gordon and ditomaso 1992

8/10/2019 Gordon and DiTomaso 1992

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Journal o f Management Studies

29:6 November 1992

0022-2380 3.50

PREDICTING CORPORATE PERFORMANCE FROM

ORGANIZATIONAL CULTURE*

G EO RG E G . G O RD O N

De partm ent of Business Adm inis trat ion Ru tgers U nivers i ty

N A N C Y D I T O M A S O

Graduate School o f Management Rutgers University

ABSTRACT

This article investigates the relationships of culture strength and two substan-

tive cultural values with corporate performance. Culture strength is measured

by the consistency of responses to survey items across people and the two

cultural values are measured by items on the survey that relate to either

adaptabil i ty or stabil i ty. The data, from management surveys of 11 US

insurance companies in 1981, were correlated with asset and prem ium growth

rates from 1982 to 1987. Results indicate th at b oth a strong cu lture reg ardless

of content and a substantive value placed on adaptability are associated with

better performance for two to three subsequent years on both criterion

m easu res. The results supp ort the findings of Denison (1990) that streng th

of culture is predictive of short-term performance. The present results,

however, suggest a more complex contingency model than that proposed by

Denison.

I N TR O D U C TI O N

While the subject of corporate cu lture generated a

floo

of publications in the

1980s, few empirical studies have assessed the impact of organizational

culture on corporate performance. A number of authors have established or

supported the hypothesis that successful companies have strong cultures,

defined in various ways (Deal and Kennedy, 1982; Kilmann e t a l . 1985;

Mitroff and Kilmann, 1984; Ouchi and Price, 1978; Pascale, 1985; Peters and

W aterm an, 1982; Schall, 1983; Schein, 1985; Weick, 1985). For the most par t,

however, these arguments have been conceptual and anecdotal or have been

case studies without formal measurement of either performance or culture.

This article examines the link between strong corporate cultures and corpo-



78 4 GEORGE G. GORDO N AND NANGY DITOM ASO

rate performance for 11 US insurance companies through survey data col-

lected in 1981 and subsequent performance data collected for 1982 to 1987.

The article begins by discussing the meaning of corporate culture and then

turn s to the claim tha t a stro ng culture leads to superior performan ce. T o

facilitate this discussion, we address three issues: (a) the content of corporate

cultures considered to have positive effects; (b) the various definitions of the

conce pt of strong cultu res; and (c) the relationship between co rpora te c ulture

and corporate performance. We then develop the hypotheses of this study and

discuss other aspects of its concep tualization and method ology.

ORGANI ZATI ONAL CULTU RE AND GORPORATE PERFORMANGE

Organizational Culture: The Trait Approach

It is not surprising tha t the study of organ izational culture should propo se

numerous definitions of culture , considering its roots in anthropology, where

K roe ber a nd Klu ckho hn (1963) identified no less than 164 m eaning s of the

word. Among others, organizational culture has been defined as shared

m eaning s (Lou is, 1985), centra l values (Barney, 1986; Brom s and G ah m be rg,

1983), ass um ptio ns (Dye r, 1985; Schein, 1985), and beliefs (Da vis, 1984;

Lorsch, 1985). In this article, we consider corporate culture to be the pattern

of shared and stable beliefs and values that are developed within a company

across time. The view that culture is a shared phenomenon is widely held

(Bate, 1984; Brom s and G ahm be rg, 1983; Lorsch , 1985; Posner

et al.

1985;

Schein, 1985; Schw artz and Dav is, 1981; Tric e, 1985). W ha t constitutes

sharing, however, is not at all self-evident. It may be, for example, frequency

or similarity or intensity.

The literature is even more ambiguous about the content of the beliefs or

values tho ugh t to prod uce a strong organ izational cultu re. Saffold (1988) calls

this the trait approach to culture, presumably paralleling the trait approach

to leadership (see discussion, for example, in Gibson et al. 1988, pp. 373-7).

Prob ably the most widely known discussion of organ izational culture traits

is by Peters and Waterman (1982), who outline eight characteristics of

excellent - i.e. well performing - organ izations. K ilm ann (1985, p. 356) has

suggested that to perform well companies must have adaptive cultures that

involve a risk-taking, trus ting and proactive ap pr oa ch . Pascale (1985)

described Bain an d C om pa ny s use of meetings to build cohesiveness a nd

IB M s practice of pro bing to get at the heart of problems as elements of

their strong cultu res .

