Presentation S I O P Profiles Of Organizational Culture

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  • 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 aSchmidt@uakron.edu
  • 2.
    • 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.
    • 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.
    • 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.
    Abstract
  • 3.
    • Organizational Culture
    • “ [S]hared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration” (Schein, 1992, p. 12).
    • “ [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).
    • Culture and Bottom-Line Performance
    • Culture has long been regarded as critical to organizational effectiveness (Peters & Waterman, 1982; Schein, 1992; Wilkins & Ouchi, 1983).
    • Empirical research supports this (Denison, 1984, 1990; Denison & Mishra, 1995; Fey & Denison, 2003; Gillespie et al., 2008; Kotter & Heskett, 1992).
    • Adaptability & Mission  market share, sales growth (Denison Consulting, 2005)
    • Involvement & Consistency  quality, return-on-investment, employee satisfaction (Denison Consulting, 2005)
    Culture and Performance
  • 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.
    • Consistency: the existence of organizational systems and processes that promote alignment and efficiency over time.
    • If the company is already characterized by Involvement , Adaptability , and a sense of Mission , then Consistency provides more leverage.
    • If the company is low on other traits, Consistency may be a liability.
      • Cultural content is more important than just having a ‘strong’ culture (Flynn & Chatman, 2001).
    • Other studies have shown nonlinear relations using similar concepts:
      • SD as a moderator (Dawson & West, 2005; Schneider et al., 2002)
      • Balance is good…? (Cameron, 1986; Denison, 1990)
      • Role of ‘strength’ depends on environment (Sorensen, 2002)
    Variable Effects of Consistency
  • 6.
    • Involvement, Adaptability, and Mission will moderate the relationship between Consistency and financial DVs.
      • Consistency positively related to financial DVs when other traits are high
      • Consistency negatively (or less positively) related to DVs when other traits are low
    • Effect expected to be more pronounced for Adaptability and Mission (external focus) than Involvement (internal focus).
    • 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.
    Hypotheses
  • 7.
    • 102 publicly-traded organizations representing 29 industries
      • Surveyed b/w 1997-2004
      • Surveys completed by 27 to 15,965 members per-organization ( M = 1,145) — responses aggregated to organization level
    • Denison Organizational Culture Survey (Denison & Neale, 2000)
      • 60-item survey measuring four culture traits: Involvement , Consistency , Adaptability , and Mission
      • Factor-structure confirmed by Dension, Janovics, Young, & Cho (2007), with scale α b/w .87 and .92
    • Organizational Performance: financial indices from Standard & Poor’s COMPUSTAT database
      • Sales Growth: % sales increase from one year to the next
      • Market-to-book Ratio: ratio of ‘book value’ of a share to ‘market value’ of a share
      • Three-year rolling averages created for each outcome to reduce impact of market volatility on results
    Method
  • 8.
    • Hierarchical Linear Modeling
      • Observations over time nested within organizations
      • Implemented via SAS Proc Mixed (e.g., Singer, 1998)
    • Hierarchical procedure utilized to test interactions
      • Controlling for all lower-order terms (main effects and 2-way interactions) prior to examining 3-way interactions
      • γ represents overall effect across organizations and time, analogous to β in regression context
    Analysis Strategy
  • 9.
    • Main effects
      • Market-to-Book:
        • Involvement ( γ = .82, F = 9.29, p < .01, R 2 = .08)
        • Consistency ( γ = .65, F = 5.26, p < .05, R 2 = .05)
        • Adaptability ( γ = 1.06, F = 14.04, p < .01, R 2 = .13)
        • Mission ( γ = .56, F = 7.76, p < .01, R 2 = .07)
      • Sales Growth:
        • Involvement ( γ = .25, F = 16.09, p < .01, R 2 = .14)
        • Consistency ( γ = .25, F = 14.85, p < .01, R 2 = .13)
        • Adaptability ( γ = .31, F = 22.30, p < .01, R 2 = .18)
        • Mission ( γ = .19, F = 16.60, p < .01, R 2 = .14)
    • No significant two-way interactions among culture traits.
    • However, three-way interactions provide general support for hypotheses.
      • Effects of Consistency on Market-to-Book and Sales Growth contingent on the levels of Adaptability, Involvement, and Mission.
      • Negative effects of Consistency when remaining traits are low, positive otherwise.
    Results
  • 10. Results
  • 11. Results
  • 12. Results
  • 13. Results
  • 14.
    • Summary
    • 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.
    • Interaction effects account for an additional 5% to 10% when predicting Market-to-Book ratio and an additional 5% when predicting Sales Growth
      • When other traits are low [high], Consistency has a negative or diminished [positive] effect on financial metrics.
    • Implications
    • 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)
    • Practitioners would do well to focus on improving other traits (e.g., Mission) before moving on to Consistency.
    Summary and Implications
  • 15.
    • Cameron, K.S. (1986). Effectiveness as paradox: consensus and conflict in conceptions of organizational effectiveness. Management Science 32(5): 539-553.
    • 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.
    • Deal, T.E., and A.A. Kennedy (1982). Corporate Cultures. Reading, MA. Addison-Wesley.
    • Denison Consulting (2005, May). Linking Organizational Culture and Leadership to the Bottom Line: A Workshop for Creating Change. Ann Arbor, Michigan.
    • Denison, D. R, (1984). Bringing corporate culture to the bottom line. Organizational Dynamics 13, 4-22.
    • Denison, D. R. (1990). Corporate culture and organizational effectiveness . New York: John Wiley & Sons.
    • Denison, D. R., & Mishra, A. K., (1995). Toward a theory of organizational culture and effectiveness. Organizational Science, 6, 204-223.
    • 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 .
    • Fey, C.F., & Denison, D.R. (2003). Organizational Culture and Effectiveness: Can American Theory be Applied in Russia? Organizational Science, 14, 686-706.
    • 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.
    • 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.
    • Kotter, J. & Heskett, J. (1992). Corporate culture and performance . New York: Free Press.
    • Peters, T. J., & Waterman, R. H. (1982). In search of excellence: Lessons from America’s best-run companies. New York: Harper & Row.
    • Schein, E. H. (1992). Organizational Culture and Leadership (2nd ed.). San Francisco: Jossey-Bass.
    • Schneider, B., Salvaggio, A. N., & Subirats, M. (2002). Climate strength: A new direction for climate research. Journal of Applied Psychology, 87, 220-229.
    • 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.
    • Sorensen, J. B. (2002). The strength of corporate culture and the reliability of firm performance. Administrative Science Quarterly, 47, 70-91.
    • Wilkins, A., & Ouchi, W. (1983). Efficient cultures: Exploring the relationship between culture and organizational performance. Administrative Science Quarterly, 28, 468-481 .
    References