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Corporate Culture and Its Relation to Performance: A Comparative Study of Taiwanese and U.S. Manufacturing Firms
by Chee W. Chow, College of Business Administration San Diego State University, San Diego, USA, Kamal M. Haddad, San Diego State University, San Diego, USA and Anne Wu, National Chengchi University, Taipei, Taiwan, R.C. Abstract This study contributes exploratory evidence on the relationships between corporate culture and company size, competitive environment and corporate performance in the U.S. and Taiwan. The findings indicate that environmental uncertainty one aspect of industry dynamics failed to uncover any widespread effects of this variable on Taiwanese firms corporate culture. In contrast, not only did we find that the corporate cultural aspects most valued differed from country to country, but that they related to corporate performance in different ways. 1. Background Corporate culture is widely held to affect various corporate performance outcomes, and hundreds of articles have been published on the subject. However, much of the extant writing is speculative rather than based on systematic, scientific evidence. This study contributes empirical evidence aimed at improving understanding of the determinants of corporate culture and its link to performance. Specifically, we: (1) explore the potential influences of company size, national culture and environmental uncertainty on corporate culture; and (2) examine cross-national differences in the relationship between corporate culture and performance. Data collected from manufacturing companies in Taiwan and the U.S. are used to inform this inquiry. By and large, available empirical evidence has supported the existence of a corporate culture-performance relationship (Calori & Sarnin, 1991; Denison, 1984; Gordon, 1985; Gordon & DiTomaso, 1992: Kotter & Heskett, 1992). The reported links are, however, neither consistent nor as strong as most of the speculative work would suggest. Gordon and Christensen (1993) observe that some of the inconsistencies across studies may be due to differences in methodology, as well as the inclusion of different industries in a given study. Because industries place different demands and constraints on their members (Porter, 1980), companies in the same industry tend to develop common responses (an industry recipe) to the managerial uncertainties that they face (Spender, 1989). A significant aspect of these industry recipes is the existence of widely shared assumptions which Schein (1985) has characterized as the essence of organizational culture. Consistent with this view, Gordon (1991) has argued that the environment which an industry creates forces companies within it to adopt certain cultural values in order to survive.

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That corporate culture differs systematically across industries has been empirically demonstrated in a number of studies (Chatman & Jehn, 1994; Gordon & Christensen, 1993; Phillips, 1991; Spender, 1989). Evidence also has been reported that industry moderates the corporate culture-performance link (Gordon & Christensen, 1993). These findings have advanced understanding of the determinants and performance effects of corporate culture. But they leave unanswered the applicability of extant results across national boundaries. This is an important question in the increasingly globalized economy of today because there is considerable evidence that people of different national origins have different preferences for, and reactions to, management practices and processes (Adler, Doktor & Redding, 1986; Bartlett & Ghoshal, 1989; Child, 1981; Hofstede, 1984, 1991; Lincoln & Kalleberg, 1990). Thus, while some aspects of corporate culture may enhance performance in one national setting, they may not be effective, and may even be dysfunctional, in another (Chow, Kato & Merchant, 1996; Hofstede, 1984; Lincoln & Kalleberg, 1990; Steers, 1989). Several studies have empirically explored the effects of national culture on corporate culture (Hofstede et al., 1990; Soeters & Schreuder, 1988; Schneider, 1988). But scant attention has been directed at the potential moderating effects of national culture on the linkage between corporate culture and performance. We are aware of only one study in which this relationship has been investigated outside the U.S. (Calori & Sarnin, 1991), but the data collected there are not directly comparable to those collected in any of the other studies. In the current study, data on corporate culture and performance are collected from manufacturing companies in Taiwan for comparison to a sample of U.S. manufacturing companies. The U.S. data were not collected with the current study in mind, thereby limiting areas of comparison with Taiwan. Nevertheless, the available data still provide useful insights into a number of issues that have not been addressed and ones that have not been subject to much empirical investigation. 2. Method 2.1 Instrument Corporate culture was measured using the Survey of Management Climate (Gordon & Cummins, 1979), which has been translated into a number of languages and employed by Hay Associates, an international consulting firm, in a number of countries (Grey & Johnson, 1988; Grey & Thone, 1990; Grey & Gelfond, 1990). Eight independent dimensions of corporate culture have been derived from this survey instrument (Gordon & Chistensen, 1993) which correspond to cultural values described in the literature. Table 1 presents brief explanations of the eight dimensions and the survey items that they comprise. Selected other company information (size, performance and the competitive environment) were collected with a separate instrument. The items that make up this second instrument are provided in Table 2.