In a more systematic search for the range of cultural elements, Hofstede et

al. (1990, p. 311) utilized in-depth interviews to collect information on values

and p ractices, indicating that the latter can alternatively be labelled co nven-

tions, customs, habits, m ores, traditions or usages . This information was

then incorporated into a questionnaire administered to employees in 20

orga niza tional units in two cou ntries. T he au thor s hold th at this study . . .

empirically shows shared perceptions of daily practices to be the core of an



PREDI CTING CORPORATE PERFORMANCE 7 8 5

process-oriented vs. results-oriented and loose control vs. t ight control, pa ra-

llel Peters and Waterman (1982).

Many others have also pursued the trait approach to corporate culture,

each with their own preferred content (see, for example. Akin and Hopelain,

1986; Den ison, 1984; O uc hi, 1981; O uch i and Price, 1978; Stevenson and

G um pe rt, 1985; Vaill, 1984; and W ilkins, 1984). How ever, m ost rely on

anecdotal evidence that particular traits form the basis of company cultures.

Indeed, much of this work has been attacked from both methodological and

conceptual bases. For example, a consistent methodological criticism is the

lack of comparison groups to provide evidence that companies with the traits

differ from those which lack them (Ca rroll, 1983; Saffold, 1988). A nd , as

noted by usiness Week (1984), a third of the companies identified as excellent

by Peters and Waterman (1982) experienced poor performance within two

years after th e book was published . T he same studies have also been criticized

for their lack of conceptual development. Many do not discuss the content of

values or behefs, while others seem to poin t towa rd very different con ten t

(Safrold, 1988).

Strong and W eak Cultures

Acco rding to Saffold (1988, p . 547), the cultura l tra it app roa ch assum es an

implicit model in which traits impact an organization in proportion to the

stre ng th of its culture and ultimately affect perform ance.

Strength

like

content

however, is defined in various ways: as coherence (Deal and Kennedy, 1982;

W eick, 1985); as homogeneity (O uch i and P rice, 1978); as stability an d

intensity (Schein, 1985); as congruence (Schall, 1983); as thickness (Sathe,

1983); as penetration (Louis, 1985); as internalized control (DiTomaso,

1987).

While these authors define cultural strength, they do not try to operational-

ize it. These various authors seem to consider cultural strength a function of

some combination of the following: who and how many accept the dominant

value set; how strongly, deeply or intensely the values are held; and how long

the values have been dominant (see Louis, 1985).

Corporate Culture and

Performance

Most empirical research that attempts to relate culture to some type of

organizational outcome has pursued the trait approach. That is, a specified

type of value or belief has been claimed to have particular effects. For

example, Sapienza (1985) found that contrasts in shared beliefs about the

importance of people versus the importance of performance led two com-

panies to adopt different strategies to cope with a change in the laws affecting

their indus try. Sim ilarly, within a large samp le of ban ks, Je ns ter and Bigler

(1986) found a significant relationship between cultural patterns and the

pursu it of particular strategies. Dun n et

al.

(1985) found a correlation between

a marketing effectiveness scale and customer-oriented cultures, as described

by Peters and Waterman (1982). Amsa (1986) reported that loitering

behaviour (unauthorized rest breaks) in work groups was related to company



78 6 GEORGE G. GORDON AND NANGY DITOM ASO

me nt to the firm (Ko berg an d G husm ir, 1987; O Reilly, 1983; Posner

et ai

1985).

Very few empirical studies have related cultural characteristics to some

m easu re of corpo rate financial performa nce. Go rdon (1985) contra sted com -

panies in dynamic industries, where technologies, participants and products

changed frequently, with companies in the more static utilities industry,

where few such changes occurred. He found that companies in highly

dynamic industries were characterized by cultural values that enhanced

adaptability, whereas utilities were characterized by cultural values that

enh ance d stability. He further found that the same values differentiated the

fastest growing and most profitable companies within each type of industry

from the less successful ones. On the other hand, Reynolds (1986) found that

employee responses to a culture questionnaire in a company identified as

exc ellen t by Peters and W at er m an (1982) did not differ from tho se in two

other companies with less impressive performance.

