and behaviors previously identified in supply chain management research. Most importantly, this article highlights the importance of studying the underlying assumptions that guide day-to-day decision-making in a firm. Additionally, three articles are included that demonstrate the relevance of organizational culture to supply chain management performance: In Baird, Hu and Reeve (2011), empirical evidence is presented that statistically supports the notion that culture plays an important role in ensuring the success of a total quality management (TQM) initiative. While this finding is interesting in and of itself, it also raises the general observation that culture may have an important role in ensuring the success of other resource investments as well. The second article, Prajogo and McDermott (2011) discover that different cultural archetypes lead to different dimensions of outcome performance. This finding has important implications to supply chain managers that are seeking to develop a specific dimension of competence other than simply cost performance. Third, Sambasivan and Yen (2010) find that organizational cultural archetypes also influence the ability for two firms to integrate in an alliance. Regarding the second stream of research, national culture, two articles are presented that highlight how national culture has an influence in supply chain management. The first, Jia and Rutherford (2010) explores how differences in national culture between two firms can increase supply chain risk, in particular relational risk. Their article presents recommendations on how to mitigate this type of risk through cultural adaptation and through developing a hybrid cultural interface between the relationships. The second article, Carter, Maltz, Maltz, Goh and Yan (2010) illustrates that national culture can bias sourcing decision preferences thus sub-optimizing the sourcing decision process.

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The final three articles provide a more granular view on how specific aspects of culture can be managed within the firm and across firm boundaries. In Jahns, Hartmann and Forstl (2009), we observe the negative impact that results when a firm has a culture where supply chain management is not a priority and is not involved in key decisions made within the firm. In Gligor and Autry (2012), the role of personal relationships outside the business relationship context is shown to have a positive impact on the effectiveness of supply chain communication. While many firms pursue a non-entertainment policy with their suppliers and dissuade employees from engaging in extracurricular activities and relationships with those suppliers, this article advocates that such non-business context may actually generate a positive influence. In light of these findings, we also include Barton and Sutcliffe (2010), which is not explicitly a cultural-focused article, yet discusses the importance of change management within a firm. This article is relevant to the question that managers may ask regarding how to move from one state of culture to another. In the article, the authors compare change management to the management of wildfires. Perhaps the largest gap in practice and research is the awareness and understanding of tools needed to engage in effective cultural change management in a supply chain setting. While many recognize the need to change cultures, few understand what is required and how to proceed. While cultural change within a single firm is already a formidable challenge, change across firm boundaries promises to be even more challenging. This gap in the research offers an opportunity for future work that has a high degree of relevance to today’s supply chain managers. We hope you enjoy this month’s special issue!

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Title: Linking firm culture and orientation to supply chain success Journal: International Journal of Physical Distribution & Logistics Management, 2005, Vol. 35, No. 8, pp. 542-554 Authors: John E. Mello, Theodore P. Stank Key Words: organizational culture, supply chain management, buyer-supplier relationships, conceptual Full Text Available Overview: While some firms embrace a supply chain orientation culture, others do not and prefer to optimize the benefits of their own firm with little regard to the impact that their actions may or may not have on the supply chain as a whole. While most firms recognize the advantages of embracing and implementing a supply chain orientation culture, such change has remained elusive for many. In this article, authors Mello and Stank propose that understanding the underpinnings of corporate culture may help explain why some firms successfully implement a supply chain orientation culture and others do not. This article is interesting in that it takes an organizational culture rather than a national culture approach to understanding why firms behave the way they do. A key framework that this article builds upon is the definition of corporate culture as proposed by Edgar Schein in his 1985 book Organizational Culture and Leadership. In this book Schein argues that organizational culture exists at three levels: artifacts, values and basic assumptions. Artifacts are those procedures and items that are easily observed such as slogans on walls, tracking charts and documented processes and procedures. Values are the priorities communicated that impact how and where resources are procured and deployed in a firm. Basic assumptions are the subconscious system of beliefs that have led to repeated success and are not questioned. These basic assumptions are the deepest components of culture and impact the values and artifacts that result; unfortunately they are also the most difficult to empirically research. The most effective research on culture, however, explores this deeper level of beliefs and seeks to understand the impact that such basic assumptions may have on performance or other variable of interest. Leveraging prior research on behaviors (artifacts), values and basic assumptions relevant to supply chain management, the authors propose a framework to guide future supply chain research in this field of study. While this paper is conceptual in nature, it is a seminal article that opens the door to a rich spectrum of research topics and has important managerial implications to supply chain practitioners.