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TABLE 1: Corporate Culture Scales (with Components) Obtained from the Literature 1. Planning Orientation
Extent Extent Extent Extent Extent to to to to to
Scale Name Description

This element emphasizes managing in a planful manner and avoiding surprises. goals provide a useful context for the firms everyday functioning planning for the achievement of goals is formal company has clear goals company has defined plans to meet its goals planning for the achievement of goals is complete

Scale Components:

2. Innovation

which which which which which

This indicates the extent to which individual managers are encouraged to take risks and innovate.

Scale Components:

3. Aggressiveness/Action Orientation

Extent to which managers are encouraged to be innovative Extent to which managers are encouraged to take reasonable risks Extent to which managers are free to act independently An emphasis is placed on getting things done, being a pacesetter rather than a follower.

Scale Components:

4. People Orientation

Whether or not company is a pacesetter Timeliness of decision making Innovativeness of decision making Overall vitality: sense of urgency and rapid pace of activities Responsiveness to changes in business environment A strong emphasis is placed on concern for and growth of current employees.

Scale Components:

5. Team Orientation

Success in developing people from within for bigger jobs Opportunities for promotion within the company Breadth of internal searches to fill a management vacancy Opportunities for individual growth and development This refers to the extent that people are encouraged to cooperate and coordinate within and across units.

Scale Components:

6. Communication

Clarity of managers understanding about the interrelationships of their own jobs with those of others Extent to which various units truly cooperate with one another Extent to which various units understand each others objectives and goals This involves an openness to communicate and allowing others to be knowledgeable thus enhancing the possibility of participation.

Scale Components:

7. Results Orientation

Awareness of events happening in other areas of the company which might affect how jo is done Quality of communications downward from above Quality of overall communications Quality of lateral communications from people at the same organizational level An emphasis is placed on holding people accountable for clear and demanding end results.

Components:

8. Confrontation
1

Personal accountability for end results Clarity of expected end results Clarity of the yardsticks used to judge managerial performance Demands for high levels of performance This involves addressing issues openly instead of burying them.

Scale Components:

Extent to which constructive criticism is encouraged Extent to which open discussion of conflicts is encouraged Taken from Gordon and Christensen, 1993

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Size: Environmental Uncertainty:

Table 2: Items on Company Information Survey

Most recent annual sales.  A. Intensity of industry competition for raw materials B. Intensity of industry competition for manpower C. Number of new products/services marketed in industry in past 3 years D. Dynamism of economic and technological environment E. Extent that competitors activities have become less predictable in past 3 years F. Extent that customers tastes have become less predictable in past 3 years G. Extent that legal, political and economic constraints have proliferated in past 3 years H. Frequency of the emergence of new technologies in the industry I. Frequency of the emergence of new products in the industry

Company Performance:
2

J. Long run level of firm profitability K. Growth rate of sales or revenue L. Financial strength 1 Adapted from Khandwalla (1977). Response scale: 1= Of negligible intensity, 7= Extremely intense. Adapted from Gordon and Narayanan (1984). Response scale:1= Very low, 4= About average, 7= Very high.

