Presentation S I O P Profiles Of Organizational Culture


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Presentation S I O P Profiles Of Organizational Culture

  1. 1. Profiles of Organizational Culture: The Variable Effects of Consistency Aaron M. Schmidt1, Michael A. Gillespie2 , Lindsey M. Kotrba2 , Samantha A. Ritchie1, & Daniel R. Denison3 1The University of Akron, 2Denison Consulting, 3International Institute for Management Development **Please direct questions and requests to the first author at
  2. 2. <ul><li>We investigate the combined effects of four organizational culture traits (involvement, consistency, adaptability, and mission) on firm financial performance (sales growth, market to book ratio, and return on assets), for a large sample of organizations. </li></ul><ul><li>As hypothesized, the effects of consistency on market-to-book and sales growth varied in both magnitude and direction as a function of other key culture traits. </li></ul><ul><li>Namely, consistency is more positively related to financial performance when the other traits are high, and is sometimes negatively related to financial performance when the other traits are low. </li></ul>Abstract
  3. 3. <ul><li>Organizational Culture </li></ul><ul><li>“ [S]hared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration” (Schein, 1992, p. 12). </li></ul><ul><li>“ [T]he underlying values, beliefs, and principles that serve as a foundation for an organization’s management system as well as the set of management practices and behaviors that both exemplify and reinforce those basic principles” (Denison, 1990, p. 2). </li></ul><ul><li>Culture and Bottom-Line Performance </li></ul><ul><li>Culture has long been regarded as critical to organizational effectiveness (Peters & Waterman, 1982; Schein, 1992; Wilkins & Ouchi, 1983). </li></ul><ul><li>Empirical research supports this (Denison, 1984, 1990; Denison & Mishra, 1995; Fey & Denison, 2003; Gillespie et al., 2008; Kotter & Heskett, 1992). </li></ul><ul><li>Adaptability & Mission  market share, sales growth (Denison Consulting, 2005) </li></ul><ul><li>Involvement & Consistency  quality, return-on-investment, employee satisfaction (Denison Consulting, 2005) </li></ul>Culture and Performance
  4. 4. The Denison Model Adaptability Pattern..Trends.. Market Translating the demands of the business environment into action “ Are we listening to the marketplace ?” Direction..Purpose..Blueprint Defining a meaningful long-term direction for the organization “ Do we know where we are going?” Involvement Commitment..Ownership ..Responsibility Building human capability, ownership, and responsibility “ Are our people aligned and engaged? “ Consistency Systems..Structures.. Processes Defining the values and systems that are the basis of a strong culture “ Does our system create leverage? ” Measurement Model Fit Statistics: χ 2=122,715 ( df =1692; N =30,808); RMSEA=.048; GFI=.88; AGFI=.87; CFI=.98
  5. 5. <ul><li>Consistency: the existence of organizational systems and processes that promote alignment and efficiency over time. </li></ul><ul><li>If the company is already characterized by Involvement , Adaptability , and a sense of Mission , then Consistency provides more leverage. </li></ul><ul><li>If the company is low on other traits, Consistency may be a liability. </li></ul><ul><ul><li>Cultural content is more important than just having a ‘strong’ culture (Flynn & Chatman, 2001). </li></ul></ul><ul><li>Other studies have shown nonlinear relations using similar concepts: </li></ul><ul><ul><li>SD as a moderator (Dawson & West, 2005; Schneider et al., 2002) </li></ul></ul><ul><ul><li>Balance is good…? (Cameron, 1986; Denison, 1990) </li></ul></ul><ul><ul><li>Role of ‘strength’ depends on environment (Sorensen, 2002) </li></ul></ul>Variable Effects of Consistency