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Title: The relationships between organizational culture, total quality management practices and operational performance Journal: International Journal of Operations & Production Management, 2011, Vol. 31, No. 7, pp. 789814 Authors: Kevin Baird, Kristal Jia Hu, and Robert Reeve Key Words: total quality management, performance, organizational culture, Australia Full Text Available Overview: Empirical evidence has called into question the effectiveness of total quality management (TQM) leading to research that tries to identify what specific factors lead to successful TQM implementation. Organizational culture is known to influence TQM implementation. This study addresses the current gap in research that focuses on the associations between organizational culture and the adoption of TQM practices. Two objectives are stated: 1) Identify the organizational culture characteristics that contribute the most to TQM and 2) Examine the importance of organizational culture by narrowing in on how TQM practices influence operational performance. It is important to note that organizational culture is assumed to be an antecedent of TQM for the purposes of this paper. Surveys were sent to the managers of 364 Australian companies in the manufacturing and service business. Organizational culture was measured using six dimensions based on O’Reilly’s OCP instrument: outcome orientation, attention to detail, teamwork/respect for people, innovation, stability and aggressiveness. Other variables measured included quality data and reporting, supplier quality management, product/service design, process management, inventory management performance, and quality performance. Multiple regression analysis was applied and subtle differences between American and Australian companies are discussed. With respect to the first objective, three cultural dimensions were found to be associated with the TQM extent. Teamwork/respect for people correlated with quality data and reporting, supplier quality and management, and product/service design. Innovation correlated with supplier quality management, and outcome orientation correlated with quality data and reporting. Concerning the second objective, quality data and reporting had a positive relationship with both supplier quality management and product/service design. There are positive associations between supplier quality management and product/service design, process management and inventory management performance, and also inventory management performance and quality performance. These results point out the influence organizational culture has on implementation of TQM. In practice, managers first need awareness and then the ability to alter the organizational culture so that TQM implementation is successful. Teamwork/respect are critical aspects of this and employees can be highly influential. Businesses should also give more weight to the outcome orientation and innovation dimensions of culture. Improving inventory management performance is critical, thus supplier quality management, process management and quality data and reporting should be emphasized. This in turn will improve quality performance. When Australian managers understand how TQM practices and quality performance are connected within an Australian context, they will be better able to create quality management programs.

