Culture of radical innovation and long-term performance in capital-intensive industries : the cases of Maillefer and Secheron in the Swiss electrical industry, 1960-1982.

Culture of radical innovation and long-term performance in
capital-intensive industries: the cases of Maillefer and
Secheron in the Swiss electrical industry 1960-1982
Yazid Alaoui

Supervisor: Prof. Mary O’Sullivan
Jury: Prof. Juan Flores
2015

2
I. Table of Contents
I. Introduction ................................................................................................................... 3
II. Firm performance between economic and culture paradigms ........................... 5
1) Economic and culture paradigms in business history .......................................... 5
a. Drivers of firm performance in the economic paradigm ............................................... 5
b. Relevance, origin and definition of corporate culture ................................................... 8
c. Creation, transmission and sustainability of corporate culture ............................... 12
2) Corporate culture and performance ......................................................................... 17
a. Strong, mission driven and adaptation cultures’ influence on performance ..... 17
b. Culture content and performance ......................................................................................... 27
c. Culture of radical innovation ................................................................................................... 32
3) Research question, methodology and sources ...................................................... 34
a. Research question ........................................................................................................................ 34
b. Methodology ................................................................................................................................... 35
c. Sources .............................................................................................................................................. 37
III. Culture of radical innovation and firm performance ........................................ 38
1) The culture of Maillefer 1960-1982 .......................................................................... 38
a. The origin of Maillefer’s culture of radical innovation ................................................. 38
b. Establishment of culture of radical innovation ............................................................... 42
c. Radical innovations, distribution, production and management ............................ 49
2) The culture of Secheron 1960-1969 ......................................................................... 62
a. Culture of caution ......................................................................................................................... 62
b. Culture of collaboration and independence ..................................................................... 68
c. Culture of caution and collaboration in times of crisis ................................................. 73
3) Culture of radical innovation and performance ................................................... 78
a. Maillefer and Secheron’s performance ............................................................................... 78
b. Culture of radical innovation and performance, an interpretation ........................ 81
c. Limits ................................................................................................................................................. 84
IV. Conclusion ................................................................................................................... 86
V. Bibliography: ............................................................................................................. 87
VI. Appendix ..................................................................................................................... 94

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I. Introduction

The subject of economic performance of firms has been a constant in the
business history literature. Understanding why a once dominant industry leader
become an obsolete irrelevant enterprise, what explains divergent performance within
an industry or seizing the factors behind organisational failure have been recurrent
questions business historians have studied1
. Furthermore, capturing the performance
of specific influential organisations such as De Beers, Fairchild or Pearson has been a
window of exploration of events or processes of broader historical significance2
.
Controlling or adapting to the environment has been a mainstream view in to
explain organisational performance. The natural tendency of business history to
highlight the importance of the broader economic, social and political environment an
organisation operates into or its use of economic models to understand historical
phenomena have favoured the emergence of a view where the environment plays a
prominent role in accounting for firm performance3
. This latter is perceived as
dependent on a company’s ability to control or adapt to its environment.
Focus on endogenous factors at firm level has been a shift in understanding
firm performance. Chandler’s three ponged investments in production, distribution
and management has brought a new paradigm where internal organisational factors
were no more irrelevant but at the forefront of the discussion on performance4
.
Technological leadership, strategic vision and execution, innovation and financial
management were amongst other key factors highlighted in the literature5
.

1 McDonald, “Western Union’s Failed Reinvention”; Sull, “The Dynamics of
2 Newbury, “Technology, Capital, and Consolidation”; Berlin, “Robert Noyce and
Fairchild Semiconductor, 1957-1968”; Bud-Frierman, Godley, and Wale,
“Weetman Pearson in Mexico and the Emergence of a British Oil Major, 1901-
1919”; Kornblith, “The Craftsman as Industrialist.”
3 Newbury, “Technology, Capital, and Consolidation”; Reich, “Lighting the Path to
Profit”; McFadden, “Monopoly in Barbed Wire”; Porter, “Origins of the American
Tobacco Company.”
4 CHANDLER, Scale and Scope; Chandler, “The Emergence of Managerial
Capitalism.”
5 Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-1968”; Porter,
“Origins of the American Tobacco Company”; Burhop, “Pharmaceutical Research
in Wilhelmine Germany”; Mass, “Mechanical and Organizational Innovation”;
French, “Structure, Personality, and Business Strategy in the U.S. Tire Industry”;
Petrik, “The House That Parcheesi Built”; Newbury, “Technology, Capital, and
Consolidation.”

4
The emergence of corporate culture as a novel but performance defining
insight in organisational theory triggered an interest in business history literature. Its
potential to go beyond the dominant structural functional approach marked by
technology, markets, firm structure and self-interested competition in explaining
organisational behaviour and performance has brought a fresh air to a maturing
literature6
. A limited number of studies link organisational performance to cultures
with a specific content. Strong, mission driven and adaptation cultures are the main
types relating to performance in the literature. They account for short to medium term
performance. However, they stop short of explaining long-term performance. Their
inability to deal with technological revolutions is their common limit.
Culture of radical innovation has the potential to overcome this limit. It is
defined as a culture fostering relentless innovation. It aims to ensure a firm is
constantly at the leading edge of innovation. It consists of three attitudes and three
practices. The attitudes are the willingness to cannibalize assets, future orientation and
tolerance of risk. The practices that engender and sustain these attitudes are the
empowerment of product champions, the establishment of incentives for enterprise as
well as the creation and maintenance of internal markets7. The commercialization of
radical innovations translates into companies’ financial performance8. A culture of
radical innovation is not only a set of attitudes but also requires the concrete
allocation of tangible resources within the organisation9. No studies on the link
between culture of radical innovation and long-term performance exist. This research
aims to fill this gap.
We use a comparative methodology based on the cases of Secheron and
Maillefer in the Swiss electrical industry to address our research question. Current
studies on corporate culture and performance rely mostly on a single case study to the
exception of Churella’s locomotive industry. The similarities between Secheron and
Maillefer in terms of environment, industry, history, international orientation and their

6 Lipartito, “Culture and the Practice of Business History”; Dellheim, “Business in
Time”; Dellheim, “The Creation of a Company Culture.”
7 Tellis, Prabhu, and Chandy, “Radical Innovation across Nations.”
8 Ibid.
9 Eberhart, Maxwell, and Siddique, “An Examination of Long-Term Abnormal
Stock Returns and Operating Performance Following R&D Increases”; Tellis,
Prabhu, and Chandy, “Radical Innovation across Nations”; Leonard, “Research
and Development in Industrial Growth.”

5
marked divergent performance from 1960 to 1982 offers an excellent opportunity to
conduct this exercise and to control for the culture of radical innovation factor
Archival sources available enable us to answer our questions. Maillefer and
Secheron’s minutes of the board of directors and annual reports are the two prime
sources used to capture culture and performance. Complementary documents
designed for third parties such as company journals, memoires of critical actors,
internal history, prospectus for public listings can additionally provide us with an idea
of their culture at a more symbolic level.
II. Firm performance
1) Economic and culture paradigms in business history
performance
a. Drivers of firm performance in the economic paradigm

The question of performance has been one of the major areas of inquiry in
business history literature10. It has been treated either directly or indirectly. Both are
similarly important in understanding the phenomena. In the direct perspective, we can
find studies on Western Union, Electrical Vehicle Company, GE, Firestone, De Beers,
Sincere and Wing on, Draper and Philips11. In the cases of Western Union, Firestone,
Draper and Philips, the authors’ central concern is to explore the dynamics that led
once an industry leader to lose its dominant position and fade into obscurity12. Rae
John studies the blatant business failure of the Electrical Vehicle Company, a
monopoly hopeful in an industry that never materialised13. As for GE and De Beers,
the focus is on understanding the reverse process, which is how these companies rose

10 Dellheim, “The Creation of a Company Culture”; Lipartito, “Culture and the
Practice of Business History”; Hansen, “Business History.”
11 McDonald, “Western Union’s Failed Reinvention”; Rae, “The Electric Vehicle
Company”; Reich, “Lighting the Path to Profit”; Sull, “The Dynamics of Standing
Still”; Mass, “Mechanical and Organizational Innovation”; Newbury, “Technology,
Capital, and Consolidation”; Chan, “Personal Styles, Cultural Values and
Management”; Davids and Verbong, “Intraorganizational Alignment and
Innovation Processes.”
12 McDonald, “Western Union’s Failed Reinvention”; Mass, “Mechanical and
Organizational Innovation”; Davids and Verbong, “Intraorganizational Alignment
and Innovation Processes.”
13 Rae, “The Electric Vehicle Company.”

6
to industry leadership14. Finally, Wellington Chan tries to explain the divergent
performance over time of two pioneering Chinese department stores15. In the indirect
perspective, companies’ performance has been treated with equal rigor, except that
the authors’ central question is rooted in a broader historical cultural context. As such,
Pearson’s performance study is inscribed within the British entrepreneurship decline
in the late Victorian and Edwardian periods debate16. Chickering’s performance is
explored within the questioning of the role of artisan entrepreneurship and craftsmen
in the origins and early progress of the American industrial revolution17. Fairchild is
treated within the framework of Silicon Valley and semiconductor industry growth18.
Several studies with a similar logic engage in the exercise19. Last, another strand in
the literature deals with how companies reacted to change in their environment or
investigates the role of specific organisational features such as family ownership20.