  6. 6. <ul><li>Involvement, Adaptability, and Mission will moderate the relationship between Consistency and financial DVs. </li></ul><ul><ul><li>Consistency positively related to financial DVs when other traits are high </li></ul></ul><ul><ul><li>Consistency negatively (or less positively) related to DVs when other traits are low </li></ul></ul><ul><li>Effect expected to be more pronounced for Adaptability and Mission (external focus) than Involvement (internal focus). </li></ul><ul><li>Effect hypothesized to impact sales growth and market-to-book ratio (more closely tied to externally-focused traits), and should be most responsive to the imbalance of these traits relative to Consistency. </li></ul>Hypotheses
  7. 7. <ul><li>102 publicly-traded organizations representing 29 industries </li></ul><ul><ul><li>Surveyed b/w 1997-2004 </li></ul></ul><ul><ul><li>Surveys completed by 27 to 15,965 members per-organization ( M = 1,145) — responses aggregated to organization level </li></ul></ul><ul><li>Denison Organizational Culture Survey (Denison & Neale, 2000) </li></ul><ul><ul><li>60-item survey measuring four culture traits: Involvement , Consistency , Adaptability , and Mission </li></ul></ul><ul><ul><li>Factor-structure confirmed by Dension, Janovics, Young, & Cho (2007), with scale α b/w .87 and .92 </li></ul></ul><ul><li>Organizational Performance: financial indices from Standard & Poor’s COMPUSTAT database </li></ul><ul><ul><li>Sales Growth: % sales increase from one year to the next </li></ul></ul><ul><ul><li>Market-to-book Ratio: ratio of ‘book value’ of a share to ‘market value’ of a share </li></ul></ul><ul><ul><li>Three-year rolling averages created for each outcome to reduce impact of market volatility on results </li></ul></ul>Method
  8. 8. <ul><li>Hierarchical Linear Modeling </li></ul><ul><ul><li>Observations over time nested within organizations </li></ul></ul><ul><ul><li>Implemented via SAS Proc Mixed (e.g., Singer, 1998) </li></ul></ul><ul><li>Hierarchical procedure utilized to test interactions </li></ul><ul><ul><li>Controlling for all lower-order terms (main effects and 2-way interactions) prior to examining 3-way interactions </li></ul></ul><ul><ul><li>γ represents overall effect across organizations and time, analogous to β in regression context </li></ul></ul>Analysis Strategy
  9. 9. <ul><li>Main effects </li></ul><ul><ul><li>Market-to-Book: </li></ul></ul><ul><ul><ul><li>Involvement ( γ = .82, F = 9.29, p < .01, R 2 = .08) </li></ul></ul></ul><ul><ul><ul><li>Consistency ( γ = .65, F = 5.26, p < .05, R 2 = .05) </li></ul></ul></ul><ul><ul><ul><li>Adaptability ( γ = 1.06, F = 14.04, p < .01, R 2 = .13) </li></ul></ul></ul><ul><ul><ul><li>Mission ( γ = .56, F = 7.76, p < .01, R 2 = .07) </li></ul></ul></ul><ul><ul><li>Sales Growth: </li></ul></ul><ul><ul><ul><li>Involvement ( γ = .25, F = 16.09, p < .01, R 2 = .14) </li></ul></ul></ul><ul><ul><ul><li>Consistency ( γ = .25, F = 14.85, p < .01, R 2 = .13) </li></ul></ul></ul><ul><ul><ul><li>Adaptability ( γ = .31, F = 22.30, p < .01, R 2 = .18) </li></ul></ul></ul><ul><ul><ul><li>Mission ( γ = .19, F = 16.60, p < .01, R 2 = .14) </li></ul></ul></ul><ul><li>No significant two-way interactions among culture traits. </li></ul><ul><li>However, three-way interactions provide general support for hypotheses. </li></ul><ul><ul><li>Effects of Consistency on Market-to-Book and Sales Growth contingent on the levels of Adaptability, Involvement, and Mission. </li></ul></ul><ul><ul><li>Negative effects of Consistency when remaining traits are low, positive otherwise. </li></ul></ul>Results
  10. 10. Results
  11. 11. Results
  12. 12. Results
  13. 13. Results
