Financial and non-financial parameters of organizational success

Organisational culture influences the performance of a company indirectly, through the impact it has on management functions (Fayol, 1975)[1] such as planning, organizaiton, leadership, control and human resources.

  1. How Cultures Accross the World Apporach Planning?

Can we percevie planning such as an  „Another brick in the wall“?

We try to perceive managers as a reflective, systematic planners. Able to set long-term goals as well as short term. The abovementioned concept of the managers as methodical planners has hit a „brick wall." What does it mean in reality? It means that managers are deeply oriented to actions as well as discontinuity because they work at an  unrelenting pace (Mintzberg, The Manager s Job: Folklore and Fact, 1999)[2]. What can we do if we have so many different bricks on the wall? With so many different bricks we can build a Babilon Tower again as a sign of our inability to explain why the world's working population still speak different languages. Does it mean that „we do not need education"[3]  About cross-cultural differences? How can managers cope with a culture-based challenge? How can managers reduce cultural distance? Cultural due diligence can be observed as another brick of utmost imporatnce in the towers which will be placed in the culturally divergent  economies. 

 

  1. How Cultures Accros the World Approach Organization

Ability to organize work is one of the most prominent manager's skills. But, if we try to imagine the fact that need to manage multicultural workforces implies the presence of the new organizational structures, that we before should start devising them, should also respect the link between corporate structures and their multicultural works cultural heritage.

Cross-cultural management can be better understand within the context of the contingency theory and its prominent authors such as Duncan (Duncan, 1977)[4], Burns and Stalker (Burns & Stalker, 1961)[5], Minzberg (Mintzberg, The Structuring of Organizations, 1979)[6] and Galbraith (Galbraith, 1973)[7].

Theories that opted for „one best form fits all" replaced by the contingency perspective. In reality, that means, that „no one best form fits all," but nature of external business environment in which multicultural organizations are operating will impact their organic or mechanistic organizational design. Permanently evolving organizational designs are accompanied culturally crossvergent management practices. For example, „high power distance societies prefer pyramidal organizational structures, and low power distance societies prefer network or flattened structures carried by individuals with individualistic value orientations, professional agile." (Ivanic, 2015)[8]

 

  1. How Cultures Accross the World Apporach Leadership

Organizational leadership has transposed from put accent on task orientation, submissiveness to orders, and top-down management activities to the need to reveal a new model of leadership, inherent for the cross cultural leaders.

The servant as leader was a concept introduced by Greenleaf (Greenleaf, 1977)[9], and supported and welcomed  by Covey (Covey, 2006)[10].

If we try to perceive leadership in cross-cultural context than it should be noted that the primary moto of the international managers should be „global mind, local roots." How does the global mind can be shaped? Devising global mind need to be embedded in the similarities of national cultures, using etic approach (Lu, 2012, str. 112)[11] (which reveals common elements of observed cultures).

The only way to interpret and understand the individual part of the host culture is placed in the heart of the emic approach. The future leaders are expected to be open not only for ethnocentric, emic approach but also for emic perspectives from host culture. (Morris, Leung, Ames, & Lickel, 1999)[12] So, emic perspective will help them to understand local roots, and link them with economic behavior of their partners.

Global mind according to Hofstede, will be composed of the specific set of values: new business leaders should learn to be Servants of Society. (Hofstede G. , Business goals for a new world order: beyond growth, greed and quarterly results, 2010, str. 487)[13]

 

  1. How Cultures Accross the World Apporach Control?

People are afraid of the unknown situations. They have tried to avoid uncertainties by adopting strict codes of behavior, establishing formal rules and belief in the absolute trust. Countries with high uncertainty avoidance pregnant with a more than a half of the population that are concerned with security in life, devoted to the grated need of written and formal rules, and less likely able to take any risks. In contrast to them, individuals from low-level uncertainty countries are less concerned with the security (in life and work), they prefer to follow informal rules, such as social rules, they are more risk-taking oriented. (Hofstede G. , 2001)[14]

 

When it comes to the control, then it is evident that control systems are mechanisms devised with the aim of dealing with risk in a relationship in organizations. If we accept that trust is the „willingness to take a risk," then, we can conclude that organizations with „open culture" (transparency in numbers and rules) are the system with the low level of uncertainty. (Davis, 1997)[15] Robust systems of control in organizations will destroy trust (Schoorman, Mayer, & Davis, 2007, str. 347).[16] How is trust perceived across different organizational cultures? Task-oriented cultures and masculine cultures are very open and dedicated to the newcomers, while relationship-oriented cultures, as well as feminine cultures, need more time to build trust before start working on tasks.

