3 classes of factors impact what an organization can – and cannot – do:

1. It’s resources:  The most visible.  People, equipment, technology, product designs, brand, information, cash, relationships with suppliers/distributors/customers.   Usually things or assets.
   1. Having an abundance increases the chances of coping with change.
   2. What managers will most likely and quickly analyze when making decisions.
   3. Particularly important in the start-up phase of an organization.  The departure of some key people can profoundly change the organization.  Over time, the focus will shift to processes.
2. It’s processes:  Converts resources into something of greater worth.  Manufacturing, product development, procuring, planning, employee development, compensation, resource allocation.
   1. Some are formal – defined, implemented, and consciously followed
   2. Some are informal – habitual routines that have developed over time.  Hopefully because they work.  Cultural
   3. Developed de facto.  To perform a certain task.  Though, this process might not be good for the next task.
   4. Can be abilities or disabilities.  When they are too rigid, can quickly become disabilities.

• It’s values:  The criteria by which most decisions are made. Some are ethical in tone.  The standards by which employees make prioritization decisions.  Whether a customer/employee/idea is more or less important than others.

• The larger the organization, the more important it is for the leadership to train people on all levels of the company to make decisions based on company values.

1. 1. Need to be broad, consistent, and clearly understood.
   2. Culture allows employees to act autonomously and consistently.
      1. Since challenges change over time, culture has to change to adapt as well.
   3. Must reflect their cost structure or their business model.   i.e… if the business model is designed to need a gross profit of 40% – managers will kill any idea that is less than that.  Could stifle innovation.
   4. The values of successful firms tend to develop in 2 predictable ways in at least 2 dimensions
      1. As it relates to gross margins:  As companies add features, to attract premium customers, they tend to add overhead cost.  This increases costs and lowers margins.   Toyota came to America with a low cost car.  Which got replicated by rivals which threatened to lower margins further.   So they had to de-emphasize these cars and pivot toward more upscale options.  Which costs money, but paid off in the long run.
      2. How big a business has to be in order to be interesting:  Mangers will not only feel pressure to maintain constant growth – but a constant rate of growth.  Especially in public companies.  Due to compound growth, each increment gets harder.    Eventually smaller emerging markets aren’t of interest to them.