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Psychological Reports, 1995, 7 6 , 483-492. O Psychological Reports 1995

RELATIONSHIPS BETWEEN ORGANIZATIONAL CULTURE AND ORGANIZATIONAL PERFORMANCE '

M. M. PETTY AND N. A. BEADLES I1 CHRISTOPHER M. LOWERY

University of Akzbama Georgia College

DEBORAH F. CHAPMAN DAVID W. CONNELL

University of Alabama The Southern Company

Summary.-Data on measures of organizational culture and organizational per- formance were collected at two different points in time from a sample of 12 or- ganizations of a firm in the electric utility industry. Pearson correlations indicated measures of organizational culture were signiEicantly related t o objective measures of performance. Teamwork was strongly associated with organizational performance. If measures of organizational culture could be integrated into the reward system, manag- ers might pay more attention to improving organizational culture and thereby improve organizational performance.

The concept of organizational culture has been viewed as an important paradigm for organizational analysis by providmg a dynamic and interactive model of organizing Uelmek, Smircich, & Hirsch, 1983; Smircich, 1983). It is important to theorists in providing another way to understand organiza- tions. For practitioners of management, the relationship between culture and performance postulated by organizational analysts makes organizational cul- ture a significant consideration; however, among researchers there is some disagreement as to whether corporate culture actually has any effect upon organizational performance. While some have argued that it exerts a power- ful effect upon firms' performance (Barney, 1986; Deal & Kennedy, 1982; Denison, 1984; Goll & Sambharya, 1990; Peters & Waterman, 1982; Wiener, 1988), others argue that there is either no such lmk or that the rela- tionship has no measurable effect (Arogyaswamy & Byles, 1987; P. D. Rey- nolds, 1986; Saffold, 1988). The purpose of this paper was to investigate em- pirically the relationship between organizational culture and organizational performance.

Defining Culture Organizational culture is not a particularly easy concept to address. Part

of the difficulty lies in its definition for the concept is borrowed from the anthropological literature and the researchers who have applied it to organi- zations and a business context have defined culture differently and disagree

'Address correspondence to Christo her M. Lowery, Department of Management, Georgia College, Campus Box 01 1, ~ i l l e d ~ e v i f e , G A 3 1061.

484 M. M. PETTY, ET AL.

somewhat as to the precise nature of the construct. Ln their introduction to the Administrative Science Quarterly special issue on culture, Jehnek, et al. (1983) observed that the concept of culture is not well-developed and that it may be desirable to have a range of approaches rather than one fixed defini- tion. A survey of the literature indicates that there are several definitions for culture but these varied definitions of culture principally represent two broad categories, those which describe culture in an overt fashion and those which treat it as an underlying force. Although these appear to be the two primary approaches, some researchers have fashioned definitions by combin- ing these two views (Bowles, 1987; Uttal, 1983).

The first group views culture as how an organization sets strategy, develops goals, measures progress, and defines products and markets. Cul- ture is considered as a mechanism for governing rational behavior, a system of broad rules for appropriate action under specified contingencies (Carnerer & Vepsalainen, 1988). Those who hold this view tend to write for and from a practitioner's perspective and consequently often seem to regard culture as at least partially malleable and thus amenable to managerial intervention.

The second group focuses on underlying systems of unconscious - . assumptions and beliefs which are shared by members of an organization (Schein, 1989) and expressed via symbols, ceremonies, and myths (Ouchi, 1981). Most researchers who lean towards this view agree that an organiza- tion's value system is a key element to the definition of culture (Arogyas- wamy & Byles, 1987; Deal & Kennedy, 1982; Peters & Waterman, 1982; Wiener, 1988). Adherents often view culture as static, as resistant to change. Yet even here we find that authors who write for practicing managers ap- pear to view culture as more dynamic than their anthropological and c h i c a l peers. In this paper we seek to resolve some of the conflict between the two views by proposing that the two views of culture are not in confict but are rather complementary. The second is more static because it takes a long- term view of culture while the first is more short term. We view culture as essentially a long-term m hen omen on (the second view) and yet as one which, to be useful from an organizational development perspective, can be affected and observed within a shorter time. In this way, the two definitions are not mutually exclusive but are complementary.