Control of the environment, a firm’s ability to adapt to it and internal
organisational factors are the three main drivers of performance identified.
A first view on performance relies on companies controlling their environment to
ensure optimal results. These latter tried to build a dominant market position through
consolidation of their industry. American Steel and Wire as well as American
Tobacco are prime examples of this approach21. Access to capital and privileged
relationships with financiers have proven to be crucial in that effort as in the cases of

14 Reich, “Lighting the Path to Profit”; Newbury, “Technology, Capital, and
Consolidation.”
15 Chan, “Personal Styles, Cultural Values and Management.”
16 Bud-Frierman, Godley, and Wale, “Weetman Pearson in Mexico and the
Emergence of a British Oil Major, 1901-1919.”
17 Kornblith, “The Craftsman as Industrialist.”
18 Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-1968.”
19 Fauri, “The Role of Fiat in the Development of the Italian Car Industry in the
1950’s”; Mabry, “The Rise and Fall of Ace Records”; Klassen, “T. C. Power & Bro.”;
McFadden, “Monopoly in Barbed Wire.”
20 Bakker, “The Making of a Music Multinational”; Petrik, “The House That
Parcheesi Built”; French, “The Emergence of a US Multinational Enterprise”;
Boyce, “The Development of the Cargo Fleet Iron Company, 1900-1914”; French,
“Structure, Personality, and Business Strategy in the U.S. Tire Industry”; Burhop,
“Pharmaceutical Research in Wilhelmine Germany.”
21 McFadden, “Monopoly in Barbed Wire”; Porter, “Origins of the American
Tobacco Company.”

7
Pearson and De Beers22. This competitive advantage was important enough to
determine which company emerged as the major winner in the industry. Finally,
building a monopoly position and leveraging market power to establish and
consolidate a firm’s dominance has also been identified. GE engaged in
discriminatory agreements with suppliers, cartel arrangements to control prices and
legal formalisms to build an undisputed place in the electrical industry23.
A second view privileges the interaction between the organisation and its
environment. It states that adaptation is the key to performance. Finding the right fit
between the organisation and its environment is said to be the sure formula for
success or else, business failure is inevitable. Adaptation can go as deep as building,
changing and designing a company’s organisational structure in order to reflect the
nature of the company’s environment as well as embody the major factors identified
behind success in the marketplace. Polygram and Cargo Fleet Iron Company
consciously built a structure that fits their environment24. Adaptation also means
flexibility. It is this flexibility that De Beers and Pearson were well known for. Their
management effectively operated in their political, economic and social environment.
They understood the needs of all the chains of their business and manoeuvred to find
the right balance between their interests25.
Last but not least, a segment of the literature focuses on internal driven organisational
factors to explain organisational success or failure. Chandler suggests proactive first
movers that invested in production, distribution and management built a significant
competitive advantage and enduring industry leadership 26 . Chickering Pianos
followed this approach to turn from a craft business into a large modern industrial
enterprise27. Some authors see building a technological edge through innovation is
crucial for performance. Fairchild Semiconductor, Draper, American Tobacco, Fiat

22 Bud-Frierman, Godley, and Wale, “Weetman Pearson in Mexico and the
Emergence of a British Oil Major, 1901-1919”; Newbury, “Technology, Capital,
and Consolidation.”
23 Reich, “Lighting the Path to Profit.”
24 Bakker, “The Making of a Music Multinational”; Boyce, “The Development of
the Cargo Fleet Iron Company, 1900-1914.”
25 Newbury, “Technology, Capital, and Consolidation”; Bud-Frierman, Godley, and
Wale, “Weetman Pearson in Mexico and the Emergence of a British Oil Major,
1901-1919.”
26 CHANDLER, Scale and Scope. p. 604-605 ”
27 Kornblith, “The Craftsman as Industrialist.”

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and GE are captured from this perspective28. This technological edge can only be
achieved through envisioning and making the right strategic choices. The Electric
Vehicle Company failed in this point. It ended in bankruptcy whilst E.Merck
succeeded29. This latter maintained the relevance of an overpowered and under
resourced family company in the increasingly competitive environment of the
pharmaceutical industry during a period of major scientific discoveries that
transformed the business30. Without the right strategic vision, a company can engage
in Donald Sull’s ‘active inertia’31. Firestone Rubber and Seiberling responded to
major technological change and shift in their competitive environment by scaling up
the same investments that allowed it to succeed in the past. In doing so, they
accelerated their demise32. Anticipating the right strategic moves is not enough
though. Strategic vision requires the company’s ability to execute it. The
foresightedness of Western Union’s leadership did not save the once major US
telecommunications company from a brutal decline. Rather, the company’s inability
to put its strategy in place and its constraining ‘momentum’ sealed the company’s
fate33. Finally, financial decisions have also been highlighted as an important factor.
De Beers’s superior finance technique and Selchow&Righter’s prudent approach
enabled the first to reach global leadership. It ensured the enduring survival of the
second in its volatile market34.
b. Relevance, origin and definition of corporate culture

Corporate culture entered the debate on organisational performance in
business history literature to bring a fresh perspective. Dulheim states that corporate
culture is no peripheral to performance. It affects productivity by shaping the use of

28 Berlin, “Robert Noyce and Fairchild Semiconductor, 1957-1968”; Mass,
“Mechanical and Organizational Innovation”; Porter, “Origins of the American
Tobacco Company”; Fauri, “The Role of Fiat in the Development of the Italian Car
Industry in the 1950’s”; Reich, “Lighting the Path to Profit.”
29 Rae, “The Electric Vehicle Company.”
30 Burhop, “Pharmaceutical Research in Wilhelmine Germany.”
31 Sull, “The Dynamics of Standing Still.”
32 Ibid.; French, “Structure, Personality, and Business Strategy in the U.S. Tire
Industry.”
33 McDonald, “Western Union’s Failed Reinvention.”
34 Newbury, “Technology, Capital, and Consolidation”; Petrik, “The House That
Parcheesi Built.”

9
human resources35. Churella sees no other explanation than in corporate culture for
the dramatic change of fortunes of AlCo after a revolutionary technological change in
the industry 36. Similarly, Stranger attributes Larkin’s success to its unique corporate
culture37.
Corporate culture goes beyond the structural functional paradigm dominating
business history literature. In this latter, technologies, markets and self-interested
competition drive understanding of organisational behaviour and performance. It
separates the activities of the firm from culture. As such, they ignore culture’s impact
on economic decisions38. Lipartito shows the limits of this paradigm in explaining
divergent organisational behaviour amongst competitors. He draws on corporate
culture to potentially overcome them. He states that ‘capabilities understood as
cultural values specific to individuals firms or entire national economies may be more
important than formal structures like multidivisional organization in explaining
performance’ and that culture can provide a novel appreciation of the relationship
between a firm and its environment39. A new approach is therefore suggested. Studies
of structure and strategy are to be complemented with attitudes and meanings to
account for organisational behaviour and performance40.
The concept of corporate culture emerged as a promising solution to the
structural competitive difficulties witnessed in the 1970’s by US companies. The
1970s were a turbulent period. Japan was rising as international economic
powerhouse. It was able to compete, challenge and even outperform the United States
in some industries in global markets. The intensification of business competition both
in the local and international environments initiated a reflexion on the importance of
competitive advantage building. Finally, within this highly competitive environment,
some US companies proved to be consistently outperforming their peers. These three
factors exposed by Heskett and Kotter (1992) led to the following question: How can
companies effectively strive and outperform within increasingly intensive competitive

35 Dellheim, “Business in Time.”
36 Churella, “Corporate Culture and Marketing in the American Railway
Locomotive Industry.”
37 Stanger, “From Factory to Family”; Stanger, “The Larkin Clubs of Ten.”
38 Dellheim, “The Creation of a Company Culture”; Lipartito, “Culture and the
Practice of Business History.”
39 Lipartito, “Culture and the Practice of Business History.”
40 Dellheim, “The Creation of a Company Culture.”

10
local and international environments?41 Research on the highly performing Japanese
and US companies was undertaken. The main insight derived was the centrality of
corporate culture in generating performance42. Many viewed it then as superior to all
organisational factors (strategy, structure, management systems, financial analysis,
leadership…) that were mainly discussed so far in defining organisational
performance43. Thirty years of research provide today more perspective on the
concept, away from the hype that may have characterised research at the beginning.
The definition of corporate culture varies depending on the view the author
positions himself within the literature. Martin (1987) singles out three central views
differentiated by their perception of the degree of consensus amongst members to a
culture within an organisation, the degree of consistency of the manifestations of
culture and the reaction to ambiguity44. For the integration view, the consensus is
organisational wide, the manifestations are consistent and ambiguity is limited. For
the differentiation view, the degree of consensus is limited with the existence of
subcultures within the organisation, the manifestations are inconsistent and ambiguity
is given greater importance. Finally, the ambiguity view perceives a lack of clarity
and irreconcilable inconsistencies in the manifestations of culture, embraces
ambiguity as a fact and rejects organisation wide consensus as an unrealistic ideal.
Our position lies within the integration view. The notion of alignment to a corporate
culture to a high degree of consistency and consensus within an organisation cannot
be separated from the concept itself. Otherwise, it may indicate an inexistence of
corporate culture itself. As such, it is then of little relevance to explore its relationship
with performance.
Within the Integration view, Schein’s (1985) definition of corporate culture is
dominant. The majority of authors within the corporate culture literature use Schein
inspired definitions to conduct their research45. Schein defines corporate culture as

