Culture on performance
Gordon and DiTomaso (1992) also investigated culture strength as well as adaptability and stability and measured the growth of assets and premiums in eleven insurance companies over six years. This study suggests that culture strength and adaptability are positively related to profitability. Kotter and Heskett (1992) present various studies that support a link between culture and performance. In the first they examine the hypothesis that strong cultures are associated with performance and conclude that culture strength has a moderate positive relationship with long-term, economic performance.
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Their second study exploring the effect of a strategy-culture fit on performance suggests that culture contributes to performance on the condition that the culture fits the environment. Their third study compares twelve companies with performance enhancing cultures to twenty companies without such cultures. The results imply that companies with a performance-enhancing culture outperform companies lacking a performance enhancing culture by a wide margin.
Marcoulides and Heck (1993) also provide convincing support for a link between culture and performance in their study of twenty-six American firms. Dimensions of organisational structure, values, task organisation, organisational climate and employee attitudes were measured along with gross revenue, product value ratios, market share, profit and investment returns. All the cultural dimensions were found to have an effect on performance.
Denison and Mishra additionally report a link between organisational culture and performance and from their research conclude that profitability in large firms is best predicted by stability dimensions such as mission and consistency; that sales can be predicted by flexibility dimensions such as adaptability and involvement and that all cultural traits are positively related to return on assets, particularly mission. Despite the improvements in developing and testing the concept of the C-P link, the empirical studies presented in the 1990’s nonetheless possess serious methodological and conceptual shortcomings.
The major issues include the lack of agreed upon definition of culture; the questionable construct validity in operationalising the two variables in question, culture and performance; the relatively small number of organisations participating in each study; problems with respondents that are not representative of entire organisational cultures; and the direction of the relationship between culture and performance being ambiguous. Furthermore, the studies lack a relationship with each other and thus do not cumulatively build on one another. What is organisational culture?
Ogbonna (1990& 1996) suggests that there are as many definitions of culture as there are experts on the subject (see for example Jaques, 1952; Eldridge & Crombie, 1974; Louis, 1980; Schwartz & Davis, 1981; Gold, 1982; Pacanowsky & O’Donnell-Trujillo, 1982; Schein, 1985; Morgan, 1986; Lorrsch, 1986; Scholz, 1987; Denison, 1990; Kotter & Heskott, 1992; Drennan, 1992; Williams, Dobson & Walters, 1993; & Brown, 1995- all of which provide varying definitions of culture) and that the definition adopted by each researcher is bound up in their view of the world and the methodology utilised.
Ogbonna identifies two extreme arguments based in the conception of the subject. The two stances seem mutually exclusive- one viewing culture as something that an organisation is and the other as something an organisation has. If we view culture as something that an organisation has, culture can be seen as a powerful tool that can shape behaviour and establish premises for decision-making. When culture is viewed as something an organisation is, it cannot be controlled, as it is inseparable from organisation (Ogbonna, 1990 & 1996).
Brown (1995) draws attention to the fundamental distinction between those who think of culture as a metaphor to be developed for understanding how organisations work and those who view culture as an objective entity. Most commentators on the subject of culture tend to regard culture as an objective entity, where an organisation including all systems and processes are elements of its cultural life. However if everything is considered part of the culture, it is impossible to use the concept to frame causal explanations of other aspects of organisational activity.
Another approach to defining organisational culture views the concept as a set of basic assumptions (Schein, 1985). Members of an organisation possess these predispositions and are consequently led to work and think in certain manners. It is clear that there is a lack of agreed upon definition of organisational culture and since the manner in which we examine and research it is contingent upon the definition this has far-reaching implications.
Definitions of concepts employed to help understand organisations are important in that they influence how we approach the phenomena they refer to, and determine operationalisation and measurement. Culture: cannot define it, how do we operationalise it? The operationalisation of organisational culture (the independent variable) is as problematic as its definition and considerably different in each study presented.
Every quantitative study appears to operationalise culture in a different manner, questioning whether culture can be operationalised at all. The variety in the operationalisation of culture is evident in the empirical literature not only when considering characterisations of culture, but also when examining the plethora of questionnaire items utilised. The only dimension that repeatedly surfaces is adaptability and the variation in its opertationalisation and the lack of information in studies prevents an adequate comparison (Wilderum et al 2000).
Clearly, the validity of a link between culture and performance is greatly undermined by the wide array of operationalisms of organisational culture and this in turn questions the construct’s validity and prevents cumulation of a body of knowledge supporting the C-P link. Operationalising performance: The measurement of performance of organisations is also controversial and there is much academic discourse debating the issue (Christenson & Gordon, 1999) In many cases publicly available performance data is not readily available and performance data are not consistent across industries.
For instance Christenson and Gordon (1999) found in their exploration of industry moderated relationships between organizational culture that mutual insurance companies report no clear measure of profit and, therefore, no returns on equity and assets. Given the difficulties of equating variables across industries, and because they wished to include as many industries and firms as possible in the analyses, they focused on revenue growth as a single and narrow indicator of performance.
Thus, some studies are forced to limit the relationship between culture and revenue growth and not to wider aspects of performance such as profitability, adaptability or efficiency Further issues also arise out of the operationalisation of performance. Many organisational performance researchers focus on the rational goal (profit maximisation) when studying profit-seeking firms. The performance is typically assessed using counting based indicators such as returns on assets, sales or equity. These measures are easily accessible and are generally considered comparable across industries.
