EXPLORING THE RELATIONSHIPS AMONG ORGANIZATIONAL CULTURE,

CUSTOMER SATISFACTION, AND PERFORMANCE

Cynthia Webster, Mississippi State University

D.S. Sundaram, Indiana University

Abstract

This study explores the moderating role of national culture and industry characteristics (i.e., technology-type and growth rate) on the relationship between organizational cultural values and business outcomes. It is suggested that the relationships between specific organizational values and business outcomes (both customer satisfaction and business performance) should vary across national cultures. Specifically, it is anticipated that the relationship between specific organizational values and business outcomes are likely to be greater when the cultural values of organizations are consistent with those of the host country, technology, and growth characteristics.

Introduction

The intensification of research on organizational effectiveness has led to the identification of several organizational factors that have an influential role in the determination of organizational performance. Organizational culture is one such factor that has received much attention in organizational behavior (e.g., Chatman and Jehn, 1994; Hofstede et al., 1990; Marcoulides and Heck, 1993; Schein, 1990; Trice and Beyer, 1984) and marketing (e.g., Deshpandé, Farley, and Webster, 1993; Deshpandé and Webster, 1989; Kitchell, 1995) literatures, because of the key role it plays in determining levels of organizational outcomes. A common hypothesis about the role of organizational culture is that if an organization possesses a "strong" culture by exhibiting a well-integrated and effective set of specific values, beliefs, and behaviors, then it will perform at a higher level of productivity (Denison, 1984). Given the influence of an organization's culture on its productivity, the development of theory to guide the study of the forms and consequences of organizational culture is of primary importance to improving organizational performance. Such efforts will be rewarding, particularly because the variables which comprise culture have been postulated to be under the control of organizational leaders (e.g., Deal and Kennedy, 1982; Ouchi, 1981).

In an effort to understand the forms and consequences of organizational culture, researchers have explored how various internal processes, such as individual and organizational selection and socialization (Harrison and Carroll, 1991) and characteristics of powerful members--such as an organization’s founder (e.g., Schein, 1985) or groups of members (e.g., Schneider 1987)--influence the content and intensity of and the consensus that exists about organizational values. It appears that researchers have generally adopted the assumption that organizations develop a culture of their own that is distinct from the national and industry contexts in which the organization is embedded, thus ignoring the potential impact of external environmental factors on organizational culture. Despite concern with achieving improved business productivity through focusing on the development of a cohesive organizational culture, the literature to date is characterized by this narrow, internal focus, rather than looking to the external, cultural context within which organizations exist. This appears to be an unfortunate development, insofar as cultural elements appear most easily understood in contrast to the contexts against which they appear.

In addition to internal factors, features present in the external

environment in which the organization operates are likely to affect the suitability of an organization’s culture. Specifically, national culture and industry characteristics are likely to determine which organizational values lead to superior business outcomes. In other words, the parameters of the relationships between specific organizational values and outcomes will logically differ for firms in vastly different national cultures and in

industries using vastly different technologies. The goal of the present research is to seek to understand these important sources of influence.

This paper explores the possible moderating effects of national culture and industry characteristics--technology used and growth rate--on the relationship between organizational culture and outcomes (both customer satisfaction and business performance). It also discusses whether organizations whose cultures match those of their home country experience lower customer satisfaction and performance levels when they operate in another country with different cultural orientations.

Conceptual Background and Hypotheses

Organizational Culture

As a result of reviewing more than 100 studies in organizational behavior, sociology, and anthropology, Deshpandé and Webster (1989) defined organizational culture as a "pattern of shared values and beliefs that help individuals understand organizational functioning and thus provide them with the norms for behavior in the organization" (p. 4). Following these and other authors (e.g., Chatman and Jehn, 1994), organizational culture is conceptualized and quantified in this study in terms of widely shared and strongly held values. The elements of organizational culture range from fundamental assumptions through values and behavioral norms to actual patterns of behavior (Rousseau, 1990). Values typically act as the defining elements of a culture, and norms, symbols, rituals, and other cultural activities revolve around them (Enz 1988). When the members of a social unit share values, an organizational culture or value system can be said to exist (Weiner 1988).

Characterizing an organization’s culture in terms of its central values requires identifying the range of relevant values and then assessing how strongly held and widely shared they are (e.g., Saffold, 1988). In a sample of U.S. firms, O’Reilly, Chatman, and Caldwell (1991) identified the following seven dimensions of organizational culture using an instrument they developed, the Organizational Culture Profile (OCP): innovation, stability, respect for people, outcome orientation, detail orientation, team orientation, and aggressiveness. The same seven dimensions have been found to characterize firms across various industries (Chatman and Jehn, 1994) and also among a sample of international firms (Hofstede et al., 1990). The OCP dimensions also resemble the types of cultural knowledge that Sackmann (1992) found to exist across a single organization. Further, the OCP value dimensions resemble the values in Cameron and Freeman’s (1991) model of organizational culture types. Since the existence of seven dimensions within and across industries has been confirmed in several situations, this study views organizational culture as characterized by the seven dimensions identified in OCP.

