With so much competition in a globalized world, companies need to
differentiate themselves in more ways than one. Having such distinct
differences allows companies to thrive and sustain a competitive
advantage, especially during recessionary times with so much uncertainty
glooming over the economy. This is not to say that nothing can remain of
certainty. A major source of competitive advantage and something so
deeply rooted is the shared set of values, principles, and beliefs
imbedded into a company and by which it operates with in-mind everyday.
The identity by which a company is recognized can remain of certainty
and can serve as a means to differentiate ones products and services
from competitors. Corporate culture is a phenomenon which cannot easily
be defined. Because it is difficult to define, it also cannot be easily
replicated. And because it cannot be easily defined nor replicated,
companies who are able to create a strong and positive corporate culture
have had the ability to differentiate themselves from competitors with
great success. Developing corporate culture within a company has been
So what is corporate culture and why is it so important? There is
no universally accepted definition of corporate culture but there are
many facets which make up corporate culture which helps us understand it
better. Such elements which make up corporate culture include a
company's history, the founder of a company, and the set of shared
beliefs, principles, norms, and values by which a company operates. In
essence, corporate culture is the personality of a company. Corporate
culture is also organization-specific. While corporate culture takes
time to develop, it shapes a company's strategy and sets the tone
for the present as well as the future. It guides employees with how to
conduct business on a daily basis; the way in which they do things.
Corporate culture motivates and creates a pleasurable working
environment which increases the effectiveness and productivity of
employees and their desire to work for a company. It is an aura which
can be felt throughout the whole organization. It not only affects the
company itself, but consumers who receive services or products from a
company with a strong and positive corporate culture can sense it
immediately. This creates a strong bond which cannot be simply broken.
Corporate culture creates value internally which is reflected
1.1. Purpose of Study
The objective of this research paper on corporate culture is to
better understand the characteristics of successful service-oriented
companies who have built a strong corporate culture. Empirical evidence
found in research papers and many other scholarly articles will support
the theory of how strong corporate cultures positively affects strategy,
how it can help companies sustain long-term competitive advantage, and
maintain a strong presence within their respective industries even
during tough economic times. This paper will answer such questions as,
"Are firms effectively implementing corporate culture today?"
"Does corporate culture affect firm performance?" "Is a
customer-oriented culture important?" "Does Culture Create
Competitive Advantage for a Firm?" It is important to understand
the concept of corporate culture in order to implement and execute it
successfully. This paper seeks to aid entrepreneurs, top executives, and
managers in creating, managing, and controlling a pleasant working
environment which is conducive to an organization as a whole. They can
use the information as a starting point in developing their own unique
and individual corporate cultures which will confidently enhance the
internal structure of the company as well as aiding the strategic
decision making process.
2. LITERATURE REVIEW
2.1 Are Firms Effectively Implementing Corporate Culture Today?
Many firms may be very skeptical of having anything last in a fast
changing business environment but a unique corporate culture which is
not easily copied can be built to last. A firm's culture must add
value to its financial performance. Only after competitors cannot
describe the valuable characteristics which make up a firm's
culture to intentionally duplicate it is when a firm's culture is
considered unique (Barney, 1986). In order to create a strong corporate
culture, firms must first be able to develop strong leadership. The
majority of firms do not develop leaders successfully. With poor
leadership, it is difficult to communicate the firm's strategy to
employees. Making the mission, vision, and objectives of a firm
transparent to employees is an important part of executing goals
effectively and efficiently. "American Management Association (AMA)
and the Institute of Corporate Productivity conducted a global study of
corporate cultures in today's organizations. The survey examined
the common and best practices displayed by organizations and well as
identifying the factors that characterize the corporate cultures
associated with high performance (American Management Association,
2008)." From the surveys conducted, only 27 percent of respondents
said their organization was knowledgeable with the business strategy.
This shows that leaders are inadequately communicating the organizations
strategy to employees (American Management Association, 2008). Two firms
with the same strategy and business model may have different outcomes
because of different leadership styles. If the leadership of a firm does
not stick to the core values which guided their strength and growth in
the first place, the successful outcome of their future will likely be a
failure. For example, Ames Department Store and Wal-Mart were identical
in terms of their strategy but when Ames replaced leadership with an
outsider who did not follow the strategy of the original founder it led
to the destruction of the firm. On the other hand, Sam Walton, the
founder of Wal-Mart, replaced leadership with an insider who was
familiar with the strategy and operations which has ultimately led the
company to great success (Collins, 2008).
