This chapter reviews the academic and theoretical researches of organisational culture and organisational performance. It consists of the framework for establishing the importance of the research. In this sense, it is important to define certain key concepts such as culture itself, its origins, where it originates from and how it is transmitted from generations to generations and among groups. It is then imperative to understand how it is brought into organisations through leaders and then shapes into what is called as organisational culture. As it gets ingrained and transmitted along the hierarchy of the organization, it plays a consequent role in organisation performance. As time passes and people of different cultures work and interact together culture is diffused to one another creating a constant dynamism in the culture of the organisation.
Culture is an abstract concept that surrounds us at all times. It is often regarded as a phenomenon which is complexly hidden, seldom unconscious, but its consequences are powerful and easily visible as people interact with each other. Schein (2004) claims that culture is a dynamic phenomenon that shapes the behaviour of people and the way they interact with each other. The term itself is used in many ways and conveys different meanings to different persons. For example layman can use this term to indicate sophistication, such as when we say that someone is very “cultured”, while anthropologists refer the same term to customs or rituals that societies develop over time.
Daniels and Radebaugh (1998) define culture as being consisted of specific learned norms based on attitudes, values, and beliefs, all of which exist in every society. Its transmission pattern varies, such as from parent to child, from teacher to pupil, from social leader to follower, and from one age peer to another. Studies among diverse societies indicate that the parent-to-child route is especially important in transmission of religious and political affiliations. Developmental psychologists believe that by age 10 most children have their basic value systems firmly in place, after which changes are difficult to make. The basic values include such concepts as evil versus good, dirty versus clean, ugly versus beautiful, unnatural versus natural, abnormal versus normal, paradoxical versus logical, and irrational versus rational. However, because of multiple influences, individual and societal values and customs may evolve over time. Change may come about through choice or imposition (Daniels and Radebaugh 1998).
The concept of culture has received much attention during the last three decades (Schein, 2004) and there have been various approaches to defining and studying the concept. For example, culture is defined as the collective thinking of minds (Hofstede, 1980), with fairly established sets of beliefs (Kotter and Heskett, 1992) and a set of behaviours that lead to success (Schein, 1990).
2.2 Organisational Culture
Most organisations consist of a group of people who in one way or another contribute to the success of the organisation to achieve the organisation’s vision, mission, goals and objectives. As this group of people work and interact with each other, there is a set of values and norms that is shared among the members of the group. This set of values and norms pervade the whole or part of the organisation and have a significant impact on the behaviour of the group members. Organisational culture can thus be referred to as the culture of a group of people. The area of organisational culture has received much attention by researchers and consultants during these last several decades. The meanings and interpretations about the concept of organisational culture are not limited as different people view the topic in different ways. While definitions vary, they all seem to relate organisational culture with things that are shared or common in a group.
According to Armstrong (2003) organisational culture is the pattern of values, norms, beliefs, attitudes and assumptions that may not have been defined but shape the behaviours of people and the way they get things done in the organisation. It is a multi-dimensional and abstract concept that spreads throughout the organisation and has a significant impact on the behaviours of people in the organisation. Schein (2004) defines the culture of a group as a pattern of shared basic assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.
The organisational culture model proposed by Edgar Schein (2004) has widely been accepted (Buchanan and Huczynski, 2010). The model consists of three major levels which reflect the degree to which the manifestation of culture is visible and accessible to the organisation. This is shown in Figure 2. The levels of culture which consists of artefacts, espoused values and beliefs, and basic assumptions are described as follows.
Artefacts are all the outcomes produced by culture which are visible but difficult to decode. They are also known as observable culture (Buchanan and Huczynski, 2010: p.101) as they are phenomena that lie at the surface. They include tangible products such as behaviour, the language used, dressing style and emotional displays (Schein, 2004).
Espoused Values and Beliefs
Found below the artefacts level, values are the accumulated beliefs about what is good or bad, how work ought to happen and how situations have to be dealt with in organisations (Armstrong, 2003; Buchanan and Huczynski, 2010).
Espoused values and beliefs distinguish organisations from each other. Some authors view that they originate from experiences of past solutions to problems (Buchanan and
Figure – Schein’s three levels of culture
Source: From Buchanan and Huczynski (2010)
Huczynski, 2010) and after some means of social validation (Schein, 2004), others argues that they originate from the founder. According to Collins and Poras (1996), an organisation has a core ideology which consists of core values and a core purpose. The core values reflect the values of the founder which are passed on to other members of the organisation. Senior management thus regarded as an organisation’s culture carriers (Buchanan and Huczynski, 2010). Schein (2004) also argues that values and beliefs are transmitted through acts of leadership.
