Running Head: ORGANIZATIONAL CULTURE
Organizational Culture:
A look at its history and its effects on retention, satisfaction, and performance
Leigh Eskin
Florida State University
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Organizational Culture:
A look at its history and its effects on retention, satisfaction, and performance
The culture and values of an organization completely change the nature of the job
and environment within that organization. There may be a relaxed environment with
supportive managers and encouraging mentors, or there might be a stressed environment
with angry bosses and frustrating politics. Organizational culture is the key that depicts
the environment of the organization, and the quality of the employees that work there.
Human Resource Managers, as leaders that can help instigate this culture, need to be
knowledge and attuned to the effects that organizational culture can have. This paper will
explore the history and implications of organizational culture including its impact on
employee retention, job satisfaction, and commitment to organizational productivity.
Organizational culture is a topic that has been widely researched and given much
attention in recent years. There have been many noted beginnings to organizational
culture, and one article indicates that the “link between workplace attitudes and
productivity” goes back to the Hawthorne Studies conducted in 1939, and also the human
relations movement (Judge, Thoresen, Bono & Patoon, 2001, p. 376). The more recent
rise in the research on organization culture is said to have stemmed from an examination
of Japanese firms in the 1970s and 80s that appeared to have superior organizational
characteristics (Ouchi & Wilkins, 1985). From this observation, literature arose that
examined the effects of different cultures in corporate organizations, thus leading to an
exploration of the differences in organizational culture (Ouchi & Wilkins, 1985). There
was also a discussion that the study of organizational culture is rooted in sociology, and
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that this study is dominated by behavioral scientists in the United States (Ouchi &
Wilkins, 1985). Nerveless, the study of organizational culture continues to be important
today, and the features that make a positive environment will be further discussed.
Many theorists have shed light on what they think constitutes a positive work
environment. An article discussed the cultural framework purposed by Beer (1980),
where four components of organizational culture were described. These components
centered on people: the values, needs, and expectations of employees; the process: the
behavior, attitudes, and interactions in the organization; the structure: the formal
procedures such as job evaluation systems; and the environment: the amount of
competition and values in which the organization operates (Chatterjee, 2009). These are
important categories to think about because each one gives implications that can lead to a
positive or negative work environment or organizational culture.
Another method of conceiving culture is with the use of Hofstede’s (1980)
definition, which is that culture exists as a result of the organization’s presence within a
certain society (Wallace, Hunt & Richards, 1999). In an analysis of over 88,000
respondents from 66 countries, Hofstede found that there are four discrete dimensions of
culture: Individualism, uncertainty avoidance, power distance, and masculinity.
Individualism entailed self interest versus group interest, uncertainty avoidance was that
certain people minimize uncertainty while others are tolerant of ambiguity, power
distance referred to the relationship between the employee and manager as being close or
distance, and finally masculinity is defined as being assertive or ambitious versus being
caring or nurturing (Wallace, Hunt, & Richards, 1999). In thinking about organizational
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culture, it is helpful to know and consider these constructs when measuring its impact on
employee and job performance variables. Additionally, organizational culture is found to
be based on four traits: involvement, consistency, adaptability, and mission (Denison &
Mishra, 1995). In fact, each of the four cultural traits yielded significant positive
associations with organizational effectiveness (Denison & Mishra, 1995). Overall,
organizational culture and its effects on job outcomes is a very important concept to
consider when considering employee retention, satisfaction, and commitment to top
performance.
There are also key differences in the organization cultures of public versus private
organization within these four areas. The employee’s needs and expectations may be
similar, but the environment is sure to be different in factors such as competition and
financial constraints. The majority of research on organizational culture and work
motivation is concentrated heavily on the private sector (Manolopoulos, 2008). When
thinking about organizational culture, work motivation is a key element because the
culture will encourage or discourage certain kinds of employees. Public managers need to
think deeply of work motivation, specifically extrinsic and intrinsic motivation operates
and impacts employee’s performance (Manolopoulos, 2008). Intrinsic motivation occurs
when employees are motivated internally, such as with achievement and challenge.
Extrinsic motivation occurs when employees are motived externally by incentives such as
money, benefits, and awards. The failure to understand what motives public employees
can not only lead to poor performance in the short term view, but can also lead to
“permanent displacement of a public sector ethic” in the long term (Manolopoulos, 2008,
p. 63).