41 Kotter, Corporate Culture and Performance, 2008.
42 Pascale and Athos, “The Art of Japanese Management”; Deal and Kennedy,
Corporate Cultures.
43 Kotter, Corporate Culture and Performance, 2008.
44 Meyerson and Martin, “Cultural Change.”
45 See Schneider, Gunnarson, and Niles-Jolly, “Creating the Climate and Culture of
Success”; Booth and Hamer, “Corporate Culture and Financial Performance”;
Zheng, Yang, and McLean, “Linking Organizational Culture, Structure, Strategy,
and Organizational Effectiveness”; Ulijn and Brown, “Innovation,
Entrepreneurship and Culture, a Matter of Interaction between Technology,

11
follow: ‘a pattern of basic assumptions – invented, discovered or developed by a
given group as it learns to cope with its problems of external adaptation and internal
integration – that has worked well enough to be considered valid and, therefore, to be
taught to new members as the correct way to perceive, think and feel in relation to
those problems’46. Schein (1985) distinguished three levels of corporate culture. At
the deepest level are the basic assumptions. These capture the view an organisation
holds often unconsciously of itself and of the nature of the environment, human
nature, human activity and relationships. At a more apparent level are values. They
are the solutions developed by an organisation apparent in their organisational
processes, their organisational ideology and philosophy. Finally, artefacts are the third
level. They are different expressions of a corporate culture visible in mission
statements, behavioural norms, rituals or other type of manifestations47.
The concept of corporate culture can be better defined by adding Pettigrew’s
(1979) emphasis on meaning to Schein’s definition. Schein provides a dynamic view
of corporate culture. It is basically composed of the solutions developed to cope with
problems an organisation faces that have proven to be effective a sufficient number of
times to become implicit unconscious basic assumptions. However, the starting point
of these problems seems to be assumed as to how to maximise profits. Whilst this
belief may be true for a significant number of organisations, it cannot be generalised.
Some of them may hold beliefs not centred on money but on prestige, the nation,
society, the environment or humanity amongst others. They may better correspond to
the meaning they provide to their lives and actions. This can actually be a
fundamental point of differentiation between organisations. Pettigrew’s (1979) focus
on meaning in his definition provides us the tool to capture the diverse central beliefs
and starting points of Schein’s dynamic corporate culture definition48. Thus, we add
a fourth level we call ‘central belief’ to put it into perspective.

Progress and Economic Growth?”; Rashid, Sambasivan, and Johari, “The
Influence of Corporate Culture and Organisational Commitment on
Performance”; Wilson, “Understanding Organisational Culture and the
Implications for Corporate Marketing”; Kotrba et al., “Do Consistent Corporate
Cultures Have Better Business Performance?”; Salama, “Privatization and Culture
Change”; Ogbonna and Harris, “Organizational Culture”; Fey and Denison,
“Organizational Culture and Effectiveness.”
46 Schein, Organizational Culture and Leadership.
47 Ibid.
48 Pettigrew, “On Studying Organizational Cultures.”

12
Brinkman’s (1999) introduction of a tangible dimension to corporate culture is
a necessary addition for a complete definition of the concept. Most authors in the
literature suggest corporate culture is intangible. Brinkman (1999) supports a
definition of corporate culture as a dynamic concept in the line of Schein (1985). He
acknowledges its intangible side but also argues corporate culture has a tangible
dimension49. The solutions and insights developed within organisations to advance
toward their vision based on their central belief are added to the content of the
corporate culture. They are then transformed into tangible resources and processes.
For example, if an organisation believes the way to effectively advance toward their
vision is through innovation, then the company may allocate parts of its tangible
economical resources to establish this insight within the organisation. It may allocate
resources to build a research and development department, hire researchers, build
partnerships with universities and take other forms of tangible actions.
In conclusion, we define corporate culture as a dynamic concept that has both
intangible and tangible dimensions. This dynamic begins with a central belief around
which a vision is developed. The question arises then on how to advance toward that
vision. The fundamental insights and answers to this question provide the content of
corporate culture. These insights are then established into organisational processes
and are expressed in a very specific clear way in how the organisation solves its
inherent internal integration and external adaptation problems. They become norms
and standards every organisational member has to align and behave according to.
They are then perpetuated through a set of mechanisms and are established through
concrete allocation of resources that transform them into a tangible organisational
reality.
c. Creation, transmission and sustainability of corporate culture

The case of Cargill shows the role the founder and early leaders play in the
creation of a unique corporate culture. Since the founding of Cargill in 1865, the
company only had 5 chief executives in its 130 years history50
. Three have been from
the founding and owning families. The other two did not have any linkage to the
dynasty. The first two, John Sr and John Jr, played an enduring role in shaping
Cargill’s culture. The first came to leadership at a critical stage for the company.

49 Brinkman, “The Dynamics of Corporate Culture.”
50 Broehl and Chandler, Cargill.p2

13
Cargill was encountering severe difficulties. It was on the brink of bankruptcy. The
determined resilient cautious personality of John Sr enabled the company to survive
this dangerous phase. It took several years of dealing with creditors and using his
already heightened financial skills to turn the organization around. Bankruptcy was
averted. John Sr was a fine manager of his people. He brought innovative accounting
practices and gained strong loyalties from his employees. He put into place a
corporate culture of consistency, caution and honesty. It reflected his personal values.
Whilst his extreme caution proved to be instrumental in pulling the company through
these difficult times, it became an impediment to growth. His lack of opportunity
orientation refrained Cargill from pursuing expansion51
. This however prepared the
ground the next influential leader, John Jr. He built on these values and brought his
own to further develop and cement a unique corporate culture. According to Broehl,
John Macmillan, Jr, exerted a tremendous influence on Cargill’s values from the early
1930s to his death in 1960. His thoroughgoing entrepreneurship, his exciting
leadership, and his willingness to take on ‘close calls’ in trading battles were all
legendary. Overall, he provided a unique form of leadership for Cargill. John Jr had
an incredible impact on Cargill52
.
In studying corporate culture and performance, one should clearly differentiate
between a purposefully designed corporate culture from a spontaneous one. Schein
(1985) provides a general framework capturing how culture is formed within an
organisation based on group theory. As such, all organisations develop spontaneously
a corporate culture over time when a group comes together to achieve a common
objective53
. From this perspective, all organisations adopt the same approach naturally
and therefore a spontaneous corporate culture in itself cannot be a competitive
advantage leveraged to generate high sustainable performance. At best, short-term
performance can occur when a set of uncontrolled circumstances mix to create an
effective corporate culture. However it cannot be maintained over the long-term as the
process for its perpetuation is not established (Heskett and Kotter, 1992). Studying
corporate culture and performance is studying an intentionally developed one formed

51 Ibid.p4
52 Ibid.p5
53 Schein, Organizational Culture and Leadership.

14
and perpetuated on purpose. The existence of such culture can only be claimed when
a set of mechanisms are systematically present within an organisation.
Heskett and Kotter (1992), Schein (1985) and Chatman (2007) highlight these
mechanisms defining the existence of a strong culture in details54
. The founder is
perceived as the main figure behind the creation of corporate culture. The founder
anchors the central belief, the insights, the underlying values and the business
philosophy that form the content of the corporate culture55. It is then expressed into
all organisational processes and perpetuated through a set of mechanisms. Leaders
that follow the founder in leading these companies are selected based on their
alignment to these values. They are organisational role models embodying the culture,
coach and train employees on that basis, constantly communicate them within the
organisation and align their choices accordingly within all organisational processes.
Leaders pay particular attention to the maintenance of the culture across all functions.
They establish measure and control systems as well as reward and status allocation
criteria on a basis highlighting the content of the corporate culture. They remain
committed to it at all times, even during crises. Additionally, the decisions of
recruitment, selection, promotion, retirement and excommunication of employees are
rooted in it 56
The cases of Norton and Cadbury show the mechanisms of transmission and
maintenance of corporate culture in action. The founders of Norton shared a deep
commitment for direct control. The timely arrival of talented, interested sons assured
continuity and endurance of the value on which the company was originally built. The
tutelage of Charles Allen, Jeppson and Higgins institutionalized these founder values.
They firmly established the pattern of continued owner-operation. It has been
perceived as crucial to the preservation of Norton values. It gained fundamental
importance for the following generations of management. In this logic, Jeppson and
Higgins recruited and trained descendants for top positions. However, this dynastic
approach did not entail the absence of a meritocratic basis. To the opposite, the large
family provided a rich pool from which to draw and nurture individuals with great

54 Kotter, Corporate Culture and Performance, 1992; p7 Schein, Organizational
Culture and Leadership; Lyons, Chatman, and Joyce, “Innovation in Services.”
55 Schein, “The Role of the Founder in Creating Organizational Culture.”
56 Schein, Organizational Culture and Leadership; Kotter, Corporate Culture and
Performance, 1992; Lyons, Chatman, and Joyce, “Innovation in Services.”

