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Organisational Culture: The Impact of Organisational Culture on Business Strategies and Performance

Jim Riley

25th May 2014

This revision note summarises some of the key points that students should consider when looking at the impact of organisational culture on business strategies and performance:

Definitions

  • Intangible asset: non-monetary asset without physical substance which generates economic benefits; culture as an organisational asset
  • Strong culture: a consistent culture; understood and felt by people inside & outside the organisation, consistent with organisational goals.

Key Theories / Concepts

  • Employee engagement: employees' drive & commitment to use their energy, skills and resources which benefit the firm
  • Competitive advantage: sustainable differences compared with the main competitors
  • Cultural glue: organisational culture is what keeps an organisation together – it binds people

Features of Negative / Toxic Business Culture

  • Toxic culture: questionable morals and unethical behaviour. May arise within a sub-culture (e.g. GSK) or within the business as a whole (e.g. Enron)
  • Features of weak culture: Little alignment with business values; inconsistent behaviour; a need for extensive bureaucracy & procedures.

Features of Positive / Successful Culture

  • A source of competitive advantage & potentially the most important intangible asset of an organisation
  • Clear set of values, mission & goals
  • Performance-orientated
  • Encourages suitable risk-taking & innovation
  • Strong internal communication
  • Engaged employees: higher motivation & loyalty
  • Better connection between depts. & divisions
  • Not easily copied

Key Examples / Evidence

When Culture Goes Wrong:

  • News of the World / News International: phone-hacking & bribery allegations; industry-wide?
  • RBS & Fred Goodwin: Reckless external growth & lending hastened banking crisis of 2008/9
  • GlaxoSmithKline: record $3bn fine for misselling of drugs and bribery (US sub-culture)
  • Enron / Jeff Skilling: US's 7th largest firm turned out to be an elaborate scam & culture of greed/excess
  • Barclays: role in LIBOR rigging & PPI misselling leads to departure of CEO Bob Diamond; New CEO implements Project Transform – attempting step change in culture
  • NHS (Mid-Staffs): Culture directly blamed for poor care which led to hundreds of unnecessary deaths

Culture as a Competitive Advantage (Intangible Asset: “Built to Last")

  • Zappos: defines its culture in terms of 10 core values made part of everyday working life. For Zappos, the "culture is the brand"
  • IKEA: clear link between strong culture, the business model and success ("to visit IKEA is to visit Sweden"). IKEA's vision and values ("to create a better everyday life for the many people") drives the way the culture operates.
  • Southwest Airlines: A strong culture based on employee engagement has helped make it the most profitable, low-cost airline in the world. Herb Kelleher (CEO): "The business of business is people"
  • German mittelstand: family-owned businesses with a strong long-term perspective have driven German economic success; invest in quality.

Depends on Factors

  • Research emphasises the complexity of corporate culture & the risks of oversimplifying what it is and how to change it.
  • Larger, longer-established firms have more complex cultures, consisting of sub-cultures, individuals and groups.
  • Having a clear, well-communicated and accepted set of core values helps to establish a common, positive culture.
  • A flawed business model or strategy is unlikely to result in business success, even if the culture is strong and healthy.
  • A culture that fails to adapt to the changing external environment may hasten the failure of an organisation.

Further Evaluation Opportunities

  • There are many potential links between organisational culture and business success but difficult to prove.
  • Successful businesses often recognise that the business model/strategy and culture are interdependent - the whole system is aligned.
  • Better-performing firms pay attention to nurturing culture - they are disciplined (e.g. have reward, communication systems) and invest time in it.
  • Leadership plays a key role in nurturing culture: Schein: "the only thing of real importance that leaders do it to create and manage culture"

Jim Riley

Jim co-founded tutor2u alongside his twin brother Geoff! Jim is a well-known Business writer and presenter as well as being one of the UK's leading educational technology entrepreneurs.

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