Measuring Culture In addition to the M i c u l t y in defining culture, problems also arise

when researchers attempt to measure organizational culture. Even though considerable attention has been directed toward culture as an important fea- ture of organizations, few attempts have been made to develop systematic measures of culture (P. D. Reynolds, 1986). This lack of effective measure- ment appears to be related to the nature of the definitions of culture, most of which permit only qualitative research. As a result, the methods of mea-

ORGANIZATIONAL CULTURE AND PERFORMANCE 485

surement tend to be qualitative, descriptive, and categorical rather than quantitative. If culture is defined as underlying values which can only be expressed-and so assessed-via symbols, myths, and ceremonies, then the measurement must be qualitative. Usually those who favor quahtative over quantitative research contend that cultural processes reflect a social con- struction of reahty unique to the organization and so are impossible to assess with standardized measures (Cooke & Rousseau, 1988).

These quahtative methods tend to be either descriptive or categorical. The descriptive methods characterize organizational culture and its effects observationally; they idenufy whether explanatory traits are evident within organizations. In this vein, Shemood (1988) identified five characteristics of a "high-commitment" work culture, Barney (1986) described organizational culture by evaluating whether a strong set of core managerial values exist, and Camerer and Vepsalainen (1988) distinguished four dunensions of cul- ture. In each case the method employed was description by a primary ob- server.

The categorical methods are also based on observation with the bound- ary lines more clearly drawn. Deal and Kennedy (1982) were the first to categorize culture as "strong" versus "weak," a view which was further developed by Clark (1987). Saffold (1988) proposed an alternative categori- zation based on measures of cultural dispersion and potency. Wiener (1988) classified companies based on a four-cell matrix which dlvided organizations by the strength of the value system.

As for empirical research, several attempts have been made to assess organizational culture quantitatively. Denison (1984) constructed a question- naire to measure managerial style as employees' participation. P. D. Rey- nolds (1986) developed an instrument to capture aspects of organizational culture and the perceived work context of the individual, while Cooke and Rousseau (1988) proposed the Organizational Culture Inventory as a means of assessing culture in terms of behavioral norms and expectations. Lastly, Goll and Sambharya (1990) measured culture in terms of top management ideology. All of these attempts arise from concepts other than ethnography.

Much of the practitioner-oriented literature seemingly combines these two conceptual and methodological approaches. In proposing schemas of effective corporate cultures, the authors retell myths and stories which indi- cate the nature of the cultures of effective organizations. The focus of this literature is often on cultural change. In their recommendations for changing cultures, advising companies to change their corporate stories and myths is avoided; instead, top management is encouraged to become aware of the current culture and then change that culture by developing explicit state- ments of value, by building consensus, by the reinforcement of these values via managerial behavior and reward systems, and by the socialization of the members of the organization (MacMdan, 1983; Schein, 1989).

486 M. M. PETTY, ET AL

Thus, the use of culture as a concept in organizational change and development does not put the two perspectives regardmg culture into con- a c t with one another. Authors apparently unconsciously recognize the comple- mentary relationship of the perspectives. Since myths, stories, and rituals take time to develop and become representative of a particular culture, the culture of an organization may change before these manifestations become apparent. In fact, if cultural change is to occur, it must occur first and then be represented by the manifestations subsequent to that change. As a result, it can be argued that the two perspectives on the measurement of culture are at least partially complementary. Quahtative measures which focus on the elements of culture manifested in myth, story, and ritual can be seen as long-term measures. Quantitative measures, on the other hand, may allow researchers to assess whether attempts at changing culture are currently effective. These short-run measures may give those who are implementing the change some level of intermediate feedback on their progress.