Basic assumptions are those taken-for-granted, preconscious and invisible understandings which are held by people in an organisation (Buchanan and Huczynski, 2010; Schein, 2004). They are the unwritten rules of behaviour and become embedded into the organisation as people act and behave according to their values and beliefs. According to Schein (2004), when a solution to a problem works repeatedly, it becomes taken for granted and once stabilised, it is treated as non-negotiable through a continuous learning process. Thus what was once considered as a hypothesis is now considered as a reality.
2.2.1 Development of organisational culture
Schein (2004) views organisational culture and leadership as being two sides of the same coin and that one cannot be understood without the other. According to the author, organisational culture is formed in two ways by acts of leadership. First, when a group is formed one person emerges as the leader. He may be the one who has created the group or the entrepreneur setting up an organisation. As the leader or founder, he will initially impose his personal views, beliefs, values and assumptions on the group about how things should be and thus create compliance in his followers. If the resulting behaviours lead to success, the beliefs and values of the founder will be confirmed and reinforced and will be recognised as shared for the group. As the latter acts on such beliefs and values of the founder and continue to experience success, the group will perceive that what was initially imposed by the founder is the correct way to think, feel and act.
Second, if the founder’s beliefs and values did not lead to success, the group will disappear or new leadership is sought where the beliefs and values will lead to success. The culture formation will thus circle around the new leader. As the group continues to be successful, they become less conscious about those beliefs and values and they treat them as being non-negotiable assumptions. These eventually become invisible and taken-for-granted as they get embedded in the organisation. They thus become part of the identity of the organisation and are taught to newcomers through the process of organisational socialisation.
Figure – Development of organisational culture
Source: From Robbins, Judge and Campbell (2010, p. 468)
2.2.2 Organisational Socialisation
Buchanan and Huczynski (2010) define organisational socialisation as the process through which the behaviour, values, attitudes and motives of employees are aligned to conform them to those of the organisation. Richard Pascale identified that the socialisation process take place through seven steps.
While organisational socialisation ensures the survival and prosperity of the organisation, it can also be used to manipulate members to make them feel, think and behave in certain ways (Schein, 2004)
2.2.3 Diversity of Culture
The development process described by organisational socialisation may result in the formation of a dominant culture that characterises the organisation articulating the cores values shared by most organisational members. It is thus referred to as the organisational culture as it is the macro view of culture, giving the organisation its distinct personality (Robbins, Judge and Campbell, 2010).
However, even though an organisation has a dominant culture, it has been recognised that different subcultures do exist in parallel (Hofstede, 1998; Jermier et al., 1991; Sackmann, 1992). Such cultural subgroupings have been found to be unique in addition to the core values of the dominant culture and they tend to vary with work environments or departments. According to Robbins, Judge and Campbell (2010), subcultures are likely to exist in large organisations, due to department designations and geographical separations.
Various studies in the field have recognised the existence of these subcultures. For example, Sackmann (1992) revealed the co-existence of a homogeneous cultural grouping with different kinds of independent and overlapping cultural subgroupings. Hosftede (1998) showed that subcultures existed while assessing responses about work practices. Jermier et al. (1991) demonstrated the existence of unique subcultures that act as resistance to the official dominant culture.
As dominant cultures and subcultures may have different impacts in organisations, Martin (1992) distinguished three perspectives on culture. These perspectives have been labelled as:
Differentiation perspective and
According to this author, the integration perspective, also called unitary perspective, recognises that an organisation consists of a unified culture with values that are shared across organisational members, leading to improved productivity and profitability. The differentiation perspective sees an organisational culture as a plurality where many groups exist with each one having its own subcultures. The fragmentation perspective holds that organisations are made up of opposed groupings where there are conflicts and where different interest and opinions prevail.
2.2.4 Organisational Culture Typologies and Dimensions
The last three decades have seen various propositions from researchers on the dimensions and attributes of organisational culture. Among those proposition, Dean and Kennedy (1982) identified that cultural patterns and practices were affected by the degree of risk associated with the company’s activities and the speed at which feedback about those activities are received. They found that corporate culture was interlocked by multiple cultural components and that companies fell into four categories (shown in Fig. 4).
Figure – Deal and Kennedy(1982) Organisational culture typologies
Source: Robbins, Judge, Campbell (2010, p.459)
Hofstede (1980) developed the power distance, uncertainty avoidance, individualism/collectivism and masculity/feminity as the four dimensions of culture. While a fifth dimension was added, the Global Leadership Organisational Behaviour Effectiveness (GLOBE) added three further dimensions (Abu-Jarad, Yusof and Nikbin, 2010: p. 38) as proposed by Hofstede (1980).