15
talents to become the future leaders of Norton57
. Cheape notes that employment of
various sons, nephews, brothers in law, cousins, and other male offspring from four of
seven founders made nepotism obvious, but advancement at the top was not reserved
to any family or individual. Those with less talent were held to lower or middle
management jobs until they quit or retired; those with aptitude were moved and
promoted. Many applied but few were chosen58
. Norton’s experience makes clear
whilst the personalities of founding members were important to the company’s
heritage, it is the institutionalisation and perpetuation of their values in the company’s
structure and strategy through the selection and training of its top people that carried
Norton’s culture59
.
Cadbury offers equally an interesting example showing the mechanisms underlying
the existence of a corporate culture. The death of the founders did not mean the death
of the values they built Cadbury on. To the contrary, the next generation of leaders
drew on the values transmitted and built on them in continuity. The fundamental
objectives remained the same. However, the ways to achieve them were subject to
much exploration paving the way for the industrial experimentation initiatives that
characterised Cadbury. The joint pursuit of business efficiency and industrial reform
was the motto of the second generation. This generation of leaders embodied the
culture, behaved consistently to the values they stated and encouraged. They were
role models for the younger generations. Particular attention has been given to these
latter. A person could get employed at Cadbury as soon as at 14 years of age. She was
subsequently trained and nurtured within this culture. Promotion was almost
exclusively from within. Those who best seized and acted in accordance with
Cadbury values were given positions of responsibility. It ensured both the
perpetuation of Cadbury’s culture as well as an unshakable commitment and loyalty
to the company.
The sustainability of a corporate culture over the long term or its demise
depends mainly on the controlling owners of the organisation60. They ultimately hold
the company’s power of decision. Corporate culture is lived and transmitted through

57 Cheape, Family Firm to Modern Multinational.p357

59 Cheape, Family Firm to Modern Multinational. P359
60 Broehl and Chandler, Cargill; Cheape and Chandler, Family Firm to Modern
Multinational; Stanger, “From Factory to Family”; Stanger, “Failing at Retailing.”

16
making decisions at all organisational levels according to the values of the firm. It is
therefore necessary that the controlling owners live up this culture as well as have the
decision power to carry it out. Financial independence is thus critical. The second
leader of Cargill understood the importance of this lesson. He stepped up in times of
severe financial difficulty. Cargill was at the mercy of creditors. It was difficult to
lead the company according to the values he was trying to instil. Once the situation
changed for the better, the resentment and fear of being deprived of power were
transmitted to the next generation. Throughout his leadership and that of John Jr,,
Cargill always chose to finance its projects on its own according to its means rather
than seek for external finance that would undermine the company’s independence.
This latter also ensured Cargill’s ability to move quickly and decisively on its own
information and analysis. It came to be one of its main strengths in its highly
competitive industry. The company adopted and maintained a policy of small
dividends with most profits funnelled back to invested capital. This policy endured
ever since61
. The Norton case reaches the same conclusion. The company’s deep
attachment to its values and unique corporate culture resulted in a great emphasis to
ensure the financial independence necessary to carry it out. The way it did it was
clearly summed up: ‘self finance assured independence, and success and thrift assured
self-finance’62
. The company’s high returns from its premium products generated
ample cash flow. Moderate dividend policy marked by a high percentage of
reinvested earnings (32% between 1975-1979) channelled these funds to reinvestment
to sustain and generate further growth. Norton’s strong financial position enabled it to
contract short-term loans for additional capital without needing to surrender any
power to creditors63
. Finally, Cadbury further sustains this point. It is most obvious in
the great reluctance of George Cadbury to sell any shares. He feared stockholders
would reject the social aims integral to Cadbury’s culture. Even when the company
went public in 1912, the family retained controlling power. This independence
provided Cadbury leaders with the ability to finance their unorthodox industrial and
social experiments64
. A note of caution has to be issued. It is critical the controlling
owners be immersed and aligned to the corporate culture to sustain it. Otherwise, they

61 Broehl and Chandler, Cargill. Trading the world’s grain. P789
62 Cheape and Chandler, Family Firm to Modern Multinational. P357
63 Ibid.
64 Dellheim, “The Creation of a Company Culture.”p352

17
can be its primer destroyer. The case of Larkin demonstrates it. The son of the
founder assumed leadership using his ownership power. He was not trained within the
company or nurtured within its culture. He caused the departure of key leaders behind
its previous success. They were the representatives and models of Larkin culture. He
quickly dismantled the company’s culture and led it to bankruptcy65
.
2) Corporate culture and performance
a. Strong, mission driven and adaptation cultures’ influence on performance

Three corporate cultures have been linked to organisational performance in the
literature: strong culture, mission driven culture and adaptation culture. In the
following, we explore the mechanisms through which they supposedly influence firm
performance. We equally assess their actual impact on performance as measured in
the literature.
A strong corporate culture is said to generate many benefits within the
organisation by solving internal integration problems that stimulate performance.
The influence of a strong corporate culture on employees is surely one of the
main mechanisms the literature insists upon. Accordingly, it is important to explore
this point in great details. The concept of fit between organisational culture and the
employee’s values is central in this assessment. Posner finds clearly articulated
organizational values make a significant difference in the lives of employees, as well
as in their organization’s performance. His findings reveal that efforts to clarify and
merge personal and corporate values can have a significant payoff for both managers
and their organizations. The strength of the congruence between values of an
organization and its employees affects quality of managerial commitment, direction of
energy and effort willingness on behalf of the organization. Strong shared values
provide individuals with a sense of success and fulfilment, a healthy assessment of the
values and ethics of their colleagues, subordinates, and managers as well as a greater
regard for organizational objectives. More specifically, managers who felt that their
values were particularly compatible with their organization were significantly more
confident they would remain with their current employer for the next five years. They
were more likely to work long hours for their employer66
. Similarly, O’Reilly (1991)

65 Stanger, “From Factory to Family.”
66 Posner, Kouzes, and Schmidt, “Shared Values Make a Difference.”

18
finds that person-organization fit predicts job satisfaction and organizational
commitment a year after fit was measured and actual employee turnover after two
years67
. Person-organization fit is a significant predictor of normative commitment,
job satisfaction, and intentions to leave, independently of age, gender, and tenure68
.
Shared values matter to organizational goals. These latter were more important for
employees who felt their values were aligned with the organization. They highly
ranked the goals of effectiveness, productivity, reputation, morale, profit
maximization and stability. Hence, clarity, consensus, and intensity about vision and
values are presented as producing significant results for the organization. Last, shared
values are associated with concern for stakeholders. Managers’ alignment to the
organisation’s values affects their orientation, attention and concern for various
stakeholders in the activities of the corporation69
.
Firms with a strong culture attract, motivate and satisfy employees with similar
beliefs as well as generate their alignment without interventionism. Van den Steen
(2005) finds the firm with a strong culture attracts precisely those employees who
take action according to its manager’s beliefs. The sorting effect systematically aligns
the beliefs of employees as well as their actions. It directly eliminates one major cost:
employee demotivation due to difference with manager’s vision. While the manager’s
opinion has an important influence on the decisions of the employee, it is also a key
determinant for the employee’s effort and utility, that is, his motivation and
satisfaction. A stronger belief of the manager motivates the employee and increases
his utility when the employee’s belief acts according to the manager’s beliefs.
Employees with a strong opinion about the correct path of action are very motivated
under managers who agree with them. They are however demotivated under
managers with a different opinion. Employees get higher utility working for firms that
espouse a vision they agree with as in strong culture companies. Consequently, they
get higher productivity from employees who agree with their vision. Delegation is
more compelling. It requires no efforts of supervision within a strong culture. In this
latter, employees’ actions are influenced by their managers’ beliefs. Since they are
unified, they become more aligned. When employees choose their projects without
intervention from the top, they choose what management would want them to choose.

67 O’Reilly, Chatman, and Caldwell, “People and Organizational Culture.”
68 Ibid.
69 Posner, Kouzes, and Schmidt, “Shared Values Make a Difference.”

19
Ultimately, employees are aligned without any explicit coordination mechanism
resulting in more delegation70
. Besides greater delegation, a strong culture leads to
less monitoring, higher utility (or satisfaction), higher execution effort (or
motivation), faster coordination, less influence activities, and more communication.
The fundamental intuition behind these effects is in agency theory. Shared beliefs and
values reduce differences in objectives. It intrinsically affects every type of agency
issue. The time to coordination increases in the level of belief heterogeneity. The
homogeneity in a strong culture makes coordination thus faster and easier.
Furthermore, an employee is more likely to hold information if he differs with
manager’s beliefs and values. Therefore, strong culture leads to higher exchange of
information71
.
A strong culture impacts performance by influencing strategy execution and
customer satisfaction. Chatman (2003) builds her argument on the effect strong
cultures create on employees as detailed above. It pushes it further by linking it to an
organisation’s strategic level. This link is of crucial importance to an organisation’s
success or failure. The nature and content of strategy formulation, no matter how
competent and appropriate, can remain but a strategy. The analyses of different
companies showed it is not strategy formulation that is of outmost importance but an
organisation’s ability to execute it effectively. This depends on how clearly
employees understand the culture and how intensely they feel about it. A strong
culture plays this bonding role between strategy formulation and strategy execution.
First, a strong culture energizes employees. It appeals to their higher ideals and
values. It rallies them around a set of meaningful, unified goals. These ideals excite
employee commitment and effort to achieve them because they are inherently
engaging and fill voids in identity and meaning. Second, strong cultures shape and
coordinate employees’ behaviour in a very effective and efficient way. Company’s
values and norms focus employees’ attention on organizational priorities that then
guide their behaviour and decision-making at their own level. It turns complex
strategic organisational objectives into manageable clear goals employees relate to
and are eager to reach72
. The efficiency with which strong culture organisations fulfil

70 Steen, “Organizational Beliefs and Managerial Vision.”
71 Van den Steen, “Culture Clash.”
72 Chatman, “Leading by Leveraging Culture.”