Culture-Performance Relationship While, as recounted above, some attempts have been made to measure

organizational culture, this line of inquiry has also led to an investigation of the relationship of organizational culture to other organizational-level vari- ables. Organizational effecriveness, arguably the most important variable at this level, has been examined.

Qualitative analysis led Barney (1986) to state that a firm which has a valuable, rare, and imperfectly imitable culture enjoys a sustained competi- tive advantage. Camerer and Vepsalainen (1988) predcted that firms would be effective if their cultures solved the management problem of governing economic activity efficiently. Within Wiener's (1988) "shared values" frame- work, the functional-traditional cultural style was considered the most likely to contribute to the development of "proper" values and, consequently, to organizational effectiveness.

Denison (1984), using concrete performance indicators and a quantita- tive measurement methodology, reported that companies with a participative culture reaped a return on investment which averaged nearly twice that of firms with less efficient cultures. Denison's conclusion was that cultural and behavioral aspects of organizations were intimately linked to both short-term performance and long-term survival.

However, the existence of a positive link between culture and perform- ance has not gained unanimous acceptance. Accordmg to Saffold (1988), the link between culture and performance is not a straightforward one. P. D. Reynolds (1986) concluded that there was little evidence of an association between organizational performance and one particular element of organiza- tional culture, perceived work context. Also, Arogyaswamy and Byles (1987) concluded that organizational culture was not crucial to performance but was just one of many explanatory variables.

ORGANIZATIONAL CULTURE AND PERFORMANCE 487

The purpose of the present study was to explore quantitatively the rela- tionship between organizational performance and culture. We hypothesized that measures of culture would be significantly and positively correlated with objectively measured organizational performance.

METHOD According to Albert (1987), the starting point in guiding employees' be-

havior and performance is a formal statement of management philosophy and key values, supported by actual managerial practice. It is not enough merely to identdy an organization's uniqueness; one must also communicate this effectively to employees (~lemens,. 1986). In an effort to develop an "effective" culture, the chief executive officer of the focal company in this study developed a statement of desirable values for the organization. This statement was termed a "Vision Statement" and was communicated to the employees via presentations and on-site publicity. It contained key words, e.g., integrity, trust, candor, quality, value, innovation, teamwork, dgnity, and service, and was framed to emphasize the values that the organization should uphold, values to which its members were to be committed.

A survey instrument was developed to measure the values held by workers within the firm and to assess whether the values enumerated in the Vision Statement were being accepted by the employees. The measures of culture were developed through a process involving the employees of the company. Groups of employees discussed the Vision Statement and were asked to indcate what behaviors they believed should be occurring in a work environment which was reflective of the Vision Statement.

Based on these discussions a 55-item survey was developed and re- viewed by company executives. The survey2 was administered to 3977 employees across the entire company. A factor analysis of these items using the principal components method (SAS, 1985) idenufied four scales which measured corporate culture; these were Teamwork, Trust and Credibhty, Performance and Common Goals, and Organizational Functioning. Esti- mates of internal consistency rehability were .94 for Teamwork, .92 for Trust and C r e d i b ~ l i t ~ , .88 for Performance and Common Goals, and .70 for Orga- nizational Functioning. Definitions of these scales are provided in Table 1. The survey was then administered to 832 employees in 12 organizations of the focal company, a firm in the electric u t h y industry with approximately 11,000 employees and operations in several states. The 12 organizations were service organizations within the firm. One year later, the same survey was administered to 884 employees in these 12 service organizations (these ad- ministrations were designated "Time I " and "Time 2").

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488 M. M. PETTY, ET AL

TABLE 1 THE FOUR DIMENSIONS OF CULTURE

Teamwork: Items 1oadmg on this dimension indicate the extent to which people in a work group see cooperative behaviors occurring. Such behaviors include sharing in- formation, helping others wich their work, seeking ways to help the work group meet its goals, involving those affected by a course of action, sharing resources, making sacrifices for the good of the group, and being rewarded for working as a team.

