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Which Comes First: Culture or Performance?

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Based on the research of Dr. Anthony Boyce of Michigan State University, this research shows the relationship between culture and performance describing.

Based on the research of Dr. Anthony Boyce of Michigan State University, this research shows the relationship between culture and performance describing.

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  • 1. Volume 5, Issue 2, 2011 researchnotesWhich Comes First: Culture or Performance?Over the last 20 years, numerous studies have on year-2 culture. Then, the strength of the two “cross-demonstrated the link between an organization’s culture lagged” effects was compared to determine whetherand bottom-line performance metrics (Sackmann, culture preceded performance or vice versa. Finally, by2011). However, because we know that correlation repeating these analyses using several years of culturedoes not necessarily equal causation, uncovering the and performance data, he was able to draw conclusionsprecise nature of this relationship remains difficult. In about the causal nature of culture and performance andother words, demonstrating an association between determine which came first.effective cultures and high performance is not sufficientevidence to conclude that effective cultures cause Culture and Performance in Car Dealershipshigher performance with confidence. The reverse isalso possible; higher performance could cause a more The importance of culture and performance has beeneffective organizational culture. This leaves researchers demonstrated in a wide variety of organizational,scratching their heads to try to resolve this “chicken industry and national settings. In the service industry,and egg” dilemma: does high performance follow a an organization’s culture shapes the context in whichstrong culture or does a strong culture lead to high the organization and customer interact. Effectiveperformance? cultures contribute to a positive customer experience by supporting a fluid and responsive environment whereResearch conducted by Anthony Boyce, Ph.D. front-line employees are empowered and have theat Michigan State University, using the Denison resources necessary to deliver results on an ongoingOrganizational Culture Survey, helps us to resolve this basis. Ineffective cultures fail to identify and remove keychicken or egg question and make stronger conclusions barriers while detracting from the organization’s abilityabout the role of organizational culture in bottom-line to anticipate and respond to the customer’s changingperformance. The key to Dr. Boyce’s research entitled, needs. Car dealerships are a particularly fascinatingOrganizational Climate and Performance: An Examination example of this because of the myriad of opportunitiesof Causal Priority, was to examine how organizational for the customer to interact with a variety of serviceculture and performance changed together over time. By providers within the organization over time such asassessing both variables on a yearly basis, Boyce was salespeople, mechanics, support staff, and so on. Byable to estimate (a) the effect of year-1 culture on year-2 the same rationale, because the customer spendsperformance and (b) the effect of year-1 performance considerable time in direct contact with the organization Culture Predicts Performance Over Time Bottom Line Sales Performance Customer Satisfaction Service High Performing Culture All content © copyright 2005-2011 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 1
  • 2. and its people, any opportunity for the organization to Separate analyses were conducted for the sales and“hide” its culture is limited. Instead, culture can be thought service departments of each dealership, as slightlyof as “on display” alongside the dealership’s inventory, in different performance outcomes are relevant for theseaddition to pervading the parts of the organization less departments. For service departments, excellent customertreaded by the customer. satisfaction is critical. Customer satisfaction ratings were collected through quarterly surveys mailed to everyTherefore, the focus of this study was on the culture of customer that visited a service department. Customercar dealerships and their sales and service performance. satisfaction is also very important for sales departments;Ninety-five franchise dealerships were followed over a however, sales volume is their primary performancesix year period (2000-2005), collecting information about metric. The number of vehicles sold at each dealershiptheir organizational culture and performance outcomes on was collected on a quarterly basis. The number ofan annual basis. Culture was assessed with the Denison employees in each sales departments was controlledOrganizational Culture Survey (DOCS), a reliable and for when analyzing vehicle sales outcomes, as largervalid assessment of the cultural drivers of organizational departments tended to have higher sales volumes.effectiveness (see Denison et al., 2006). The surveyconsists of 60 items, and scores are computed for 12 Culture Causes Performance, not Vice Versaculture indexes, which can be further rolled up into 4 The analyses investigating the culture and performanceculture traits – Involvement, Consistency, Adaptability, of car dealerships uncovered several major findings. First,and Mission. For the purposes of this research note, the results provided consistent evidence that effectivehowever, we describe culture at the overall level based cultures lead to higher performance and not the otheron the average score across all four traits. As a result, we way around. For both the sales and service departmentsrefer to “effective cultures” as those with higher overall of car dealerships, an effective organizational culturelevels of Involvement, Consistency, Adaptability, and was a reliable predictor of the departments’ subsequentMission. Figure 1: Vehicle sales over time for departments with high (top 25) versus low (bottom 25) scores on the DOCS. The figure shows the average number of vehicles sold per quarter over time as a function of organizational culture scores on the DOCS. The blue line represents the average vehicle sales for the 25 departments with the strongest culture scores; the red, the weakest culture scores. By comparing the two trends, it is apparent that vehicle sales were consistently higher among those departments with stronger organizational cultures – on average, between 20 and 30 more vehicles sold per quarter – and with the difference appearing to widen over time. * Note: The sales numbers for 2002 were re-constructed from the last two quarters of 2001 (Q3, Q4). All content © copyright 2005-2011 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 2