2.2 Does Corporate Culture Affect Firm Performance?
Strong corporate cultures are associated with higher performance
and greater flexibility in changing market demands. An important study
conducted by J. Kotter and James Hesket found companies who purposely
managed their culture successfully exceeded comparable companies that
did not manage their culture. "Their findings included revenue
growth of 682 percent versus 166 percent, stock price increases of 901
percent versus 74 percent, net income growth of 756 percent versus 1
percent, and job growth of 282 percent versus 36 percent (American
Management Association, 2008)." Organizations who also stress the
importance of innovation are more likely to expand faster and become
more profitable than competitors. Customer-oriented organizations
typically stress the importance of innovation and continuous learning.
It has also been said the tangible product is not as important as much
as an organizations ability to convey its culture to consumers (American
Management Association, 2008). For example, as innovative as Apple
Computer is, it does not sell products; they sell ease of use, ease of
share, and ease of creation. Apple Computer communicates its culture
across to customers very effectively. The company has a global marketing
program with a strong and consistent message which is recognized all
over the world. Its new product introductions are customer-driven which
has given them the capability to sustain a large market share and retain
customers. Apple Computer's continuous effort in building and
managing a positive and healthy corporate culture leaves customers
satisfied and makes the prices of their products less relevant. This can
be said for any company who builds and manages a strong corporate
2.3 What Drivers Lead to a High-Performance Culture?
In addition to stressing the importance of innovation and
continuous learning, other drivers also create value for a firm.
American businesses are known to be very service-oriented and always
looking for was to create value for consumers. The United States is a
very consumer-driven society. Nine drivers of high-performance cultures
are identified as 1) value-driven leadership, of which all the other
eight drivers are stemmed from, 2) strategic focus, 3) innovation, 4)
power over future, 5) loyalty, 6) investment in employee success, 7)
acting small, 8) brand development and, 9) social responsibility (Berry,
17). Managing these drivers of excellence is important for a company to
build a positive culture and to distinguish itself in a competitive and
changing business environment.
The top 50 companies listed on Fortune 500 list of 2009's
World's Most Admired Companies have many of the nine drivers of
excellence listed above. For example Apple, listed as the number one
most admired company, is a company known for its value-driven
leadership. Steve Jobs, the CEO of Apple, has infused and reinforced
values such as innovation and excellence by which the company operates.
He is leading by example which can be seen through the commitment of the
company's employees. A strong corporate culture is a major driver
of radical innovation in addition to external forces (Tellis, Prabhu,
Chandy, 2009). Southwest Airlines (No. 7) has not changed its business
model in over 38 years which shows commitment to strategic focus. The
CEO of Southwest Airlines, Gary Kelly, said, "To this day we still
operate one aircraft type, the Boeing 737. We still fly in the domestic
U.S. We still operate with a single class of service. We just try to be
really good at what we do (Colvin, 2009)." This strategy has also
worked out well for the company through the recession. Focusing on what
the company does best has given Southwest Airlines the ability to say
virtually unaffected from the economic slowdown. Google (No. 4) is
ranked number one in terms of innovation in the internet services and
retailing industry. Nordstrom's (No. 24) is positioned high for its
superior customer service which shows its loyalty to customers.
Nordstrom's operation is very customer-centered making sure
customer needs are met first which enables the development of a clear
strategy, structure, and processes. Johnson & Johnson is devoted to
continually investing in employee success even during a period of
economic slowdown (Colvin, 2009). An empirical study conducted on
Japanese firms, who were once scrutinized, revealed their conservative
efforts in valuing financial stability versus distributing large
dividends to shareholders are rational decisions which payoff during
economic downturns. These decisions helped the Japanese firms avoid
layoffs and maintain their positive cultures. This increases
productivity, reduces employee turnover, and gives them a source of
competitive advantage (Hirota, Kubo, Miyajima, 2007). Starbucks has been
good at acting small regardless of its large scale global operations.
The inviting and warm atmosphere Starbucks (No. 34) creates in all of
its stores has given the company an edge over competitors. Coca-Cola
(No. 12) believes strongly in marketing its brand in good times and bad.
