Corporate culture: a lasting competitive advantage.
Corporate culture is a very relevant topic in today's global business environment and will continue to be important and more significant in the future. Corporate culture is not only transparent to employees within a firm but also to customers and investors. This paper explores empirical studies and academic articles conducted on the development of corporate culture with external and internal influences, the essential components of positive corporate cultures and the impact culture has in effectively shaping strategy, structures, and processes. It seeks to enhance managers overall understanding of the concept, to lead by example, and to take an active role in clearly communicating corporate-wide visions and missions to facilitate the development and management of values and assumptions in creating a positive corporate culture. Strong corporate cultures will further differentiate an organization amongst competitors and give organizations the ability to sustain a long-term competitive advantage with an overall better business performance.

Keywords: Corporate Culture; Competitive Advantage

Article Type:
Corporate culture
Mahrokian, Sossie
Chan, Peng
Mangkornkanok, Panjarat
Lee, Byung Hee
Pub Date:
Name: Review of Business Research Publisher: International Academy of Business and Economics Audience: Academic Format: Magazine/Journal Subject: Business, international Copyright: COPYRIGHT 2010 International Academy of Business and Economics ISSN: 1546-2609
Date: Jan, 2010 Source Volume: 10 Source Issue: 1
Event Code: 200 Management dynamics Computer Subject: Company business management
Organization: American Management Association
Accession Number:
Full Text:

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 increasingly important.

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 externally.

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.


2.1 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 culture.

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 given industry.

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 (Berry, 17).


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 To Do?

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, Miyajima, 2007).

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, 1987).

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 relationship works.



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).


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.


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 management.


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 across countries.


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Sossie Mahrokian, California State University-Fullerton, USA

Peng Chan, California State University-Fullerton, USA

Panjarat Mangkornkanok, Ramkhamhaeng University (IIS), Bangkok, Thailand

Byung Hee Lee, Hanyang University, S. Korea (Corresponding author)
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