2.2 Sample and Procedure Referrals to 35 manufacturing firms in Taiwan were obtained from several large Taiwanese accounting firms. The nature of the study was explained to the top management of each company and all agreed to participate. A contact from each company was sent a packet of both survey instruments for distribution within his/her company. Each company received 23 corporate culture and five company information questionnaires. Envelopes were provided with the surveys so that respondents could seal them for anonymous return. Two weeks later the companies were re-contacted to collect the completed forms. A total of 407 (50.6% response rate) completed corporate culture questionnaires and 116 (66.3%) company information questionnaires were collected. All 35 companies provided usable data on both questionnaires. The firms in this set varied in sales from US$313,000 to over US$3 billion. All of the companies engaged primarily in manufacturing, and covering wide range of industries. Data on 50 U.S. manufacturing firms were obtained from the Gordon and Christensen study (1993) for comparison with the Taiwanese firms where possible. Only the corporate culture questionnaire was administered in the U.S. firms. In these companies, all individuals in the top 4-5 levels of management were surveyed, so that company means were based on considerably larger numbers of individuals. 3. Results 3.1 Reliabilities The subject of reliability in this study has two aspects. First, since the unit of analysis in this study is companies and not individuals, it is important to assess whether responses from individuals within a company are sufficiently similar so that their mean will reflect

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the true central tendency of the company. The second issue is the more traditional one of the reliability of the scales created: Do they measure coherent phenomena or are some of the items within a scale unrelated to others? To address the first issue, coefficient alphas were computed within each company treating individuals as items, and questions as people. Thus the alphas reflect the average degree of agreement between all pairs of people computed across all culture items. Because of low reliabilities, two companies in Taiwan were eliminated from any further analyses. In the remaining companies, a small number of individuals were eliminated because their inclusion significantly lowered the alpha for the company. The alphas for all companies retained in the sample were in the acceptable range of .60 or above suggested by Nunnally (1967). Coefficient alphas also were computed for the corporate culture scales for the U.S and Taiwan. All of the U.S. reliabilities were in the acceptable range and are generally higher than those obtained in Taiwan. The Taiwanese reliabilities all exceed the .60 cutoff except that for Confrontation (alpha =.54), which is problematical. We can only speculate on the reasons for the lower reliabilities in Taiwan. One possibility is that the societal value structures are not as amenable to measurement by a system developed in the U.S.. For example, Hofstede and Bond (1988) reported some substantial differences in strength of values across countries. But there was no indication that the actual value structures were different, although that possibility may not have been investigated. Since the present scales reflect the cultural issues that had been discussed in the literature and not factorial purity, it is only the low reliabilities themselves that suggest that the structure of corporate culture may be different in Taiwan. The main problem with the low reliabilities is that they will tend to attenuate any observed relationships with environmental uncertainty or performance that are ultimately computed. 3.2 Correlates of Corporate Culture Firm Size As was noted earlier, the companies in our sample varied widely by size both within and between countries. Because size has been found to influence many organizational characteristics, including culture (Hofstede, et al. 1990), it was important to determine its influence so that the effects of size would not be erroneously attributed to national culture. Using current annual sales as a measure of size, a logarithmic transformation was performed to make the distribution more normal in form. Sales figures were not available for the sample of U.S. firms from Gordon and Christensen (1993), and the number of employees was used as a surrogate for size. Correlations between firm size and the eight corporate culture scales within each country are presented in Table 3. For purposes of corporate culture research, Gordon and Christensen standardized the question responses within each company. In this way when companies are compared on a value, they are compared on the basis of how intensely the value is held when measured against the other values. This centering process within each company helps to eliminate the effect of morale or satisfaction which would tend to raise or lower responses across all questions within a company. It was adopted in this study as well.

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Table 3 Correlations of Company Size with Corporate Cultural Values by Country

Corporate Culture Scale Taiwan U.S.

