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@uakron.edu

• 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.

Abstract

• Organizational Culture• “[S]hared basic assumptions that the group learned as it solved its problems

of external adaptation and internal integration” (Schein, 1992, p. 12).• “[T]he underlying values, beliefs, and principles that serve as a foundation

for an organization’s 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)

Culture and Performance

The Denison Model

AdaptabilityPattern..Trends..Market

Translating the demands of the business environment into action

“Are we listeningto 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 alignedand engaged?“

ConsistencySystems..Structures.. Processes

Defining the valuesand systems that are the basis of a strong culture

“Does our system create leverage?”

Measurement Model Fit Statistics: χ2=122,715 (df=1692; N=30,808); RMSEA=.048; GFI=.88; AGFI=.87; CFI=.98

• 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)

Variable Effects of Consistency

• 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.

Hypotheses

• 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 α b/w .87 and .92

• Organizational Performance: financial indices from Standard & Poor’s 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

Method

• 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

– γ represents overall effect across organizations and time, analogous to β in regression context

Analysis Strategy

• Main effects– Market-to-Book:

• Involvement (γ = .82, F = 9.29, p < .01, R2 = .08)• Consistency (γ = .65, F = 5.26, p < .05, R2 = .05)• Adaptability (γ = 1.06, F = 14.04, p < .01, R2 = .13)• Mission (γ = .56, F = 7.76, p < .01, R2 = .07)

– Sales Growth:• Involvement (γ = .25, F = 16.09, p < .01, R2 = .14)• Consistency (γ = .25, F = 14.85, p < .01, R2 = .13)• Adaptability (γ = .31, F = 22.30, p < .01, R2 = .18)• Mission (γ = .19, F = 16.60, p < .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.

Results

Results

Low Involvement

-1.000

.000

1.000

Low Consistency High Consistency

Mar

ket-

to-B

oo

k

High Adaptability

Low Adaptability

High Involvement

-1.000

.000

1.000

Low Consistency High Consistency

Mar

ket-

to-B

oo

kHigh Adaptability

Low Adaptability

Results

Low Mission

-1.000

.000

1.000

Low Consistency High Consistency

Ma

rke

t-to

-Bo

ok

High Adaptability

Low Adaptability

High Mission

-1.000

.000

1.000

Low Consistency High Consistency

Ma

rke

t-to

-Bo

ok

High Adaptability

Low Adaptability

Results

Low Mission

-1.000

.000

1.000

Low Consistency High Consistency

Mar

ket-

to-B

oo

k

High Involvement

Low Involvement

High Mission

-1.000

.000

1.000

Low Consistency High Consistency

Mar

ket-

to-B

oo

k High Involvement

Low Involvement

Results

Low Mission

-.200

-.150

-.100

-.050

.000

.050

.100

.150

.200

Low Consistency High Consistency

Sa

les

Gro

wth

High Involvement

Low Involvement

High Mission

-.200

-.150

-.100

-.050

.000

.050

.100

.150

.200

Low Consistency High Consistency

Sa

les

Gro

wth

High Involvement

Low Involvement

• 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.

Summary and Implications

Cameron, K.S. (1986). Effectiveness as paradox: consensus and conflict in conceptions of organizational effectiveness. Management Science 32(5): 539-553.

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References