In order to maintain and increase market share, Coca-Cola continues to
build brand equity. Target (No. 19) has strong corporate responsibility
programs. The company is very involved and engaged within the
communities in which it operates by supporting education, sponsoring art
and cultural programs, as well as giving five percent of its income back
to global communities (Colvin, 2009). The service companies above show
the importance of such drivers which develop positive cultures. All of
the nine drivers ultimately support each other and build upon one
another. In order for the drivers to be sustainable, top management must
convey its importance continuously. These drivers are also very
influential in the strategic decision making process as it determines
the direction a company will likely pursue. In other words, the company
culture made up from values, assumptions, and external factors shapes
the strategies, structures, and procedures essential for survival in a
The nine drivers of success are shown in the Figure 1. The
dotted-line arrows represent the interconnected relationships among the
nine drivers. Each success driver supports the other drivers and works
together to develop a successful company with strong corporate culture
[FIGURE 1 OMITTED]
2.4 Do Employees Feel A Part of the Company?
Corporate culture within organizations is reflected through how
they treat employees. Employees' behavior, attitude, their feeling
about the organization influences the services they provide consumers.
Socialization is found to be effective in building a positive corporate
culture when hiring new employees. It is essential to make an apprentice
feel welcome and a part of the organization from the very beginning.
This way they can easily learn and adapt to the values and the culture
by which an organization operates from early on. With socialization,
strong relationships can be formed within the company and provide a
foundation for a support system to be formed. With a strong foundation
in place and values and goals communicated, employees will have higher
productivity levels, effortlessly adapt to changing demands with high
levels of loyalty to the organization because they clearly understand
their roles of leading the organization to success (American Management
Association, 2008). Firms also have to realize not every talented
individual might necessarily fit in with the firm's culture. A firm
should not try to be everything to everyone. It is important to hire and
attract individuals who want to further the firm's goals. As long
as employees values match the firms and they can adapt to the changing
environment, a long-lasting and winning relationship will be established
(Erikson, Gratton, 2007).
2.5 Do Employees Know What To Do Without Being Explicitly Told What
Culture can efficiently direct economic activity within a firm.
Culture is used as a mechanism for setting behavior guidelines by
individuals in a firm. Culture sets the tone for employees to work in
teams, have respect, integrity in an open communication environment.
These fundamentals provide the opportunity for employees to produce
excellent work (Perry, 2005). The complexity of developing written
contracts with a lot of specifications may limit productivity and
motivation to work. It is also difficult to foresee and effectively
document all situations in a contract between an individual and a firm.
Instead, unwritten cultural rules, taught through example, can be used
to empower employees to make their best judgment when faced with
unanticipated situations. The article Economic Efficiency of Corporate
Culture states four dimensions of culture and identifies the economic
benefits. The four dimensions are: visibility, thickness, consistency,
and appropriateness. Visibility refers to how outsiders see a
company's culture and how closely their answers match with those
from inside the company. Employees can expect what it is like to work
for such a company and therefore a company with visible corporate
culture has lower employee turnover. A thick culture refers to the many
rules in a company and a consistent culture is how well employee and
managers agree upon cultural rules. A consistent culture has two
efficiencies, horizontal and vertical. Horizontal efficiency occurs when
employees can work together and save on communication costs because they
are all aware of what and how things need to be done. A vertical
efficiency occurs when employees do things without being told to. This
saves monitoring and delegation costs. And an appropriate culture refers
to how well the culture fits into a company's strategic needs.
Cognitive science suggests showing through example, whether it is by
stories, slogans, or actions by peers or leaders in a company, are the
most memorable ways of communicating culture. After communicating
culture to employees, it is important to maintain the culture.
"Fanatic managers in 'excellent' cultures signal
relentlessly (Camerer, Vepsalainen, 1988)." Therefore, a strong
corporate culture reduces communication costs and allows for smooth
coordination among employees and the organization (Hirota, Kubo,
2.6 Is a Customer-Oriented Culture Important?
As it was mentioned before, the United States is a very
consumer-driven society. American businesses are known to be very
service-oriented and always looking for was to create value for
consumers. Customer-oriented culture is very important for a firm to
survive in this marketplace. Services' marketing is different from
traditional product marketing because of four distinctive features:
intangibility, inseparability, heterogeneity, and perishability. These
four distinct features make the delivery of service that much more
important. Services are broken down into two components: the way in
which the services are carried out or the service delivery process and
the end result or outcome of the service. It is important for
organizations to listen to what consumers want and deliver services
accordingly. It is also equally important to show concern and build
loyalty when services do not meet consumers' expectations. When
consumes are not satisfied, corrective measures must be taken because
consumers are ultimately the ones who evaluate the service. The
non-routine services have the largest impact on an organizations image.