Although several studies have focused on identifying the value dimensions that characterize an organization’s culture, only a few have investigated the extent to which an organization’s values affect actual outcomes. Perhaps the key article addressing the linkage between organizational culture and performance was published by Deshpandé and colleagues (1993). Concentrating on only Japanese firms, these authors found that higher levels of business performance were most closely associated with a market culture (that is, one that emphasizes the values of competitive aggressiveness and outcome orientation) and an adhocracy culture (one that emphasizes the values of flexibility and innovation). Other studies (e.g., Marcoulides and Heck, 1993) have simply concluded that the values that characterize an organization’s culture significantly affect performance without specifying which values are most closely associated with business outcomes.

National Culture

The fact that the West and East--and more specifically, the United States and Japan--have vastly different cultural values is well-acknowledged. The U.S. is characterized by such values as assertiveness, decisiveness, innovativeness, and risk-taking which stem from its frontier-conquering history (Hall and Hall, 1990). The U.S. culture is also characterized by individualism--the belief in the power and autonomy of the individual (e.g., Goodman, 1981; Yeh, 1995) and emphasis on results and lack of flexibility. For instance, Easterners, particularly the Japanese, complain that Americans are too legalistic and less willing to be flexible (Thornton, 1993).

The cultural value system in Japan, on the other hand, has been heavily influenced by Shinto, Buddhism, and Confucianism. As a result, the Japanese tend to emphasize the virtues of hard work and attention to detail (Rhody and Tang, 1995). Indeed, a detail orientation is a major factor that has attributed to the successes of prominent Japanese firms (Lazer, Murata, Kosaka, 1985; Song and Parry, 1997). Further, Japan has a consensus-bonded, group-oriented culture that emphasizes conflict avoidance, respect and concern for people, and the importance of close, long-lasting relationships with others (Sandelands, 1994). The culture focuses individual and corporate success criteria on harmony, uniformity, and subordination to the group (Hall and Hall, 1990). Thus, it is particularly important for Japanese employees to feel that they "fit in;" indeed, employees tend to identify with their firms, resulting in a relatively high level of company loyalty (Holden and Gross, 1992).

It is known that cultures provide consumers with an understanding of acceptable behavior within their respective societies. Further, culture influences work practices and has a profound impact on the way consumers perceive the organizations from which they purchase (Harris and Moran, 1987). Relatedly, past research shows that national culture is not something apart from business, but determines its very essence (Maher, 1994; Rhody and Tang, 1995). Indeed, a study which surveyed over a thousand managers from U.S. and Japanese firms showed that corporate values reflect those of the national culture (Yeh, 1995). These cultural differences lead to specific behaviors within organizations, which are different for Japan and U.S. firms. For instance, as compared to Japan, the U.S. culture, which is high on individualism, predisposed the U.S. companies to use more communication and coordination and resort to short-term performance evaluations (Ueno, 1992). And in Japan, a people orientation and an emphasis on harmony and tolerance have led to humanistic management practices, worker loyalty, a noncompetitive workforce, lifetime employment, and slow evaluation and promotion (Burton 1989).

The pervasive effects of national culture have important implications. For instance, the values that characterize organizations are likely to parallel those of the national culture in which the organization operates (Rhody and Tang 1995). Hence, Japanese firms, as compared to U.S. firms, are more likely to have cultures characterized by flexibility and people and detail orientatations. Possibly, these cultural factors are the driving force behind the success of Japanese firms. That is, Japanese firms may rely heavily on the virtues of flexibility, people orientation, detail orientation, and team orientation to achieve greater business performance and customer satisfaction. And relative to Japanese firms, U.S. firms are more likely to have cultures characterized by innovation, outcome orientation, and aggressiveness. Further, these cultural values that characterize the U.S. firms are likely to impact their business performance, because their business strategies and the resulting successes are

attributable to their cultural values. Just as Japanese firms uitlize the cultural values that characterize them to achieve greater performance, U.S. firms will exercise the characteristics of innovation, outcome orientation, and aggressiveness as their competitive weapons to achieve greater business performance and customer satisfaction. Thus, it is expected that the relationships between specific organizational values and outcomes (both customer satisfaction and business performance) should vary across national cultures. Hofstede (1994) alluded to this when he pointed out that the academic community has been relatively slow in accepting that not only management practices but also the validity of organizational culture theories may stop at national boundaries. Therefore,

P1: The relationships between the cultural values of flexibility, people orientation, detail orientation, and team orientation and outcomes (customer satisfaction and business performance) will be greater for Japanese than for U.S. firms.