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Title: The relationship between multidimensional organizational culture and performance Journal: International Journal of Operations & Production Management, 2011, Vol. 31, No. 7, pp. 712735 Authors: Daniel I. Prajogo and Christopher M. McDermottKey Words: Organizational culture, Competing values framework, Quality, Innovation, Australia, Full Text Available Overview: Organizational culture impacts organizational performance. This study looks at the relationships between cultural and operational dimensions using the competing values framework (CVF) to represent the multidimensional aspects of culture, and quality and innovation as measures of performance. Quality performance is defined as, “conformance to the specified characteristics of products which meet the needs and expectations of customers. Innovation refers to both products and processes. CVF is represented by the four cultural dimensions of group, developmental, hierarchical, and rational culture, that emerge when specific characteristics of culture are mapped on flexibility-control, and internal-external grid continuums. Where a characteristic falls on the flexibility – control continuum differentiates between quality and innovation while placement on the internal-external continuum deals with products and processes. Combining these four attributes results in four performance measures product quality, process quality, product innovation, and product innovation. Mail surveys of Australian managers representing manufacturing and non-manufacturing industries nearly equally, and who possessed first-hand knowledge of organizational practices, quality and innovation provided the data. Analysis showed that the different dimensions of culture impact product quality, process quality, product innovation, and process innovation differently. Developmental culture was found to have a positive impact on product quality and product innovation. This supports emerging research that quality and innovation are not mutually exclusive. Developmental culture also positively impacted process innovation. Rational cultural has a positive effect on both product quality and process quality because of its dependence on conformance. Process quality and process innovation benefitted from group culture orientations, hinting that flexibility is important when internal quality and innovation are the goals. Hierarchical culture had a positive impact on process quality. Performance is most strongly influenced by developmental culture. Three additional key results are discussed below. 1. There is a “unique fit” between the types of cultural dimensions and performance measures. An organization’s goals will determine the culture it builds. On the flip side, an understanding the underlying culture will help an organization understand what kind of goals will work best. 2. Organizations need to develop the capability to implement and manage different cultural dimensions to achieve the correct balance. 3. Quality and innovation performance are not indicative of the contrasts between control and flexibility or internal and external orientations within an organization. In particular, quality is a dynamic, not a static variable. In practice, when managers understand these relationships, they will be able to identify what cultural dimensions need to be nurtured to achieve competitive goals. In addition, they will better grasp what strategies the existing culture will support. A balanced view of culture will be most beneficial. ONTARIO INSTITUTE OF THE PURCHASING MANAGEMENT ASSOCIATION OF CANADA

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Title: Strategic alliances in a manufacturing supply chain – Influence of organizational culture from the manufacturer’s perspective Journal: International Journal of Physical Distribution & Logistics Management, 2010, Vol. 40, No. 6, pp. 456-474 Authors: Murali Sambasivan, Ching Nget Yen Key Words: organizational culture, alliance management, integration, survey research Full Text Available Overview: This paper explores the impact that organizational culture has on the degree of integration of alliances and also on the value-creation performance of those alliances. While it is recognized that the two streams of cultural research in business include the impact of national culture and the impact of organizational culture, this particular article focuses solely on organizational culture. The authors build on prior research that has delineated organizational culture into four groupings: Clan (internal focus and flexibility), Adhocracy (external focus and flexibility), Hierarchy (internal focus and control), and Market (external focus and control). Clan culture puts emphasis on human relations. Hierarchy culture places emphasis on internal process. Adhocracy culture puts emphasis on openness and innovation, and Market culture places emphasis on rational goal setting. The authors conduct a survey of 109 Malaysian companies across various industries that have all developed some type of alliance with either a customer or a supplier. The results of this survey are used to test the impact that the various cultural categories may have on both integration and performance. Using ANOVA and correlation analysis, the authors find statistical support that organization type does in fact influence both degree of integration (the measures for integration are related to communication, trust and commitment) and value-creation performance. Specifically, the authors find that: 1) Adhocracy culture of the alliance company favors a higher level of communication and commitment with suppliers, 2) Hierarchy culture of the alliance company helps to build a higher level of trust with customers and suppliers, and 3) Clan, market, and adhocracy cultures of the alliance companies help in achieving a higher degree of value creation. A key conclusion raised in this paper is that organizational culture does in fact impact the effectiveness of alliances and that managers should be cognizant of these influences.

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Title: Mitigation of supply chain relational risk caused by cultural differences between China and the West Journal: The International Journal of Logistics Management, 2010, Vol. 21, No. 2, pp. 251-270 Authors: Fu Jia, Christine Rutherford Key Words: conceptual

