The influence of corporate culture on organizational performance

The influence of corporate culture on organizational performance 2009 The influence of corporate culture on organizational performance A paper based on an undergraduate degree final year project Prepared by Minnie Njeri Karanja 1 The influence of corporate culture on organizational performance Contents 2009 Executive summary (Abstract) ............................................................................................ 3 Background .......................................................................................................................... 4 Topic discussion .................................................................................................................. 5 Literature review.................................................................................................................. 6 Introduction to corporate culture .................................................................................. 6 Influence of corporate culture on organizational performance .................................... 8 Corporate Culture Management ................................................................................... 9 Proposed corporate culture management framework ................................................. 10 Communicating corporate culture .............................................................................. 11 Research methods .............................................................................................................. 13 Findings ............................................................................................................................. 14 Conclusion ......................................................................................................................... 15 References ......................................................................................................................... 15 2 The influence of corporate culture on organizational performance Executive summary (Abstract) 2009 The influence of corporate culture on organizational performance is more crucial than most organizations realise. Corporate culture does not only influence the reputations of organizations but in fact plays a key role in the actual returns on investment by affecting the implementation of the organizations‟ strategies and plans. Companies need to be open about their corporate culture. When staff members don't know the entails of their organization‟s culture, they end up obtaining information by listening to rumours spread by their fellow colleagues or outsiders. In effect, the company ends up paying them to be stressed and/or paranoid, as opposed to paying them to work. Educating staff members on the culture of their organizations is not only for their benefit - to increase their job morale through reducing stress and paranoia - but for the benefit of the organization as well; it is the staff members who carry out strategies and deal with the day-to- day activities that eventually add value to the organization. The findings of the research conducted indicated that many organizations despite recognizing the role of corporate culture in organizational performance, do not manage it. A handful of them go only as far as formulating and documenting cultures which unfortunately do not leave executives‟ offices or board rooms while others simply do not care for it and for that matter have no defined cultures in their workplace. Information about organization cultures continues to be treated akin to a top secret in organizations so that only selected top executives have access to. Educating employees on the culture of their organizations is a vital component of corporate culture management that most organizations have overlooked. The focus of this paper is therefore to highlight the influence of corporate culture on organizational culture and the importance of disseminating information about the culture to organizations‟ stakeholders – employees in particular. 3 The influence of corporate culture on organizational performance Background 2009 While researching into this topic, I happened to hold a casual conversation with one of my colleagues about a personal business he used to run with this brother back in his country before he stopped so that he could pursue a degree abroad. I asked him whether while running the business he had a corporate culture for his company defined and whether he thought of it as necessary and important. “…What for? All the employees were from there!” came his answer his expression unbelieving that I could ask such a question. My friend felt justified not to have a corporate culture defined as he expected every employee to inhibit within themselves typical habits and patterns of thinking and behaviour that were instilled in them while they were still children and shaped while growing up. He simply believed that every employee was brought up in the same manner which was similar to his up bringing and would get along just fine. An oft repeated phrase is that “Every human being is unique.” Were it not for this fact there would be no need for any organization whose employees descend from the same country to define an organizational culture. Despite being raised in the same house-hold or social surroundings, human beings carry within themselves unique patterns of thinking and behaviour that are dissimilar to others; no two human beings have comparable patterns of thinking and behaviour. Although some people might argue that people from the same country understand each other better, there is no assurance that there will be flawless and efficient understanding among them. Employees from the same country will certainly understand where their fellow colleagues are coming form but not necessarily agree with their manners of behaviour or thinking. On the same note, consider a multinational organization which employs individuals from various parts of the world. Here we‟re talking about an organization that has Japanese, Chinese, French, Germans, Africans, Americans, Britons and Australians, for example, working together