  14. 14. <ul><li>Summary </li></ul><ul><li>Organizational Culture traits relate significantly to financial performance outcomes, with each trait explaining about 5% (Consistency) to 13% (Adaptability) of the variance in Sales Growth, and 13% (Consistency) to 18% (Adaptability) of the variance in Market-to-Book. </li></ul><ul><li>Interaction effects account for an additional 5% to 10% when predicting Market-to-Book ratio and an additional 5% when predicting Sales Growth </li></ul><ul><ul><li>When other traits are low [high], Consistency has a negative or diminished [positive] effect on financial metrics. </li></ul></ul><ul><li>Implications </li></ul><ul><li>Extends the research on balanced cultures (Cameron, 1986; Denison, 1990), variance as a moderator (Dawson & West, 2005; Schneider et al., 2002), and linkage research on culture and performance (Denison & colleagues; Kotter & Heskett, 1992) </li></ul><ul><li>Practitioners would do well to focus on improving other traits (e.g., Mission) before moving on to Consistency. </li></ul>Summary and Implications
  15. 15. <ul><li>Cameron, K.S. (1986). Effectiveness as paradox: consensus and conflict in conceptions of organizational effectiveness. Management Science 32(5): 539-553. </li></ul><ul><li>Dawson, J. F., & West, M. (April, 2005). Climate, climate strength, and Performance in UK hospitals. In Zijlstra, F., (Chair) & Burke, M.J., (Co-Chair), Climate Research in the USA and Europe: Traditional Approaches and Research Synthesis. Symposium conducted at the 20th Annual Convention of the Society for Industrial and Organizational Psychology, Los Angeles, CA. </li></ul><ul><li>Deal, T.E., and A.A. Kennedy (1982). Corporate Cultures. Reading, MA. Addison-Wesley. </li></ul><ul><li>Denison Consulting (2005, May). Linking Organizational Culture and Leadership to the Bottom Line: A Workshop for Creating Change. Ann Arbor, Michigan. </li></ul><ul><li>Denison, D. R, (1984). Bringing corporate culture to the bottom line. Organizational Dynamics 13, 4-22. </li></ul><ul><li>Denison, D. R. (1990). Corporate culture and organizational effectiveness . New York: John Wiley & Sons. </li></ul><ul><li>Denison, D. R., & Mishra, A. K., (1995). Toward a theory of organizational culture and effectiveness. Organizational Science, 6, 204-223. </li></ul><ul><li>Denison, D. R., Janovics, J., Young, J., & Cho, H.J. (2007). Diagnosing organizational cultures: validating a model and method. Working paper, International Institute for Management Development, Lausanne, Switzerland . </li></ul><ul><li>Fey, C.F., & Denison, D.R. (2003). Organizational Culture and Effectiveness: Can American Theory be Applied in Russia? Organizational Science, 14, 686-706. </li></ul><ul><li>Flynn, F. J., & Chatman, J. A. (2001). Innovation and social control: Oxymoron or opportunity? (pp. 263 – 287). In C. Cooper, S. Cartwright, & P. S. Early (Eds.) Handbook of Organizational Culture: John Wiley Press. </li></ul><ul><li>Gillespie, M.A., Denison, D.R., Haaland, S., Smerek, R. & Neale, W.S. (forthcoming, 2008). Linking organizational culture and customer satisfaction: Business-unit results from two companies in different industries. European Journal of Work and Organizational Psychology. </li></ul><ul><li>Kotter, J. & Heskett, J. (1992). Corporate culture and performance . New York: Free Press. </li></ul><ul><li>Peters, T. J., & Waterman, R. H. (1982). In search of excellence: Lessons from America’s best-run companies. New York: Harper & Row. </li></ul><ul><li>Schein, E. H. (1992). Organizational Culture and Leadership (2nd ed.). San Francisco: Jossey-Bass. </li></ul><ul><li>Schneider, B., Salvaggio, A. N., & Subirats, M. (2002). Climate strength: A new direction for climate research. Journal of Applied Psychology, 87, 220-229. </li></ul><ul><li>Singer, J. D. (1998). Using SAS PROC MIXED to fit multilevel models, hierarchical models, and individual growth models. Journal of Educational and Behavioral Statistics, 23, 323-355. </li></ul><ul><li>Sorensen, J. B. (2002). The strength of corporate culture and the reliability of firm performance. Administrative Science Quarterly, 47, 70-91. </li></ul><ul><li>Wilkins, A., & Ouchi, W. (1983). Efficient cultures: Exploring the relationship between culture and organizational performance. Administrative Science Quarterly, 28, 468-481 . </li></ul>References