An organizations culture is put to test every time a non-routine service
is delivered. A truly customer-oriented service company will pass the
test all the while enhancing its reputation through positive
word-of-mouth as well as distancing itself from competitors. A
dedication and commitment to consumer satisfaction has to dominant
concern to fully realize the benefits. Employees who have customer
contact need to have a level of flexibility to offer such services, even
if it deviates away from written rules. Empowering employees to use good
judgment and creativity to satisfy consumers is more effective than
other traditional forms of marketing. Recognizing these efforts of
employees who offer exceptional services especially during non-routine
situations also reaffirms the organizations culture and values to other
employees. It is important for leaders in an organization to communicate
such instances to reinforce a customer-oriented culture (Parasuraman,
2.7 Do External Forces Shape Corporate Culture?
The industry in which a company operates has a major influence on
its corporate culture; therefore companies within the same industry
share similar corporate cultural characteristics. This is consistent
with finding number eight from the AMA and the Institute of Corporate
Productivity empirical study which states the economic environment is
the major influence most companies stated as guiding corporate culture.
It also argues that as industry demands change, certain aspects of a
company's culture will also change uniformly in order for its
survival in a competitive environment. Sometimes this change comes about
easily with new learning or it may be more difficult requiring new
people. Firms are established on industry-based assumptions about the
external environment, such as competitors, society, and customers, which
shape the foundation of a firm's culture. Although the external
forces shape culture, only the external environment cannot attribute to
the failure or success of a firm. From these assumptions developed,
values are also developed which then form into company strategies,
structures, and procedures essential for its survival. Many other values
will also develop from the founder's beliefs and the firm's
experience. Leadership must take responsibility for their decisions
during good and bad economic times (Collins, 2008). But for a firm to
survive and flourish, the organizational culture, values, and
assumptions must be parallel with that of industry demands (Gordon,
1991). Figure 2 summarizes these findings into the diagram below.
2.8 Does Culture Affect the Outcome of Mergers and Acquisitions?
Culture does significantly impact the outcome of mergers and
acquisitions. The AMA article revealed the impact mergers and
acquisitions have on companies with different corporate cultures. Among
those companies who participated in the survey, 26 percent had been
merged with another company in the past five years and only 22 percent
of those mergers were successful. It was found that the single major
reason why the companies failed in successful mergers and acquisitions
was because of the clash in corporate cultures (American Management
Association, 2008). For example, the acquisition between Kinko's
and FedEx in 2004 has not been successful thus far. Kinko's, a
company which started on a college campus, was once a place individuals
could go for last minute copies with helpful employees willing to help
in a fun atmosphere. What customers have complained about since the
acquisition is the poor customer service levels. The business model
changed from a simple copy store to a company who also provides
packaging and shipping among other services. Although there is more room
for growth and flexibility, FedEx has to make sure to not stray away
from the core values upon which Kinko's was established (Palmeri,
2008). As it is noted in finding ten, the probability for a successful
merger increases for organizations with strong corporate cultures
(American Management Association, 2008). It is important for companies
to examine the corporate culture of a firm they are considering
acquiring before making such a decision which will drastically affect
the future of their business.
2.9 Effects of Implementing the Cultural Model
The cultural model looks to execute strategy through total
organizational involvement. All levels are exposed to a set of values
which guides their behavior and all are encouraged to contribute to
developing a strategic direction and making the vision a reality for the
organization. In this model, the CEO plays the part of a coach;
empowering individuals make their own decisions. The CEO is responsible
for communicating and infusing the vision and mission which gives
employees a sense of direction. It also encourages employees to work
together and form a consensus of key managerial decisions. This notion
expands the line of responsibility to all individuals because it
believes all levels of employees can provide invaluable input. The cost
of this model is also argued to be one of its key strengths. Instilling
such a culture and having individuals' work together to achieve one
common purpose takes a lot of time. But the implication of such a model
has an enormous pay-off. Although the formulation takes time, the
execution is almost immediate without any major glitches (Bourgeois III
& Brodwin, 1984). Figure 3 below visually shows how this
[FIGURE 2 OMITTED]
[FIGURE 3 OMITTED]
While there are many pay-offs to organizations who uses the
cultural model, there are also some limitations. First, organizations
who use a cultural model have informed and intelligent employees.
Second, when a consensus is achieved from all employees all the time,
employees may become uninterested and lose focus. Firms have to set a
challenging environment for employees to keep them engaged. Also, the
initial creation and development of such a cultural model may wear thin
on many employees who are not used to such a working environment. On the
other hand, when organizations have built a strong and powerful
corporate culture, or 'Type Z' organizations, they may be more
resistant to change. They also tend to favor homogeneity and inbreeding.