Tw o studies of culture and performan ce h ave used da ta from the Survey

of Organizations (Taylor and Bowers, 1972) to determine relationships

between employee perceptions and attitudes and firm success. Hansen and

Wernerfelt (1989) refer to these as organizational variables and Denison

(1984) as cultural, but the differences are more semantic than substantive.

Hansen and Wernerfelt classified the emphasis on human resources and

em pha sis on goal acco m plishm ent scales from the Survey of O rga niza tion s

as organizational variables and classified industry profitability, relative mar-

ket share and company size as economic variables. Their study tested the

relative impo rtanc e of organ izational and economic factors in predicting five-

year return on assets. They found both the emphasis on human resources

and on goal accomplishment to be significant predictors, with the organiza-

tional data accounting for about twice as much variance as the economic.

Denison (1984) related two characteristics from the Survey of Organiza-

tions,

organization of work and decision-making practices to subseq uent

returns on sales and investment. He found higher returns for companies

above the average on each measure than for companies below, with differ-

ences tending to widen across the five years following the survey. This study

is also the only one which, in addition to examining the impact of cultural

traits, attem pted to determ ine the imp act of cultu ral strength (conceptua lized

as consistency) on organizational performance.

Denison defined consistency as the inverse of the variance in questionnaire

responses across work group s within com panies. Defined this way , D eniso n s

con cept of consistenc y is an am alg am of Lo uis (1985) concep ts of sociological

and psychological penetration, since low variance implies both pervasiveness

an d ho mo geneity of perce ptions. D enison (1984; 1990) found low varianc es

on four different traits - organ ization of work, emph asis on hum an resources ,

decision-making processes and co-ordination

significantly correlated with

companies standardized Return on Investment (ROI) for the subsequent

two years. This latter stu dy gives tentative supp ort to the notion th at a firm s

culture strength, as defined by the degree of agreement on cultural character-



PREDICTING CORPORA TE PERFORMANCE 78 7

HYPOTHESES

The present study, following a strategy similar to Denison (1984; 1990),

examines the effects of culture strength, measured as the consistency of survey

responses within a company, on subsequent financial performance. The study

also provides a follow-up to G ord on s (1985) work relating c ultur al values on

adaptabili ty versus stabili ty to corporate performance. The insurance indus-

try, from which the sample is drawn, long operated in a very static environ-

men t, in Gord on s terms; but change brou ght on by deregulation and

competit ion has required companies to be much more adaptive to new

product and distribution opportunities. From both of these previous works,

we derive three hypotheses for the firms in this industry:

HI:

T he g reater the culture stren gth, th e stronger the firm s financial

performance will be in subsequent years.

H2\

The higher the relative value placed on adaptability, the stronger the

firm s financial performan ce will be in subse que nt y ears.

H3\

T he h igher the relative value placed on stability, the weaker the firm s

financial performance will be in subsequent years.

M E T H O D

Data

ollection

Instrument

The culture data examined here are taken from The Survey of Management

limate

(Gordon and Cummins, 1979), an instrument applied in hundreds of

companies in a wide variety of

industries.

This study examines the 1981 data

from surveys of

insurance companies.

Although the instrument is labelled a climate survey, it is neither an

extension nor an adaptation of the climate instruments described in the

literatu re (L itwin and Stringer, 1968; Payn e and Pheysey, 1971; Ta ylo r an d

Bowers, 1972). Instead it grew out of interviews in approximately 30 organi-

zations, where respondents were asked to describe the way in which the

organization operated, that is, its objectives, the means used to accomplish

them, and the influences they perceived to be at work. For each of the early

surveys, these interviews became the basis of questionnaires customized to

the organization. Only after it was determined that similar issues were

emerging repeatedly across organizations, was a standardized questionnaire

developed.