culture, supply chain management, risk management; buyer-supplier relationships,

Full Text Available Overview: While much research has explored various sources of supply chain risk such as transportation disruptions and manufacturing disruptions, authors Jia and Rutherford propose that national cultural differences between two firms can also be a source of supply chain risk. In particular, the authors argue that national cultural differences may contribute to relational risk that is manifest through risk of non-cooperation by a supply chain partner or risk of opportunistic behavior that benefits one party while harming the other. This conceptual article delves into the detailed dimensions that differentiate Chinese and Western culture, namely 1) family orientation vs self-interest, 2) Guanxi network vs multiple institutions, and 3) Guanxi building process vs Western relationship-building process. Each of these three dimensions contributes and helps shape the core system of beliefs and assumptions that guide day-to-day decision making; in fact these beliefs and assumptions often exist subconsciously. When firms with differing or conflicting core beliefs and assumptions interact, mistrust and misunderstanding can easily ensue thus leading to the relational supply chain risk discussed in this article. Avoiding this type of risk is possible with international inter-firm learning and cultural adaptation. In short, when individuals from both firms become aware of the conflicting assumptions and systems of beliefs that guide the decision making of the other firm, then misunderstandings that breed a decrease in trust can be avoided. Further, some firms may even attempt cultural adaptation, “An attempt to elicit approval from members of a foreign culture by attempting to become behaviourally more similar to members of that culture� (pg.258). International inter-firm partnerships where both parties engage in cultural adaptation create a unique culture at the interface of the two firms that is termed hybrid cultural interface (HCI). The authors propose a research framework that can be used to test the impact of cultural adaptation and hybrid cultural interfaces as a relational risk mitigation strategy. It is anticipated that such strategies will generate mutual benefits including improved relationship effectiveness, improved relationship quality and increased cost reduction benefits.

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Title: Impact of culture on supplier selection decision making Journal: The International Journal of Logistics Management, 2010, Vol. 21, No. 3, pp. 353-374 Authors: Joseph R. Carter, Arnold Maltz, Ellio Maltz, Mark Goh, Tingting Yan Key Words: culture, supply chain management, sourcing decisions, multiple regressions Full Text Available Overview: Sourcing decisions have become much more complex now that globalization is a viable alternative for most firms, even for small and medium-sized enterprises. While much of the global economy has benefited financially (lower purchase prices) from the globalization that has occurred over the past decade, a realization and appreciation of the complexity involved with maintaining a global supply chain has been increasing in importance to both academicians and practitioners. Firms for the most part realize that a multi-criteria decision-making model is required since globalizing one’s supply base should not be driven by cost alone. In the context of such multi-criteria decision-making, the authors of this paper seek to understand whether or not (and to what extent) culture influences sourcing decisions. Using regression on the results of a survey with 181 responses, this study finds statistical support that national culture does in fact have a statistical influence on the perceived attractiveness of sourcing from different geographical locations. The study explores three different dimensions of country sourcing attractiveness: operating environment, government integrity and labor productivity. Interestingly, operating environment and government integrity were observed to have a greater influence on sourcing attractiveness than did labor productivity. This indicates that in fact, sourcing managers are looking beyond low-cost labor in considering their global sourcing strategies. The results also indicate that location of manager origin does in fact correlate with a biased view of sourcing attractiveness of a region. In fact, managers rated their own countries lower on the dimensions of operating environment and government integrity than did managers from other countries. Perhaps this negative view of one’s own region has contributed to a “bandwagon” effect on low cost country sourcing as managers have looked beyond their own borders for improved source offerings. The biases observed in this study have important implications to purchasing managers, namely, culture can influence a sourcing decision in a manner not supported by realistic factors. The authors argue that awareness of this bias will help purchasing managers make improved sourcing decisions as they avoid unsubstantiated biases that would otherwise sub optimize the sourcing decision-making process.

