Assessment, Evaluation, Improvement: Success through Corporate Culture

Sonja Sackmann

• Publisher: Bertelsmann Stiftung
• Year: 2010
• Print ISBN: 9783892048824
• eBook ISBN: 9783867932356
• Topic: Business
• Subtopic: Business General
• Index: Business

This report by Prof. Dr. Sonja Sackmann, University Bw, Munich, provides an overview of state-of-the-art knowledge with regard to the link between corporate culture and performance as well as approaches that have been used to assess and measure culture in organizations. It discusses different understandings of culture and how they lead to different ways of assessing it. Current methods of culture assessment are compared. The comparison is arranged according to the respective focus on the cultural layer of analyses (e.g., norms, values, beliefs, and assumptions), the origin of dimensions and the purpose of assessment. Most of these approaches are single-method instruments. Along with multiplemethod approaches, they are described and discussed individually, followed by a short assessment of their strengths and weaknesses. In addition, the report provides a more general evaluation of issues related to the assessment of culture and its link to performance, as well as the most promising approaches. These considerations lead to recommendations for the assessment of corporate culture with links to performance.

1. Introduction

In the early 1980s, the concept of culture gained prominent attention by both managers and organizational researchers alike. Methods were developed to understand, assess, and change corporate culture in the hope for better performance and, ultimately, to gain competitive advantage. These hopes were frequently accompanied by managers’ expectations of quick fixes, of gaining control of the corporate culture (Kilmann et al. 1985) and fast changes on the basis of a superficial understanding of the concept of culture applied to organizational settings.

Since that time, the concept of corporate culture has been further refined, though without reaching any consensus on how to best assess or measure it (e.g., Ashkanasy et al. 2000; Mackenzie Davey and Symon 2001). Similar definitions of culture result in different kinds of operationalization by different authors and yield outcomes that are difficult to compare. In addition, stated and expected positive links between corporate culture and performance are to some extent established but still need further systematic investigation.

This report aims to provide an overview of state-of-the art knowledge with regard to the link between culture and performance (chapter 2) as well as to existing approaches that have been used to assess and measure culture in organizations. Chapter 3 discusses different understandings of culture that are based on different interests in culture and ultimately lead to different ways of assessing it. Chapter 4 provides an overview of existing methods of culture assessment arranged according to their focus on the cultural layer of analysis (e.g., artifacts, practices, norms, values, beliefs, and assumptions), the origin of dimensions (e.g., generated by organizational members vs. external experts) and the purpose of the assessment (gaining an understanding of the cultural context and/or intervention).

Most of these approaches are single-method instruments described and discussed in more detail in chapter 5, while chapter 6 focuses on multiple-method approaches to understanding and/or changing corporate culture. These descriptions include the underlying definition of culture, its operationalization, the purpose of its use, the context(s) in which it was applied, potential links to performance with its specific operationalization and results, and a short assessment of its strengths and weaknesses. In chapter 7, we will give a more general evaluation of issues related to the assessment of culture and its link to performance and of the most promising approaches. These considerations lead to recommendations for the assessment of corporate culture with links to performance (chapter 8).

I would like to thank Birte Horstmann and Martin Friesl for their assistance in the research and compilation of instruments and Silke Agricola for her efforts and patience in integrating the graphics, checking references and finalizing the format of this document.

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2. Culture and Performance

The growing interest in the concept of culture among managers was and still is grounded in the hope and assumption that the availability of an additional tool will help to ensure a firm’s success. Several scholars have nurtured this hope in the past. Silverzweig and Allen (1976) observed in their study that changes in culture increased performance in six of eight firms. The research by Ouchi and Jaeger (1978) and Ouchi (1980) suggested that a unitary vision, a focus on humanistic values with a concern for people, and consensual decision-making promotes financial success. Peters and Waterman (1982) attributed superior performance of the researched firms to their specific and “strong”’ corporate culture-findings that were questioned in follow-up studies only a few years later (e.g., Reynolds 1986; Hitt and Ireland 1987).

From a strategic and resource-based perspective, some authors argue on theoretical grounds that corporate culture needs attention because it can be the most important source for sustained competitive advantage (e.g., Barney 1986, 1991, 2002). This argument is based on the notion that a specific corporate culture is difficult if not impossible to imitate by other firms. Should this be the case, the question of what kind of culture supports a firm’s performance and success arises. What are the critical factors, dimensions, or characteristics of a culture that promote success?

While many authors still argue about the contribution of a corporate culture to a firm’s success on theoretical and normative grounds, a growing body of empirical research has addressed the link between corporate culture and performance. The resulting picture of this link is, however, almost as diverse as conceptions about culture. An overview of the literature on organizational culture as a predictor of organizational performance is provided by Wilderom et al. (2000). The authors discuss ten empirical studies that have investigated the culture-performance link. Some of the findings suggest that “strong” cultures have a positive effect on performance-predominantly but not exclusively in the short run-and that a firm’s human orientation is positively related to performance.

