Managerial Capabilities, Organizational Culture and Organizational

Performance: The resource-based perspective in

Chinese lodging industry
Yin-Hsi Lo, Assistant Professor of Hospitality Management, Southern Taiwan University, Taiwan

ABSTRACT

This paper aims to identify alter competitive advantage creation path in Chinese lodging industry where the two
resource-based constructs, managerial capability and organizational culture have examined their effects on hotels
financial performance and customer satisfaction. The paper based on the previous literature review of RBV. A
census-based questionnaire was distributed to the member of Chinese hotel top management team in two North-East
city in China. By using structural equation modeling as the main data analysis tool, the results found that both hotels
managerial capabilities and organizational culture have no impact on its financial performance. Alternatively hotels
managerial capabilities have significant impacts on customer satisfaction, Further discussion is included in the paper.
Keywords :Managerial capabilities, organizational culture, organizational performance

INTRODUCTION

The resource-based view (RBV) is one of the most stupendous theoretical perspectives in current strategic
management literature (Barney, 1991; Eisenhardt & Martin, 2000; Helfat & Raubitschek, 2000; Teece, Pisano, & Shuen,
1997; Wernerfelt, 1984). The theoretical foundation of RBV can be traced back from Marshall (1890), Coase (1937),
Andrews (1949) to Penrose (1959).
Barney (1991) claims the fundamental assumptions of RBV are the heterogeneity of resources and capacities held
by each firm, and the long lasting duration of these differences within the firm. He also argued that the resources and
capabilities of the firm tend to be path-dependent, and can only be developed over a long period of time. Influential also
are, causal ambiguity (not always clear how these capabilities impact on the firms performance) and social complex
(cannot be bought or sold in some situation) in nature (Barney, 1991; Dierickx & Cool, 1989).
In this way, a firm might be able to sustain its competitive advantage through its ability to identify, develop,
deploy, and preserve particular resources and distinguish these from its rivals so as to facilitate its success in a
competitive market (Amit & Schoemaker, 1993; Carmeli & Tishler, 2004; Collis & Montgomery, 1998; Dierickx &
Cool, 1989).
The characteristics of a firms crucial resources and strategic capability in Johnson, Scholes and Whittingtons
(2008) terms was developed by Barney (1991), who suggested that to sustain competitive advantage, a firm has to
possess the resources that are valuable, rare, costly to imitate and non-substitutable. Peteraf (1993) further developed
other characteristics of strategic capabilities by proposing that a firm can sustain its competitive advantage only under
four major conditions: heterogeneity of resources, ex post limits to competition, imperfect mobility and ex ante limits to
competition (Peteraf, 1993, p.186).
In other words, Peteraf (1993) suggested that a firm can sustain its competitive advantage if it is able to generate
sustainable economic rent by endowing it with superior internal resources. To facilitate the sustainability of the
economic rent for the firm in the long term, the superior resources of the firm must be inelastic in supply (Dierickx &
Cool, 1989; Peteraf, 1993), inimitable or non-substitutable (Lippman & Rumelt, 1982; Porter, 1980; Rumelt, 1984) and
the costs of the resources must be lower that their economic rents (Barney, 1989; Dierickx & Cool, 1989; Ray, Barney,
& Muhanna, 2004).
Resource has generally defined as those assets owned or controlled by a firm (Amit & Schoemaker, 1993).
According to Wernerfelt (1984): a firms resources are those tangible and intangible assets tied semi-permanently to

