Effect of Corporate Culture on Organizational Performance - Case Study Example

Effect of Corporate Culture on Organizational Performance Student’s Name: University: Effect of Corporate Culture on Organizational Performance Introduction Culture has been defined as a set of ideas, skills, customs, and arts that a given population practices over a given period. Different organizations have different corporate culture. These corporate cultures have been thought to have an impact on an organizations performance. Social anthropologists have in the past been fascinated by the entire issue of corporate culture and its impact on organizations performance. The interest that people and in this case researchers pay on the issue of corporate culture, shows the very fundamental role that it play. Most people who have ventured into this research have indicated that there exist a positive correlation between corporate culture and organization performance. Shields (1997) reported that profitability and effectiveness sand as strong organizational goals. As said by him, the most essential aspect in organization culture is the various values and attitudes of its employees. Corporate cultures have a strong impact on those that work or are involved in running an organization (Venkatraman & Prescott, 1990). They are in most cases invisible, but, yet form an important component in as far as organization performance and profitability are concerned. Despite the fact that a number of organizations don’t lay enough emphasis on the issue of corporate culture, it has been shown that it has some positive on organizational performance. This paper gives a concise look at the literature that surrounds this topic. In this section, focus will be put on different arguments and evidence that authors bring forth in relation to this topic. Arguments from authors that do not agree with the topic will also be looked. Similarly, areas that require further studies and research will be indicated. Literature review In business, there has always arisen the question as to why a few organizations succeeded while a number fail desperately. Similarly, the question on whether corporate culture affects organization performance has been predominant (Burns & McKinnon, 1993; Gordon & DiTomaso, 1992; Carroll, 1982). Organization performance is a fundamental aspect in any organization be it for profit making or non-profit one. It is thus of utmost good that business managers get an understanding of the various aspects that have some bearing on an organization’s performance. This will assist in taking appropriate steps. Corporate culture is such a factor. According to Steensman and Corley (2000) aspects such as innovation and a cohesive nature of an organization are major determinants of an organizations performance. It should be noted from the outset that organization which are cohesive and have a culture of collective success, can be very successful. According to these two researchers, corporate culture is far much than just an imperative element of an organization. It instead is the most vital driver of highly celebrated organization. In their journal which is called “Strategic Management Journal”, Venkatraman and Prescott (1990) highlighted that an organization corporate culture affects almost every activity that such an organization does. Corporate culture is simply the hub of what organization is, how it carries out its operation, what its focus is on, and the treatment it accords its employees, customers and other stake holders. In this journal, it is clearly stated that professional research covering well over seven thousand organizations indicated that there is a notable relationship between organizational culture and organization performance. The research took it sample from a population of all senior management team in all the organization. About 35 measurement criteria produced positive correlation between corporate culture and performance. These included a measure on return on capital invested, growth of revenue over time, customer rate of retention, and employee performance among others. In the same line Thomas and Ramaswamy (1996), Gordon and DiTomaso (1992) discovered that organizations with performance boosting and oriented cultures, improved their net revenue by about 75 per cent within a period of one year. This was so, compared to a meager 1 per cent increase in net returns, in organizations that lacked such corporate culture. This by itself is true evidence that supports the fact that corporate culture in whichever organization will always serve to improve its performance over time. With a similar argument are Ittner and Larcker (1998) who argue that an organizational culture and structure has a role to play on how an organization responds to innovative ideas in the industry. It also guides on the organizations ability to successful implement such an idea. Many organizations are still tied by their corporate cultures that are either barriers to or hinder innovation. This by extension affects the organization performance and ability to meet set objectives. An aspect that is commonly viewed as important is how employees view their jobs. This view represents an attitude, as opposed to behavior. It thus has some relevant bearing on employees’ mental health and physical wellbeing and by extension has an effect on an organization’s performance. As such, employees’ attitude