The instrument therefore grew out of the type of qualitative fieldwork

frequently employed in curre nt studies of organ izational cultu re, and the

procedure was similar to that used by Hofstede et al. (1990) in developing

their measures of organizational culture. In contrast to Hofstede

et al.

however, our instrument is more consistently organizationally than in-

dividually oriented. I t m easures man agers perceptions of how their organiza-

tions operate, and by extension, the values that drive the behaviours of those



7 8 8 GEORG E G. GORDON AND NANGY DITOM ASO

Th e version of the instrument used in this study asked managers to describe

their companies on

6

items using seven-point scales presented in a semantic

differential type format. Earlier analyses of these items yielded eight factors

(Gordon and Cummins, 1979) ranging in reliability (coefficient alpha) from

0.80 to 0.87. The eight factors are labelled:

1.

Clarity of strategy/shared goals

2.

Systematic decision-making

3.

Integration/communication

4. Innovation/Risk-taking

5. Accountability

6. Action orientation

7. Fairness of rewards

8. Development and promotion from within

These factors are consistent with many of the dimensions discussed in the

culture literature. Examples include action orientation (Peters and Water-

man, 1982), integration/communication, and innovation/ risk-taking (Kan-

ter, 1983; Reynolds, 1986) and fairness of rewards and development and

promotion from within (Alston, 1986). As noted earlier, however, no set of

cultural traits is widely recognized as critical or accepted as comprehensive.

We do not have measures for several 'values' that have become important in

the culture literature, namely, a focus on quality, service and so on. We,

nevertheless, believe the factors provide a good overall representation of the

content alluded to in much of the literature on corporate culture. For the

purposes of this study, average scores on the highest loading items on each

factor were computed for each company to produce the eight culture content

scales.

mple

The 11 companies in the sample were all in the life/health sector of the

insurance business and varied in assets from 691 million to 18.7 billion,

with a median of 1.9 billion. Participants in each company consisted of

everyone in the top four to five levels of management. Questionnaires were

distributed to participants (with a cover letter from the company chairperson)

through each company's internal mail and were returned directly to the

investigator in pre-addressed envelopes. All questionnaires were administered

and returned during a two-month period in mid-1981. Returns exceeded 90

per cent of those surveyed and ranged from 34 to 132 participants per

company, with a mean of

77,

for a total of 850.

The fact that respondents were limited to managers represents both

advantages and disadvantages. On the one hand, the m anagement, especially

the middle to upper level management represented in this study, is clearly

not a representative sample of the employees in the companies studied.

Previous research has shown that management is considerably more positive

about their companies than people at lower levels (Hay Group, 1986).



PREDICTING CORPORATE PERFORMANCE 78 9

1983).

On the other hand, it is the management, especially senior manage-

ment, that must support, if not initiate, any major efforts on the part of their

com panie s. As Schein (1990, p. I l l ) claims, . . . cultural origins and dyn a-

mics can sometimes be observed only in the power centers where elements

of the culture are created a nd ch anged by founders, leaders, and powerful

pe rson s . Following the sam e logic, culture m easured at this level will be mo st

predictive of future behaviour and performance of the firm. Also, because

each survey included only middle and upper management, the samples are

much more comparable across companies than if, as is often done in compara-

tive studies, diflerent employee groups had been sampled.

Culture Measures

For purposes of this study, three separate measures were used. The first,

ultur

strength was designed as an atte m pt to replicate Deniso n s (1984; 1990)

findings that consistency of company values predicts short-term profit per-

formance. Culture strength was measured by the inverse of each of the eight-

scale standard deviations averaged across all eight scales for each company.

While Denison (1990) operationalized the culture strength construct by

computing the variance across groups within companies, we computed stan-

dard deviations across individuals within comp anies. Th e stand ard deviation,

of course, represents a measure of dispersion around the mean, and thus is

also consistent with Saffold s (1988) recom m enda tion tha t one m easu re

culture strength by dispersion. Since smaller standard deviations imply

greater agreement among managers on the types of values driving the

company, we assume that such agreement - or consistency - is an indication

of the strength of the organizational culture.

Th e other m easures, adaptabili ty and stabili ty, were based on Go rdon s

(1985) work indicating that companies tend to develop cultures that match

their environments. The adaptability measure is a combination of two of the

scales, action orientation and innov ation/risk-takin g, beca use in G ord on s

work the better-performing companies in dynamic or fast-changing industries

(high tech manufacturers) scored high on those measures. Stability is a

comb ination of three factors, integration/com mu nication, development and

prom otion from w ithin and the fairness of rew ard. In G ord on s stud y, these

scores were high in the better-performing companies in stable industry

environments (utilities). Gordon found none of the other three factors related

to financial performance in either stable or dynamic environments.