Planning Innovation Aggressiveness People Orientation Team Orientation Communication Results Orientation Confrontation Number of Companies **p<.01 ***p<.001

.59*** -.48** .01 -.20 -.22 -.07 .29 -.16 33

.36** -.24 -.36** .23 -.05 .25 .00 -.24 50

There are clear, though not always consistent relationships between size and culture across the two countries. Emphasis on Planning is stronger in larger companies in Taiwan and the U.S. It is not difficult to conclude that where there are thousands of employees, multiple units, and perhaps even multiple businesses involved, there is a much greater need to have plans formalized so that budget allocations and capital expenditures can be addressed to the areas that can make best use of them. Interestingly, for the same reasons one might expect greater values for communication in larger companies, but such was not the case. The negative correlation between size and Innovation in Taiwan also seems intuitively correct, since smaller firms would be less likely to have rules and procedures covering most situations. The correlation is in the same direction in the U.S., and is close to significance (p10). Larger firms place lower values on Aggressiveness in the U.S., but no such trend is found in Taiwan. Aggressiveness refers to quick-moving and pacesetting in the marketplace, characteristics that have often been associated with smaller firms. Why this relationship was not found in Taiwan is not known, but could relate to the lower variability and larger mean size found there. None of the other corporate culture scales show relationships at the .05 level of significance. On the whole, then, the different relations between firm size and corporate culture in the two countries suggest the existence of other influences on the latter. Based on our earlier discussion, a likely such factor is the environmental uncertainty facing a company. Environmental Uncertainty To determine the possible influences of the industry environment on corporate culture, we created an Environmental Uncertainty scale by summing the responses of items A

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through I (Table 2). The Cronbach Alpha reliability for this scale was .85 for Taiwan. The U.S. was not included in this analysis since the uncertainty data were not collected there. Given the relationships between size and corporate culture, we computed partial correlations to control for size as well as simple first order correlations. Since size effects had been detected for Planning, Innovation and Aggressiveness, the partial correlations are most relevant for them, while the first order correlations are most appropriate for the other corporate culture aspects. Correlations were computed for Taiwan and the results are presented in Table 4.

Table 4: Partial and First Order Correlations of Environmental Uncertainty with Corporate Cultural Values in Taiwan
Corporate Culture scale Partial Correlations First Order Correlations

Planning

+ + +

.05 -.13 .24 .01 -.10 .00 -.09 .11

.18 -.23 .23 -.04 -.15 -.02 -.01 -.15 33

Innovation

Aggressiveness

People Orientation Team Orientation Communication Results Orientation Confrontation Number of companies

30

: Sample sizes vary due to missing data. * p<.05 **p<.01 ***p<.001 + Scales which were significantly correlated with size

As table 4 indicates, the correlations are essentially zero and environmental uncertainty had no widespread effects on corporate culture. This finding may imply that environmental uncertainty has no major impact on the set of corporate values and practices needed for success. But given prior findings on the existence of industry cultures, this conclusion may be premature. Since the current study was limited to a small number of manufacturers, it may not have investigated a broad enough sample of industry environments to provide sufficient variation on the uncertainty measure. 3.3 Cross-national Differences in the Corporate Culture-Performance Relationship Our final set of analysis examined the relationships between corporate culture and performance within each country. The performance scale was constructed from two out of the three items listed under this heading in Table 2, namely, long-run level of profitability and financial strength (liquidity and ability to raise financial resources). We attempted to include the question on long term growth, but it did not correlate with the other questions to be acceptable as a stand-alone criterion. Scale averages were computed for each firm across items and respondents, thus producing a summary performance score for each company. The reliability of the performance scale was .66 for Taiwan.

