Introduction researchers defines it as “the system of


The concept of organisational culture as a predictor of financial
performance has gained vast amounts of attention from both executives and organisational
researchers since the early 1980s, with research continuously improving in its
depth, global reach, and sophistication (Sackmann, 2010).  While various hurdles made it difficult for
researchers to establish a direct link between culture and performance in the
past (Barney, 1991; Wilderom, et al., 2000) the
amount of research done on the topic since 2000 ‘demonstrates that the interest
in culture and performance is still alive and strong’ (Sackmann, 2010). Some of the most
influential organisational culture researchers defines it as “the system of collective
values that distinguishes the members of one group from another” (Hofstede, 1980) or “a pattern of
shared basic assumptions learned by a group as it solved its problems of
external adaptation and internal integration (…) A product of joint learning.” (Schein,
2010, p. 18)
Meanwhile, a holistic definion covering commonly
held beliefs, values, norms and practices across an organisation emerges
throughout 55 empirical studies done between 2000 and 2010 (Sackmann, 2010). Encompassing both tangible
and more abstract functions of organisational culture, definitions above will
be used in this essay to argue that organisational culture has an observable
impact on, and can be used as a reliable, but not sole, predictor of company’s
performance contributing to its competitive advantage against its peers. In
order to summarise and assess the abundance of empirical evidence and research
done on this topic, this essay will firstly
critically assess the evolution of perception and research of organisational culture
as a contributor to performance, proving its suitability for the argument. Secondly,
using empirical evidence, it will  support the argument by critically evaluating the
role culture can play on organisational performance and the research conducted
on it.

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History of perception and
legitimacy of Organisational Culture and its effects

While all tiers of management,
including Human Resources, agree that organisational culture today bears more
importance than before and predict its influence on performance to increase (Leitl &
Sackmann, 2010),
historically, academics have not been nearly as decisive. Witnessing Japanese
companies consistently outperform their American peers, in late 1970s, U.S.
academics started assessing the importance of corporate culture in hopes of
finding a fast solution to local businesses’ problems (Kotter & Heskett,
Bestsellers, such as Peters & Waterman’s (1982)  “In Search of Excellence,” R. Schein’s (1985)
“Organizational Culture and Leadership,” and W. Ouchi’s (1981) “Theory Z” only
exacerbated managers’ perception of corporate culture as a means to gaining
comepitive advantage. Moreover, the increased number of research papers and
empirical studies, performed before year 2000, were quick to reassert the
existance of the aforementioned relationship (Sackmann, 2010). Attributing strong,
strategically appropriate, and adaptive corporate cultures to benefiting
companies’ long-term economic performance, 9 out of 10 studies reported a
direct link between the two factors (Sackmann, 2010; Kotter & Heskett,
1992). By early 1990s the central message from the leading academics and
authorities was that the ‘strengthening’ of organisational culture ensured
employees’ commitment and devotion leading to improved economic performance (eg. Davis, 1984; Deal & Kennedy,
1982; Goldsmith & Clutterbuck, 1984; Kanter, 1984, 1990; Ouchi, 1981;
Pascale, 1985; Peters & Waterman Jr, 1982; Waterman, 1988). The holy grail
of organisational management seemed to be finally discovered.

Nevertheless, the newly
established ‘species of management’ was quickly challenged by academics (eg. Lim, 1995; Wilderom, et al., 2000)
conducting extensive analyses, reviewing previous empirical studies. Highlighting
inconsistencies among definitions of culture, judgement of organisational
performance, research design, and sampling bias, authors concluded that “the
link between culture and performance was not well established …, primarily
due to theoretical and methological issues” (Wilderom, et al.,
Kotter and Heskett (1992) suggested “that culture may only be an intermediary
of the impact of effective leadership on organizational performance” as
majority of research failed to assess the impact of other variables (Lim, 1995). Furthermore, reviews
suggested that culture could not be measured at all and, arguing that “fishing”
for results have affected the outcome of many studies, authors advocated for a
more systematic approach to performing research in this field (Lim, 1995; Sackmann,
2010; Wilderom, et al., 2000). Criticism, while scarce, was necessary to revamp
the entire approach to organisational culture “as an instrument for competitive
advantage” (Willmott, 1993).