Because the use of survey data to study cultural phenomena is still

relatively unexplored, the literature offers little guidance regarding the best

form of measure to use, and arguments can be made for several measures.

We employed two different variations of the adaptability and stability mea-

sures. First, we used an unweighted average of the raw scores on the scales

comprising each measure. These will be referred to subsequently as adapta-

bility (Adap) and stability (Stab). Second, we used standardized deviation

scores, which set all means equal to zero. That is, for each company, the

me an across the eight factor scores was subtra cted from each individ ual factor



79 0 GEORGE G. GORD ON AND NANGY DITOM ASO

employed by Hofstede et al (1990) in their development of the 22 practices

that formed the basis of their culture measure. We then separately averaged

the standardized deviation scores for the two adaptability and three stability

scales described above to create the deviation-adaptability (DevAdap) and

dev iation -stab ility (De vSta b) scales.^ ̂

The issue here is similar to that raised historically with ipsative versus

normative scoring of psychological tests (Cattell, 1944) such as interest or

personality inventories. In this case, ipsative scoring parallels our use of

deviation scores while normative scoring is similar to our use of raw score

means. The issue is that any instrument of this type, whether a personality

test or organizational survey, can produce a halo effect, in which all items

tend to be rated either high or low for a given respondent or company. Thus,

in an organizational context, should we consider a company as innovative if

it is high compared to other companies on that factor even if its innovation

score is lower than its score on most of the other factors? This could well

occur in a specific gas utility where very little technical innovation is needed

or appropriate, but where morale is very high. The question has no absolute

answer. One must determine what makes most sense conceptually given the

topic at hand. We believe that the deviation scores are more refiective of a

com pan y s value system, and therefore most relevant for a study of organ iza-

tional culture. However, we report both raw and deviation measures for

comparison.

Measures of Performance

Measuring corporate performance in the life insurance industry presents a

unique problem because the majority of companies in the industry (and seven

of the eleven in the sample) are mutual companies, owned by policyholders

and not by stockholders. Because of this unique ownership structure, such

companies do not make profits per se and do not use generally accepted

accounting principles (GAAP) in reporting company results. Thus, the

profitability measures used by Denison (1990), such as the Return on Sales

(ROS) or Return on Investment (ROI), are not available for many life

insurance firms.

One measure commonly employed in the life insurance industry is the gain

or loss in adm itted assets, or grow th in assets . Th is m easure refiects the

income contribution of many business functions, including sales, investment,

actuarial and unde rwriting. G rowth in assets thus represents the co ntribution

of a variety of profitable and efficient activities to the com pan y s gro wth .

Gr ow th in assets, how ever, includes a large com ponen t of very stable invest-

ment earnings, and thus tends to cloud performance changes resulting from

short- term management act ions.

A measure more sensitive to management actions is new premium income,

clearly a key revenue component in any life insurance company. However,

during the period of the study, the nature of the revenue stream in the

insurance industry was changing very dramatically. Following the interest

rate fluctuations of the 1970s, many companies began to offer interest-



PREDICTING CORPORATE PERFORMANCE 791

however, were temporary

and

began

to

wane

as the

easy sales were

exhausted. Such spurts

and

subse quen t settling back du ring this period

significantly affected

the

consistency

of

year

to

year performance

of the

insurance industry

and of

the com panies

in our

sample .

Assets

and

total premiums

for

each com pany were obtained from Best s

Insurance Reports (1988)

for the

years 1981-7

and

grow th rates were

calculated

for

each

of the

years from

1982 to 1987.

Because

of

significant

acquisitions

and

divestitures

of

business

by one of

the companies from

1984

to 1987, only their 1982

and

1983 growth data were usable. Thus,

the

n

for

1982

and

1983

is

11 compan ies while the

n for

1984

to

1987 is only 10. Because

the study includes

a

single industry

in a

single time period, there

is no

need

to standardize performance against multi- industry, multi-period norms,

as

was necessary

for

Denison.

