feature article Organisational culture and its impact on performance by Dharshan Cooray 1. Introduction This article aims to address the key aspects of organisational culture and its impact on performance in a global context. Further, the article extends to apply some of the key concepts to the Sri Lankan businesses environment through the use of few case studies.
feature article
2. Elements of organisational culture E A Schein, a renowned writer on organisational culture defines it as a pattern of shared basic assumptions developed by a given group as they learn to cope with problems of external adaptation and internal integration. These have worked well enough to be considered valid and therefore, are to be taught to new members as the correct way to perceive, think and feel in relation to those problems. The culture of an organisation will ultimately take the key learning from its past business experiences to develop a basis for future decision making. In a systems/process based culture, key learning of a particular time frame or an order-cycle will be incorporated into future processes and decision making. This is a method used in garment export firms where key learning from a season are analysed when planning for the next season’s customer orders. Another factor influencing organisational culture is the vision or the purpose of an entity. A company’s aspired market position in 20 years will determine the extent to which its employees need to work to facilitate the company’s growth. This will impact the motivation levels of staff; processes and resources used in the respective organisation; and will contribute towards formation the organisational culture. Organisational structure is also a vital element that determines culture. Management styles, authority granted to managers and methods used to manage staff will be a key determinant of the culture prevailing in an organisation. Charles Handy links organisational culture to structure of a firm. A large hierarchical firm may have a ‘role culture’ where people may have specified ‘roles’ or jobs to perform. ‘Following rules’ or operating according to specific guidelines or processes can be seen in these organisations. A ‘power culture’ may be seen in firms dominated by few individuals, i.e. the CEO or few directors. A ‘task culture’ will prevail in a firm where team centered task completion is given priority. Authority is delegated to ‘task’ focused teams. On the other hand a ‘person culture’ will be individualistic and will be created based on delegation of authority to individuals working with minimal supervision, i.e. a marketing manager working in an overseas branch. Another key factor that determines the culture of an organisation is the industry in which it operates. A product or service requiring a high level of customer service such as the telecommunications industry, transport and distribution related industries (courier, freight forwarding and shipping firms) will operate based on ‘work-hard: play-hard culture’ as defined by Deal and Kennedy.
It reflects high volumes of work, a culture of teamwork and an ‘enjoyable place to work’. Employees may take lower calculated risks in these firms. A ‘process culture’ is associated with bureaucratic structures, where concentration is on ‘how things are done’ rather than ‘what has to be achieved’. Industries where such cultures could be seen include certain large scale firms governed by conventional management styles and certain public sector organisations. 3. Impact of culture on organisational performance The CIMA executive summary on Human resource policies, accounting and organisational performance (2009), examined the relationship between human resource management (HRM), management accounting and organisational performance through detailed study of six companies and telephone interviews. This included study of two companies from Canada, two companies from Japan and two companies from the UK; and 100 telephone interviews across 40 companies in Japan, 30 in Canada and 30 in the UK. The six case studies covered building materials, consumer products, electronics, software development, timber products and a utility company. All six cases used a mix of financial and non-financial performance measures including the following. Case A: achievement of budget, growth, market share and sales per employee. Case B: cash flow, customer satisfaction, economic value added (EVA - a registered trade mark of Stern, Stewart and Co.), morale, social contribution and sustainable growth. Case C: customer satisfaction, economic value added, productivity, quadruple bottom line, quality and safety. Case D: delivery, environment, productivity, return on net assets and safety. Case E: cash flow, customer satisfaction, delivery, quality and sales. Case F: customer service, profitability, safety and total shareholder return. In summary, the outcome of the study showed the below key points affecting culture. Viewing employees as ‘assets’ rather than ‘costs’ will improve employees’ sense of belonging to the organisation increasing long-term performance. Teamwork established through cross functional teams enhanced performance levels in an organisation. Culture impacts performance of an organisation, and creating the right culture to suit the respective industry and employees will increase organisational growth. Table 1: Impact of organisational culture on performance Major impact
Strongly
on the organisation’s performance
Disagree
Neutral
Agree
Strongly
Total
disagree
Canada
0
3
5
8
14
30
Japan
0
0
6
21
13
40
UK
0
2
9
14
5
30
Total
0
5
20
43
32
100
agree