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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy


In this final section of the chapter, we propose ideas for possible research questions based both on existing research and on areas that could generate new knowledge, particularly the link between culture and performance and the extent to which this link may hold. Although there has been much research on the relationship between strong culture and high levels of performance and some on the relationship between poor culture and low performance, what about the other two combinations? In particular, under what circumstances might an organization have superior performance despite a poor or weak culture, and why might an organization with a strong culture experience poor performance? Are these situations characteristic of transitions (to low performance/weak culture or high performance/strong culture) or are they positions worth examining and understanding in and of themselves? Starting with the "excellent firms" research of Peters and Waterman,78 we see evidence of how performance changes over time. Many of the "excellent companies" with strong (at the time) cultures no longer exist or can be considered to be exemplars of high performers. This highlights the challenge of maintaining a strong culture and raises two important questions: are cycles in the relationship between culture and performance the norm and does culture shift during the cycle and if so, what influences the shifts. Potentially more interesting is the question of whether organizations can move themselves from one position to another if so desired. We raise these questions not because they are new but because so little research has been done on them. An exception was Kotter and Heskett's book Corporate Culture and Performance, in which they analyzed and outlined several, at that point timely, examples to support their hypothesis that there is a positive but weak correlation between corporate culture and performance.79 Indeed, they argued that the statement "strong cultures create excellent performance" was questionable.

To better map the possible relationships between culture and performance, we use a 2 x 2 matrix (Figure 11.1) to illustrate the combinations of performance (high, low) and culture (strong, weak). Each quadrant represents a position that an organization may find itself in. Based on the relationship between culture and performance described earlier we might expect to find organizations in quadrants 1 and 4. Most literature would suggest that quadrant 4 represents the most desirable scenario, but for firms in this quadrant, is culture also a competitive advantage? In contrast, what are the implications for organizations that find themselves in quadrant 1? And what is the significance of organizations in either of the other two quadrants?

Figure 11.1. Positions for Organizations

Positions for Organizations

Kotter and Heskett noted that at the time of their study (1977-1988) several companies fell into quadrants 2 and 3. They claimed that there were several reasons for this. First, high performance in a weak culture organization may result during and after an unrelated merger or acquisition that improves economic performance but does not generate a "cohesive" organizational culture, at least early in the arrangement. Another reason is that that high-performing organizations may shift from having a strong to a weak culture as a result of "arrogance," "bureaucratization," or "complacency," defined as the failure to adapt to change and the erosion of the culture fit over time. The Ada County sheriff's office in Boise, Idaho, provides a recent case of complacency and a weakened culture (quadrant 2), which ultimately allowed the most dangerous inmate in the jail to es-cape.80 Although many people chalked up the escape to poor security, the sheriff on the other hand looked into the organization's culture and determined that the breach was more a result of a past culture of "we are good and there's no reason to change." As a result, he and his senior managers initiated discussions that reviewed and dramatically changed the culture. By asking "what is the purpose of this organization," the agency developed three key values: safety of staff, security of the facility, and well-being of inmates. Having clarity in the organization's values now drives the actions and decisions of every member of the organization. In addition, and in part due to the willingness to question the organization's purpose and operations, a more innovative climate is emerging, with members of the organization trying out new ways of doing things within their units (quadrant 4). As a result, the agency has become one that peers from the rest of the country look to for new ideas.

If we look to a 30-year-old study as a source of possible research questions today, it is important to ask how well the observations from the study have held up. How have the cultures and performance of the companies fared over the last 20 years? Have there been shifts within the matrix? The results are, perhaps, to be expected. Some of the high-performing organizations or organizations with strong cultures have either disappeared (e.g., H.F. Ahmanson) or lost significant market share (e.g., Hewlett-Packard), or would no longer be considered strong performers today based on culture and financial performance. H.F. Ahmanson was a large savings and loan association, also known under the name of one of its subsidiaries, Home Savings of America. They had the highest corporate culture score in their category but were classified as having "relatively strong cultures and relatively weak performance." However, the company was acquired by Washington Mutual in 1998 and ceased to exist. One reason for their acquisition might have been that despite their strong culture, the organization was not sustainable, absent strong financial performance. Similarly, Hewlett-Packard had a high corporate culture score and a decent score on performance. Over the years, however, the company went through significant culture change stemming largely from the leaders' shifting focus (invention, then focus on the CEO during the Carly Fiorina years, and severe cost cutting during the Mark Hurd era) and performance declines. Recently, performance has been mixed, with some improvement, but even more recently it has become obvious what happens as a result of erratic strategic decisions (and another new CEO).

The questions proposed here highlight the fact that there has not been a comparable analysis of organizations and their performance and cultural strength since the early 1990s, making it difficult to use recent examples to illustrate shifts within the matrix. Although the matrix offers an outline based on where most of the research on organizational culture has been conducted, it is not comprehensive enough to serve as a new model. It can, however, be used as a starting point to analyze important aspects in the research process. Although Kotter and Heskett's corporate examples might be a little outdated, the results of their study are still relevant today and can be used as a starting point in developing a new framework on organizational culture. Newer and more up-to-date research on today's top and low performers can also contribute to updating and developing a theory of organizational culture and the importance of organizational culture for success. Research topics follow cycles of being more in or out of fashion; organizational culture was a major focus for 20+ years and, as mentioned earlier, may be so ingrained in the managerial thinking that it demands less attention. But perhaps because of its deep-seated and long-term existence, it makes sense to revisit its role.

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