RESULTS

Performance

Table

I

presents

the

correlations

in

year-to-year performance

for the com

panies

in the

sample .

As

antic ipated , asset growth

is

mo re consistent th an

premium growth.

One can

also

see

from

the

negative correlations between

1985-6

and

1986-7 that considerable changes

in

prem ium growth took place

at that time. This pattern suggests that major environmental changes affected

these companies beginning

in

1985, mak ing

it

unlikely that

any

hypothesized

relationships would hold

up

over

the

entire period.

Table

11

presents

the

yearly grow th rates

for the

insurance industry

as a

whole

and for our

samp le. Again,

the

greater stability

of

asset over prem ium

growth rates

is

clear. Th e ind ustry experienced

an

unusual drop

in

p remiums

in 1983

and an

unusual spurt

in

1986. Although

the

sample

as a

whole

was

not subject

to

fluctuations

on

premium growth

as

wide

as the

p opulat ion s ,

some

of the

individual companies

did

hav e extrem e fluctuations

on

this

measure .

The

most dram atic

was one

comp any which experienced

a

swing

from

0.1 per

cent

in

1985

to

77.5

per

cent

in

1986,

and

then back

to 5.5 per

cent

in

1987.

The

p remium growth

of the

sample

is

sometimes above

and

sometimes below that

of

the industry,

but

asset grow th

is

consistently below

the industry.

Table

I.

Year-to-year correlations

in

growth

of

assets

and

p remiums

Year

Assets

Premiums

1982 3

0.89***

0.54*

1983 4

0.95***

0.42

Correlations

1984 5

0.84***

0.23

1985 6

0.50

- 0 . 3 5

1986 7

0.77**

- 0 . 3 6



792 GEORGE G. GORDON AND NANGY DITOMASO

Table II. Year-to-year growth in the industry and the current sample

Sample

Assets

Premiums

Industry

Assets

Premiums

98 2

9.6

12.2

11.9

14.0

98 3

10.3

16.0

11.3

- 1 . 6

ercent ge g rowth from previous year

98 4

9.5

16.6

10.4

13.3

98 5

10.8

7.7

14.2

15.7

98 6

10.8

14.5

13.5

24.5

98 7

8.8

13.3

11.3

9.7

Culture Variables

Tab le

III

presents

the

intercorrelations am ong

our

culture m easures.

As one

can

see,

culture strength,

as

measured

by the

average stand ard deviation

across factors,

is

significantly related

to

both stability

r = 0.88) and

adap ta -

bility

r =

0.59). Adaptabili ty

and

stability

are

them selves positively co rre-

lated

0.75, and are

thus

not

highly differentiated when m easu red

by raw

factor scores.

But

when

we

partial

out the

overall average

of

the factor scores

from

the

correlation between adaptab ili ty

and

stability,

we get a

par t ia l

correlation

of

—0.81, which

is

what

one

would expect from their conc eptua l

definition.

The more predictable —0.79 correlation

of

DevStab

and

Dev Adap further

supports

the

claim that

the

deviation scores

are

more consistent with

the

cultural values emphasized

in

each company than

are raw

scores. A da p

and

DevAdap

are

positively correlated 0.92),

but

Stab

and

DevStab have

a

negative

and

non-sign ificant relation

of

—0.20. Even

so, for the

reasons

already discussed,

we

report

all of the

measures

in the

relations hip with

performance,

but we

focus

on the

deviation scores.

Culture Strength nd Growth

All

but one of

the correlations between culture strength AvgSD)

and

asset

growth

for the

first four years

and

premium growth

for the

first three years

following the survey are significant bey ond the 0.10 level see table IV ). Th u s,

the extent

to

which individuals agree

in

their view

of the

total culture

is

predictive

of

future perform ance.

One

might w ant

to

know

if

agreement

on

Tab le

III.

