Profiles of Organizational Culture: The Variable Effects of Consistency

1
Profiles of Organizational Culture The
Variable Effects of Consistency

• Aaron M. Schmidt1, Michael A. Gillespie2, Lindsey
  M. Kotrba2,
• Samantha A. Ritchie1, Daniel R. Denison3
• 1The University of Akron, 2Denison Consulting,
  3International Institute for Management
  Development
• Please direct questions and requests to the
  first author at aSchmidt_at_uakron.edu

2
Abstract

• We investigate the combined effects of four
  organizational culture traits (involvement,
  consistency, adaptability, and mission) on firm
  financial performance (sales growth, market to
  book ratio, and return on assets), for a large
  sample of organizations.
• As hypothesized, the effects of consistency on
  market-to-book and sales growth varied in both
  magnitude and direction as a function of other
  key culture traits.
• Namely, consistency is more positively related to
  financial performance when the other traits are
  high, and is sometimes negatively related to
  financial performance when the other traits are
  low.

3
Culture and Performance

• Organizational Culture
• Shared basic assumptions that the group
  learned as it solved its problems of external
  adaptation and internal integration (Schein,
  1992, p. 12).
• The underlying values, beliefs, and principles
  that serve as a foundation for an organizations
  management system as well as the set of
  management practices and behaviors that both
  exemplify and reinforce those basic principles
  (Denison, 1990, p. 2).
• Culture and Bottom-Line Performance
• Culture has long been regarded as critical to
  organizational effectiveness (Peters Waterman,
  1982 Schein, 1992 Wilkins Ouchi, 1983).
• Empirical research supports this (Denison, 1984,
  1990 Denison Mishra, 1995 Fey Denison,
  2003 Gillespie et al., 2008 Kotter Heskett,
  1992).
• Adaptability Mission ? market share, sales
  growth (Denison Consulting, 2005)
• Involvement Consistency ? quality,
  return-on-investment, employee satisfaction
  (Denison Consulting, 2005)

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The Denison Model
Adaptability Pattern..Trends.. Market Translating
the demands of the business environment into
action Are we listening to the marketplace?
Direction..Purpose..Blueprint Defining a
meaningful long-term direction for the
organization Do we know where we are going?
InvolvementCommitment..Ownership
..Responsibility Building human capability,
ownership, and responsibility Are our people
aligned and engaged?
ConsistencySystems..Structures.. Processes
Defining the values and systems that are the
basis of a strong culture Does our system
create leverage?
Measurement Model Fit Statistics ?2122,715
(df1692 N30,808) RMSEA.048 GFI.88
AGFI.87 CFI.98
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Variable Effects of Consistency

• Consistency the existence of organizational
  systems and processes that promote alignment and
  efficiency over time.
• If the company is already characterized by
  Involvement, Adaptability, and a sense of
  Mission, then Consistency provides more leverage.
• If the company is low on other traits,
  Consistency may be a liability.
• Cultural content is more important than just
  having a strong culture (Flynn Chatman,
  2001).
• Other studies have shown nonlinear relations
  using similar concepts
• SD as a moderator (Dawson West, 2005 Schneider
  et al., 2002)
• Balance is good? (Cameron, 1986 Denison, 1990)
• Role of strength depends on environment
  (Sorensen, 2002)

6
Hypotheses

• Involvement, Adaptability, and Mission will
  moderate the relationship between Consistency and
  financial DVs.
• Consistency positively related to financial DVs
  when other traits are high
• Consistency negatively (or less positively)
  related to DVs when other traits are low
• Effect expected to be more pronounced for
  Adaptability and Mission (external focus) than
  Involvement (internal focus).
• Effect hypothesized to impact sales growth and
  market-to-book ratio (more closely tied to
  externally-focused traits), and should be most
  responsive to the imbalance of these traits
  relative to Consistency.

7
Method

• 102 publicly-traded organizations representing 29
  industries
• Surveyed b/w 1997-2004
• Surveys completed by 27 to 15,965 members
  per-organization (M 1,145) responses
  aggregated to organization level
• Denison Organizational Culture Survey (Denison
  Neale, 2000)
• 60-item survey measuring four culture traits
  Involvement, Consistency, Adaptability, and
  Mission
• Factor-structure confirmed by Dension, Janovics,
  Young, Cho (2007), with scale a b/w .87 and
  .92
• Organizational Performance financial indices
  from Standard Poors COMPUSTAT database
• Sales Growth sales increase from one year to
  the next
• Market-to-book Ratio ratio of book value of a
  share to market value of a share
• Three-year rolling averages created for each
  outcome to reduce impact of market volatility on
  results

8
Analysis Strategy

• Hierarchical Linear Modeling
• Observations over time nested within
  organizations
• Implemented via SAS Proc Mixed (e.g., Singer,
  1998)
• Hierarchical procedure utilized to test
  interactions
• Controlling for all lower-order terms (main
  effects and 2-way interactions) prior to
  examining 3-way interactions
• ? represents overall effect across organizations
  and time, analogous to ß in regression context

9
Results

• Main effects
• Market-to-Book
• Involvement (? .82, F 9.29, p lt .01, R2
  .08)
• Consistency (? .65, F 5.26, p lt .05, R2
  .05)
• Adaptability (? 1.06, F 14.04, p lt .01, R2
  .13)
• Mission (? .56, F 7.76, p lt .01, R2 .07)
• Sales Growth
• Involvement (? .25, F 16.09, p lt .01, R2
  .14)
• Consistency (? .25, F 14.85, p lt .01, R2
  .13)
• Adaptability (? .31, F 22.30, p lt .01, R2
  .18)
• Mission (? .19, F 16.60, p lt .01, R2 .14)
• No significant two-way interactions among culture
  traits.
• However, three-way interactions provide general
  support for hypotheses.
• Effects of Consistency on Market-to-Book and
  Sales Growth contingent on the levels of
  Adaptability, Involvement, and Mission.
• Negative effects of Consistency when remaining
  traits are low, positive otherwise.

10
Results
11
Results
12
Results
13
Results
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Summary and Implications

• Summary
• Organizational Culture traits relate
  significantly to financial performance outcomes,
  with each trait explaining about 5 (Consistency)
  to 13 (Adaptability) of the variance in Sales
  Growth, and 13 (Consistency) to 18
  (Adaptability) of the variance in Market-to-Book.
• Interaction effects account for an additional 5
  to 10 when predicting Market-to-Book ratio and
  an additional 5 when predicting Sales Growth
• When other traits are low high, Consistency has
  a negative or diminished positive effect on
  financial metrics.
• Implications
• Extends the research on balanced cultures
  (Cameron, 1986 Denison, 1990), variance as a
  moderator (Dawson West, 2005 Schneider et al.,
  2002), and linkage research on culture and
  performance (Denison colleagues Kotter
  Heskett, 1992)
• Practitioners would do well to focus on improving
  other traits (e.g., Mission) before moving on to
  Consistency.

15
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