20
this function creates an important competitive advantage. Chatman clearly expresses
it in the following: ‘ They do so without impinging, as formal control systems do, on
the autonomy necessary for excellent performance under changing conditions. The
irony of leadership through culture is that the less formal direction you give
employees about how to execute strategy, the more ownership they take over their
actions and the better they perform. Strong norms increase members’ clarity about
priorities and expectations as well as their bonds with one another. Unlike formal
rules, policies, and procedures, culture empowers employees to think and act on their
own in pursuit of strategic objectives, increasing their commitment to those goals.
Organizational culture can be a powerful force that clarifies what’s important and
coordinates members’ efforts without the costs and inefficiencies of close
supervision.’73
The superior coordination ability in strong cultures is related to customer satisfaction
according to Denison. The ability to coordinate service delivery in a consistent way is
a critically important aspect of customer satisfaction. Strong cultures ensure it. They
are related to customer fidelity and repeated purchases. They guarantee continuous
streams of revenues over the long term. As such, they impact organisational
performance74
. Last among strong culture benefits, Kilman suggests it is central to the
success for both innovation and corporate mergers75
.
A strong corporate culture can equally have disadvantages that can offset its
benefits. The alignment, consistency, homogeneity and uniformity a strong culture
generates are seen as critical advantages. They facilitate important organizational
processes and performance. However, another strand of the literature points out to
limits and impediments they also create. The main limit is strong culture’s inability to
deal with change in the environment. Sorensen (2002) asserts strong cultures are
appropriate in stable environments. They excel in exploiting established
competencies. However, in changing environments, these strengths become
weaknesses. The discovery of new competencies becomes critical in volatile
environmental conditions. Exploration rather than exploitation is the key. Strong

73 Ibid.
74 Gillespie et al., “Linking Organizational Culture and Customer Satisfaction.”
75 Sørensen, “The Strength of Corporate Culture and the Reliability of Firm
Performance.”

21
cultures are ill suited in that exercise, They lack internal diversity and heterogeneity
of perspectives. Adaptation is thus more difficult. Similarly, Nemeth and Staw (1989)
single out a common assumption in strong cultures: truth is correlated with consensus.
Thus, consensus is maintained even in changing circumstances. With this uniformity,
strong culture organisations are likely to fail to adjust to shifts in the environment.
Moreover, pressures for uniformity equally cause rush to judgment and an inability to
make careful, deliberate and divergent decisions76
.
Strong culture is detrimental to innovation. The agreement to conform to established
behavioral patterns is a psychological tendency in strong cultures. Decrease in
innovation and detection of error are noticed. The majority influence narrows the
alternatives for a given situation. It reduces the quality of decisions made. Thus, it
stifles innovation. Organizational members’ insistence over established courses of
action reduce individual initiative to identify and correct organizational errors77
. Van
den Steen argues difference in beliefs rather than their homogeneity makes people
collect more information to convince the other party. In a strong culture, the inherent
agreement between parties does not provide any incentive. Hence, there is
organizational loss when parties constantly agree. In a similar logic, diversity of
beliefs is linked to more experimentation. It is defined as ‘trying different things and
learning about the payoffs of different actions’. When beliefs are heterogeneous, more
courses of action are experimented. They may result in innovations or in the
discovery of better courses of action than those deeply rooted in a strong culture78
.
Chatman (2007) challenges these arguments. Strong culture limits innovation only
when it is not in the content of the strong culture. Otherwise, it is the opposite
dynamic. A strong culture characterized by innovation can be an important stimulator
of innovation within an organization79
. It turns divergent thinking a value shared by
all members instead of establishing uniformity80
.
The second type of culture linked to organisational performance in
organisational theory and business history literature is the mission driven culture.

76 Staw and Nemeth, “THE TRADEOFF S OF SOCIAL CONTROL AND INNOVATION
IN GROUPS AND ORGANIZATIONS.”
77 Ibid.
78 Van den Steen, “Culture Clash.”
79 Lyons, Chatman, and Joyce, “Innovation in Services.”
80 Ibid.

22
Corporate culture starts from a belief on which a vision is built. Within the corporate
world, the natural widespread belief is profit. All organisational efforts are
exclusively directed towards that goal. A mission driven culture is different. Its
central belief is not profits or self-interested competition. This difference is said to
create a unique culture that relates better to performance. We explore how.
Collins (2004) attributes distinguished superior performance of elite companies or
‘visionary companies’ to their mission driven culture. These are organisation
ideologically rather than profit driven. Their beliefs are apparent in their statements
and embraced in their very perception of profits. Profit is allegedly like oxygen. It is
necessary for life but not the point of it. These basic beliefs outline the purpose and
ideology of the company. They are forces shaping everything the organisation does.
The organisation’s core ideology waves the fabric of the firm. It is translated in every
organisational function from the design of goals, jobs, strategies, tactics,
compensation systems and cultural practices to more artificial edifices such as
building layouts. It is the essence driving the company with messages consistent and
reinforcing. Every organisational member understands it and behaves accordingly81
.
Kotter (1992) further supports the idea. Companies with a managerial culture giving
great importance to all organisational constituencies (customers, employees,
stockholders) perform better82
. When managers care about all constituencies, they
perform well financially. In a competitive industry, it can only be achieved by taking
care of customers. In a competitive labour market, it means taking care of those
whose who serve customers: employees83
. It is difficult to assert every constituency
hold the same importance. However, no group has been ignored. Fairness to all
constituencies has been the underlying principle84
. On the opposite, a culture lacking
care for the three constituencies generate a limiting dynamic. It refrains a company’s
ability to effectively adapt. It negatively impacts performance. Finally, Denison
(1995) finds combination of economic and non-economic objectives is important for
organisational effectiveness. It provides purpose and direction to its members. The
organisations studied showed compelling evidence of the close relationship between
the overall purpose and direction of the firm, and the actual meaning held by each

81 Collins and Porras, Built to Last. P40

83 Kotter, Corporate Culture and Performance, 1992.p46
84 Ibid. p52

23
employee. Crises occurred when the basic mission was questioned or altered. The loss
of meaning and direction coincided with significant losses in momentum and
effectiveness85
.
Specific organisational capabilities develop as a result of mission driven
culture. It creates unique competitive advantages that stimulate performance.
Vrdenburg (1998) studied the impact of a mission driven culture built on care for the
environment. Companies placing the environment at the heart of their culture
developed proactive environmental strategies and unique competitive capabilities in
their industry. These capabilities include superior stakeholder integration, a capacity
for higher order learning and continuous innovation. It differentiated competitors
without proactive environmental strategies. These unique organisational capabilities
of environment driven cultures account from more than 50 percent of the firm’s
variance in competitive benefits (process, product, operational innovations, cost
reductions, improved corporate reputations and better employee moral) and directly
influence performance86
. A mission driven culture shifts the focus from the individual
to the collective. Chatman (1998) shows how collectivistic cultures stimulate the
emergence of benefits of demographic diversity favourable to performance 87
.
Collectivistic values positively interacted with demographic composition to influence
social interaction, conflict, productivity and creativity within the firm. Individualistic
values did not. A collectivistic culture makes organisational membership salient and
encourages people to perceive other members as having the organisation’s interests
and goals in common. The opposite happens in individualistic cultures.
Distinctiveness between members is the driver. The social categorisation process is
fundamentally different. In collectivistic cultures, demographic as a social
categorisation loses emphasis towards a categorisation defined by the values of the
organisation. As such, the demographic dimension that can be a barrier in the
interaction and harmony between organisational members is bridged. It facilitates
cooperation and coordination. Expectedly, individualistic cultures generated more
conflict. Difference between individual goals and values lead to tensions. This was

85 Denison and Mishra, “Toward a Theory of Organizational Culture and
Effectiveness.”
86 Sharma and Vredenburg, “Proactive Corporate Environmental Strategy and
the Development of Competitively Valuable Organizational Capabilities.”
87 Chatman et al., “Being Different yet Feeling Similar.”

24
not the case in collectivistic cultures. Furthermore, collectivistic cultures perceived
conflict as a positive experience, increasing learning and improving chances of
reaching organisational outcomes. In individualistic cultures, they were perceived as
detrimental. Last but not least, collectivistic cultures stimulate greater creativity than
individualistic cultures. Trust in collectivistic cultures unlocks diversity of ideas
characteristic of divergent demographic backgrounds, Productivity in collectivistic
cultures is thus higher than in individual cultures88
.
The cases of Cadbury and Cargill are prime examples in business history of
the way mission driven culture can relate to performance. Delheim (1987) seized
Cadbury’s mission driven culture. The Cadbury family was deeply religious. They
were highly active Quakers. The Quaker philosophy had central place in their
perception of business and the objectives it served. This approach differed from
mainstream business. It resulted in a unique unorthodox vision of business and
organisational processes. The primary objective was not profit driven. Rather, it has
been stated as the advancement of the social, moral and physical well-being of all
connected with the company. The Quaker philosophy was behind the very
assumptions upon which crucial business practices have been formed. It is clear in
Cadbury’s labour practices. George Cadbury deeply believed all men are equal to God
and that man was saved to serve: ‘The real joy rest and joy in life is to have an
assurance that we are felling up the place, which God has appointed us’. This deeply
held belief initiated one of the most progressive labour policies of the era. Employee
welfare was central. The company committed to ensure employment for its workforce
even in times of hardships. It enlarged its recruitment to underprivileged spheres to
offer an opportunity for a better life. In turn, these policies resulted in greater
productivity and harmony. During times of labour manifestations and strikes in
Britain, Cadbury was not affected. The demands of strikers were already met and
exceeded. The mission driven culture also translated in their value proposition, the
selection of product categories and the quality they pursued. Cocoa and chocolate
were seen as having social benefits. Thus, they were chosen to be the main product
categories. The company’s strategy was ‘to provide high quality products at good