Intercorrelations among

the

culture measures

AvgSD Stab Adap DevStab DevAdap

AvgSD

X

Stab

A dap

DevStab

0.88**

X

0.59*

0.75**

X

- 0 . 0 8

- 0 . 2 0

- 0 . 7 3 * *

X

0.42*

0.51 +

0.92**

- 0 . 7 9 * *




any of the specific scales is driving the relationship. In this regard we found

that the correlations with performance of the inverse of the standard devia-

tions for each of the eight individual scales were generally similar to, but

smaller than, the average of all the scales (AvgSD). There was no pattern of

some scales being clearly better predictors than others. While it might be

tempting to speculate how agreement on different scales might be differen-

tially related to success, the small number of companies and the large

com bin ation of scales (8) times years (6) times criteria (2) in this study m ake

it impossible to do any more th an speculate. It is, however, useful to com pare

the results on overall culture strength (AvgSD) with those reported by

Den ison. H e found significant correlations of appro xim ately 0.50

/-

0.05

between consistency of culture on three of

is

four measures and ROI for the

first two years after the survey. The correlations in his study then dropped

below 0.25 for the next three years, and even become negative during this

period.

T he findings here are similar to Deniso n s, with the relationship show ing

significance for about the same period and the correlations being of similar

m agnitud e. Th us Hypo thesis 1 is supported and is consistent with Den ison s

finding th at strong c ulture, m easured as consistency of survey respo nses

within organizations, is related to organizational performance in ensuing

years.

This similarity in the two studies exists despite differences in the

samp les used and in the studie s me asures of both culture and perform ance.

Culture Con tent and Grow th

The direction of correlations with the growth scores for the two deviation

scores of ada ptab ility and stability are qu ite different, as would be a nticipa ted

from their negative intercorrelation. The DevAdap correlations with the two

growth measures are primarily positive, while most of the DevStab correla-

tions are negative. Furthermore, the correlations with asset growth, the more

stable criterion, are almost always smaller than the corresponding correla-

Tab le IV. Correlation s between m easures of culture and average growth of assets and prem ium s

Year

Assets growth

AvgSD

Stab

Adap

DevStab

DevAdap

Premium growth

AvgSD

Stab

Adapt

DevStab

DevAdap

1982

0.31

0.39

0.21

- 0 . 0 7

0.22

0.78**

0.73**

0.65**

- 0 . 4 2 +

0.57*

1983

0.44+

0.38

0.23

- 0 . 0 4

0.30

0.47+

0.25

0.32

- 0 . 3 0

0.44+

1984

0.45+

0.30

0.12

0.15

0.26

0.44+

0.54+

0.63*

- 0 . 3 7

0.54+

1985

0.68**

0.64*

0.56*

- 0 . 1 4

0.55*

- 0 . 1 3

- 0 . 1 5

- 0 . 0 7

- 0 . 0 8

0.10

1986

0.08

0.10

0.19

- 0 . 2 5

0.37

- 0 . 1 6

- 0 . 0 2

- 0 . 5 7 *

0.69**

- 0 . 7 5 * *

1987

0.26

0.18

0.23

- 0 . 3 2

0.33

0.46+

0.12

- 0 . 0 3

0.14

0.00



79 4 GEORGE G. GORDO N AND NANGY DITOM ASO

tions with premium growth, which we would expect, because we assume

premium growth is most readily impacted by management actions and

therefore most sensitive to cultural issues. Within this sample and time frame,

companies with cultures that emphasized adaptability tended to enjoy signifi-

cantly greater sales growth over a three-year period following the survey than

those with cultures that emphasized stability. Given the pattern of correla-

tions for the two deviation measures against both growth measures, we can

also conclude that the results lend support to Hypotheses 2 and 3. These

findings a re consistent with G ord on s (1985) finding tha t com panies in

dynamic industries perform best when their culture fosters adaptability rather

than stabili ty.

W e shou ld, of cou rse, com m ent on the p att ern of effects from 1985 on . As

noted in table III, there is a negative correlation between premium growth

in 1985 and 1986, resulting mainly, as discussed earlier, from some extremely

wide swings in performance for specific companies in the sample and in the

industry as a whole. Since these performance swings tended to be temporary

rather than sustained, in this particular case it is reasonable to conclude that

the significant and reversed c orrelatio ns in 1986 resulted m ore from cha nce

an d tem pora l fiuctuations of m easu rem ent than from th e existence of imp or-

tant relationships.