The Journal of International Management Studies, Volume 7 Number 1, April, 2012 151
the firm (Wernerfelt, 1984, p.172). Tangible resources are those physical items or assets within an organization, such
as equipment, facilities, raw materials, and equipment (Carmeli & Tishler, 2004). Intangible resources on the other hand,
are those assets identified as know-how, skills, knowledge, perceptions, product reputation, culture and network that
cannot be listed in regular managerial, accounting reports (Connor, 2002; Hall, 1992); these intangible resources are
heterogeneous and immobile in nature (Barney, 1991; Peteraf, 1993).
In his studying 72 Spanish manufacturing firm, Lpez (2003) has found empirically a significant relationship
between a group of intangible resources (e.g. company reputation, human capital and organizational culture) and
organizational performance. The empirical results of the regression coefficients analysis have indicated that intangible
resources are positively related to the firms performance, where all the relationships have achieved p <0.05.
Corresponding to the results of Lpez (2003), Henderson & Cockburn (1994) have also found significant differences in
firms performance when they possess different level of intangible resources.
Similar to Lpezs (2003) and Henderson & Cockburn (1994), Carmeli & Tishler (2004) examined 99 local
government authorities in Israel for the relationships of a set of intangible resources (managerial capabilities, human
capital, perceived organizational reputation, internal auditing, labour relations, and organizational culture) with a set of
multi-performance measures (financial performance, municipal development, internal migration, and employment rate).
The results from the multiple regression analysis (MLR) have shown that all intangible resources variables were
positively and significantly related to organizational performance variables Furthermore, the findings of their study
have identified that organizational culture and perceived organizational reputation were the two most significant
variables relating to organizational performance in the Israel government authorities with coefficients of 0.24 and 0.23.

Managerial Capabilities
Superior managerial capabilities have long been acknowledged as an important source to generate above normal
rent for its organization (Barney, 1991; Castanias & Helfat, 1991; Hambrick & Mason, 1984; Katz, 1974; Norburn &
Birley, 1988; Penrose, 1959). Management capabilities in a organization are usually required for communicating and
implementing strategy, maintaining beneficial relationships with internal and external stakeholders (Cyert & March,
1963; Smircich & Stubbard, 1985; Weick, 1979), and participating in organizational resource allocation and
deployment such as, organizational culture (Fiol, 1991), learning system (Senge, 1990), innovation and entrepreneurial
systems (Nelson, 1991), and incentive systems (Kerr, 1975). Specifically, several researchers claim that, in order for
managers to perform their managerial tasks adequately, they must possess firm-specific knowledge which is
history-dependent or acquired through learning by doing (Barney, 1991; Reed & DeFillippi, 1990).
However, superior managerial capabilities is embedded in the team setting rather than a single person, where a
broad set of such complementary skills of the management team as technical and human skills, is required to attain the
superiority in a particular competitive market (Barney, 1991; Mahoney, 1995).
By having this set of skills, the attributes of the management team may satisfy the conditions for achieving and
maintaining competitive advantage (Mahoney, 1995, p. 92). Accordingly, the following hypotheses are derived:
H1-1a: The managerial capabilities possessed and controlled by a hotel positively influence its financial performance in
the Chinese hotel industry
H1-1b: The managerial capabilities possessed and controlled by a hotel positively influence its customer satisfaction in
the Chinese hotel industry

Organizational Culture
Organizational culture refers to the underlying values, beliefs, and principles that serve as foundation for the
organizations management system as well as the set of management practices and behaviours that both exemplify and
reinforce those basic principles (Denison, 1990, p. 2). In other words, organizational culture serves as a function to
explain the type of activity that the organization is engaged upon and the lifecycle stage that the organization has
reached (Hall, 1992). In the field of strategic management, the role of organization culture to create competitive
advantage has been studied by many strategic researchers. Barney (1986) for example, who asserted organizational
culture as a valuable, rare, and imperfectly imitable resources, which is a source of sustainable competitive advantage.