Trust and Credibhty: This dimension involves the degree to which employees observe managers behaving in ways that encourage employees to believe what managers tell them, and the extent to which employees trust managers to meet their commitments. Such behaviors include having open, two-way communications with supervisors, feel- ing listened to, being treated fairly by managers relative to evaluations, promotions, and raises, being able to take initiative and t o make errors without excessive fear of reprisal, and being encouraged to express opinions freely without apprehension.

Performance and Common Goals: This dimension reflects the extent to which employ- ees observe people in their work group behaving in ways consistent with a desire to improve productivity, reduce costs, and become more eficient and effective. Such be- haviors include seeing people finding ways to use materials previously discarded, clearly defining goals for their work group that are realistic and challenging, and hav- ing a sense of commonahty of goals.

Organizational Functioning: This dimension represents a collection of observed behav- iors that are indicative of frustrations o r sources of interference with getting the work done. These observations include having incompatible goals, having to wait on others to complete their work, not having the parts/supplies when they are needed, finding the work of multiple groups are not well coordinated, or having to work with defec- rive or inappropriate equipment.

Responses to each item on a scale were scored using six points an- chored by 6 , "strongly agree," and 1, "strongly dsagree," for positively worded items and by 1, "strongly agree," and 6 , "strongly disagree," for negatively worded items. The four organizational culture scales were scored fo; each individual employee who completed the survey instrument. The scale scores were computed as the mean response of the item scores for each scale. Theoretically, the scale scores could range from a low of 1.0 to a high of 6.0.

Organizational performance data were collected for two fiscal years (Time 1 and Time 2) for all 12 service organizations. The organizational per- formance measure, developed previously by the focal company for evaluating the performance of its service organizations, was a summary of five objective measures of organizational performance (Operations, Customer Accounting, Support Services, Marketing, and Employee Safety and Health). Quantitative measures of these components were converted to a 0-to-lO scale, multiplied by a relative weight, and then summed to form the score for each category. The maximum score for each category was 1000. The scores for all five cate- gories were then summed to obtain over-all scores for each organization. In

ORGANIZATIONAL CULTURE AND PERFORMANCE 489

the view of the focal organization, the use of the summary measure rather than the individual components was the appropriate method for measuring performance.

Note that a particular strength of this study lies in the fact that all measures were developed internally within the company. In particular, the measure of performance was an objective indcator of organizational effec- tiveness which was used by the company in evaluation, not simply one which the researchers thought appropriate. In the same vein, the measures of culture were also what the company deemed important. The culture mea- sures were organizationally specific, reflecting the view that each organiza- tion is in the best position to decide what is relevant in terms of culture (Barney, 1986).

Analysis involved correlational techniques. The data consisted of both performance measures and culture measures for 12 organizations at two points in time. Three different sets of correlations were computed: the static correlations for the 12 organizations at Times 1 and 2, and the lagged corre- lations between culture at Time 1 and performance at Time 2.

RESULTS The means and standard deviations of the variables are contained in Ta-

ble 2. In Table 3 are the Pearson correlations among the variables for the 12 organizations at Time 1 and Time 2, and the correlations between culture at Time 1 and performance at Time 2. As can be seen, summary performance was significantly, positively correlated with three of the four measures of cul- ture (Teamwork, Trust and Cre&bihty, and Performance and Common

Performance was not significantly associated with Organizational Functioning.

TABLE 2 MEANS AND STANDARD D E V L A ~ O N S AT TIME 1 A N D TIME 2

Variable M SD

Time 1 Teamwork 4.32 0.15 Trust and Credibility 3 .a4 0.18 Organizational Functioning 3.70 0.13 PerformancdCommon Goals 4.58 0.11 Objective Performance 3889.58 311.80

Time 2 Teamwork 4.40 0.17 T r u s t and Credibility 3.92 0.20 Org~lnlzational Functioning 3.81 0.18 Pe~formancdCommon Goals 4.62 0.12 Objective Performance 4040.83 330.70

Of the values for the 12 organizations at Time 2 contained in Table 3 , only one was statistically significant. Summary performance was positively as- sociated only with Teamwork.

