An organisation’s culture is considered a potential source of competitive advantage, particularly when it enables organisations to do things differently from others facing the same environmental constraints (Barney, 1986; Spender, 1989; Christenson & Gordon, 1999). This paper will critically discuss the contention that an organisation’s culture is a powerful tool that managers can create and use to improve organisational performance. Firstly, evidence suggesting a link between organisational culture and performance will be presented.
It will then be argued that although there is empirical evidence supporting the culture-performance link hypothesis, the relationship is less extensive and consistent than typically envisioned. The reasons for the concept remaining elusive will then be discussed. These being: firstly the lack of a widely accepted definition of culture, secondly, the lack of construct validity in operationalising both culture and performance; thirdly, the absence of a solid theoretical framework and finally the dearth of methodologically sound empirical research cumulatively building on the concept.
It will also be argued that even if organisational culture is a key variable in organisational success that culture may not be managable and managers may not have the power to use this tool. Evidence of a link between organisational culture and performance (C-P Link): Historically, the concept of a link between organisational culture and performance can be traced back to the Hawthorne Studies (Roethlisberger & Dickson, 1939/1975) and to Jaques’ (1951) study of the Glacier Metal Works.
The findings of these studies point to culture potentially being a crucial barrier to productivity. The first explicit investigation of the effect of organisational culture on performance was undertaken by Silverzweig and Allen (1976) where eight case studies suggested a close link between the culture and performance of a company. The performance of six of the companies increased considerably after changes in culture. Problematically, no comparative data was collected due the study focusing primarily on the culture change process.
Large scale quantitative studies have since been undertaken with a wide variety of culture and performance indicators and they point to the performance of organisations being attributable (at least in part) to organisational culture (Wilderom, Glunk & Maslowski, 2000). The extensive writings on organisational culture rest on the premise that the culture of an organisation is a significant key to the success of an organisation.
Empirical literature investigating this premise seems to provide support for the contention that organisational culture is an important tool that can be created and used to improve performance. The suggestion of a causal relationship between organisational culture and performance appeared in the early 1980’s through a number of studies (Ouchi 1981; Pascale and Athos 1981; Peters and Waterman 1982; Akin and Hopelain 1986). These researchers focused on explaining the worldwide success of Japanese firms and their studies gave rise to the `strong culture hypothesis’ (Denison, 1984).
However, this early research is rife with methodological issues. For example most of the studies utilise small samples, inadequate measurement and lack comparison with less successful companies (Carroll 1983; Saffold 1988; Siehl and Martin 1990). Additionally, serious inadequacies in Peters and Waterman’s research were identified by Caroll (1983). Reynolds (1986) also reported a company identified as superior by Peters and Waterman (1982) that produced the same employee responses to a culture questionnaire as two firms with weak performance.
Subsequent studies have endeavoured to overcome some of these shortcomings by including a wider variance in performance, testing the same characteristics across all companies, and increasing sample sizes (Christenson & Gordon, 1999). Research conducted in the 1990’s is of a more quantitative nature and when taken together the studies appear to support the existence of a link between organisational culture and performance. For example Collins and Porras (1994) provide support for the link between culture and performance based on their investigation of a set of eighteen visionary organisations.
Five categories of behaviours utilised by visionary companies were identified and visionary companies outperformed their comparison companies by a wide margin. Another study supporting the contention that organisational culture effects performance derives from the Haygroup’s Employee Survey Databases. The databases contain survey results from hundreds of client organisations. Rollins and Roberts (1998) present a comparison between the survey of work culture results for 20 leading companies with results of the overall database.
The outcome suggests that work culture and organisational performance are linked. Work cultures were shown by values such as insistence on quality, investment in training and emphasis on respect and fairness based on survey questions. Other research relates specific cultural practices to corporate performances. For example, Denison (1990), drawing on data from the Survey of Organizations (Taylor and Bowers 1972), found significant performance correlations with both consistency and performance for the Organization of Work, Emphasis on Human Resources and Decision-making Practices dimensions.
Using the same instrument, Hansen and Wernerfelt (1989) report similar relationships for Emphasis on Human Resources and Emphasis on Goal Accomplishment. Based on surveys of management practices, Gordon (1985) reported that higher performing utilities scored higher than their less successful counterparts on Top Management Involvement, Conflict Resolution, and Human Resource Development, while higher performing financial institutions scored higher on Action Orientation, Venturesomeness, and Encouragement of Initiative.
Denison (1990), using involvement, consistency, adaptability and mission as organisational culture dimensions, found a positive relationship between involvement and short-long term performance of an organization. The study also suggests that consistency is positively related to short-term performance, but negatively related to long-term performance.
Rousseau (1990c) investigated the effect of team and satisfaction -oriented norms and security oriented norms on the amount of money raised for a community, through 32 units of a nationwide voluntary service organisation. The results suggest that a lack of emphasis on security-oriented norms is significantly associated with high performance. Calori and Sarnin (1991) provide further empirical support for the link between organisational culture and performance in their study of five French firms pursuing differentiation strategy.
Twelve dimensions of work-related values, seventeen dimensions of management practices and culture strength were investigated. Performance was operationalised through the average return over three years on investment, sales and growth. The results suggest firstly that there is a positive relationship between culture strength and growth; secondly that many values and their corresponding management practices are related to company growth and finally that only a few values are related to profitability.