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Within Taiwan, the eight corporate culture scale scores for each company were correlated with the performance score. Table 5 presents the results. This table also provides similar correlations computed from U.S. manufacturing firms included in the Gordon and Christensen (1993) study. For the U.S. sample, performance was computed as the postsurvey, average three-year percent growth in revenues, minus the corresponding average industry percent growth. Thus, the U.S. performance measure reflected an actual formula manipulation of yearly results whereas for the Taiwanese firms, performance consisted of senior management reports of their firms current performance relative to its competition. Another difference was that the U.S. data focused on revenue growth, whereas the Taiwan data focused on profitability and financial strength. Table 5 shows both areas of consistencies and differences which support the importance of national culture. There are multiple significant relationships in both Taiwan and the U.S. In the U.S., there appears to be a complex of related corporate culture values that are negatively associated with performance, namely those that deal with treatment of people, teamwork and communications. For the Taiwanese firms, five of the eight corporate culture values are significantly related to firm performance. Interestingly, Communications is not among them. Two of the significant Taiwanese relationships overlap those in the U.S., namely a strong value for Aggressiveness and a weak value for People Orientation. But there also are areas of divergence. Whereas Taiwan yielded a positive relationship with Planning, these relationships are negative for the U.S.

Table 5: Correlations between Corporate Culture and Performance

Corporate Culture Scale Planning Innovation Aggressiveness People Orientation Team Orientation Communications Results Orientation Confrontation Number of companies * p<.05 **p<.01 p<.001
Taiwan U.S.

.42* -.44** .40* -.42** .17 .08 .09 -.43** 33

-.18 .22 .38* -.52** -.38* -.37* -.25 0.00 47

On the other hand, Taiwan had negative relationships with Innovation and Confrontation, and both relationships are positive in the U.S.). 4. Discussion and Conclusions This study has contributed empirical evidence on the relationships between corporate culture and company size, competitive environment and corporate performance in the U.S. and Taiwan. Our analysis of environmental uncertainty one aspect of industry dynamics failed to uncover any widespread effects of this variable on Taiwanese firms corporate culture. This finding may imply that environmental uncertainty has no major impact on the set of corporate values and practices needed for success. But given prior

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findings on the existence of industry cultures, this conclusion may be premature. It may be that the current studys small sample size (firms and industries) had limited the range on the uncertainty measure. Future studies are needed to explore the impact of this factor on the results. In contrast, not only did we find that the corporate cultural aspects most valued differed from country to country, but that they related to corporate performance in different ways. This finding is a useful addition to the literature because while the linkage between national and corporate cultures has been suggested by others (Adler & Jelineck, 1988; Hofstede, 1984; Rieger & Rieger, 1984; Schneider, 1988), there is a lack of empirical data for forming firm conclusions on this proposition. Indeed, Hofstede and his coauthors who initially seemed to come to that conclusion (Hofstede & Bond, 1988), later minimized the national influence (Hofstede, et al., 1990). To the extent that the findings of this study are valid, they suggest the need for caution in applying corporate culture findings across national borders. It is clear that the study has many limitations, not the least of which is the size and nature of the samples. There also are limitations to the comparisons of the measurements across countries, especially between the U.S. and Taiwan. Corporate performance had to be defined in different ways, the individual company samples tended to be much larger in the U.S. than in Taiwan, and the applicability of the corporate culture questionnaire that is developed in one culture may not fit another. The practical difficulties of mounting a study where data must be collected from multiple employees within a company, yet each company represents only one observation are daunting, so much so that Siehl and Martin (1990) have suggested that such studies not be attempted. When viewed in this context, despite this studys limitations, it has provided the first empirically-based information concerning cross-national culture/performance relationships as well as expanded the available knowledge of cross-national organizational culture differences. To conclude, findings on the factors that constrain and/or influence both corporate culture, as well as the relation between corporate culture and performance, can be of great value to corporate executives in the current global economic environment. The current study has provided some findings on these relations. However, beyond ascertaining whether cross-national differences exist in the link between corporate culture and performance, it is important to explain the dynamics of this moderating effect. There is much yet to be learned about why particular aspects of corporate culture seem to be performance-relevant in one country and not another, and in different directions in some cases. Discovering the drivers of variations in these relationships can enable corporate leaders in all countries to better identify desirable changes in corporate culture and how to achieve them. Acknowledgements The authors are grateful to Dr. Qingliang Tang, and to two anonymous reviewers for their constructive suggestions.

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