152 The Journal of International Management Studies, Volume 7, Number 1, April, 2012
Klein, Masi, and Weidner (1995) further positioned organizational culture as the core organizations endeavours to
improve its products and services quality and services and its overall effectiveness.
Hall (1993) argues that the organization culture applies to the organization as a whole, in the way it sets
organization apart from others and also binds its member together. Therefore, in order to be a contributor to the
competitive advantage, the organization culture of an organization requires a higher quality standard in perception, and
a high level of abilities to change, to react to challenge, and to learn from the external environment and the internal
organization (Hall, 1993). In line with the above discussion, the following hypotheses were proposed:
H2a: The organizational culture that possessed and controlled by a hotel is positively influencing its financial
performance in the Chinese hotel industry
H2b: The organizational culture that possessed and controlled by a hotel is positively influencing its customer
satisfaction in the Chinese hotel industry

METHODOLOGY

Data were collected from the tourist hotels senior managers from three star and above in two North-East cities in
China. The census sampling was applied in both cities, which according to the local Municipal Bureau of Tourism
database. A total of 411 hotels met the sampling criteria and same amount of questionnaires have been distributed. At
the end, a total of 254 responses were received and 228 were valid responses, where the general response rate was 45
percents.

Table 1: Construct Reliability Results

Squared multiple Cronbachs Composite
Construct Indicator Lambda
correlation alpha reliability
Our top management team attracts and retains
0.81 0.65 0.846 0.857
well-trained and competent top mangers
Managerial Our top management achieves better overall control of
0.92 0.84
Capabilities general organizational performance
Our top management perceives new organizational
0.73 0.52
opportunities and potential threats
There is a high involvement of our employees in the
0.75 0.56 0.863 0.868
process, decisions, and their implementation
Our employees are committed and held a high sense of
0.87 0.75
Organizatio responsibility to the organization
nal Culture There is a high level of coordination and agreement
0.78 0.61
among our employees
The organization knows the external environment and
0.75 0.56
provides appropriate responses
Overall organizational performance 0.77 0.59 0.891 0.894
Financial Profitability 0.89 0.78
Performance Growth in sales 0.77 0.59
Return on investment 0.86 0.74
Customer Customer satisfaction 0.79 0.64 0.828 0.828
Satisfaction Service Quality 0.90 0.77

Measurement Development and Validation

Both constructs of Managerial Capabilities (MC) and Organizational Culture (OC) were adopted from Carmeli
(2004) and Carmeli and Tishler (2004). As presented in Table 2, the MC was measured by three items and OC was
measured by four. Excluding the demographical questions, other questionnaire items were measured on a seven-point
Likert scale ranging from 1: strongly disagree to 7: strongly agree. Still, the difficulties of gathering objective
performance data are well recognized by previous literatures (Dess & Robinson, 1984; Powell, 1992; Powell &
Dent-Micallef, 1997; Robinson & Pearce, 1988). Consequently, a self-reported organizational performance construct

The Journal of International Management Studies, Volume 7 Number 1, April, 2012 153
with a range from 1: much lower to 7: much higher were used for financial performance and customer satisfaction
constructs. The respondents were asked to compare their hotels financial performance and customer satisfaction with
their direct competitors. As previous researches have indicated that the self-reporting performance measurements are
more desirable for the studies collecting performance data in the conservative culture countries (Chandler & Hanks,
1993; Luo, 1997; Luo & Peng, 1998, 1999). In this way, the hotels financial performance was measure by four items
and customer satisfaction was measure by two.

Data Analysis
Covariance-based structural equation modeling (SEM) was employed as the major data analysis tool where as
maximum likelihood estimation was applied to the data by the use of the linear structural relational model (LISREL ver.
8.72).

Measurement Model Evaluation

All the Cronbachs alpha coefficients were in the range from 0.828 to 0.891, which have exceeded the level of
0.70 requirement for satisfactory validity and reliability of internal consistency of the instrument (Getty & Thompson,
1994). The composite reliability coefficients ranged from 0.828 to 0.894 (see Table.1), thus exceeding the recommended
level of 0.6 by Fornell and Larcker (1981).
The importance of construct validity test has stabilized the measures dimensionality during measurement
development (DeVellis, 2003). In order to establish convergent and discriminant validity, the average variance extracted
(AVE) for each factor need to be calculated. Convergent validity will be established if the shared variance accounts for
0.50 or above of the total variance. As Table 2 has shown that the overall discriminant validity of the constructs was
satisfactory 1.92 to 4.82

