Organizational Culture Bpr And Financial Performance Commerce Essay

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Continues improvement in financial performance is the fundamental goal of any business. To achieve this goal organizations have to manage their processes and develop a culture which supports the change in processes continuously according to the changing business environment. However development and learning of human beings and IT system is very tricky and difficult process so organizations can get performance breakthroughs only by creating a balance between development and learning process of IT system and people working in organization. (Bolk, Elswijk, Melis, & praag, 1997).

In today's dynamic business environment those organizations can achieve their goals of attaining competitive advantage and better financial performance as compare to its competitors which have the ability to change its processes continuously as (Neill & Sohal, 1999) suggests that business environment is changing very rapidly and now organizations have to compete on the basses of flexibility in process and ability to response according to this ever changing business environment and this can only be done through the help of managing processes of the organizations through BPR likewise changing economic environment has led to an increasing interest in improving organizational processes to boost business performance (Ranganathan & Dhaliwal, 2000).

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Prior studies focused on the relationship between organizational culture and performance as (Flamholtz & Narasimhan, 2005) concluded that cultural aspect in the organization can improve and increase organizations financial performance and management of organizational culture is the critical factor for the improvement of financial performance (Flamholtz, 2001) analyzed the effects of corporate culture on the financial performance of the different divisions of a single firm and found that 46% of the EBIT (Earnings before Interest and Taxes) was explained by the variable of ''corporate culture.'' however different type of culture have different type of impact on performance of the company (Zu, Robbins & Fredendall, 2010) but due to competitive pressure organizations are force to reconsider their business models and underlying business processes along with the culture (Skerlavaj, Stemberger, Skrinjar & Dimovski, 2006).

In this paper I examine the one-dimensional affect of culture on financial performance of the organization. I also examine the impact of BPR on financial performance. I hypothesize that culture as a whole have positive impact on the financial performance of the organization. We also test the moderating effect of competitive advantage on the relationship between culture and financial performance of the organization and BPR and financial performance as previous researches already suggested that those organizations can gain more performance improvement which are able to learn and response to the changing business environment as according to (Skerlavaj, Stemberger, Skrinjar & Dimovski, 2006) if organization develop a culture which can cope up with the ever changing internal and external business environment then it can achieve both competitive advantage and increased performance and if organizations invest its resources in developing a culture which promotes learning of new processes can benefit the organization not only in relationships inside and outside but also in monetary figures.

This continues change can affect the perception of the employees working in the organization and if perception of the employees get changed it can affect positively in changing culture of the organization in a way that it promotes and enhance the learning culture (Zu, Robbins & Fredendall, 2010) which could in return improves the overall financial performance of the organization as (Iivari, 2006) finds out that if the efforts of implementing changes in the organization are well-matched with the culture of the organization then it can achieve improvement in both performance and profitability.

Objectives of the study

This paper has four main objectives:

To examine the one dimensional effect of culture on financial performance of the organization

To examine the impact of BPR on financial performance of the organization

To examine the moderating role of competitive advantage on the relationship between culture and financial performance

To examine the moderating role of competitive advantage on the relationship between BPR and financial performance

Significance of the study

This study examines the affect of culture on financial performance so organizations which want to improve financial performance can have better idea that changing culture of the organization can affect their financial performance.

Impact of BPR on financial performance is also checked hence those organizations which are planning to reengineer their process can better get idea that how this process change could affect their financial performance.

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Also moderating role of competitive advantage is checked in this study so it will guide the organizations that by aligning the competitive advantage with the culture and BPR can better improve the financial performance of these organizations.

EMPIRICAL LITERATURE & HYPOTHESES

Financial performance:

Financial performance can be defined as the "financial performance reflects the firm's profitability and market impact" (Moorman and Rust, 1999, p.187).

Financial performance can be measured through accounting base measures and market base measures (Griffin & Mahon, 1997) however according to (Sandvik & Sandvik, 2003) financial performance is the efficiency of the organization in terms of gross profit margin, net profit margin, return on investment etc.

Competitive advantage and financial performance:

Competitive advantage is the ability of a business to derive abnormal profits or rent in a competitive industry (Aharoni 1993)

According to (Kohli & Jaworski, 1990, p. 6)competitive advantage is ''the organization-wide generation of market intelligence pertaining to current and future customer needs, dissemination of the intelligence across departments, and organization wide responsiveness to it''.

Whereas as according to (Narver & Slater, 1990, p.21) market orientation is "The organizational culture that most effectively creates the necessary behaviors for the creation of superior value for buyers and thus continuous superior performance for the business"

Literature shows that those firms can achieve targeted financial performance which have competitive advantage over other firms in the market as according to (Hunt & Arnett, 2004) firms can achieve superior financial performance when they are able to get the competitive advantage over other competitors because eventually any type of competitive advantage leads to the improved financial performance of any firm (Gamero, Azorin & Cortes, 2010). Firms can achieve better financial results through competitive advantage through innovation (Zhou,Brown & Dev, 2009) reducing cost and differentiation (Castro & Chrisman, 1995).