88 Ibid.

25
value to the consumer’89
. Cadbury’s policy to only use the very best raw materials
compelled the elevation of the industry standards, to the great disappointment of its
competitors. It reduced their profit margins. Finally, the mission driven culture
brought a long-term approach to building the company. An employee recalls that
‘George and Richard Cadbury took the long-term view in running their business.
They weren’t looking for immediate profit but were building for the future when their
children would reap the advantage’. In Cadbury’s case, the mission driven culture
proved to crucial to the high performance they registered90
. Cargill’s situation is no
different. Its underlying belief is captured upon accession of its fourth leader. Broehl
states ‘there was no doubt that MacMillan was a visionary who wanted passionately
to be the best in improving the living standards for the five billion people of the
world.’ Right from the start of his leadership, he was very strict on placing critical
importance on company ethics at a time where the industry was marked by a slippage
in morality.91
Culture of adaptation is the third type of culture associated with performance.
The Electromotive Company in the American railway locomotive industry perfectly
captures this culture and the way it influences performance. Churella;s (1995) study
of American railway locomotive industry explains divergent performance between the
two main competitors by culture of adaptation. The American Locomotive Company
dominated stream locomotive industry. It had a culture suited for it. However, it was
ill suited for the technological shift to diesel locomotives. This ‘maladaptive culture’
cost American Locomotive Company its well-established dominant position to the
detriment of its less resourceful but culturally better-equipped challenger, the
Electromotive Company92 . The American Locomotive Company had no future
orientation. It solely focused on the existent technology. It failed to see the radical
technological change forthcoming. Its leaders perceived innovation and technological
advance as a matter of incremental innovations driven by the continuous
improvements on current technology rather than in terms of major technological
shifts. They could not comprehend how the widespread dominant steam technology

90 Ibid.
91 Broehl, Cargill, 1998.p252

26
could become obsolete. Thus, they strengthened organisational processes and
capabilities for steam technology only. Manufacturing was based on batch production.
Marketing relied on loyalty. They yielded significant success in steam locomotives.
At the same time, its leaders perceived the nascent diesel locomotives technology as a
fad. Consequently, they did not commit resources to develop it. Instead, they provided
abnormally high dividends and invested in their existent abilities. They did not adapt
their capabilities to suit the different model diesel technology required. Batch
production and client loyalty were of limited relevance in this optic. The
Electromotive Company was a new organisation in the industry. It had very limited
resources compared to the American Locomotive Company and but a tiny market
share at first. However, its leaders quickly recognised the major shift diesel
technology was to create and instantly committed all their resources to this new
technological paradigm. Its founders built a culture of experimentation and innovation
centred on the development of diesel technology. It developed unique organisational
capabilities perfectly adapted to the requirements of diesel technology. It created new
distribution techniques and invested heavily in assisting, teaching and coaching its
users to diffuse it. Consequently, the company held a privileged position when the
technological shift towards diesel technology occurred. The under resourced
Electromotive Company drove once dominant American Locomotive Company to
bankruptcy in a few years. The company’s ability to anticipate and adapt to its
environment has been therefore credited for both the demise of a dominant player and
the emergence of a new leader93
.
Now that the three cultures relating to performance have been identified and the
ways they influence performance have been explored, we focus on each culture type’s
link to financial performance in both organisational theory and business history.
b. Culture content and performance

A strong corporate culture ensures the reliability of performance within a
stable environment. It has a relationship with short-term performance. However, it
does not guarantee long-term performance. Sorensen (2002) found companies with a
strong corporate culture have a more reliable (less variable) and a superior
performance in relatively stable environments than others. The consensus surrounding

93 Ibid.

27
organizational goals and values characterizing strong culture enhance their ability to
exploit established competencies. However, this reliability and superiority in
performance is only enduring as long as the environment is stable. In more volatile
environments, the benefits derived from strong culture attenuate and disappear
because of the difficulty strong culture firms encounter to explore and discover new
competencies better suiting their environmental conditions. Firms with strong cultures
thus incur therefore a trade off with respect to their adaptability in the face of
environmental change94
. Di Tomaso (1992) finds the extent to which individuals agree
in their view of the total culture is predictive of short-term performance. More
specifically, strong culture measured as consistency of survey responses within
organizations, is related to organizational performance in ensuing years 95
. It
strengthens the same conclusion reached by Denison (1990)96
. However, Kotter
(1992) questions these findings. In his study, strong culture has but a modest positive
relationship with performance. The statement strong culture creates excellent
performance is hardly verifiable in a reliable way and cannot be asserted. A strong
culture can have the opposite effect when its content contains dysfunctional elements.
It can lead even thoughtful reasonable people in the wrong direction. At best, a strong
culture has a modest relationship to short term performance97
.
The cases of Larkin, Nuffield and Norton in business history support the link
presented above between strong cultures and performance. Stranger (2000) suggests
Larkin Company’s initial positive performance was a result of its strong culture. It
aligned management, employees and customers. It solved internal problems and
smoothed operations unifying major company stakeholders around clear single
organisational objectives and common interests. This strong culture has been
characteristic of the first generation under the leadership of the founder John Larkin.
The move to the second generation changed the company’s fortunes. The death of the
founder was the beginning of the weakening of the Larkin culture. The leadership
assumed by his son led to rapid degradation of the strong culture. The unity that has

94 Sørensen, “The Strength of Corporate Culture and the Reliability of Firm
Performance.”
95 Gordon and DiTomaso, “Predicting Corporate Performance from
Organizational Culture*.”
96 Denison, Corporate Culture and Organizational Effectiveness.
97 Kotter, Corporate Culture and Performance, 1992.p22-23

28
been holding management, employees and customers gave way to divergence and
open conflict. The management that has been instrumental in developing its fruitful
mail ordering business and that embodied Larkin culture quickly distanced itself from
the company they built from scratch following a series of conflicts with the new
Larkin leader. This weakening and destruction of the strong culture consequently led
company to bankruptcy in a very short time98
. Nuffield experienced a similar scenario.
Morris founded the company. He was the first to move towards high volume
production in British automobile industry, inspired by the Ford model. He built a
strong engineering team and assembled a handpicked talented team of managers
around a clear vision. The strong culture he built quickly proved fruitful. Nuffield
occupied a prime place in British automobile industry. His retirement however was a
turning point. As in the case of Larkin, the void the founder’s departure left, led to the
weakening of culture and to a downward spiral. The once cohesive company guided
by clear vision soon turned into internal division, competition and uncertainty as to
managers’ role. Furthermore, the maintenance of completely independent
subsidiaries, the sacking of key figures, the inconsistency of the values preached with
the empowerment yet punishment of management for taking initiative turned a strong
culture into chaos. Confusion about the company’s direction, lack of communication
and planning rapidly turned a prosperous company into one in difficulty, forced to
merge with a bitter rival to survive99
. Last, Norton equally showcases the same
dynamic. The founding generation deeply rooted a strong culture through which they
conducted business and stood firmly. By World War I, they financed, built and
maintained control of a large, integrated, industrial company. It was the world’s
largest manufacturer of grinding wheels and other bonded abrasives. They had the
clairvoyance to nurture a second generation able to uphold the strong culture and
perpetuate it in business operations. Unlike Larkin, the second generation proved able
and further cemented the company’s success.100
The shift to the third generation
proved to be the pitfall instigating culture weakening. The expansion of the company
and the insistence of the subsequent generation to maintain direct control proved to be
a deadly combination. This generation did not nurture and develop talents to hold
leadership positions across the growing and complex organisation. They were

98 Stanger, “From Factory to Family”; Stanger, “Failing at Retailing.”
99 Church, “Deconstructing Nuffield.”
100 Cheape and Chandler, Family Firm to Modern Multinational.p352

29
compelled to hire external managers, foreign to the unique Norton culture, into
important managerial positions. The strong culture diluted. Scores of acquisitions
granted complete autonomy accentuated this tendency101
. Poor performance and
important financial difficulties followed. In the three cases, strong culture linked to
performance but only in a short to medium term horizon, in line with organisational
theory findings.
Mission driven culture also generates short to medium term performance.
Denison (1995) finds in mission driven culture a strong predictor of performance. The
profitability criteria are best captured by the mission trait of a culture. His research
however is only applicable for the next few following years without providing
insights as to the long-term horizon102
. Delheim (1987)’s study of Cadbury shows the
impact of its mission driven culture on performance. The company went from a
failing company to the 24th
largest manufacturing company from 1879 to 1931. It is
even more impressive as it prospered within the context of broad national industrial
British decline103
. It is however not sufficient to claim mission driven culture
generates and sustains long term performance. Similarly, Collins (2004) used
companies’ market performance in assessing the relationship between a driven
mission culture and performance. Mission driven culture companies had stock-return
performance of fifteen times the general market. He claims they stood the test of time.
We do not consider the stock-return performance as an intrinsic measure that truly
captures performance. For this reason, mission driven culture being predictive of
long-term performance remains but an unproved statement104
.
Culture of adaptation does not better than strong and mission driven cultures.
It is also limited to short and medium term performance. Corporate cultures with a
good environment fits can only explain short to medium term performance at best.
Highly performing companies reported better culture-environment fit than their
counterparts 105
. However, a change in the environment can hurt long-term
performance. Most of lower performers had a significantly better culture/environment