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However, the way the concepts “strong”, “culture” and “performance” are defined vary from study to study. A set of other studies suggests that externally-oriented rather than strong cultures have a positive influence on a firm’s performance. Unfortunately, most studies are not directly comparable because they investigate different kinds of firms, industries, and hierarchical levels. Furthermore, respondents are often not representative of the firm, and research designs are mostly cross-sectional rather than longitudinal. The following paragraphs review the results of studies that investigate a culture-performance link.

Denison (1990) studied 34 large firms from 25 different countries using his framework of four culture traits: involvement, consistency, adaptability, and mission. Consistency is defined as widely shared organizational values. The results show that involvement is positively related to short- and long-term performance, while consistency-including consistent management systems-is only positively related to short-term performance and negatively related to long-term performance.

In a later study, Denison and Mishra (1995) used the same culture framework and investigated 764 top managers of the same number of firms in different industries. While all four culture traits were positively related to a return on assets, mission was the strongest predictor with some differences depending on the size of firm. While mission and consistency were better predictors for the profitability of large firms, involvement and adaptability could better predict sales growth.

Chan et al. (2004) used Denison’s culture traits in a multi-industry study of Hong Kong firms. They found that involvement, policy consistency, adaptability and mission were positively related to organizational performance, but only mission and adaptability were positively related to market performance.

Calori and Sarnin (1991) researched the effects of work-related values and perceived management practices on returns on investment, returns on sales, and growth in five French firms. Many of the investigated values and management practices were related to the firms’ growth, but only a few of them were related to profitability. Strength of culture (defined as cultural intensity and cultural homogeneity) was significantly related to a firm’s growth over a three-year period.

Gordon and DiTomaso (1992) collected data from 850 managers in eleven U.S. insurance firms and also found culture strength and adaptability related to short-term performance. Kotter and Heskett (1992), on the other hand, found a moderately positive relationship between culture strength and long-term economic performance. Their research design and data collection method is, however, rather weak. They measured culture strength with only three questions that the 600 top managers of 207 U.S. firms from 22 different industries had to rate on a scale from 1 to 5. These three questions related to the perceived extent of a “style” or way of doing things, the existence of a creed or credo with an attempt to encourage managers to follow it, and management according to longstanding policies and practices.

Using Kotter and Heskett’s database, Sørensen (2002) found that strongculture firms show a more reliable performance in stable environments. This positive effect disappeared, however, in volatile environments.

In their study of 832 employees from 12 service units of a U.S. electric utility firm, Petty et al. (1995) found that teamwork is positively associated with high performance. Van der Post et al. (1998) studied the relationship between organizational culture and performance in 49 organizations in South Africa with 9,471 respondents randomly selected from these organizations. Based on the existing literature, Van der Post et al. developed a questionnaire with 15 culture dimensions and used four financial performance measures (return on average equity, return on average assets, total asset growth rate and share return). Financially, more effective firms differed from those that were not as effective in all of the studied culture dimensions. More specifically, financially successful firms-in comparison to not so financially successful ones-were found to be associated with the following factors:

- a strategic vision

- a regular review of organizational culture and core values against business strategy

- recruitment, orientation, and initial training procedures designed to communicate core values to employees

- the use of communication systems to transmit core values to all employees

Recent studies that apply more sophisticated research designs suggest that culture may have both a direct and indirect effect on firm performance. Koene (1996) identified both a direct influence of employee orientation and openness on performance and an indirect influence via communication. Sin and Tse (2000) studied the effects of organizational culture values on strategic marketing effectiveness and performance in 388 service firms located in Hong Kong. Their findings reveal that organizational culture values affect company performance both directly and indirectly via their impact on marketing effectiveness.

Wilderom and Van den Berg (2000) found only an indirect influence of culture on firm performance via transformational top leadership and no direct effect between their culture variables and firm performance measures. Marcoulides and Heck (1993) also found an indirect effect of an organization’s value system on organizational performance via climate, task organization, and individual attitudes.

Similar and additional results to Wilderom and Van den Berg (2000) originated from the study by Ogbonna and Harris (2000). They investigated the effects of leadership and culture on performance in 1,000 UK-based firms from different industries. Their measure of culture identified four different kinds of culture (innovative, competitive, bureaucratic, and community) and three different leadership styles (participative, supportive, instrumental). While innovative and competitive forms of culture showed a direct, strong and positive relationship with organizational performance, internally-oriented cultures, i.e. communities with an emphasis on integration, internal cohesiveness and uniformity and bureaucratic cultures only had an indirect effect on performance, with bureaucratic culture having a slightly negative association. Deshpandé and Farley (2004), Deshpandé et al. (1993) as well as Den Hartog (2004) obtained similar kinds of results in regard to culture, though applying different frameworks and measures.

Using the four culture types by Cameron and Freeman (1991), competitive and entrepreneurial cultures were positively related to performance in the studies by Deshpandé and colleagues (1993), while bureaucratic and consensual cultures were negatively related. In contrast to Wilderom and Van den Berg’s study, leadership styles only had an indirect but significant effect on performance in the study by Ogbonna and Harris (2000). While supportive and participative leadership styles were positively related to performance, the instrumental leadership style was negatively related. Based on these findings, the authors conclude that culture and leadership influence performance in the described ways and suggest focusing on organizational work practices associated with transformational leadership and leadership in general instead of culture strength (Wilderom and Van den Berg 2000) or management (Ogbonna and Harris 2000).