  • 3. Figure 2: Customer satisfaction over time for sales departments with high (top 25) versus low (bottom 25)scores on the DOCS.The figureshows customersatisfaction ratings(based on a 5-pointscale) over timeas a function oforganizationalculture scoreson the DOCS.Departments weregrouped into the top25 (blue) and bottom25 (red) according totheir average scoreson the DOCS overthe years 2000 to2005. By comparingthe two trends,it is apparent that customer satisfaction was consistently higher among those departments with strongerorganizational cultures, and with the difference appearing to widen over time.Figure 3: Customer satisfaction over time for service departments with high (top 25) versus low (bottom25) scores on the DOCS.The figureshows customersatisfaction ratings(based on a 5-pointscale) for the servicedepartments overtime as a functionof organizationalculture scoreson the DOCS.Departments wereagain grouped intothe top 25 (blue)and bottom 25(red) accordingto their averagescores on theDOCS over the years 2000 to 2005. When we look at these trends side-by-side we can see the same patternas previously: that customer satisfaction was consistently higher among those service departments withstronger organizational cultures, and did not experience the severity of downturn experienced by the bottom25 cultures from 2000 to 2002. All content © copyright 2005-2011 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 3
  • 4. performance, and the strength of this relationship was positive changes in culture predicting the number of carsconsistently larger than the reverse possibility (that sold within two years on average. These results suggestis, the impact of high performance on subsequent that the culture of a dealership has its most immediateorganizational culture). In other words, the dealerships impact by enhancing customer satisfaction and thatwith the most effective cultures early on experienced higher sales are a longer-term benefit.1the highest customer satisfaction and vehicle sales inlater years, and this pattern was repeated over time. ConclusionsAs a result, an effective culture at the ground-level sets This study provides important evidence that anthe stage for high performance down the road. At the effective culture is a causal factor in the performancesame time, a strong sales and service record does not, of car dealerships and not simply a by-product ofin-and-of-itself, ensure that an organization’s culture will their previous success levels. The findings underscoreexperience similar positive growth. Therefore, the results culture as a unique point of leverage for future businesspoint to culture as a key leverage point in organizations’ performance. For businesses in the service sector,ability to drive up performance over time. culture shapes the immediate experience of customers, and in doing so, lays the groundwork for positiveCulture Causes Performance, but not Immediately (or negative) outcomes in the years to come. ForThe results also shed light on the timing of the culture- the dealerships in our study, the “return” on positiveperformance relationship and the immediacy with which changes in culture was higher customer satisfactionculture management can be expected to demonstrate a within one year and more cars sold within two years.return-on-investment. In this research, the answer to this These findings demonstrate in compelling fashion thequestion depended on the department and also the kind answer to our initial question – it is the culture (not theof performance outcome studied. The positive effects performance) that comes first.of culture were most immediately evident for customersatisfaction outcomes in the service departments. In this 1. It is important to note that it is highly unlikely thatcase, a 1-year time lag was observed, such that positive economic factors could account for these findings, aschanges in culture predicted customer satisfaction it is assumed that fluctuating market conditions wouldratings within one year on average. For vehicle sales impact all dealerships similarly.outcomes, the time lag was somewhat longer, withRelated ResourcesWe wish to acknowledge that this research note is based Sackmann, S. A. (2011). Culture and performance. Inon Anthony Boyce’s (2010) dissertation, “Organizational Ashkanasy, N.., Wilderom, C., and Peterson, M. (eds.),climate and performance: An examination of causal The Handbook of Organizational Culture and Climate, 2ndpriority.” edn. Thousand Oaks, CA: Sage Publications, pp. 188- 224.Denison, D. R., Janovics, J., Young, J., & Cho, H. J.(2006). Diagnosing organizational cultures: Validating amodel and method.Contact Information Copyright InformationDenison Consulting, LLC Copyright 2005-2011 Denison Consulting, LLC121 West Washington, Suite 201 All Rights Reserved.Ann Arbor, Michigan 48104 Unauthorized reproduction, in any manner, is prohibited.Phone: (734) 302-4002 The Denison model, circumplex and survey are trade-Fax: (734) 302-4023 marks of Denison Consulting, LLC.Email: TalkToUs@denisonconsulting.com Version 1.0, June 2011 All content © copyright 2005-2011 Denison Consulting, LLC. All rights reserved. l www.denisonculture.com l Page 4