Corporate culture and performance

performance

It is difficult enough to define the words ‘organisational’ and ‘culture‘, let alone the two together. Organisational culture is often defined in a number of ways. One view is that corporate culture represents the unspoken code of communication among members of an organisation. However, according to ACCA’s report, Channelling Corporate behaviour – Review of the Academic Literature, as early as 1979, researchers cautioned that we were in danger of over-simplifying our understanding of organisational culture.

Although there has been a lot of writing and talk, financial literature has somewhat overlooked the key role that corporate culture performs. ACCA, with support from the academic research funding body ESRC (UK‘s Economic and Social Research Council), investigated corporate culture as well as what influences individuals’ conduct in organisations. The project examined how employee behaviour can be influenced for the long-term benefit of the company and its key stakeholders. The investigation also raised a number of vital questions such as what constitutes a firm’s culture as well as how a firm’s culture is measured.

There are several interpretations regarding the relationship between organisational culture and performance. The most common interpretation is the strong-culture thesis. Culture is traditionally learned through a well-defined set of corporate values, incentive systems, and ways in which individuals communicate, prioritise and are managed. Time and again, it has been assumed that commitment of a firm’s employees and executives to the same set of corporate values, beliefs and norms will have positive results, in other words, the ‘strength’ of ‘corporate culture’ is directly linked with the level of profits in a company. ACCA’s report suggests that corporate culture contributes to performance through facilitating goal alignment. A common set of principles and values makes it easier to agree upon goals as well as ways for attaining them. It is assumed that a common culture not only motivates but encourages individuals to identify with the organisation. Shared values provide a feel of belongingness and a sense of responsibility for the organisation.

A document titled The Strength of Corporate Culture and the Reliability of Firm Performance puts forward interrelated explanations for the performance benefits of strong corporate cultures. According to the document “widespread consensus and endorsement of organisational values and norms facilitates social control within the firm. When there is broad agreement that certain behaviours are more appropriate than others, violations of behavioural norms may be detected and corrected faster. Corrective actions are more likely to come from other employees, regardless of their place in the formal hierarchy. Informal social control is therefore likely more effective and lower cost than formal control structures. Second, strong corporate cultures enhance goal alignment. With clarity about corporate goals and practices, employees face less uncertainty about the proper course of action when faced with unexpected situations, and can react appropriately. Goal alignment also facilitates coordination, as there is less room for debate between different parties about the firm’s best interests. Finally, strong cultures can enhance employee motivation and performance due to the perception that behaviour is more freely chosen.”

The concept of organisational culture has drawn much needed attention to the long-neglected, subjective side of organisational life. Essentially, culture is both a cause and effect of behaviour throughout an organisation, as well as an important enabler of high-performing companies. It can influence organisational outcomes in a positive or negative manner. Corporate culture is important for understanding the aspects that embody organisations, including financial and other forms of performance. In essence, corporate culture is more than just an internal phenomenon. It should be felt beyond the walls of the organisation.

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