Studies and research papers
throughout 2000-2010 seem to have shown significant improvement on nearly all
aspects of previous analysis. Sonja Sackmann’s (2010) review of 55 studies
found that, in general, “the interest in culture and performance has
globalized, … the investigation of culture and performance has specialized,
and reseach methodologies have become more sophisticated.” Analysing specific
components and dimensions of corporate culture, academics have significantly
narrowed down their research, producing detailed conclusions on how each aspect
of culture impacts performance (eg. Balthazard,
et al., 2006; O’Cass & Ngo, 2007; Škerlavaj, et al., 2007). Furthermore, studying
companies of varied sizes and industries, authors were able to deduce how
corporate culture within different sectors affects economic performance (eg. Dwyer, et al., 2003; Naor, et al.,
2008; Ogaard, et al., 2005). Moreover, differentiating between financial and
non-financial measures of performance, researchers provided a clearer picture
how organisational culture affected specific degrees of performance. Finally,
all this specialised and targeted data was collected and analysed using more
sophisticated research designs, using more recent and standardised methods. All
in all:

“The quality of research methodologies including
research design and statistical analyses have improved in rigor, allowing more
statistically backed statements about the link between culture and performance
that has been studien from a multitude of different angles.” (Sackmann, 2010)

Thus research has gone a long way from generalised and
idealised form of a beautiful story, to a heavily academic and scientific form
of analysis, increasing its credibility and real-world appliance.

Havng reviewed the
history and advancements of academic research and proven its viability for the
argument, this essay will now move on to analyse examples of the effects
organisational culture had on performance and wheteher it impacted companies’
competitiveness against other firms.


Roles of
culture and their assessment

A myriad of different
dimensions, roles, and aspects of corporate culture and its multitude ways of
affecting organisations makes it nearly impossible to arrive at a single,
definitive verdict when assessing culture’s impact on companies’ performance. Each
different study analysing “open-, adaptive-, outside-, customer-, mission- or
goal-, achievement-, competitive-, people-, innovative-, or quality-oriented
cultures” and their effect on “earnings before interest and taxes (EBIT),
return on investment, return on equity, … liquidity, sales,
…competitiveness, productivity, effectiveness, … brand performance, … or
cleanliness of stores,” (Sackmann, 2010) cannot be directly
compared as they all explore different aspects of the relationship.
Nevertheless, the fact that the vast majority of those studies found a variable
degree of connection between organisational culture and peformance, cannot be
ignored (Ibid.). Regardless of the abundance of ways that culture can present
itself in the context of organisational performance, two distinct roles can be
distinguished. Exploring direct and indirect or non-linear relationship between
the two factors helps to narrow down the aforementioned list.