Handy (1993) used the earlier works of Harrison (1972) to categorise organisational cultures based on the dimensions of centralisation and formalisation (Fig.5).
Figure – Charles Handy categorisation of organisational culture
Sources: From Buchanan and Huczynski (2010; p.119); Robbins, Judge, Campbell (2010, p.460)
Gofee and Jones (2003), shown in Fig.6, used sociability and solidarity to distinguish four types of organisational culture. According to the author, sociability is the degree to which employees value emotional relationships and friendliness towards each other and solidarity is regarded as the degree to which employees value collectiveness to think and act in similar ways.
Figure – Gofee and Jones organisational culture model
Source: From Buchanan and Huczynski (2010; p.120)
Cameron and Quinn (2011) and Denison and Mishra (1995) have proposed the competing value framework (CVF) and Denison Model respectively. The many views expressed by the different authors suggest that organisational culture is extremely complex and thus no framework is inclusive of all the relevant factors.
188.8.131.52 The Competing Values Framework
Research in the field of organisational effectiveness by Cameron and Quinn (2011) led to the development of the Competing Values Framework (CVF). The framework is based on two dimensions (Quinn and Rohrbaugh, 1983). One dimension emphasises flexibility, discretion and dynamism on the one end and stability, order and control at the other. The second dimension lays emphasis on the internal orientation, integration and unity versus external orientation, differentiation and rivalry.
The dimensions produce four quadrants that cluster distinct groups of organisational effectiveness indicators. The quadrants not only compete on the opposite sides but on the diagonals as well.
Cameron and Quinn (2011) state that the four quadrants represent the main organisational forms that organisational science has developed over time and that the quadrant’s name have been chosen according such evolutions. They identify that each quadrant is representative of a cultural type with each consisting of basic assumptions, orientations and values.
Figure – The Competing Values Framework (CVF)
Source: Cameron and Quinn (2011)
Accordingly, the Competing Value Framework (CVF) consists of Hierachy (lower left quadrant), Market (lower right quadrant), Clan (upper left quadrant) and Adhocracy (upper right quadrant) cultural types (Cameron and Quinn, 2011). To facilitate comprehension for business executives, the authors associate a verb to each culture type and are thus referred to as Control, Compete, Collaborate and Create respectively.
Hierarchy (Control) culture
Cameron and Quinn (2011) describes that an organisation of such a culture type is governed by procedures, rules and formalisation. The organisation is well structured with multiple hierarchy levels and consisting of effective leaders ensuring efficient and reliable production. Such organisations focus on stability, rule reinforcement and predictability.
Market (Compete) culture
Organisations in this cluster consider their external environment to be hostile and adopt aggressive strategies to increase their productivity, profitability and market positioning. They conduct transactions with parties such as suppliers to create and sustain their competitive advantage and therefore they function as markets. Such organisations have a result-oriented workplace with much emphasis on winning and achieving goals and targets.
Clan (Collaborate) culture
Teamwork, loyalty, involvement, commitment, shared values and goals characterise a clan organisational culture. It is assumed that a friendly place to work with leaders acting as parents increases commitment and leads to the development of a good internal climate conducive for success.
This type of culture is established to meet the challenges of the twenty first century where organisations have to adapt to new opportunities. Organisations in this quadrant focus on development of innovative products and services and therefore emphasise on a creative, entrepreneurial and dynamic workplace. Individuality, adaptability, flexibility, and risk taking are important aspects of such cultures.
184.108.40.206 The Denison Model
Denison and Mishra (1995) proposed a theoretical model of four cultural traits of effective organisations consisting of Involvement, Consistency, Adaptability and Mission while acknowledging the contrast between internal and external adaptation and the contrast between change and stability. The model is shown below in Fig.7 and is described as follows.
Figure – Denison model of organisational culture
Source: From Denison and Mishra (1995, p. 216)
Participation of all people in the organisation at all levels creates a sense of ownership and responsibility and therefore such organisations foster teamwork and commitment and employee empowerment.
The strong culture that pervade the organisation provide the means for well-coordinated, consistent and coherent behaviour of members of the organisation and therefore leads to stability and conformity.
The capacity of the organisation to respond to external signals and adapt to continuous change in improving the values for customers.
Organisation has a clear purpose with well-defined goals and objectives.
