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There are some multinational companies that were superior in their industry are now struggling for market survival. General Motors, Ford and Chrysler were the three largest automobile companies in The United States in the last decade (Micheline, 2003). Surprisingly, In 2008 those three companies declared for bankruptcy after suffering substantial losses in the previous years and being unable to make the debt payments (Rauh, 2009). This situation was recorded as the biggest industrial bankruptcy in The United States history. Economic experts argue that the unwillingness to adapt to new markets and the insufficient flexibility are the main reasons for their bankruptcy (Rauh, 2009; Gilson, 2010). Soon after its bankruptcy General Motors, Ford and Chrysler became the example of bad company culture and their culture viewed as one of the denial and arrogance (Jagdish, 2007).
Over the last decade, the numbers of research on organizational culture have been increased significantly (Denison 1990; Agbonna 2000, Hofstede 2001). However, researchers vary in how they classify culture and what perspective they use when they claim to be studying the cultural phenomena. Hence the theory of organizational culture turns to be scattered and very broad. Organizational culture is difficult to measure, Cameron and Quinn (2006) cited more than three types of organizational culture. Kennedy and Deal (1982) defined organizational culture as a complex set of beliefs, assumptions, symbols, and values that determine the way firm conducts its business. Organizational culture is a complex concept that makes it hard to perform research (Hofstede, 2001) but it held out a tantalizing promise that culture, as internal factors, may have a great influence in shaping the organization behavior. Barney (1986) mentioned that culture has a pervasive effect on a firm because culture defines not only who its relevant competitors, customers, and employees are, but it also defines how a firm cooperates with these key actors. This statement illustrated how organizational culture incorporated in an organization. Furthermore, because organizational culture creates a framework regarding the values, rules, and beliefs that employees must act with, it may influence the output. So it is expected that there is a link between organizational culture and firm output.
This case appears to suggest that companies with superior performance in the pass are still susceptible to face downfall because of their culture. Apparently organizational culture may have a direct effect on the effectiveness of the organization, so it is necessary for a firm to recognize their culture and its influence.
Market survival process stresses the importance of firm performance. For many years performance has become a common topic for researchers. However, despite the high number of performance studies, there is no universal agreement in conceptualizing organizational performance (Walton, 2001; Papadimitriou, 2000). Because researchers used different perspective to develop the performance theory, this may increase the complexity to construct a comprehensive measurement theory of performance. Meanwhile, in the absence of universal theory tapping the performance measurement, it is helpful to understand what this theory comprised in order to measure the organizational performance.
The arguments mentioned above appear to suggest that if a company wants to search for a superior performance sources, they can start by looking at their organizational culture. However, according to Ogbonna (2000) the influence of organizational culture to performance is still somewhat ambiguous. Therefore, the objective of this thesis is to investigate in what ways does performance and culture related.
1.3 Research Questions
The purpose of this research leads to the followingÂ problem statement:Â
How does organizational culture affect on organization performance?
There are several research questions established in order to answer the problem statement
What are the perspectives on organizational culture and which approaches can be use to analyze organizational culture?
What is organizational performance and what are the different indicators used to measure organization performance?
How does organizational culture, both direct as indirect, have an impact on organization performance?
To investigate the relationship the different dimension that commonly used to frame organizational culture need to be explained.Â Thus,Â the definition and common indicators of performance will be explained and identified so that inÂ the third part of this thesis the relationship can be analyzed.
To conduct a literature study, theÂ secondaryÂ dataÂ will be used.Â This paper will use onlineÂ literatureÂ database, paper, and books from Tilburg University library, SSRN, ABI/inform, JSTOR, Web of Science and other online databases. Keywords used to find relevantÂ literatureÂ are:Â financial performance,Â firmÂ outcomeÂ organizational culture, effectiveness, performance perspective, and firm performance In order to keep theÂ qualityÂ ofÂ dataÂ sustainable, snowballing data collectionÂ methodÂ will be used. By usingÂ severalÂ journals as the basis and starting point for this research theÂ possibilityÂ of finding large numbers ofÂ dataÂ relevant to this research is bigger. SomeÂ literatureÂ that does not have aÂ connectionÂ with this paper will be easily recognized and overlooked. ToÂ decideÂ whichÂ basicÂ literatureÂ will be used, there are some criteria. First, the writer should have aÂ topÂ reputationÂ in its field. Second, the literatures shouldÂ commonlyÂ used in another research. This is important because this paper willÂ relyÂ on theÂ mainÂ conceptÂ established fromÂ priorÂ research. Furthermore, most of theÂ basicÂ dataÂ areÂ considerablyÂ aged, toÂ tackleÂ theÂ biasÂ more recent dataÂ areÂ takenÂ into consideration.