to add value for the organization. In such a situation it is not difficult to envision the number of possible misunderstandings that would occur in one typical working day. Each individual will have varied patterns of thinking and behaviour hence will interpret problems differently and consequently 4 The influence of corporate culture on organizational performance 2009 propose varied solutions for them. Imagine what would happen if employees were left to their own devices to add value to the organization and hence no organizational culture was defined. What would the chances be of any value being created when firstly, they are not familiar with the cultural background of their fellow colleagues and secondly, they do not know how they are expected to do things around the organization? Topic discussion The merits of defining corporate cultures in organizations and communicating them to organizations‟ employees are apparent and it is therefore the focus of this paper to point out what many organizations have neglected: The influence of corporate culture on organizational performance and consequently the significance of educating employees on the culture of their organizations. Corporate culture in organizations governs how employees at all levels in the organization, top, middle and lower level, carry out their activities, relate with each other within the organization and outside, relate with the organizations‟ clients and other stakeholders as well as dictate the general direction of the organization in terms of strategies and plans to accomplish the mission and vision of the organization. The culture of an organization is only as useful in adding value to the organization to the extent that it is not kept secret but revealed to every employee at every level in the organization. A common mistake that many organizations make is creating well defined corporate cultures only to keep them locked away denying the information from people in the organization that need it the most; middle and lower level employees. Although it is the top management that makes the shots hence devising strategies and plans that drive an organization, these would be nullified and written off if the middle and the lower level employees did not implement them or implemented them incorrectly. Organizations have the capacity to increase their profit margins tremendously through their corporate cultures. Simply ensuring that every employee in the organization is knowledgeable of the organization‟s expectations, the organizations‟ best laid strategies would just but be executed 5 The influence of corporate culture on organizational performance 2009 successfully and yield the expected results. Employees would be confident in their dealings and clients, if also knowledgeable of the organization‟s culture, would have confidence in the organization as whole. Corporate culture could in fact be termed as the backbone of modern organizations competing either globally or locally. An organization‟s culture gives it an edge against its competitors as its development gives the organization an opportunity to evaluate the effectiveness of the existing cultures in the organization in attaining its goals and defining news ones where existing ones are found lacking. Literature review “A fish discovers its need for water only when it is no longer in it. Our own Culture is like water to a fish. It sustains us. We live and breathe through it.” Trompenaars and Hampden-Turner (1998 p.5) Introduction to corporate culture Prior to understanding “corporate culture,” it‟s vital to comprehend what the term “culture” on its own means. Culture is “the way of life” of an individual, a group of people with similar interests, a community, or a nation. Hofstede and Hofstede (2005 p. 2) distinguish that every person carries within him or herself patterns of thinking, feeling and potential acting that were learned throughout their lifetime. These patterns of thinking, feeling and potential acting make up an individual‟s culture. Much of one‟s culture has been acquired in early childhood, because at that time a person is most susceptible to learning and assimilating. Similarly, organizations have cultures that define them - cultures that govern their patterns of thinking, feeling and potential acting. According to Grant (2005 p. 216) Culture in an organization can be viewed as a mechanism of achieving coordination and control in an organization. Corporate culture plays an important role in facilitating both cooperation and 6 The influence of corporate culture on organizational performance 2009 coordination. In large decentralized corporations such as Royal Dutch/Shell, Accenture, and Matsushita, strong corporate cultures create a sense of identity among employees that facilitates communication and the building of organizational routines, even across national boundaries. Brown (1998 p. 89) on the hand, expresses the role of corporate culture in fostering coordination as „glue‟ or „cement‟ that bonds organizations together. He continues to state that a common culture promotes consistency of perception, problem definition, evaluation of issues and options, and preferences for action. The unifying influence of corporate culture is likely to be especially useful in assisting coordination through mutual adjustment in large cross-functional teams of the type required for new product development. One of the advantages of culture as a coordinating device is that it permits substantial flexibility in the type of interactions it can support. Schein (1990 cited in Grant 2005 p. 216) describes corporate culture to comprise of beliefs, values and behavioural norms, which influence how employees in organizations think and behave. These values, beliefs and behavioural norms can be manifested in symbols, ceremonies, social practices, rites, vocabulary, and dressing. For an organization to take advantage of the benefits of corporate culture, it must recognize that each individual brings into the organization unique patterns of thinking, feeling and potential acting and behaviour. An organization must then work to synchronize these various individual cultures