First, and the
easiest link to observe and identify is the direct relationship between
organisational culture and performance. This means that one, or more indicators
of corporate culture directly influenced a certain, or multiple, measures of
firm’s performance. Being easy to analyse, such relationship has been widely
researched, presenting with some conclusive evidence. Lee et al. (2006)
researching companies in Seoul that displayed market-orientated dimension of
organisational culture concluded that, compared to their peers, such
orientation significantly affected firm’s economic performance along with its
marketing-strategy-making process. Innovative and competitive types of culture,
researced by Ogbonna and Harris (2000), across 1,000 UK companies, indicated a
significant link with organisational performance. Furthermore, Lee and Yu
(2004) analysing Singaporean countries found that task-, human-, team-, and
innovation-oriented corporate cultures correlated significantly with firm’s
return on assets (ROA), sales turnover, and net profitability. Moreover, a
study of 2,162 independently owned grocery stores accros seven countries
indicated strong relationship between various culture indicators and
profitability, employee satisfaction, quality, and sales growth (Denison, et
al., 2004).
Meanwhile, Deshpande and Farley (2004) found mission oriented corporate culture
to be a significant contributor towards sales growth, market share growth, ROA,
and overall firm performance. Finally, team orientation, professional
development, adaptability, and partnerhip explained up to 31% of the variance
within financial perfomance of 314 companies in Germany (BMAS, 2008). These are
only a handful of sophisticated research indicating a direct link between
corporate culture and financial or non-financial perfomance of an organisation,
“nevertheless, the majority of 55 studies reviewed, … investigated and found
direct effects between the two factors.” (Sackmann, 2010) While mentioned
research seems compelling, it is important to understand that an established
corporate culture, first and foremost, affects firm’s employees, indicating an
indirect relationship, which will be explored furter.

While a direct
link between culture and performance is easier to identify, it is common that corporate
culture ipacts a certain characteristic or quality of employees and
orgaisations, eventually leading to variance in performance. Internally-focused
dimensions of culture encouraging achievement, self-development, and innovation
translate into improved performance of organisation, as Ogbonna and Harris (2000)
concluded in their study. Nevertheless, the same study found that bureaucratic
orientation can have an indirect, negative effect on organisational
performance. Meanwhile, Ernst (2003) found that highly dynamic environments
fostered adhocracy-entrepreneurial cultures resulting in innovation success,
whilst hierarchy-bureaucratic cultures showed negative correlation with technologically
dynamic environment, prompting significant negative effect on innovation,
explaining 30% variation of new products’ profitability. Examples above show
that while a direct link between organisational culture and performance is
evident, there are multiple intermediaries between the two factors.  Such non-linear relationship shows that more
comprehensive and sophisticated research methodologies are needed in order to
explore the aforementioned link (Sackmann,

Finally, while
research and  best-selling authors have
advocated for culture to be perceived as the determinant of performance, mutual
relationship must be explored to critically evaluate that link. The effects
that decisive management, clear communication, and strategic orientation can
have on organisational culture have not been studied extensvely, nevertheless,
the existing research indicates a degree of connection. Considering the link
between management approach, organisational culture, and performance, Bititci,
et al. (2006) found that implementing certain performance measures lead to an
achievement orientated corporate culture, translating into improved
perforomance of the firm. Furthermore, O’Regan and Lehmann (2008) concluded
that organisational strategy had an impact on companies’ culture, improving
communication and functional coordination, eventually benefitting the overall
performance. Finally, senior management’s ambition to overhaul strategic and
structural aspects of the company in Sackmann’s, et al., (2009) study, after
six years resulted in a more learning and developing organisational culture,
manifesting in improved performance. Such results, indicating a completely
reveversed relationship, demonstrate yet again that a direct, one-way
relationship is not always the case, and that additional, all-inclusive
research should be done.

All in all,
recognising the abundance of examples indicating a link between corporate
culture and performance, it is essential to be aware of the myriad ways of
interpreting and assessing this relationship. Nevertheless, while contested,
the eveidence of such link is clear, thus proving that corporate culture can affect
companies’ competitive advantage in both positive, and negative ways.



The idea of one
and ‘perfect’ style of management lead by organisational culture, planted in
early 1980s, have been transformed into a rigorous and systematic form of science.
Nevertheless, while employing more sophisticated and comprehensive
methodologies, conclusions of newly developed research seem to allign with
those of Peters & Waterman’s (1982) and W. Ouchi’s (1981). Whilst a clear link
between organisational culture and performance can be seen, more research
focusing on non-linear  and reciprocal relationship
is called for. However, as has been argued, the level, extent, and
sophistication of today’s research bears enough significance to support the claim
that certain dimensions of corporate culture can be a source of competitive
advantage and organisational success.