  1. How Cultures Accross the World Apporach Human Resources Strategies?

Human resource management is profoundly shaped by the cultural roots.  How and in what degree human resource practices are reflective of local society? Types of the reward schemes, reward allocation, at (Davis, 1997)traction, selection and retention of the employees are accorded with the some of the dimensions of the home vs. host culture.

Early and Elez state that reward allocation attitudes are the results of preferences towards individualism or collectivism. The reward based on the performance is of the primary importance in individualistic cultures such as the United States where „individual accomplishment and recognition are emphasized over group harmony and teamwork." (Early & Erez, 1997, str. 73)[17]  In comparison to individualistic cultures, in collectivist cultures harmony and teamwork are very important, so the equality principle (equal pay) is expected to be realized.

Also, when it comes to the HRM practices in multicultural companies, it is interesting to say that individuals gravitate toward organizations that fit their values (Schneider, 1987, str. 441).[18] Companies are devoted to the ASA (attraction-selection-attrition) framework to attract, select and retain employees intentionally, not in a random fashion. (Bloom & Milkovich, 1999)[19]

 

Each of the dimensions of corporate culture in a certain way and to some extent affects management functioning, as well as company's operations.

Organisational growth is not possible without the changes in corporate culture. Organisational culture represents sustainable competitive advantages of a company (Barney, 1986[20]; Fiol, 1991[21];), through influencing different management functions, such as

  • human resources management
  • work ethic
  • Devotion to work (Connor and Becker, 1994[22]; Dose, 1997[23]; Deal and Kennedy, 1999[24]😉
  • decision-making style
  • problem-solving methods
  • strategy formulation (Christensen and Gordon, 1999[25])

Analysis of organizational culture dimensions becomes increasingly important, along with relations to management functioning and effects on corporate performability.

  1. How to reveal fundamentals embedded in high-performance corporate culture?

The organizational culture of companies operating within a particular society is to a great extent affected by its cultural dimensions, along with other factors such as the corporate sector, company size, company life cycle, and so on.

U cuWhat is corporate performance? What kinds of performance exist? In what way does the organizational culture, or some of its dimensions, affect the financial and how the non-financial performance of a company?

The fact that there is no clear consensus on the definition of the concept of performability implies a problem caused by the lack of agreement and concerns performance measurement techniques. The idea of performability was once equated with the concept of productivity. There is no single technique of performance measurement which could completely measure all the aspects of the notion of performability. 

However, it is necessary to distinguish the concept of performance from the idea of organizational competitive advantage, mainly because the company's competitive advantage is a relational term. The competitive position does not indicate its performability. How some authors determine these two concepts point to the differences.

According to Hansen and Wernerfelt (1989)[1], there are two directions taken by the research sources dealing with this topic, or two paradigms reviewing organizational performance, explains and measures their effect:

  • Traditional economic model, with expressed external, market factors affecting corporate performance.
  • Behavioral and sociological paradigm, reviewing internal factors or organization resources and their “compliance” to the surroundings, according to which it determines and defines performance.

Performance can be operationalized through financial and non-financial indicators (Venkatraman and Ramanujam, 1987[2]).

  • Indicators of financial performability, such as return on assets, return on investments and profit growth are essential for all types of research based on trend and benchmarking analyses (Drew, 1997)[3], whereas
  • Indicators of non-financial performability are increasingly used in the modern business environment, where the growing pressure exists to satisfy various groups of stakeholders (Kirchhoff, 1977[4]). Non-financial measures of organizational performability include work satisfaction (Hosmer, 1995[5]; Rich, 1997[6]; Zulkifli and Jamaluddin, 2000[7]). Low work satisfaction and lack of dedication cause higher staff fluctuation levels (Reichers, 1985[8]; Sulaiman, 1993[9]; Nyhan, 2000[10]; Robbins, 2003[11]).