with its own culture - both must converse in a one language, so to speak. This most of the times calls for a compromise on both the employer and the employees. The process of developing a culture that is acceptable to both parties forms a critical part of corporate culture management which will be discussed later in this chapter. While implementing an organization‟s culture for the first time or changing it, Hofstede and Hofstede (2005 P. 2) caution organizations that as soon as certain patterns of thinking, feeling and acting have established themselves within a person‟s mind, he or she must unlearn these before being able to learn something different, and that unlearning is more difficult than learning for the first time. The successful implementation of a culture in an organization, among other factors, is determined by how well the organization deals with the different cultural backgrounds of the employees to synchronize them with the organization‟s domain culture. 7 The influence of corporate culture on organizational performance 2009 It should also be noted that the components of a culture form the core of a successful organizational culture. Grant (2005 p. 217) emphasizes that the extent to which corporate culture assists coordination depends on the characteristics of the culture itself. This he emphasizes with an illustration of the Los Angeles Police department‟s culture of professionalism and militarism, which made it one of the most admired and effective police forces in America but later contributed to problems of isolation and unresponsiveness to the community needs. The problem that arose here was not that the organization failed to manage its culture but that the characteristics of the culture itself were flawed. Influence of corporate culture on organizational performance Corporate culture has both the capacity to aid in the realization of an organization‟s goals and objectives as well as hinder efforts of achieving them. Bennet (1996 P. 118) elucidates that the positive aspects of an organizational culture are that it furnishes employees with a sense of corporate identity, helps generate commitment to the attainment of organizational goals, provides employees with a frame of reference through which to evaluate issues and, by influencing individual perspectives and perceptions stabilizes interpersonal relationships within the firm. Equally, however, an organization‟s culture might induce high resistance to change, encourage bureaucracy and inflexibility, and lead to short-sighted thinking within the firm. Change mainly occurs because organizations‟ needs and activities regularly alter, but its underlying culture might remain constant. A culture that fosters high resistance to change may restrain an organization from achieving its goals and quite easily lead to its downfall in desperate times such as in recessional periods. Also, the successful implementation of an organization‟s strategy, while dependent on other external factors, is determined by the prevailing culture in the organization; whether the culture itself has the capacity to support and nurture the strategy or not. Organizations cultures should be agile enough to support company strategies as often as they change and the employees should be able to change and accommodate the needed culture for the success of the organization. In addition to directly influencing the ability and capability of an organization in achieving its goals, Beach (1993 cited in Brown, 1998 P. 211) notes that an organization‟s culture may very 8 The influence of corporate culture on organizational performance 2009 well exert an influence over the strategies it pursues; strategic analyses are never value free. Beach concurs with Hofstede and Hofstede (2005 P. 2) that people carry within themselves traditional or habitual patterns of thinking, feeling and potential acting and this undoubtedly affects their ability to contemplate new options and new solutions. For example, organizations typically exist in highly complex and dynamic environments in which trends are difficult to discern. Under these conditions, selective perceptions can mean that organizations in the same market but with different cultural assumptions can interpret their environment significantly different; giving rise to radically opposed strategies. Brown offers the example of two large clearing banks whereby one might interpret a competitive environment as favourable to an expansion of its internal division, while the other might decide on retrenchment. The decision regarding which strategy to follow will depend in part on what information has been selectively focused on, how this information has been interpreted, the values and assumptions of the organization, and the power relationships between sub-cultures. Corporate Culture Management Corporate culture management in organizations has increased in the recent past due to numerous factors that are encouraging organizations all around the world to change their strategies and consequently their cultures. Brown (1998 p.162) cites some of the factors that have led to changes in culture include rapid advances in technology, a tremendous expansion in the rate at which knowledge is being generated, increasingly rapid product obsolescence, demographic changes, a new-found interest in the quality of working life, and new trade legislations. There have been considerable debates according to Brown (1998 p. 161) concerning whether culture can effectively be managed, much of the debate centring the extent to which a culture can be modified to resemble a pre-stated ideal. Brown however, warns that the effective management of a culture requires the ability both to introduce change and to maintain the status quo. Cultures are highly dynamic entities which are prone to change as a result of a variety of internal and external prompts; thus for it to be convincingly argued that managers can manage culture it must be shown that they can act to prevent changes as well as induce it. 9 The influence of corporate culture on organizational performance 2009 Consider the illustration by Hellriegel & Slocum (2004 P. 419) of the Disney