toward their job is a determinant that can be successfully used to show the relationship between corporate culture and performance (Burns & McKinnon, 1993; Gordon & Di Tomaso, 1992; Carroll, 1982). Similarly, a culture of employees’ commitment to the organization has some impact on organization performance. The extent to which organizations’ employees are willingness and able to put effort so as to achieve organizational goals and objectives, determine their success (Davis et al, 2000). Employees’ commitment to the organization can be improved through the use of intrinsic incentives. It should be noted that such increased employees’ commitment is necessary in the retention of eminence employees (Snow & Hrebiniak, 1980). Organization employees who show high levels of commitment often have high morale and increased motivation. These employees have the tendency of staying in their employment, and, thereby reducing instances of labor turnover (Steensman & Corley, 2000). By extension, this causes improved organization performance and goal achievement. It is of much importance to note that, the literature that is there with regard to whether corporate culture has any effect on organization performance is somewhat inconsistent. For instance, Arthur (1994) associated management practice and applications in his research with the essential assumptions and attitudes that management was a paramount but in most cases neglected area when studying organization. Organization performance is in most cases influenced by values and attitudes held by the employees and other important stakeholders of such an organization. He hypothesized that any organization is said to have a strong ‘culture’ if its employees have sturdy shared values among themselves. The magnitude of strength with which corporate values are held among organization employees is in most cases a show of how the organization is likely to performance in future (Burns & McKinnon, 1993; Gordon & DiTomaso, 1992; Carroll, 1982). This argument is meanly true in financial performance. In a similar line, Gordon and DiTomaso (1992) in their study support the argument that a strong corporate culture determines the short-term organization performance. Ghalayini and Noble (1996) furthered a claim that high performing organizations can easily be distinguished from their low performing counterparts in that they posses specific cultural traits and strong corporate culture. In the same way, Barlow (1999) holds the view that an organization performance can be improved by adopting a culture of strong shared values and attitudes. However, these proposals were criticized by Galbraith and Scendel (1983), Barney (1991) and Doyle (1994) who argued that by setting a rather simple model to explain the relationship between corporate culture and organizational performance is no longer feasible in the current business world. The argument is that a more refined understanding of the relationship between these two organizational factors needs to be established. Conclusion Research showing the relationship between corporate culture and organization performance has been on an increasing trend especially in the last ten years (Brush & Vanderwerf, 1992). Very extensive and quality research has been carried out all over the world (Burns & McKinnon, 1993; Gordon & Di Tomaso, 1992; Carroll, 1982). A big number of corporate culture indicators together with performance indicators have been put to use to try and come up with a conclusion. The general attitude that is common in most researchers and studies done is the fact that most of them believe organizational performance is a function of corporate culture (Chien, 2004). The arguments presented by most researchers indicate that there exist a positive correlation between corporate culture and organizational performances. However, some people who engaged in the same research thought differently. Snow and Hrebiniak (1980) held the opinion that it would be better for organizations to looks for ways of narrowing the gaps between what employees want to have as culture and what an organization practices. The target population in a study like this should not be limited to organization managers and administrators. In the contrary, a conclusive and reliable study should involve employees since they interact with the organization corporate culture more often. Empirical evidence to support the thesis that corporate culture improves organizational performance is still very limited. Further studies should be carried out in this area and attempt to answer questions such as the impact of corporate culture on nonfinancial organizational aspects. References Arthur, J. B. (1994). Effects of Human Resource Systems on Manufacturing Performance and Turnover. Academy of Management Journal, 37(3), 670-687. Barlow, J. (1999). From craft production to mass customization; innovation requirements for the UK housebuilding industry. Housing Studies, 14(1), 23-42. Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 1(17), 99-120. Brush, C. G., & Vanderwerf, P. 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(1996). Matching Managers to Strategy: Further Tests of Miles and Snow Typology. British Journal Management, 7, 247- 261. Venkatraman, N., & Prescott, J. E. (1990). Environment-Strategy Coalignment: An Empirical Test of Its Performance Implications. Strategic Management Journal, 11(1), 1-23. Read More