P2: The relationships between the cultural values of innovation, outcome orientation, and aggressiveness and outcomes (customer satisfaction and business performance) will be greater for U.S. than for Japanese firms.

It is expected that organizations whose cultures match those of their home country will experience lower outcome levels when they operate in other countries with vastly different cultural orientations. This is because the consumers in other countries with cultural orientations different from those of the organization may not completely understand and assimilate the operational procedures of the foreign subsidiaries, creating somewhat weaker impression about the firms from other countries. Thus, the cultural mismatch may lead to lower customer satisfaction and business performance. For instance, U.S. organizations whose cultures reflect those of the U.S. will experience lower outcome levels when they operate in Japan (i.e, U.S. subsidiaries) than when they operate in the U.S. Hence,

P3: Organizations whose cultures match those of their home country will exhibit lower levels of outcomes (customer satisfaction and business performance) when they operate in other countries with different cultural orientations.

Industry Characteristics and Organizational Culture

Past research has shown that technology relates to organizational types and outcomes (Van de Ven and Delbecq 1974) and that growth rate partially determines business strategy (Dess and Beard, 1984). Using the same logic, technology and growth can also be related to organizational culture (Quinn and Rohrbaugh, 1983).

Technology. Firms in the same industry tend to share similar

technology. Since culture defines how things are done within firms (e.g., Deal and Kennedy, 1982), technology restricts the variation in how things are done by defining what is being done. Therefore, greater similarities in technology across firms in the same industry should be associated with less variation in their cultures. Thompson's (1967) technological classification scheme has been used to conceptualize the relationship between technology and organizational culture (Chatman and Jehn, 1994). This typology is based on the amount of discretion required for production and ranges from long-linked to intensive: long-linked firms have little demand for discretion because they use standardized procedures and assembly line tasks; and intensive or custom technologies require a great deal of discretion and use techniques that vary according to the specific demands of a project.

The values that characterize firms are likely to vary across industries. Firms in industries characterized by intensive technologies should have cultures depicted by high levels of inno-vation, since projects require nonroutine problem solving (Pennings and Harianto, 1992). Because of what is generally an intense, hard-driving work pace and a lack of predictability, these firms tend to place a greater emphasis on human resource issues (Saxenian, 1990). Intensive technology firms are likely to have a strong team orientation, since ill-structured tasks are more likely to require that members collaborate to solve problems (e.g., Kanter, 1988).

On the other hand, firms with long-linked technologies are likely to have high levels of stability, because tasks are repetitive and predictable. These firms have a strong detail orientation, since only refinements to processes are needed. They tend to rely on formal control mechanisms, such as policies and procedures, to direct members' efforts. Further, these firms are characterized by a relatively high level of job structure (Hofstede et al., 1990).

Therefore, we can expect that firms in industries with intensive technologies will have cultures that more strongly emphasize innovation, flexibility, people orientation, team orientation, and aggressiveness than firms in industries with long-linked technologies. Similarly, firms in industries with long-linked technologies are likely to have cultures that more strongly emphasize outcome and detail orientations than firms in industries with intensive technologies.

Growth. Past research has shown that technology and growth rate move together and that growth in industries is linked to technological development (e.g., Dewar and Hage, 1978). Indeed, technological progress driven by a desire to reduce uncertainty often fosters growth (Thompson, 1967). New technologies and improved methods are commonly incorporated because they are related to an industry’s type of work, and adoption of these advances often increases production capacity (Zammuto and O’Connor, 1992). Hence, industry growth is likely to relate to organizational culture.

In high-growth industries, firms tend to experience resource munificence, generated by the constantly increasing revenues and opportunities (Dess and Beard, 1984). Industry growth also influences the extent to which organizations attempt to strategically manage interdependence and complexities, behaviors that are reflected in organizational culture (Chatman and Jehn, 1994; Zammuto and O’Connor, 1992). Such growth is likely to affect organizational culture by increasing risk taking and innovation. For instance, high growth rates increased innovation and flexibility among high-technology firms in Silicon Valley (Saxenian, 1990). On the other hand, low-growth industries, such as utilities, depend upon stability and reliability (Chatman and Jehn, 1994).

