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"