Table 2: Construct Correlation and Discriminant Validity

Managerial Organizational Financial Customer
Construct
Capabilities Culture Performance Satisfaction
Managerial Capabilities 1.00
Organizational Culture 0.76 1.00
Financial Performance 0.51 0.43 1.00
Customer Satisfaction 0.58 0.38 0.63 1.00
(Correlation)2 0.58 0.18 0.40 0.40
Discriminant Validity coefficient 1.48 4.82 2.23 1.92
Notes: All correlations are significant at the 0.001 level; diagonal element is average variance
Extracted (AVE) and should be larger than the square of the off-diagonal correlation coefficient.
Convergent validity = AVE 0.5. Discriminant validity coefficient = AVE/(Correlation)2;
Where (Correlation)2 between factors of interest and remaining factors. AVE = average variance
Extracted = sum of standard loading2/ (sum of standard loading2 + sum of )

Structural Model Estimation

The structural model was measure by several indices that suggest by Ghartey (1993) and Hair, Black, Babin,
Anderson, & Tatham (2006). As Table 3 has shown the results of SEM obtained for the theoretical model where
chi-square = 85.98 (df = 59; p 0.05), GFI = 0.94, AGFI = 0.92, RMSEA = 0.045, NFI = 0.98, and CFI = 0.99. All the
indices exhibited a high level of fitness in terms of the structural model used in this study.

154 The Journal of International Management Studies, Volume 7, Number 1, April, 2012
 Table 3: Measures of Model Fit and Reported Values for Structural Model
Fit index Recommended values Model values Degree of Model Fit
Chi-square p 0.05 85.98 (p<0.05) Good fit
Chi-square/df 3 1.472 (d.f. =59) Good fit
Goodness-of-fit index 0.9 0.94 Good fit
Adjusted goodness-of-fit index 0.9 0.92 Good fit
Root-mean-square error of approximation 0.08 0.045 Good fit
Normed-fit index 0.9 0.98 Good fit
Comparative-fit index 0.9 0.99 Good fit
df, degrees of freedom

FINDINGS AND CONCLUSION

The Figure 1. below shows the path coefficients e.g. loading and significance and R2 for the hypothesized model.
The endogenous variables, financial performance and customer satisfaction have been explained by 26% and 35% for a
substantial portion of the variance of the model. In all five proposed hypothesizes, only H1b and H3 are statistically
significant which has reflected the impacts of managerial capability on customer satisfaction and of customer
satisfaction on financial performance in the Chinese lodging industry. The results can be explained that the top
management team of hotel need to be well trained and beware of the potential threat and opportunities in the industry,
which might help them to further understand the customers need and increase the customer satisfaction. Additionally,
the results of the study has provided evidence empirically that the customer satisfaction will enhance the organizational
performance, where the similar results can be found in the previous literatures.

Managerial Financial
Capability 0.21 H1a Performance
R2=0.26
0.44* H2a
*
H3 0.50***
0.01 H1b

Organizational Customer
Culture 0.18 H2b Satisfaction
R2=0.35
Figure 1: Path Coefficients for the RBV model

Path Coefficients for the RBV model. Predictive power was examined by using R 2 for each endogenous variable. R2 value for the structure model. *
and *** indicate significance at 0.05 and 0.001 levels, respectively. * p<0.05; *** p<0.001

Given the fact that the results of the study has shown that a hotels managerial capabilities and organizational
culture has no direct impact on its financial performance, the findings might be disappointed but crucial. Strategically
speaking, managers today in the hotel industry have to recognize the mobility of hotel operation, know-how or training
program can be easily imitated by one hotel to another. The true dangerous of ignoring the development of inimitable
and non-transferable internal resources might cause difficulty for hotel to create their competitive advantage or
outperform from their rivals.

The Journal of International Management Studies, Volume 7 Number 1, April, 2012 155
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