From above discussion first hypothesis of this study will be:

Hypothesis 1: Competitive advantage is significantly and positively related to financial performance.

Organizational culture and financial performance:

Organizational culture can be defined as "A set of social norms that implicitly define which are appropriate and inappropriate behaviors within the boundaries of the organization" (Cabrera, Cabrera & Barajas, 2001, p. 248).

Literature shows that organizations supportive culture can affect organizations financial performance. When organizations culture managed carefully it can affect many aspects of organizational performance and financial performance is one of them however different types of culture can impact differently on financial performance but the culture which is open can improve financial performance significantly (Deshpande & Farley, 2003).

Organizational culture has a direct impact on organizations performance as (Xenikou & Simosi, 2006) concluded that culture of the organization can impact the performance in a direct and significant way. Another study carried out by (Zehir, Ertosun, Zehir & Muceldili, 2011) also finds out that culture of the organization is the basic key for success of the organization and financial performance of the organization they also finds out that there is a direct and strong relationship between culture and financial performance.

So on the basis of above studies first hypothesis of the this study is

Hypothesis 2: Organizational culture is significantly and positively related to financial performance.

Business process reengineering and financial performance:

Business process reengineering can be defined as the "Business process reengineering is the fundamental rethink and radical design of business process to achieve dramatic improvement in critical, contemporary measures of performance such as cost, quality, service and speed" (Hammer and Champy, 1993, p.32).

Many studies (Flamholtz, 2001; Flamholtz & Narasimhan, 2009; Zehir, Ertosun, Zehir & Muceldili, 2011) were carried out and found that successful implementation of BPR programs can increase organizations financial performance and BPR can be viewed as a tool to increase the financial performance of the organization because there is a significant and positive relation between BPR and financial performance (Herzog, Tonchia & Polajnar, 2009) however those firms achieve superior financial performance which adopts BPR eairly as compare to the firms which adopt BPR late (Nicolaou & Bhattacharya, 2008) because due to reengineering of processes risk can be managed (Sia & Neo, 1997) and cost can be reduces (Altinkemer, Chaturvedi & Kondareddy, 1998).

Above discussion forms third hypothesis of this study:

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Hypothesis 3: BPR is significantly and positively related to financial performance.

Effect of culture on financial performance added mediation of competitive advantage:

Although the relationship between organizational culture and performance in significant however this relationship can be further highlighted if firms achieve competitive advantage because firms internal culture is the main source of competitive advantage (Flamholtz & Hua, 2003) as according to (Coff & Laverty, 2001) organizations internal systems and culture could lead the organization towards the sustainable competitive advantage which could in turn increases the financial performance more prominently because through the achievement of competitive advantage successfully organizations can enhance their financial performance through cost reduction (Castro & Chrisman, 1995).

As (Fiol, 1991; Menon & Menon, 1997) suggested that organizations can create new opportunities for business and can increase financial performance if sustainable competitive advantage is incorporated in the culture of the organization.

So on the basis of above studies second hypothesis of this study is

Hypothesis 4: Competitive advantage mediates the relationship between organizational culture and financial performance.

Effect of BPR on financial performance added mediation of competitive advantage:

Although there is a significant relation between BPR and financial performance however this relation can be enhanced if competitive advantage is added between this relation because according to (Lockamy & Smith, 1997) completion is getting severe and this situation is forcing organizations to rethink and change their processes according to the product or service needs of the customers to achieve a sustainable competitive advantage and through this these organizations can improve financial performance.

(Agus & Hassan, 2011)concluded that the main reason for this link of competitive advantage between BPR and financial performance is because customers demand more high quality and sophisticated products and organizations could only produce these products through BPR and could get competitive advantage and gain financial performance breakthroughs and to satisfy customers with provision of superior value could only be possible through the change of business processes accordingly (Herzog, Tonchia & Polajnar, 2009)by doing this organizations could provide diverse type of products and could be flexible in order to provide customer demands timely.

According to (Reed, Lemak & Mero, 2000) managing quality through BPR based competitive advantage gives increased financial performance.

Above discussion forms fifth hypothesis of the study:

Hypothesis 5: Competitive advantage mediates the relationship between BPR and financial performance.

CONCEPTUAL MODEL

Business process reengineering

Financial performance

Competitive advantage

Organizational culture

METHODOLOGY

Population

Population of the study includes private sector organizations of Pakistan.

Sample and procedure

Convenience sampling technique was used to get the sample. Sample consists of 400 employees' of these organizations and questionnaires will be distributed to the mid level managers and executives of these organizations.

Scale used

The questionnaire consists of two parts; the first part will capture the demographic profile of the respondents including gender, education, age and organizational tenure. Second section will be used to capture response for dependent variables which is financial performance, independent variable which are culture and BPR, and moderating variable which is competitive advantage. Nominal scale will be used to measure section one while the scale to measure the second part of the questionnaire will be Likert scale. Information about each variable of this adopted questionnaire is as follows

Scale to measure culture of the organization was taken from (Collier, Fishwick & Floyd, 2004),