Corporation after Walt Disney‟s death in 1996 which was a major blow to the corporation. His image and reputation were almost “alive” at the company‟s studios in Burbank, California. Managers became overly cautious about making changes, oftentimes asking “What would Walt have done?” Disney‟s performance began to slide as these “hero worshipers” continued to produce films that were outdated in terms of moviegoer preferences. The managers in this case lacked the capacity to induce needed change. When Michael Eisner joined Disney, however, as CEO, tables turned when he reassigned and replaced many mangers. As a result, many of the new managers, most of whom had never met Disney, begun to create a culture that was more risk taking and ambitious. Eisner had the capacity to induce the change that was needed to improve the performance of the corporation. Proposed corporate culture management framework Having evaluated two corporate culture management guidelines developed by Kilmann (1984 cited in Brown 1998 p. 164) and Wilkins and Patterson (1985 cited in Brown 1998 p. 164) in this research, the following is a suggested corporate culture management framework that is suitable for all sorts of businesses ranging from small, medium and large ones such as national and multinationals corporations. The framework is in form of a set of questions that an organization‟s management should answer while establishing a new organizational culture or reviewing an existing one to ensure that it is supportive of its endeavours of adding value to the company. 1. What should the company be doing to attain its mission? This question marks the first step in managing the organization‟s culture. The question refers to the strategies that the organization should pursue in order to accomplish its mission and vision. 2. What is the organization’s existing culture (s)? Having defined the strategy (-ies) to govern the direction of the organization, the organization‟s management needs to unearth existing cultures in the organization. It should be made clear here that the cultures sought out here are not only the dominants ones but also other small cultures that exist in the organization. The purpose of identifying is to weigh them against the defined 10 The influence of corporate culture on organizational performance 2009 strategy (-ies) to ensure that there‟s a match between the two; that the culture supports the defined strategy. 3. Does the existing culture(s) support the endeavours involved in attaining the organization’s mission? This step is reactive to the previous one. While the objective of the previous step is to bring into light the organization‟s current culture(s), this step of the framework evaluates the match between the organization‟s strategies and the existing culture; finding out whether the existing organizational culture(s) has the capacity to support the strategies out lined for the attainment of the organization‟s mission. 4. What’s the new culture that should be developed to achieve and sustain the organization’s mission? Having evaluated and decided on whether the existing organizational culture confers the support needed to achieve the organization‟s mission, the next step is to develop a new culture in instances where the existing one does not provide the support required. In cases where the existing culture offers the support required, the organization‟s management could in this guideline, find ways of enhancing it to further benefit from it. 5. What is the plan of action to close the culture gap - differences between existing and new culture. The resulting gap between the old and the new culture needs to be closed as the last step in this corporate culture management framework. This is the most crucial part of it all and entails ensuring a smooth transition from the old to the new or enhanced culture. It involves communicating and encouraging employees to embrace and support the new culture. Without the support of the employees all the previous tasks would have been undertaken in vain. Communicating corporate culture 11 The influence of corporate culture on organizational performance 2009 Communication is the backbone of corporate culture management; failing to communicate the entails of an organizational culture defeats the purpose of developing one. In regard to communicating an organization‟s culture, Ebert and Griffin (2005 P. 154) insist that for a firm to use its culture to its advantage, managers must accomplish several tasks, all of which hinge on effective communication. Firstly, managers themselves must have a clear understanding of the culture. Secondly, they must transmit the culture to others in the organization. Thus, communication is the aim in training and orienting new comers and finally, managers must maintain the culture by rewarding and promoting those who understand it and work toward maintaining it. It should be noted, however, that there are numerous means by which employees in an organization obtain information about an organization‟s culture. A well known anthropologist Edward T. Hall, according to Rodrigues (2001 P. 5) identified that culture is learned through formal, informal and technical means. Means of learning Description “Formal activities are taught by precept and admonition. The adult mentor moulds the young according to patterns he or she has never questioned.” (E.T. Hall P.68 cited in Rodrigues 2001, P.5) Formal learning Informal learning “The principal agent is a model used for imitations. Whole clusters of related activities are learned at a time, in many cases without the knowledge that they are being learned at all or that they are the patterns or rules that govern them.” (Ibid P.69 cited in Rodrigues 2001, P.5) “Is close to being a one-way street. It is usually transmitted in explicit Technical learning 12 The influence of corporate culture on organizational performance 2009 terms from the teacher to the student, either orally or in writing.” (Ibid P. 71 cited in Rodrigues 2001 P.5) Table 1.0 Means of learning an organization‟s culture. Some organizations display the usage of all the three means of passing information about their culture