Regarding performance measurement, authors consider that:

  • Profitability is one of the prominent indicators of organization's performanceand success.
  • Authors rs like Galbraith and Schendel (1983)[12] think that return on assets, return on equity and profit margin are most frequently used performance measurement tools.
  • Measurements such as return on assets, return on equity, and return on sales are considered to be the accepted financial performance measurement tools (Robinson, 1982)[13].
  • Export growth, liquidity, operational efficiency (Snow and Hrebiniak 1983;[14] Segev, 1987[15]; Smith Guthrie and Chen, 1989;[16] Parnell and Wright, 1993; Thomas and Ramaswamy, 1996; Gimenez, 2000[17]).

Corporate competitive ability is defined as

  • “ability of a company to continuously create its competitive strategies“ (Hamel and Prahalad, 1995[18])
  • “ability to take market share" (Kotler and Armstrong, 2002[19])
  • Ability to “generate an above-average rateof return on investments for that area of business“(Porter, 1985).[20]
  • Ability to „maintain a financially stable business“ (Ross et al., 2002)[21]
  • Ability to „ handle business affairs quickly and flexibly, and base its competitiveness on the quality of products and services“ (Slack et al., 2002)[22]
  • Ability to „follow requirements and demands of the global market “ (Daniels and Daniels, 1994)[23] ; Ability to „integrate into grids“ (Castells)[24]
  • Ability to establish a “harmonious working environment" (Pffefer, 1996)[25], etc.

How do the organizational culture and some of its dimensions affect corporate performance?

After 1990, we entered an era of empirical research on how organizational culture affects company performance.

  • Kotter and Heskett (1992)[26] found that the companies which enforce corporate performance increase their net income by 75%.
  • Heskett and Kotter indicated that organizational culture has a substantial effect on the long-term economic performance. Authors are credited with revealing the significance of adaptability as an influential factor in establishing and maintaining company market competitiveness in the long run. The authors developed the concept of resilience by studying the phases in organizational culture development from strong, through suitable or adequate, to adaptable.
  • Strong organizational culture, according to Denison[27], is the predictor of the future organizational performance, mostly in financial terms.
  • Gordon and DiTomaso (1992) confirmed the hypothesis on strong organizational culture as the predictor of short-term performance.[28]
  • Company profitability usually had a high positive correlation to the mission and consistency, while innovative positively correlated with involvement and adaptability.
  • According to Barney[29], above-average sustainable economic performance can be achieved on condition that companies foster an organizational culture which is "valuable, rare and imperfectly imitable."

Research of organizational culture and performance is not without specific deficiencies, which are solvable by using cultural due diligence analyses:

Focusing on the cultural force can cause us to overlook the existence of subcultures, as an essential part of any organization;
The fact that studies mainly focused on examining the management attitude forget to take into account and compare the opinions of staff;
It does not consider the possible links between specific dimensions of organizational culture and ways in which they can influence the processes in the organization and thus affect performability
Many agencies do not have a comprehensive overview of organizational factors and the concept of organizational performance, and they are mainly preoccupied with measuring financial performance, short- term performance and
Measuring past performance instead of focusing on creating the conditions for improvements in future, long-term and non-financial performance.

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[21]   Ross, J. W., M. R. Vitale, et al. "The Continuing ERP Revolution: Sustainable lessons, New Modes of Delivery," in: Second-Wave Enterprise Resource Planning Systems Implementing for Effectiveness, 2002, pp. 102-132.

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[24]   Castells, M. (   ) The Rise of the Network Society: Society, and Culture 2nd edition; Wiley-Blackwell, https://www.amazon.com/Rise-Network-Society-Information-Economy/dp/1405196866

[25]      Pfeffer, J. (1996), Why today's leaders need the lessons of the past. Leader to Leader, 1996: 36–41. doi:10.1002/ltl.40619960210, http://onlinelibrary.wiley.com/doi/10.1002/ltl.40619960210/abstract

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[27]         Denison, D.R., Haaland, S. P.G. (2003) Corporate culture and organizational effectiveness: Is there a similar pattern around the world in (ed.) Advances in Global Leadership, Vol. 3; Emerald Group Publishing, pp. 205-227, (http://www.emeraldinsight.com/doi/pdfplus/10.1016/S1535-1203%2802%2903011-3

[28]     Gordon, G.G. I DiTomaso, N. (1992) Predicting Corporate Performance from Organizational Culture; Journal of Management Studies; Vol. 29; str. 83-798, http://onlinelibrary.wiley.com/doi/10.1111/j.1467-6486.1992.tb00689.x/abstract

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