However, according to some commentators such measures are prone to manipulation, lack of consistency in accounting methods, and they have an orientation which is backward (Brown and Laverick, 1994; Kaplan & Norton, 1992). Of the studies discussed in the C-P link section of this paper, most applied a pure financial performance approach (Calori & Sarnin 1991; Denison, 1990; Gordon & DiTomaso, 1992; Kotter & Heskett, 1992; Marcoulides & Heck, 1993). Rousseau (1990) utilised a unidimensional approach and four used multi-dimensional approach that Wilderom, Glunk and Maslowski (2000) suggest is good practice.
However, the studies that did use multi-dimensional methods did not typically provide a sound theoretical basis for the decision on performance dimensions as required (Denison & Mishra, 1995; Koene, 1996; Petty et al and Wilderom & Van den Berg, 1998). Therefore of the empirical literature supporting a link between organisational culture and performance, the operationalisation of performance is inadequate and lacking in validity, once again questioning the C-P concept. What Theory? The concept of culture continues to be considered by managers and commentators as a key variable in the success or failure of organisational improvement.
However several academics point out that although the concept is entering its third decade, debates about epistemology, manifestations of the concept and appropriate methodology persist, jeopardising the maturity of the concept (DiMaggio, 1997; Martin & Frost, 1996; O’Reilly & Chatman, 1996; Detert, Schroeder & Mauriel, 2000). Detert, Schroeder and Mauriel (2000) claim there is a lack of consolidation followed by systematic empirical investigation concerning organisational culture and upon reviewing the literature it appears to me this is the case.
It is even proposed that unless this hole in the research is addressed, the concept of culture as a driver of organisational performance will cease to exist (Firestone & Lewis, 1998; Pettigrew, 1990; Reichers & Schneider, 1990; Smart & St. John, 1996). The literature provides several different approaches to theorising the link between culture and performance, although none appear to provide an adequate or valid explanation. Consequently, research investigating the link between culture and organisational performance lacks a clear theoretical conception of the phenomenon.
One approach views that an organisation’s culture effects performance and success when culture is based on consensus or culture strength. This serves as a control system and leads to enhancement of the functioning of the organisation. The strong organisational culture is argued to facilitate goal alignment, lead to high levels of employee motivation and is able to learn from its past (Brown, 1995). However, the so-called strong culture theory is rife with flaws. For example, a strong culture may facilitate goal alignment, but this is not useful if the goals are not positive.
It also cannot be assumed that all strong cultures are related to high levels of employee motivation. Brown (1995), for example points out that many UK public services have strong cultures, with less than motivated employees. Additionally, even though the literature presents examples of organisations with both strong cultures and superior performance, the evidence is circumstantial and not adequate to support the culture strength hypothesis. Furthermore, a relationship between two variables is not synonomous with causation or indicative of the direction of the realtionship.
It is possible for example that performance effects culture. The strong culture theory also does not account for the fact that most organisations do not possess one single, unilateral culture. Another theoretical hypothesis postulated to explain the relationship between culture and performance suggests that high economic performance is associated with a strategically appropriate culture. In this case, varying cultures would be appropriate in different competitive environments and for different strategies.
Unfortunately testing this theory objectively is difficult and Kotter and Heskett’s attempt at doing so contains the methodological flaws discussed earlier. Additionally, there are conceptual issues such as accounting for changes in the environment, which would require organisations to also be culturally adaptive. The concept of adaptiveness relates to Denison’s (1990) framework that includes an adaptability hypothesis, stating that a culture that allows an organisation to adapt to changing demands will promote effectiveness.
Dennison’s presents an explanatory framework encompassing involvement, consistency, adaptability and mission. However Denison’s theory like, Kotter and Heskott’s general features of the culture of organisations associated with economic success, is a “one best culture” framework, which is problematic (see Brown, 1995 for further explanation). Other researchers have postulated that the culture-performance link may be moderated or contingent upon some other variable such as the industry of the organisation.
For example Christenson & Gordon, (1999), report the existence of cultural practices that are industry specific, suggesting that the C-P link is not universal. It is clear from a brief discussion of C-P theory that there is an absence of a solid conceptual framework. Lim (1995), based on an analysis examining organisational culture and performance via a discussion of models of culture and empirical research conducted to investigate causal relationships between them reiterates that the culture-performance link remains unclear.
There is a desperate need to improve on the application of the concepts involved and focus of methodological issues. Cumulative empirical research, based on a theoretical framework is required to validate the culture- performance concept. Can all managers create and use an organisation’s culture to improve organisational performance? If subsequent research shows that culture does affect performance, it is likely that creating, changing or using culture will be a difficult task. Depending on the conceptual viewpoint adopted, it could be considered impossible.
For example, Krefting and Frost (1985 In Ogbonna, 1996) argue that culture simply exists and cannot be managed or created, because by definition assumptions exist without the individual being aware. Even commentators who believe that culture can be managed point to the difficulties in doing so (for example Uttal, 1983 & Fombrun, 1983. In Ogbonna, 1996). Morgan (1997) also argues that managers can never control culture, but can influence others by being aware of their actions and fostering desired values.
It is also important to note that not all managers have the expertise or leadership qualities to exercise adequate influence on others to create change. In conclusion, the contention that an organisation’s culture is a powerful tool that all managers can create and use to improve organisational performance is not supported by the literature. Although empirical studies appear to support a link between organisational culture and performance there are several issues which question the validity of such research.
There is a lack of solid definition of organisational culture, there is no clear operationalisation of culture, the operationalisation of performance has been typically questionable and there is a lack of a conceptually sound framework. It is only when these challenges are tackled, and studies are more methodologically sound that research investigating the culture performance link can more effectively establish the predictive effect of organisational culture on performance. Following this, the challenge will be to determine if culture can actually be managed and to make the tool available to all managers to utilise optimally.