Den Hartog’s (2004) study of high performance work systems in the Netherlands with 175 questionnaire responses from HR managers revealed positive correlations between innovative culture orientation and five of eight high-performance work practices, and between goal orientation and four work practices. Supportive culture orientation was only related to one of the practices, and rules orientation showed a significantly negative correlation with employee autonomy.

The relationship between culture and the success of innovation was studied by Ernst (2003) in German firms. He investigated panels of six people per firm that were competent in regard to the subject matter and used Cameron and Freeman’s (1991) culture types. The results showed that an ad hoc culture makes a significant non-linear contribution to innovation success and is related to higher technological dynamics. A hierarchical culture, on the contrary, reduces innovation success significantly and is related to lower technological dynamics. The relationship between organizational culture and innovation success was found to be independent of environmental conditions.

Recently, a set of studies using the Denison framework of culture traits started to investigate the possibility of differences between firms located in different nations or regions. Fey and Denison (2003) compared 179 foreignowned firms operating in Russia with the results obtained from the U.S. database. All four culture traits were found to be associated with perceptions of organizational effectiveness. However, the firms operating in Russia showed lower correlations between culture traits and overall performance, employee satisfaction, quality and product development when compared to the U.S. sample. Correlations with market share, sales growth, profitability, and the effectiveness index were higher in the Russian-based sample, with adaptability and involvement being the most important determinants of effectiveness. While mission was more important in organizations located in the U.S., adaptability was more important for firms in Russia.

Denison et al. (2004) investigated potential differences in the four culture traits measured by twelve indices and performance in three regions: North America, Asia, and Europe/Middle East/Africa (EMEA). Even though the three regions did not differ significantly from each other in regard to the four culture traits, correlations between overall performance and culture indices existed for all three regions. They were, however, only significant for North America and EMEA-not for Asia.

The review of studies that investigate culture and performance shows that there is growing empirical evidence of a culture-performance link. Different measures of organizational culture were found to have direct as well as indirect effects on measures of organizational effectiveness and company performance. More recent studies have questioned the benefit of strong cultures in volatile environments, and there is support that an external orientation of an organizational culture is stronger related to market success than is an internal orientation. In addition, the indirect effects of culture on performance suggest paying attention to other factors such as leadership practices.

However, the variety of measures used for culture and organizational effectiveness and company performance as well as the different foci of the studies and their different samples make direct comparisons difficult. In addition, even though more recent studies use sophisticated research designs, they still tend to be cross-sectional. And recently, some authors have debated not only direct and indirect effects, but also reciprocal relationships (e.g., Cooke and Szumal 2000; Burchell and Kolb 2003). Longitudinal studies that investigate the culture-performance link may eventually reveal more details about the nature of the relationship between culture and performance.

The following chapter addresses diversity in the conceptualizations of culture.

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3. Diversity in the Conceptualization and Assessment of Culture in Organizations

The concept of culture originated in the field of anthropology, where more than a century of exploration has still not led to an agreement on a common definition of culture. When the concept of culture was introduced into the domain of organizations and management, this diversity of conceptions of culture remained (e.g., Martin 2002). Different perspectives of culture emerged due to the different professional backgrounds of those who were concerned with culture, and their different interests in the subject matter. Smircich (1983), for example, identified five different themes in organizations and management research that are related to various anthropologicallybased concepts of culture and concepts of organization. These themes imply different definitions of culture in organizations and, ultimately, different ways of assessing culture.

For a better appreciation of this diversity, we will briefly discuss three different conceptualizations. The first one differentiates three different perspectives and “treatments” of culture that are rooted in different paradigms and different interests in regard to the topic (Sackmann 1990, 2002) and lead to different ways of assessing culture. The second one addresses the nature of culture and how researchers have approached it (e.g., Martin 2002). The third one is based on Schein’s (1995) levels of culture, which entail different components of culture and related assessment approaches. These different conceptualizations are summarized in Table 1, which provides a simple listing of the various perspectives and conceptions with no direct link or reference across columns.

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Table 1: Overview of conceptualizations of culture in organizations

3.1 Three different perspectives of culture

Most generally, three different perspectives of culture can be differentiated in organizational and management literature. These perspectives are based on different interests...

Table of contents

• Titel
• Impressum
• To the Reader
• Preface
• 1. Introduction
• 2. Culture and Performance
• 3. Diversity in the Conceptualization and Assessment of Culture in Organizations
• 4. Overview of Existing Assessment Approaches
• 5. Assessing Corporate Culture: Single-Method Approaches
• 6. Assessing Corporate Culture: Multiple-Method Approaches
• 7. Evaluation
• 8. Recommendations
• References
• Websites
• The Author
• The Bertelsmann Stiftung