101 Ibid.p353
102 Denison and Mishra, “Toward a Theory of Organizational Culture and
Effectiveness.”
104 Collins and Porras, Built to Last.p40
105 Kotter, Corporate Culture and Performance, 1992.p37

30
at an earlier time and registered excellent performance. However, they could not
maintain it106
. Thus, culture of adaptation can only account for short to medium
horizon performance. The case of the Electromotive Company does not contradict this
conclusion. It started to lose ground the same way it gained from the industry’s
previous leader. The Electromotive Company developed the organisational
capabilities necessary to navigate the diesel revolution. However, it did nothing but
maintain and strengthen these existent capabilities. It was not preparing for the next
environment shift. The entry of GE into its market with an innovative product built on
a new technology far superior to existent products quickly eroded its market share.107
.
Thus, adaptation culture does not ensure long-term performance.
The case of Cargill is the exception. It is the only case that registered sustained
long-term performance. However, given the nature of its industry, no lessons can be
transposed to capital-intensive technology industries. Since John Jr’s turnaround of
the company in early 1920s, the company has been in an upward spiral consistently,
maintained through the following generations. It combined the three types of culture
at once. It had a strong culture, a mission driven one as well as a culture of adaptation.
It is unclear though if the combination of these different attributes is the reason
behind its continued success. Cargill moved from a Midwestern company in the early
1920s to a respected major national force by the 1940s108
. Under the leadership of
John Jr,, it became the world leader of grain trade by 1961, respected, envied and
even fear by whose who had to deal with it109
. By the time of transition from John Jr
to the next leader of Cargill, it was widely recognised by the public as the number one
in the industry110
. It continued its upward performance curve with steady growth in
sales, net worth and profits between 1977 and 1991. It maintained its relentless pace
and advantage over its traditional rivals in the grained trade and fended off new
challengers111
. Cargill remained top of its industry throughout decades. It had superior

106 Ibid.p40
108 Broehl, Cargill : Trading the world's grain.p854
109 Ibid.p867
110 Broehl, Cargill, Going global 1998.p367
111 Broehl, Cargill, Trading the worlds' grain 1992. p876

31
abilities in almost any trading situation112
. Thus, Cargill surely represent the best
template in business history literature to derive understanding of the culture type that
best relate to long-term performance. However, the nature of the industry plays an
important role. No such case exists in corporate culture literature for capital-intensive
technologically driven industries. The quest for seizing the corporate culture behind
long-term performance in these specific industries remains wide open in the literature.
We have seen so far that the three types of culture could only account for short
to medium term performance at best. They fail to explain long-term performance. A
major common issue is emerging. It could enlighten the reason why these cultures fall
short in that exercise. Independently from the type of culture, their long-term
performance seems to be hindered by a common factor: technological advance and
change. The rise of the Electromotive Company was due to its early commitment to
the new technological shift from steam towards diesel whilst its decline was equally
led by the development of GE of a novel technology replacing the existent one113
.
Larkin’s rapid demise coincided with the industry’s shift from mail ordering business
to a new business paradigm. It was enable to embrace this major change114
. Norton’s
inability to maintain its technological edge and develop innovative premium high
margin products behind its prior success was a major reason for its subsequent
difficulties115
. Thus, the major shortage facing all three types of culture is their
inability to drive technological progress, create technological revolutions or at least
recognise, embrace and commit to major technological shifts at their early stages
when the short window of opportunity is still open. Culture of radical innovation has
the potential to overcome this fundamental limit and unlock the puzzle of long-term
performance in capital-intensive technology industries.
c. Culture of radical innovation

Culture of radical innovation is defined as a culture that fosters relentless
innovation that aims to ensure a firm is constantly at the leading edge of innovation.
According to Tellis (2009), a radical innovation has transformational effects. It

112 Broehl, Cargill, From commodities to customers 2008. P9
114 Stanger, “Failing at Retailing”; Stanger, “From Factory to Family.”
115 Cheape and Chandler, Family Firm to Modern Multinational. P354

32
merges markets, create new ones and destroy old ones. It differs from incremental
innovations that are the result of improvements of existing technologies and products.
Rather, a radical innovation can take the form of completely new product categories
enabled by major advances or complete shifts in underlying technology. It makes
what was impossible yesterday possible today. Radical innovations can propel small
outsiders in position of industry leadership and bring down dominant players that fail
to launch or embrace these radical innovations. Firms at the leading edge of radical
innovation tend to dominate world markets. Radical innovations have thus the power
to drive market growth, a company’s success and a nation’s economic growth. These
radical innovations are however results and the fructification of a whole process.
Amongst all factors, corporate culture is clearly identified as the most important
driver behind the generation of radical innovations. Thus, a culture of radical
innovation is basically a corporate culture geared towards the continuous generation
of radical innovations116
.
A culture of radical innovation consists of three attitudes. The attitudes are
future orientation, the willingness to cannibalise assets and tolerance of risk. The
future orientation attitude means the company is constantly looking ahead and
focusing on the next major technology. A future orientation forces a firm to realize
the limitations of current technology no matter how advanced it is and orients its
attention towards the emergence of the next generation of technology that may
become dominant in the future. It shifts the focus from the temptation to channel its
efforts into small improvements and resolution of micro problems of current
technology towards the development of an entirely new and superior technology that
would make the existent technology obsolete in the future. Future orientation has to
be backed by resources allocation. Willingness to cannibalize assets is crucial. In
order to develop the next major technology, the company may have to sacrifice the
stream of profits from current products and services. Finally, trading a current, sure
stream of profits for a future, uncertain stream of profits is perceived as risky.
Tolerance of risk is necessary117
.

117 Ibid.

33
A culture of radical innovation is not only a set of attitudes but also requires
the concrete allocation of tangible resources within the organisation. Allocation of
resources towards the activities that organisationally and functionally establish and
sustain the culture of radical innovation is of major importance. These activities are
typically research and development efforts. A culture of radical innovation places
great emphasis in developing major innovations from within its laboratories. They are
more prone to commit significant stream of cash flows towards research activities
than the average company. Eberhart (2004) singles out the effect a commitment to
research and development has on performance. He finds that a significant increase of
research and development expenditures generated abnormal positive long-term
operating and stock performance118
. These increases were beneficial investments
despite the slowness of the market to recognise it. It lead to abnormally high
profitability. This impact was even more marked in high technology companies.
Research and development allocation of resources is a managerial decision. Thus, it
intrinsically relates to corporate culture. Similarly, Leonard (1971) found research
intensity as measured by company research and development spending, relates to
growth rates of sales, assets, net incomes and other variables through the stimulation
of real output rate of growth. This relationship appears two years following the
commitment of funds and gains influence as new products developed occupy a rising
proportion of sales119
. Last, Tellis (2009) finds that research and developments
activities, measured as the percentage of R&D employees to all employees have a
significant positive effect on radical innovation. It captures the degree of a firm’s
commitment to innovation, especially in technology-driven markets. Investment in
skilled labour is a necessity in such culture120
.
A culture of radical innovation is a strong driver of performance in
organisational theory. However, the horizon of the studies conducted only refers to
short-term performance. The commercialization of radical innovations translates into
companies’ financial performance. It significantly increases the market to book value.
Culture of radical innovation is a strong predictor of financial performance121
.

118 Eberhart, Maxwell, and Siddique, “An Examination of Long-Term Abnormal
Stock Returns and Operating Performance Following R&D Increases.”
119 Leonard, “Research and Development in Industrial Growth.”
121 Ibid.

34
However, the limited time scope of this study does not allow for the assessment of the
link between culture of radical innovation and long-term performance. Doubt
concerning this relationship is even more reinforced given the difficulty of
maintaining a culture of radical innovation through time. Success in one generation of
technology can breed attitudes of complacency and invulnerability with a focus on
managing current products and protecting current profits. These latter can reduce firm
commitment radical innovations. Maintaining a culture of relentless innovation is
difficult. Thus, absence of studies in organizational theory and business history
exploring specifically the link between culture of radical innovation and long-term
performance makes it difficult to lean in a way or another.
3) Research question, methodology and sources
a. Research question

We have established that corporate culture plays an important role in
organisational performance. We identified the three main cultures associated with
performance. We explored the ways they influenced organisational results. We found
they only relate to short to medium term performance in capital intensive
technologically driven industries. They fail to explain long-term performance. The
limit shared by these cultures is their vulnerability to technological advance and
change. Culture of radical innovation has the potential to overcome this limit. It is
orientated towards creating technological revolutions or at least embrace them at their
very early stages through heavy allocation of resources and an unshakable
commitment to the future. Existent studies on the link between culture of radical
innovation and performance only capture the short-term horizon. It is unclear whether
culture of radical innovation really overcomes the limit of technological change and
offers a plausible explanation concerning drivers of long-term performance. It is this
gap in the literature this research seeks to address. Thus, our research question is:
Is culture of radical innovation linked to long-term firm performance in capital-
intensive industries?
b. Methodology

We used a comparative methodology to explore our research question. Our
approach has been to identify two companies in a capital-intensive technological