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Title: Internal Networking: The Hidden Success Factor Journal: Supply Chain Management Review, January 2009 Authors: Christopher Jahns, Evi Hartmann, Kai Forstl Key Words: Networking, Supply chain management Full Text Available Overview: With all of the pressures facing supply chain managers today, often the most pressing and the most damaging pressure comes from within their own company. Supply chain management is often sidelined when big decisions are on the table. Only when absolute proof that inclusion will contribute to performance are other functions willing to share power, but failure to involve supply managers in strategic planning and decision-making can actually hurt the bottom line. The irony is that supply management can only prove its worth when fully integrated. This article presents new research sponsored by the Supply Chain Management Institute (SCMI) at the European Business School (EBS) and McKinsey & Co, a consulting firm, that identifies a strong correlation between the degree of supply management integration and the performance of both the supply chain and the business itself. Two hundred chief procurement officers from international companies covering various industries in Europe, America, and Asia were asked to evaluate their own “interconnectedness.” Researchers then assessed the actual level of integration. The degree of supply chain integration with other functions was measured using a five-point scale, where a 5 represents optimal levels of integration. The average among respondents was 2.83. Only 6 % scored at 4 or higher. Companies were divided into low, middle and high performers. Low performers overestimated their degree of integration by 0.8 points and contrary to reason, felt no pressure to improve either because they lack motivation or understanding. Though they would obviously benefit from pursuing greater levels of supply integration, they do nothing. In general they lacked top executives willing to push for greater integration. High performers underestimate their degree of integration by 0.5 points on average. They often pursue ambitious and sometimes unreachable goals for integration trying to improve every potential weakness. One key insight is that successful supply management must be measured appropriately to accurately gauge its contribution to performance. Improvements in savings, landed costs, quality, lead times and supply management’s contribution to innovation can result from supply side initiatives. If a company increases its integration score by one point, the improvement in supply performance averaged 8%. This is much more effective than negotiating price cuts from suppliers. In addition, the findings even applied to industries that tended to claim “it doesn’t apply here.” The claim that supply managers only contribute “PowerPoint-Savings” was also refuted. Analysis of corporate performance in terms of return on assets, return on equity, reduction of cost of goods sold, sales growth, and EBITDA growth revealed that supply management performance is responsible for 17.8% of corporate performance variance implying a significant relationship between supply management performance and corporate performance. Successful supply management integration requires the right people. Networking skills are essential, and companies should focus on recruiting generalists with knowledge spanning many functions i.e. ONTARIO INSTITUTE OF THE PURCHASING MANAGEMENT ASSOCIATION OF CANADA

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procurement, planning, strategy, engineering, marketing, etc. Current employees should be offered training, mentoring, and assignments that prepare them to better network internally. In addition, systematic supply HRM was found to have a significant relationship with supply side integration. These efforts were measured according to the existence of operative and strategic personnel roles, training and development programs, and desirable career paths for supply managers. By improving supply management integration, companies stand to improve overall performance as well. They would be wise to dedicate adequate time, resources and recruiting to making this happen.

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Title: The Role of Personal Relationships in Facilitating Supply Chain Communications: A Qualitative Study Journal: Journal of Supply Chain Management, January 2012, pp. 24-43 Authors: David M. Gligor and Chad W. Autry Key Words: behavioral supply chain management, partnering, supplier management, qualitative data analysis, grounded theory building Full Text Available Overview: This paper addresses the question, “What role do interpersonal relationships play in the interorganizational communication processes between logistics service providers (LSP’s) and their clients?” Dyadic relationships between supply chain companies and their LSP’s are the unit of analysis. Personal relationships refer to “individual-level friendships that develop between persons who do business,” and interorganizational communication means “communication that takes place between employees across firms.” Social capital theory is used as a foundation for the grounded theory approach that is applied, with managers of supply and logistics companies as the actors. Open-ended and in-depth interviews were conducted personally and over the phone. The final analysis was based on 16 dyads yielded from 26 participants (there was some overlap). Open, axial and selective coding were used and QDA Miner ensured intercoder reliability. Comparative analysis was also employed as implied by the use of the grounded theory approach. Four themes emerged to support the hypothesis that personal relationships improve communication. Message Conveyance – “the process of transmitting information by a sender to a receiver.” Six properties supported this theme: •

Ease of communication - how willingly managers exchange information.

Frequency - how often and how long contact between actors occurs.

Channel - refers to the type of communication used (in-person, email, social media, phone, etc.).

Ease of contact – how accessible is the partner in the dyad.