It seems reasonable to expect that the relationship between organizational culture and outcomes will depend on the type of technology governing and the level of growth experienced by the firm in question. That is, business outcomes are likely to be higher in those firms whose cultural values are consistent with those of particular industry technology-type and growth-level characteristics. Specifically,

P4: The relationships between the cultural dimensions of innovation, flexibility, people orientation, team orientation, and aggressiveness and outcomes (customer satisfaction and business performance) will be greater in firms characterized by intensive technologies and high growth.

P5: The relationships between the cultural dimensions of outcome orientation and detail orientation and outcomes (customer satisfaction and business performance) will be greater in firms characterized by long-linked technologies and low growth.

Discussion

Because of the lack of agreement concerning theoretical formulations about organizational culture, its delineation, and its possible relationship to performance outcomes, no significant body of empirical research exists. Prior research on the relationship between organizational culture and business performance (Deshpandé and Farley, 1993) is limited in scope in that it has not taken into account how the external environmental factors impact the relationship. This paper begins to form a foundation for empirical research by conceptualizing the possible moderating effects of national culture and industry characteristics on the relationship between organizational culture and outcomes (customer satisfaction and business performance).

There are several fruitful avenues for future research. First, by investigating organizations in U.S. and in Japan across industries with varying technologies, future research can determine whether organizational culture can indeed be characterized by seven dimensions of innovativeness, flexibility, orientation toward people, outcome or results orientation, detail orientation, orientation toward collaboration or teamwork, and aggressiveness. It would be interesting to discover if the findings of such studies replicate the underlying factor structure of earlier studies of organizational culture (e.g., Chatman and Jehn 1994; Hofstede et al. 1990; O'Reilly et al., 1991). Business firms might use the resulting set of organizational culture values to aid managers in determining which cultural values they want to emphasize, to ascertain the extent to which employees share and hold the firm's cultural values (by interviewing employees from top management to operational or staff levels), to measure organizational culture change over time, and to facilitate new employee-firm fit.

Second, research might determine if the U.S. national and organizational cultures can be characterized by innovation, outcome orientation, and aggressiveness and if the Japanese national and organizational cultures can be characterized by people, detail, and team orientations. If research reveals that national culture moderates the organizational culture and outcome relationship, then business leaders will know that they should not assume that one particular type of organizational culture is necessarily the best. Rather, in terms of customer satisfaction and market performance, the optimum organizational culture will depend on the national culture (and perhaps industry contexts) in which the firm is embedded. Firms whose cultures more explicitly emphasize factors related to the demands placed on them by national culture and industry characteristics will be better performers in their industries.

Relatedly, it would be interesting to discover if foreign subsidiaries tend to maintain the same organizational culture of their home countries. Perhaps foreign subsidiaries are incapable of adopting a vastly different cultural system because of the differences in American and Japanese values which makes reproduction of organizational components to foreign systems impossible. Although foreign subsidiaries may keep the cultures of their home countries, their values are perhaps "watered down" because of their tendency to adopt some of the values of the host country. It would be interesting to discover which organizational internal factors facilitate or restrict the adoption of the values of the host country. For instance, factors such as the strength of currently held organizational values and employees' educational level can affect the adaptation of host country values. Future research should examine whether the level of business outcomes vary for firms entering into international arena depending on their adaptation of the values of the host country. If it is confirmed that the adaptation of host country values is a factor in the accomplishment of business outcomes, then future research can study the techniques used by foreign subsidiaries to assimilate host country values. Such research will empirically show whether or not one particular type of organizational culture is necessarily the "best" in all contexts. Specifically, national culture and industry characteristics--technology and growth rates--may significantly affect the suitability of an organization's culture. Researchers have speculated that an organization possesses a "strong" culture if it exhibits a well-integrated and effective set of values. Future research may indicate that an organization's "effective set of values" may be one that is congruent with its industry characteristics and national culture. If the research suggests that organizations need to alter their values depending on host country values and industry characteristics to be successful, then a stream of research should focus on identifying the best way to initiate the cultural adaptation process within the organization.

Third, research should determine if the cultural values best suitable for firms characterized by intensive technologies and high growth are innovation, aggressiveness, flexibility, and people and team orientations. Similarly, we need to know if the firms characterized by long-linked technologies and low growth achieve greater business outcomes through detail and outcome orientations. Identification of cultural dimensions appropriate for intensive technologies and high growth versus long-linked technologies and low growth will help the top management in cultivating the cultural values best suited for their business.

Finally, we need to know the manner in which the cultural values on which organizations place importance relate to both customer satisfaction and business performance. Specifically, we need to understand the relative importance of the congruence between organizational values and national culture and industry characteristics on customer satisfaction and business performance. If the fit between organization values and national culture and industry characteristics is found to be a factor in the achievement of greater business outcomes, then it is critical for the top management of firms to create an organizational culture conducive for business success in accordance with the elements of external environment.

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