35
driven industry: one with a culture of radical innovation and one without. Both
companies needed to share the same environment to fix this variable and isolate the
culture of radical innovation factor. We then explored both companies’ cultures in
detail and followed their performance over a long-term horizon. Based on this
analysis, we then concluded within the scope of this methodology and the limits of
this comparison whether there is a link between culture of radical innovation and
long-term performance.
Our first step was to select a capital-intensive technologically driven industry
where Switzerland was a pioneer or at least a competitive global player. This industry
had to meet the conditions presented in our research design. The watchmaking and
electrical industries emerged. Feasibility issues narrowed down our selection.
Archives of the watchmaking industry were not accessible. Those of the electrical
industry were open for consultation. Two major companies subsequently were
identified as important players in the Swiss electrical industry: Secheron and
Maillefer. A primary analysis of both companies led us to dress the following profiles
in terms of performance and nature of culture to verify their match with our
methodology:
Secheron was created in 1918. It started off strongly. It was the main actor behind the
electrification of Switzerland upon the decision of les Chemins de Fer Federaux to
launch the project in 1916. The company went on entering new markets and
broadening its products range with many innovations in the process. Accordingly,
Sécheron started producing welding, electrodes, rectifier mercury free vacuums
respectively in 1925, 1927 and 1937. Its absolute performance though declined and
stagnated from 1924 to 1942. The neutrality of Switzerland and the important
external demand during the post-war rebuilding efforts contributed to its subsequent
growth. Secheron recorded its best results between 1942 and 1964122. It then suffered
severe difficulties upon the intensification of its competitive environment. It turned it
in a loss making business for the first time in its history. Secheron was compelled to

122 CH AVG, SA 1.2 18-24, Rapports annuels du conseil dàdministration, 1918-
1924, CH AVG, SA 1.2 24-42, Rapports annuels du conseil dàdministration,
1924-1942Administration, Values, Nature, and Culture in the American
Corporation. CH AVG, SA 1.2 42-69, Rapports annuels du conseil
dàdministration, 1942-1969

36
lose its independence. BBC acquired it on 1969123. On the other hand, Maillefer
started from humble beginnings in 1900 manufacturing file tools cutting machines. It
faced important difficulties to remain afloat during the first two decades. The second
generation of the Maillefer dynasty stabilised the company from 1920 to 1960124
through a strategy of product diversification becoming profitable in 1945 for the first
time. Under the leadership of Charles Edmond Maillefer, third generation of the
business dynasty, Maillefer specialised in the production of cabling machines mostly
for the booming electrical energy distribution and telecommunications industries. It
became the undisputed global leader in the market and spurred spectacular
performance from 1960 to 1987. Further primary investigation in the archives
indicated that Maillefer’s culture under the leadership of Charles Maillefer Fils fitted
our culture of radical innovation definition. On the other hand, Secheron did not.
Thus, the Swiss electrical industry provided a fertile ground to put in practice our
research design and investigate the following refined research question:
Does culture of radical innovation relate to long-term performance in capital-intensive
industries? The cases of Maillefer and Secheron in the Swiss electrical industry 1960-
1982
c. Sources

Archival sources available enable us to answer our research question. Maillfer’s
archives have been unused. The breath of their content is at least similar to those used
in current studies on corporate culture125
. Maillefer’s archives comprise the minutes of
the board of directors. They date from1920 to 1966. Annual reports spans until

123 Benguigui, Sécheron.
124 Archives Cantonales Vaudoises, Maillefer S.A, http://www.davel.etat-de-
vaud.ch/detail.aspx?ID=196023 Accessed 21 April 2015
125 Stanger, “From Factory to Family”; Dellheim, “The Creation of a Company
Culture”; Church, “Deconstructing Nuffield”; Churella, “Corporate Culture and
Marketing in the American Railway Locomotive Industry.”

37
1982126
. Maillefer was a private family controlled company. Its leader had dominant
ownership of over 70%, the second shareholder being at 5%. From an agency theory
perspective, the opposition between the core principal and agent is limited. They are
equivalent. The interests and aspirations are aligned consequently127
. When the
principal and agent are different entities, the risk of overstatements is significantly
higher than in this particular case. The content of Maillefer’s annual reports is
therefore less prone to intentional bias. There is less incentive to do so. They can be
consequently considered as an adequate source from which to draw Maillefer’s
corporate culture alongside the minutes of the board of directors. Annual reports with
data on financial performance are equally available during the period studied. Last,
many complementary documents designed for third parties such as company journals,
memoires of critical actors, internal history, prospectus for public listings can provide
us with an idea of Maillefer culture at a symbolic level in a similar fashion to existent
studies on culture. Secheron’s archives contain an uninterrupted series of minutes of
board of directors for the period we are interested in. These latter are used as the main
source to capture the company’s culture. Annual reports provide the financial
information needed.
III. Culture of radical innovation and firm performance
1) The culture of Maillefer 1960-1982
a. The origin of Maillefer’s culture of radical innovation

The corporate culture inherited by Charles Maillefer Fils is best captured in
the personalities of the top two leaders of the previous generation. Charles Maillefer
Pere took the realm of Maillefer in 1920. It was in an extremely vulnerable financial
position. It was on the brink of bankruptcy heading without any clear vision or
discipline. Much like John Sr for Cargill, Charles Maillefer Pere was an able leader.
He succeeded to turn around the company. His cautious resilient personality found

126 Archives Cantonales Vaudoises, Maillefer S.A, http://www.davel.etat-de-
vaud.ch/detail.aspx?ID=196023 Accessed 21 April 2015
127 Eisenhardt, “Agency Theory.”

38
great motivation in dealing with the extreme difficulties of the time. He provided
Maillefer with direction at a critical moment of its existence, He then went on to instil
discipline in the company’s ranks. He built a capable team that stirred away Maillefer
from severe financial difficulties to profitability for the first time in its then 40 years
history128
. Amongst the team he built, Camille Cuendet stood out. He was his number
two. His values and qualities clearly reflected the kind of culture Charles Maillefer
Pere established. Camille Cuendet entered Maillefer in 1923 during the company’s
turbulent times His objective judgement, business intelligence, vivid energy, tenacity
and determination instantly made him a valuable organisational member. He caught
the eye of Charles Maillefer Pere. As a result, he quickly climbed the ladders and
joined the board of directors in 1935129
. Since then, he remained as a member of the
board of directors, serving under Charles Maillfer Fils. This latter chose to uphold the
strong corporate culture based on the values of discipline installed by his father and
perpetuated by the leaders he developed such as Camille Cuendet.
Charles Maillefer Fils built on the strong culture he inherited and maintained
its values He brought his touch by establishing a culture of radical innovation non-
existent in the previous generation. The following statement the year Charles
Maillefer Fils became the leader of the company perfectly captures the culture he
sought to establish:
‘‘Ces études de caractère passage ne doivent pas nous faire perdre de vue les
recherché de développement dont nos produits doivent bénéficier régulièrement. Il
n’est pas une seule de nos machines qui ne se vendre que grâce à ses qualités
intrinsèques, à ses avantages par rapport à celles de la concurrence.
Or, notre concurrence se manifeste sans cesse et se perfectionne aussi constamment.
Si l’industrie Suisse doit son développement et son succès au sérieux et a l’adéquat de
ses constructions, si l’on estime que l’exportation peut rencontrer des moments
difficiles dans les prochaines années, le Marche Commun ne semblent pas s’ouvrir
pour demain, nous ne devons jamais oublier que l’opiniâtreté dans la recherche et
l’intelligence dans la construction ont été dans le passé notre meilleur atout et que

128 PP 837/30, Archives Cantonales Vaudoises, Maillefer S.A, Rapport annuel du
conseil d`administration, 1960.

39
c’est aussi pour l’avenir la plus sure Assurance-Vie qu’il soit possible de contracter.
Nous pouvons affirmer qu’il n’y a pas de jour ou notre bureau technique ne cherche a
améliorer la conception d’une machine ou une autre, a rationaliser un élément et a
trouver l’idée, l’étincelle qui ouvre des perspectives intéressantes. Il ne suffit pas de
réfléchir. Il faut trouver, et la trouvaille doit toujours subir, dans notre métier, le test
de la pratique. A l’effort intellectuel de nos constructeurs-chefs de branche doit
succéder le jugement de notre local d’essais. Tous les jours ne sont pas fastes,
pourtant, il arrive que l’effort soit récompensé. Il ne l’est vraiment que lorsque le
client reconnait la superirorite de nos machines’ 130
The central belief around which Charles Maillefer Fils built the culture is beating the
competition. It is the dominant organisational objective. Competition is seen as the
main dynamic inherent force Maillefer has to deal with and overcome131
It is
portrayed in both a favourable and negative light but always with realism. The
competition’s efforts never cease. They are laudable. It makes the task harder for
Maillefer but as the same time acts as a stimulating driver for the company’s own
progress. This competition is merciless and fierce. It fights Maillefer for clients with
all its power132
. It is ready to use any tactics possible to get ahead. Competition is ever
increasing and has the ability to copy technical advances of Maillefer with ease and in
a short time, especially in simple products categories. Charles Maillefer also
recognises environmental advantages competition holds such as the cost advantages
of foreign competitors or easier access to markets such as the Common Market133
.
The only way to beat the competition according to Charles Maillefer Fils is to be
constantly ahead in terms of technological progress, develop distinguished products
substantially superior technically providing higher intrinsic benefits for clients. The
company’s whole success and survival depends uniquely on that single factor: ‘La
leitmotiv de Maillefer S.A reste ‘l’avance technique. Tout l’avenir de notre société


Culture of radical innovation and long-term performance in capital-intensive industries : the cases of Maillefer and Secheron in the Swiss electrical industry, 1960-1982.

Culture of radical innovation and long-term performance in capital-intensive industries : the cases of Maillefer and Secheron in the Swiss electrical industry, 1960-1982.

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