Level – lack of accessibility to certain personnel due to job title or status are overcome.

Interpretation Accuracy – how accurately the receiver understands the message the sender meant

Message Integrity – “A measure of the message’s completeness. Two properties emerged: •

Honesty

Sensitivity – the confidentiality of the exchanged information

Environmental Interaction – “the environment in which actors interact to exchange information. Two properties emerged: ONTARIO INSTITUTE OF THE PURCHASING MANAGEMENT ASSOCIATION OF CANADA

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Censorship - Personal relationships were less subject to censoring.

Tension – Personal relationships often acted as “social lubricant” when business was being discussed.

Communication Performance – •

Efficiency – Personal relationships improved the efficiency of communication

Effectiveness – Personal relationships made communication more effective because personalities, styles, and preferences were already understood.

The research model is illustrated in Figure 1, showing that personal relationships that are developed and fostered outside the business setting lead to enhanced communications processes (the four themes discussed above) that in turn improve business performance. In practice, managers can encourage and develop personal relationships with logistics managers outside the company. Simple suggestions for this include sharing common interests, calendaring social gatherings, or simply time spent talking. While prior marketing research has established the benefits of increased trust in conjunction with personal relationships, this paper argues that supply chain operational benefits (communication) can also be achieved.

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Title: Learning When to Stop Momentum Journal: MIT Sloan Management Review, Spring 2010, pp. 69-76 Authors: Michelle A. Barton and Kathleen M. Sutcliffe Key Words: dysfunctional momentum, interruption, situated humility, disaster, cultural change management Full Text Available Overview: Dysfunctional momentum, or the pursuit of a plan or goal without stopping to evaluate progress even when faced with cues or warnings that change is necessary, faces many companies today and results in many “business disasters.” Much can be learned and applied from studying the successes and failures of those combating the natural disaster of wildfires. Researchers interviewed firefighters involved in battling wildfires of varying degrees of seriousness and varying degrees of success, asking them to provide details of the entire experience. The resulting 55 incidents were analyzed for patterns that affected actions. Several conditions were found to lead to dysfunctional momentum. 1. Action orientation – In our culture we may feel it is better to be doing something, even the wrong thing, than nothing. 2. Inflexible planning – The negative consequences for altering established plans override any flexibility in changing the plan itself. 3. The ripple effect – Small problems quickly become big ones if ignored. 4. Rationalization – People tend to ignore or discount information that contradicts personal opinion. 5. Deference to perceived expertise – Experience is sometimes equated with expertise. Junior employees may be afraid of the consequences if issues are raised that compete with a more senior employee’s views. The authors originally hypothesized that disaster followed “failures of foresight” or cues and warnings that were just overlooked. Analysis showed that instead, dysfunctional momentum occurred when cues and warnings were observed, but not interpreted and internalized. Two factors can counter this tendency. First, develop “situated humility.” This is recognition that in spite of knowledge, expertise training, etc., the current state is such that it cannot be fully understood by any one person. Second, interruptions must be created or sought out to force a period of re-evaluation. Four behaviors promote this: 1. Voice concerns – A key finding was that this is important even when the leader or manager already knows the information. 2. Be sceptical of experts – When firefighters failed to point out concerns, it was not fear that drove that decision. Instead, it was an assumption that more senior firefighters had already assessed the situation. ONTARIO INSTITUTE OF THE PURCHASING MANAGEMENT ASSOCIATION OF CANADA

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3. Seek diverse perspectives – This behavior automatically invites other points of view and gives time to re-evaluate. 4. Create availability/accessibility – Successful firefighting efforts always had good channels of communication, and high levels of availability/accessibility between leaders and crews. In addition to cultivating situated humility, communicating often, and applying the above four behaviors to create interruptions, organizations can also make it a point to identify problem areas and view them as opportunities to learn and improve. Doing so will help prevent dysfunctional momentum and potential business disasters.

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The Role of Culture in Supply Chain Management  

The Role of Culture in Supply Chain Management

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