This is also known as xenophobia. This has negative implications on an
organization because it doesn't allow for new ideas and innovation
to be realized. This can be damaging to any organizations competitive
strength on a multinational and local level because of the many
continuous changes and advancements taking place all over the world
(Bourgeois III, Brodwin, 1984).
3. DOES CULTURE CREATE COMPETITIVE ADVANTAGE FOR A FIRM?
It is imperative for firms to continuously find new sources of
competitive advantage. Building strengths within the culture of a firm
will help build and sustain competitive advantage. Making culture less
apparent for competitors to imitate makes culture that much more
valuable and a source of competitive advantage (Moran, Palmer,
Borstroff, 2007). With more research and studies dedicated to understand
the effects of corporate culture on organizations, it can be seen that
there are positive correlations associated with building and
continuously managing culture. Building a strong corporate culture is an
important asset as it differentiates an organization from competitors.
Positive corporate culture has become more important as studies reveal
the benefits of increasing overall business performance. Culture is also
directly linked to reputation. Both are intangible assets only a few
firms are lucky to achieve. Culture, reputation and financial
performance are all interconnected and act as a major source of
competitive advantage for a firm (Flatt, Kowalczyk, 2008). A strong
corporate culture is only considered a sustainable competitive advantage
when it cannot be easily duplicated by competitors (Barney, 1986).
Therefore, a strong corporate culture is not a just a trend which will
eventually fade away. Corporate culture is an attribute to a company
which will grow stronger and stronger in relevance as firms become more
knowledgeable about the subject.
4. MANAGERIAL IMPLICATIONS
The valuable practical lessons managers can draw from this study is
to use the information as a starting point in developing their own
unique and individual corporate cultures which will confidently enhance
the internal structure of the company as well as aiding the strategic
decision making process. Corporate culture is unique to each
organization. Although there is no ideal formula in developing and
managing a strong corporate culture, there are some features which are
advantageous to all organizations. Top management and managers need to
be aware and recognize the need for developing a strong corporate
culture. They need to clearly communicate values to employees which are
consistent with the overall organizations mission and vision. It must be
easy to understand and be visible. Such values will ultimately encourage
positive and ethical behavior and increase productivity. Encouraging
creativity and innovation will also lead to a flexible and responsive
organization meeting the needs of current and future changing and
unforeseen market demands. Exposing employees to the values relentlessly
will assure the importance of the organizations culture. Leaders also
have to be sure to lead by example. As it was stated earlier, showing
employees actions of others is the most unforgettable way of
communicating culture. A positive corporate culture will shape strategy,
structures and processes with favorable outcomes for an organization.
All of these are value creating activities which will attract talent and
improve the overall business performance for any organization. A strong
and positive corporate culture is a reflection of an excellent
A positive and strong corporate culture has been established as
having a positive effect on strategy. Culture has shown to increase
productivity, increase loyalty, encourage innovation as well as increase
employee retention rates. Strong cultures also attract top talent
because individuals want to be a part of an organization which values
their input and contributions. Even during tough economic times,
companies are always on the lookout for great talent. All of these
advantages allow for leadership in the marketplace with increased
profitability and larger market share.
With a fast changing competitive environment, economic uncertainty,
advances in technology, and globalization, culture is a critical element
for an organization to distinguish itself from competitors. Very few
companies are good at creating strong corporate culture. There is still
a lot of room for improvement. Clear communication is key developing
culture. Top management can dramatically improve an organizations
position relative to competitors if it communicates its commitment to
building and managing a strong corporate culture and making such
thoughts transparent to all employees. This can be the foundation of
forming values and assumptions unique to a single organization shared by
all of its employees. Culture takes time to develop. Putting in the
extra time and effort in developing a strong culture will pay off big
dividends in the long-run; the execution of strategy will follow through
smoothly giving an organization a powerful competitive advantage.
Because communication is very important in developing and managing
corporate culture, a suggestion for future research would be to analyze
how multinational companies manage a unique and consistent culture
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Sossie Mahrokian, California State University-Fullerton, USA
Peng Chan, California State University-Fullerton, USA
Panjarat Mangkornkanok, Ramkhamhaeng University (IIS), Bangkok,
Byung Hee Lee, Hanyang University, S. Korea (Corresponding author)