to their employees while some use only one or two of them. Wall-mart for instance, displays the use of both formal and technical learning of the company‟s culture. According to Ebert and Griffin (2005 P. 154) one of Wal-Mart‟s methods is to regularly assign veteran managers to lead employees in new territories - representing the use of formal learning. Technical learning is illustrated when weekly messages are delivered for all continental employees to update them on what‟s going on in the firm; the employees can either listen to the messages on a closed circuit broadcast or call an 800 telephone number and hear a recorded version at their own convenience. Research methods The research methods that were applied in this research included questionnaires, interview and case studies. Questionnaires were distributed in various organizations in Malaysia as well as a medium sized consulting and community development organization located in Nairobi, Kenya. The questionnaires primarily aimed at determining whether employees in organizations were knowledgeable of their organizations‟ culture. The interview was conducted exclusively with one of the top managers in the consulting and community company. The aim of the interview was to obtain information on how the company sensitized its employees with the organization‟s culture and most importantly to determine the attitude of the company on the importance of educating employees on their organizational culture. 13 The influence of corporate culture on organizational performance 2009 Lastly, case studies were carried out and included a research into Toyota and Google corporations on their practices of sensitizing employees about their respective corporate cultures. The choice of the companies were especially vital in ensuring validity of this research paper, as one can clearly note, these two corporations do not only serve in two entirely different industries but also have two opposing cultures that vary tremendously. Findings Research carried out revealed that of the four categories of respondents: managers, supervisors, subordinates and staff, knowledge of a company‟s culture deteriorated, in order, from the managers to the supervisors, to the subordinate and finally down to the lower level staff; top managers were more knowledgeable of the organizations culture than were lower level employees. More than half (78%) of the managers knew their organization‟s mission, values and beliefs while only a mere 20% of the staffs, who were the majority respondents, knew their organization‟s culture. Of the respondents who were knowledgeable of their organization‟s culture, 93% of them believed that their organization‟s culture had greatly influenced their organization‟s performance. Research on Toyota and Google disclosed that they both have serious considerations for their corporate cultures. Corporate culture management in these organizations is treated with utmost importance with an understanding of its power in adding value to the organizations. Toyota did not only have schools where the company‟s culture was taught but also took an extra step in ascertaining that their culture was carried forth from generation of employees to generations through ensuring that only those who were recruited into the company were ready to emerge themselves into the culture. Google on the other hand secured their culture best as they could with the same understanding of its influence on the organization‟s performance. Although Google does not have a university where its culture is instilled, it is in possession of a chief culture officer, who is also the human resource manager, whose aim is to nurture and uphold the organization‟s culture. Ms. Sullivan 14 The influence of corporate culture on organizational performance 2009 (the current Chief Culture Officer) works with employees at all levels day- to - day to ensure that employees are knowledgeable of the organization‟s culture and are living it up. Conclusion The influence of corporate culture on organizational performance is widely recognised. However, it is surprising to find that many organizations albeit acknowledging the pressure that corporate culture exerts on an organization‟s profit and loss figures do no more than document their culture in black and white and lock them away in files that are never read. This paper has revealed what organizations without defined corporate cultures are missing out on; an opportunity to hit high notes with far less resources than they are presently utilizing. It should be emphasized however that its not enough to define an organization‟s culture – managing the culture is as vital as formulating one and a critical part of managing an organization‟s culture is communicating it to the organization‟s stakeholders, employees in particular as they are the ones who carry out the day to day activities that ultimately add value to the organization. References Bennet Roger, (1996) Corporate Strategy and Business Planning, Pitman publishing, Great Britain Brown Andrew, 1998, Organisational Culture 2nd edition, Prentice Hall Great Britain. Business dictionary.com, subculture definition, available at: http://www.businessdictionary.com/definition/subculture.html [Accessed 31st March, 2009] Ebert J. Ronald and Griffin W. Ricky, (2005) Business Essentials, International edition, fifth edition, Prentice-Hall Pearson education, Inc., Upper Saddle River, New Jersey, United States of America. 15 The influence of corporate culture on organizational performance 2009 Grant M. 2005 Contemporary strategy Analysis fifth edition, Blackwell publishing Ltd. Oxford UK Hellriegel Don & Slocum John W., (2004) Organizational Behavior, Thomson South-Western, Canada Hofstede Geert and Hofstede Gert Jan 2005 Cultures and organizations: Software of the mind McGraw Hill USA Rodrigues Carl, 2001, international management: A cultural approach, second edition, SouthWestern college publishing, Cincinnati, Ohio, United States of America. Trompenaars Alfons and Hampden -Turner, 1998, Riding the waves of Culture: Understanding diversity in global Business 2nd edition, McGraw -Hill, United States of America. 16