The model proposed by Denison and Mishra (1995) has at the core underlying beliefs and assumptions that are difficult to measure. However, these beliefs and assumptions result in observable organisational practices which are represented by the four cultural traits (Fey and Denison, 2003). These cultural traits have been further expanded to include a total of twelve dimensions (Denison, Haaland and Goelzer, 2004). The model is shown in Fig. 8.
Figure – The twelve dimensions of organisational culture
Last accessed on : 6 Oct. 2012 10:57
Table – Denison model traits, indices, and definitions
Employees are committed to their work, feel a sense of ownership, and have input.
The organisation continually invests in the development of employees’ skills in order to stay competitive and meet on-going business needs.
Value is placed on working cooperatively toward common goals to which all employees feel mutually accountable. The organization relies on team effort to get work done.
Individuals have the authority, initiative, and ability to manage their own work. This creates a sense of ownership and responsibility toward the organization.
The level of cohesion, integration or agreement around values and norms.
Different functions and units of the organization are integrated and are able to work together to achieve common goals.
The organization is able to reach agreement on critical issues. This includes the underlying level of agreement and the ability to reconcile differences when they occur.
Members of the organization share a set of values that create a strong sense of identity and a clear set of expectations.
Organizational capacity to change in response to external conditions.
The organization is able to create adaptive change. The organization is able to read the business environment, quickly react to the current changes, and anticipate future changes.
The organization understands and reacts to the customer, and anticipates their future needs. It reflects the degree to which the organization is driven by a concern to satisfy the customer.
The organization receives, translates, and interprets signals from the environment into opportunities for encouraging innovation, gaining knowledge, and developing capabilities.
Reflects the degree to which an organization has direction and clarity of purpose.
There is a clear strategy that gives meaning, purpose, and direction.
Goals and objectives
Leadership has ‘gone on record’ about ambitious, but realistic goals that are understood and measured.
There is a long-term vision that creates excitement and motivation and is not compromised by short-term thinking.
Source: Kotrba,Gillespie, Schmidt, Smerek, Ritchie and Denison (2012, p.246)
2.3 Organisational Performance
Researchers express various views on the meaning of performance. It can be regarded as simply the record of outcomes achieved (Armstrong 2003, p.478), the accomplishment of work done (Bernadin et al., 1995), or a subject embracing both behaviour and outcomes (Brumbach, 1988). Kane (1996) argues that the concept of performance as an activity goes beyond the combination of effort and ability, the extent of achievement of goals, and the behaviours exhibited by workers. According to the author, performance is the record of outcomes achieved in carrying out a specified job aspect during a specified period.
Dennison (1990) views the definition of performance to be dependent on the stakeholders involved. Stakeholders, such as board directors of companies, view performance in terms of their dividends. Managers view performance in terms of processes and job and goal accomplishments. Other companies such as in Service Deliveries view performance as their abilities to adhere to their defined service level agreement (SLA) or deadlines. March and Sutton (1997) argues that performance is usually considered to the dependent variable and most studies seek to define those variables that affect performance. According to these authors, organisations seek to compare themselves with each other to evaluate their success or failure. Business firms use data such as sales, profits, market share and ratios. Research, faculty prestige, students’ scores are used by universities, while hospitals compare themselves in terms of occupancy rates, cost recovery, mortality rates and so on. These authors also point out that such comparisons ultimately serve to evaluate executives and decide on the allocations of resources in the organisation.
In the organisational research field, the performance construct has mostly been focused on financial performance (Rowe et al., 1995; Conant et al., 1990; Morgan and Strong, 2003). Venkatraman and Ramanujam (1986) argued that financial performance as a narrow performance construct is not enough to reflect the economic goals of a firm and therefore proposed two broader performance constructs – a “business performance” construct which consists of both financial and operational indicators and an “organisational effectiveness” construct which encompasses business performance and the accomplishment of all the important goals held by the multiple stakeholders of the firm. The latter has subsequently been known as organisational performance (Abu-Jarad, Yusof and Nikbin, 2010).
Organisational performance continues to be a contentious subject as organisational researchers have differing opinions about performance (Abu-Jarad, Yusof and Nikbin, 2010; Chien, 2004). According to Rogers and Wright (1998), the subject itself is vague and loosely defined because:
Organisations have different goals and objectives – Performance is viewed differently in terms of efficiency and effectiveness
Dependence on the stakeholders involved
It is construed differently and obtained from different sources
Organisations have different purposes
The subject is multi-dimensional
However, much research in the field seems to relate organisational performance to the ability of the achievement of goals and objectives (Daft, 2000; Ricardo and Wade, 2001).