490 M. M. PETTY, ET AL.

TABLE 3 PWON CORREIATIONS FOR VARIABLES AT TIMES 1 A N D 2 AND FOR

CULTURE AT TIME 1 AND PERFORMANCE AT TIME 2 (ns = 12)

Variable 1 2 3 4 5

Time 1 1. Teamwork 2. Trust and Credibility .80$ 3. Organizational Functioning .17 .3 6 4. Performance/Common Goals .61t .61t -.I7 5. Objective Performance .77$ .62t .33 .44*

Time 2 1. Teamwork 2. Trust and Credib~Lit~ .84$ 3. Organizational Functioning .56t 3 2 % 4. Performance/Cornmon Goals .74$ .88$ .65t 5. Objective Performance .49* .28 .20 .18

Culture at Time 1 and Performance a t Time 2 1. Teamwork 2. Trust and Credibility 3 0 % 3. Organizational Functioning .17 .36 4. Performance/Common Goals .61t .61t -.I7 5. Objective Performance . 6 l t .37 .3 1 .32

*p<.10. t p < . 0 5 . $p<.01.

Finally, the lagged correlations between culture at Time 1 and perfor- mance at Time 2 mdcate that teamwork was the only variable significantly associated with organizational performance and the correlation was positive.

DISCUSSION The results indicate that organizational performance is linked to organi-

zational culture. The strongest indication of the h k was evident in the cor- relation between teamwork and performance. While significant, positive cor- relations of three of the four culture measures with performance were noted at Time 1, only Teamwork was significantly associated with performance at Time 2. Also, of the culture measures from Time 1, teamwork alone was sig- nificantly related to performance at Time 2.

From these correlations it appears the major aspect of culture in some way related to performance is teamwork, for strong evidence was provided in all three analyses. Apparently, in this context, an organizational culture that emphasizes teamwork is more conducive to organizational effectiveness than one that does not foster cooperative behaviors. Such behaviors as help- ing others, sharing of information and resources, and worlung as a team seem to enhance performance in the aggregate for this organization. This, of course, may not be true for all organizations. As has been noted, the mea- sures of culture were organizationally specific and developed by the organi- zation as expressions of relevant cultural characteristics members hoped

ORGANIZATIONAL CULTURE AND PERFORMANCE 491

would be effective in increasing organizational performance. Other organiza- tions may incorporate other cultural characteristics relevant to their particu- lar conditions and constraints.

While the relationship between culture and performance has certainly not been established beyond a shadow of a doubt, there is indication of a link. The longitudinal nature of our data allowed examination of the pattern of relationships over time. The stability of the correlations between team- work and organizational performance over one year provides evidence of the link between organizational culture and organizational effectiveness.

This work yields evidence that organizational performance may be influ- enced by its culture, so it may be appropriate for managers in the orga- nization to foster a culture that will facilitate effective organizational perform- ance. While the current analysis indicated that a culture which encourages teamwork and cooperation may be beneficial in an electric uthty, one irn- portant implication may be that short-term measures of cultural change may facihtate the identification of particular elements of culture which most sig- nificantly influence performance. As a consequence, managers can concen- trate efforts to achieve changes which maximize performance. However, the influence of some cultural factors may require longer than one year so man- agers must be careful to avoid abandoning too quickly values which may provide future benefit.

The management of culture is seen by some as difficult (P. C. Reynolds, 1986; Schein, 1989; Uttal, 1983) and yet by others as a necessary element of corporate strategy (Culp, 1988; Denison, 1984; Plant & Ryan, 1988). Part of the difficulty may lie in the nature of the measures employed to assess cul- ture. Qualitative measures are necessarily focused on long-term manifesta- tions of changes in employees' values. Consequently, if culture is defined solely in qualitative terms, evidence of change could be hfficult to observe. With quantitative measures the focus becomes short-term and changes which are more easily in evidence may be more clearly linked to organiza- tionally relevant outcomes.

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Accepted Janrrary 30, 139s.