The aim of this literature is to explore the relationship between Firm performance and organizational culture. Each chapters contain a research question that later will be discussed by using academic literature as the source. ThisÂ will be doneÂ sequentially by first discussing general organizationalÂ cultureÂ issues andÂ explainÂ the four types of organizational culture. In chapter three, several indicators of performance will be identified and explained in detail. In order to explain the relationship between the two concepts, the objective of chapter four is to combine the two previous chapters into determining the effect of organizational culture on firm performance. It is postulated that the performance indicator differs across diverse cultural types and that certain type have a tendency to be linked with certain performance indicator. The conclusion, limitation and recommendation for future research are the central focus of last chapter.Â
Organizational culture is the topic for this part, three materials will be discussed. This part begin with the investigation of issues concerning to the organizational culture. Followed by the discussion about the organizational culture school of thoughts. Several common types of organizational culture that will be used for the measurement are presented next.
2.1 Organizational culture issues
There are several important issues revolving the concept of organizational culture, which emerged from the controversies that spin around the definitional, measurement and dimensional of organizational culture (Cameron and Quinn, 1998).
2.1.1 Organizational culture definition
There is hitherto no single accepted definition of organizational culture (Riley and Clare-Brown, 2001). Kroeber and Kluckhohn (1952), although their study was not specifically directed at organizational culture, had identified 164 definitions of culture while Ott (1989), focusing on organizational culture, had identified 38 definitions. Scrutinizing through an inordinate number of definitions, Martin (2002) has highlighted a few strands of elements to reflect the range of definitions currently in use by researchers.
2.1.2 Etics and emics
The body of literature that focuses on organizational culture is large and diverse (Martin, 2002). Prior researched studying organizational culture shows only little convergence towards a commonly accepted conceptualization of the construct (Koen, 2005). Smircich (1983) argued that the conceptualizations of organizational culture range from viewing it as a root metaphor for understanding how "organizations are" to viewing it as something an "organizational has". The first view is called emic prespective and the second view is called etic perspective
The conceptualization of organizational culture in emic approach focuses on the belief, deep level of meaning and values, which can only be studied and understood from the inside point of view (Koen, 2005). On the other hand, etic approach focuses on the pattern of behavior and shallow levels of practices, which can only be studied and understood from an outside view (Koen, 2005). Berry (1990) asserts that the major implications of etic and emic differentiations are that emic research attempts to work within a single culture to analyze local culture phenomena while researcher in etic attempts to work across cultures in order to construct universal generalization.
2.1.3 Level of depth
Schein (1999, 1984) described three levels in an organizational culture, from the very visible to the very implicit and invisible. First level is the level of the artifact which includes all the phenomena that one hears, feels and sees when one encounters a new group and the visible behavior pattern. The most important point about this level is that although it is visible but the outsider will find it hard to decipher the true meaning from things she noticed. Below the artifacts level is the level of espoused values. Culture in this level can be depicted by collecting information about the true meaning of artifacts from the insider informants. Despite this level exist in a greater level of awareness, insiders often do not understand why are there inconsistencies between the espoused values and the visible behavior in practice. This is because the Insiders understood the organizations ideology but not the underlying assumptions. The third level is basic underlying assumptions, to understand this deeper cultural level Schein (2003) asserts that there must be continuous interactions between the artifacts perceived in the first level and information gathered from the informant in second level of this hierarchy, therefore the underlying assumptions are reflected, give meaning and reduce the discrepancies between the interactions.
The explanations above appear to suggest that the preferred research methodologies are different for each level. According to Ott (1989) the first and second level have several cultural manifestations supporting the use of quantitative culture measure. The rationale for this argument is based on the presumed accessibility and conscious quality of culture in these levels. For the remaining level, the underlying assumption can only be investigated through the use of qualitative methods (Schein, 1992). Schein (1992) argues that the underlying assumptions can only be observed by a complex interactive process of inquiry. This argument is based on the reason that the underlying assumption is very unique and invisible, and this uniqueness is therefore difficult to taps.
Now the definitional and methodological issue of organizational culture has been reviewed, thus various typologies of organizational culture can be discussed in the next section.
2.2 Different perspectives on organizational culture
The cultural studies can be broadly classified into two perspectives: the functionalist and the interpretive perspectives (Smircich and Galás, 1987). The studies under the functionalist perspective treat social reality with objectivist vision, human nature with determinist view, organization with regulatory view, and are inclined to positivist epistemology Organizational culture is taken as a variable, a management tool that can be used to chart relationships among culture phenomena within the organization with organizational outcomes (Smircich and Calás, 1987). In addition, culture is viewed as meshed into the social system of the organization such that an organization is conceived as a sociocultural system with its ideational components meshing into a social structural component in a holistic, integrated, synchronized, and consonant manner (Allaire and Firsirotu, 1984). The functionalist perspective views the social world within the organization as one that can be reducible to variables relationships which can be studied to unravel the knowledge between an organization and its cultures (Smircich, 1983a).