Performance is closely linked to efficiency and effectiveness. According to Rogers and Wright (1998) effectiveness is related to the achievement of goals and objectives while efficiency refers to resource utilisation in the accomplishment of the objectives. Another close link to the subject is productivity. Productivity refers to the amount of work performed in a given amount of time (Ricardo and Wade, 2001).
2.3.1 Factors affecting Organisational Performance
A firm’s performance is dependent on myriads of factors. A study conducted by Hansen and Wernerfelt (1989) found that a firm’s performance is determined by the economic and organisational components. The organisational components which included organisational culture, organisational climate, human resource practices and leadership styles, were found to impact performance to a greater extent than those of the economic components. A similar research by Tvorik and McGivern (1997) identified that the organisational components impact organisational performance by roughly twice as much as the economic components. In the research studies for improvement of organisational performance, Chien (2004) found that organisational culture was one of the five factors which determine organisational performance.
2.3.2 Measurement of Organisational Performance
As organisational performance is dependent on many factors (Bates and Holton, 1995), many variables can be used to measure organisational performance. Previous researches have utilised variables such as profitability, return on assets (ROA), return on Equity (ROE), sales growth, market share and so on. However, it should be noted that these variables represent a single indicator measure of performance and cannot be used to fully explicate all aspects of the term. Garmendia (2004) argued that an organisation does not only produce profits but also non-financial results such human resource development and innovation. It is thus imperative to take into account all the values and stakeholders in the assessment of organisational effectiveness.
Dyer and Reeves (1994) proposed that organisational performance can be measured in terms of:
Human Resource Outcomes such as absenteeism, turn-over and individual and group performance
Organisational outcomes such as productivity, quality and service
Financial and accounting outcomes such as return on invested capital and return on assets
Stock market performance such as stock value and shareholder value.
The multi-faceted aspect of organisational performance has abounded interest in the use of frameworks such as balanced score cards and aligned balanced scorecards. Kaplan and Norton (1996) supplemented the firm’s financial measure of performance with those of customers, internal business processes and learning and growth perspectives in the balanced score card. Such a tool enables firms to track their financial performance and at the same time align management processes to achieve consistency in vision and action.
The aligned balanced score card developed by Thompson and Mathys (2008) indicated four problems with the application of the balanced scorecard, added two more dimensions to goal setting and showed that such a tool when use effectively can improve leadership and develop high performance management systems (HPWS).
Even though, much of managerial literature on the assessment of organisational performance is based purely in financial terms, other variables can also be utilised. This was demonstrated by Garmendia (2004) where organisational performance was measured in terms of corporate image. Accordingly, in the study of the impact of corporate culture on organisations, the author gathered information on the success of organisations from the standpoint of the image each organisation hold for itself and the image perceived to other organisations in the industry.
2.3.3 Organisational Culture and Organisational Performance
Organisational culture is recognised as one of the factors that impact on organisational performance. It has been recognised that organisational performance is affected by the strength of organisational culture that prevails in an organisation. Thus it has much been hypothesised about the relationship of organisational performance with strong organisational culture.
220.127.116.11 Strong and weak cultures
An organisation’s culture is said to be strong when the core values of the organisation is intensely and widely shared across employees. According to O’Reilly (1989), a strong culture possesses
intensity – the employees are strongly attached to the core values of the organisation
sharedness – there is widespread agreement among the employees about the core values
A weak organisational culture is said to exist in an organisation when the core values of the organisation are slightly held by the employees.
As more employees share and commit to the core values of the organisation, the culture of the organisation strengthens and the greater influence and consistency on behaviour. Thus a strong culture that prevails in an organisation not only unites staffs but directs their attitudes and behaviours (Peter and Waterman, 1982; Deal and Kennedy, 1982) and thus can also be a substitute for formalisation. According to the Robbins, Judge and Campbell (2010), formalisation is the degree to which jobs within the organisation are standardised. A strong culture regulates employee behaviour by creating predictability, orderliness and consistency without management having recourse to written documentation.
According to Buchanan and Huczynski (2010, p. 107) and Saffold (1988), the ultimate strength of a company’s culture depends on the homogeneity of group members, intensity, length and stability of shared experience. This is reinforced by the process of organisational socialisation.
18.104.22.168 Impact of Organisational Culture on Performance
Much managerial literature have recognised that there is a relationship between a strong organisational culture and corporate performance (Buchanan and Huczynski, 2010; p. 111). This has been called the strong culture hypothesis (Saffold, 1988). Companies possessing a strong culture perform better than weak ones and therefore there has been an as
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