GONGLUSIONS

This study points up a number of interesting issues, both theoretical and

methodological. For one, it supports the finding that a strong culture, as

measured by the consistency of perceptions of company values, is predictive

of short-term future company performance. The pattern of results is similar

to Denison (1990), who proposes a contingency theory. He argues: consis-

tency is an indication of a system that is currently well coo rdinated . . . and

that currently performs well. In the longer term, however, the lack of variety

connected with such a system limits the organiz ation s ability to ad ap t to

chang es in the env ironm ent (Denison, 1984, p. 18). W hile our results are

similar to D eniso n s, this study suggests a mo re complex explan ation . Ind eed ,

given the gross approaches to the measurement of two very complex pheno-

mena, culture and performance, and the differences in underlying measure-

ments and contexts, the similarity in results is striking. However, we also

found tha t a culture of ada ptab ility but n ot stability is also predictive of short-

term performance. The best explanation may be that both a strong culture

from th e stan dp oin t of consistency, and an ap pro pria te culture from the

standpoint of content, will produce positive results, but a combination of the

two is most powerful. Although we cannot directly test interaction effects with

a sample of 10, the hypothesis warrants further research.

While the need for a culture to be appropriate for an industry has been

discussed in some detail by Gordon (1991), the explanation of how consis-

tency alone enhances performance is less clear. We can assume that if




over stud y is valued in the com pany , then one would expect quick reactions

to new opportunities. This conduct may make the company a performance

leader when the costs of not taking action are greater than the potential losses

from ill-conceived actions. T he alternative , of course, may also be true, acting

too precipitously may lead to higher costs and therefore lower performance

when more caution is warranted for high-level decisions. Which conduct is

most consistent with good performance depends, we assume, on various

characteristics of the company and its industry.

M ore im po rtan t for our analysis here is the extent to which a com pan y s

management personnel see the same trade-offs and act similarly in similar

circumstances. A consistent outlook on the part of ma nagem ent may improve

performance because it indicates that the company has chosen a policy, for

example, on whether it is better to act quickly as opportunities present

themselves or cautiously to avoid undue risk. A company where individual

managers act according to their own preferences rather than a widely-

accepted corporate pattern may suffer both from missing important oppor-

tunities and from failing to develop selected opportunities in an orchestrated,

powerful manner.

Both this study an d D enis on s suffer from the same sho rtcom ing insofar as

they measure culture at one point in time and performance over a long period.

In neither, for instance, are we able to determine whether subsequent changes

in culture in specific companies actually caused their performance to change,

rather than the changes in performance being a sustained effect from the

culture at the time of the survey. An important issue for further study is

whether culture strength (consistency) changes actually do occur within the

space of ju st a few y ears, and if so, the natu re and extent of these c hang es.

A further research question is whether lowered consistency presages lowered

performance or whether its impact is contingent on the extent and direction

of change occurring in the economic, political and social environment.

From a methodological standpoint the current study also points up the

difficulties in trying to predict ongoing corporate performance from any

measure obtained at one point in time. Even if culture has a strong influence

on how well people do their job s and how well the aggregate com pany

performs, external events can sharply affect corporate results, for example,

an unfavourable ruling from an Insurance Commissioner or the rush of the

market toward a previously unsuccessful product.

For some tim e the literature has focused on the beliefs and values th at ma ke

companies successful. A prior question may be the extent to which beliefs

and values are held in common, no matter what their content. If so, it is

important to examine the potential effects of consistency in values held across

organizations, as we have attempted to do here. Further, i t appears that

different beliefs and values may be more productive in different industries.

In this study, a culture of adaptability was more related to success than one

of stability for an industry unde rgoing significant an d rap id ch ange . But the

opposite may well be true in companies where technologies, products and

customer needs change very slowly, if at all. Clearly, the composition and



79 6 GEORGE G. GORDON AND NANGY DITOMASO

NOTES

*We would like to thank Emilio Venezian for his help during the preparation of this

manuscr ip t .

' ' For each organization let:

D(factor) = ( f ac to r ) -M

SD

where

(factor) is the factor score

M is the mean of 8 factor scores

SD is the standard deviation of the 8 factor

scores from their mean

Then for each organization:

DevAdap=D(Act ion) +D(Innovat ion)

DevStab =D(Integrat ion)-l -D(Deve]opment)-l -D(Fairness)

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