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A study that looked at the aspects of organizational culture specifically in public
organizations had some interesting findings, and also included an example of how culture
changed in public organizations. They found that training and leading by example is
helpful for promoting cultural awareness and binging about a cultural change in public
organizations (Shraeder, Tears & Jordan, 2005). The article highlights similarities and
differences between cultures in public and private organizations. Through their findings,
it became apparent how important training and leading by example is in guiding public
employees through the complex culture in these organizations (Shraeder, Tears & Jordan,
2005). There are indeed similarities between the culture of private and public
organizations, but the differences appeared to create unique challenges for managers who
are trying to make change. Changing an organization takes a long time, and managers
need to recognize that change might anger or frustrate employees. However, providing
training and leading by example in the changing organizational culture should help with
these difficulties (Shraeder, Tears & Jordan, 2005). Communication plays a powerful
role, and the importance of adapting to new organizational cultures, especially in public
organizations, should not be downplayed. Overall, there is a lengthy history to
organizational culture, many dimensions discussed, and implications with public sector
versus private sector organizations.
Employee retention will be the first effect of organizational culture discussed.
With the changing times and global economy, retention is becoming a large concern for
organinzations. No longer are employees loyal to one company, and so it is becoming
crucial that companies find the best people for their organizations that can blend into their
culture (Chatterjee, 2009). Individuals are quick to leave and look for other opportunities
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if they feel they are in a poor organizational climate. An additional problematic finding is
that with the poor economy, there are many candidates to choose from, but there is a lack
in the quality of these candidates (Chatterjee, 2009). Again, it is therefore imperative that
organizations find good employees, and take steps to maintain those high performers.
It can be concurred that organizational culture has a large effect on employee
retention. In a study that looked at six public accounting firms, the researchers examined
three companies that had a culture that emphasized the “interpersonal relationship values
of team orientation and respect for people” (Sheridan, 1992, p. 1050). The other three
organizations had a culture that emphasized “work task values of detail and stability”
(Sheridan, 1992, p. 1050). Interestingly, professionals that were hired in the firms that
emphasized the interpersonal relationships ended up staying with that company 14
months longer than those individuals who were hired in firms that emphasized work-task
values (Sheridan, 1992). Not only does this finding indicate that certain organizational
cultures can directly lead to employee retention, but it also gives implications of how
important relationships are in the workplace.
Additionally, employee retention is especially important to consider because there
are financial implications. When there is high turnover in an organization it affects the
performance of the workers remaining there, and also adds a financial drain on the
organization (Chatterjee, 2009). The article discussed above that touched on the different
company’s organizational cultures also conducted an analysis of the opportunity cost.
Essentially, when organizations spend money to hire someone who then decides to leave
because of poor organizational cultural fit, there is a great deal of money that is wasted
on that hire. The researchers argue that a good human resource strategy should include
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the cost of replacing employees who leave with those who stay (Sheridan, 1992). From
the evidence, the researchers seem justified in concluding that the variation in employee
retention in different organizations is related to the cultural values within that
organization (Sheridan, 1992). In other words, the culture of an organization directly
impacts employee retention and turnover rates. Research has indicated that there are
certain strategies that result in climates that foster commitment and retention among
employees (Sheridan, 1992), and some climates that discourage employees. These
different climates, as discussed above, were ones that fostered teamwork and
interpersonal values rather than simply work values. Very interestingly, in this study the
opportunity cost of having a good organizational culture that encourages employees to
stay was six to nine million dollars (Sheridan, 1992). That is a huge amount of money
that companies can save just by having a rewarding climate in their organization. It costs
about $44,000 for each new employee in terms of recruiting, interviewing, and training,
and so the firm that emphasized interpersonal relationship values did not have to spend
nearly as much as the firm that emphasized work task values (Sheridan, 1992). These are
some very fascinating and practical implications to contemplate, and many organizations
should consider the opportunity cost and value of employees when thinking about their
company climate.
Additionally, there have been some interesting statistics on the effects of
organizational culture on employee retention. In another study that examined
organizational culture on employee retention, it was found that 74% of the participants
felt that a good two-way communication increased their satisfaction in that organization
(Chatterjee, 2009). Essentially, good communication increased the trust in that
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organization, and thus led to an increase in employee’s commitment to that organization.
Furthermore, in this study, 100% of the participants agreed that organizations should
devise a process to retain good employees, and 82% of the participants felt that working
long hours was the most negative cultural aspect of an organization (Chatterjee, 2009).
Strict rules and always reporting to managers were also major concerns of employees
(Chatterjee, 2009). These are all factors to consider with organizational culture, and so
having a climate where all the employees are expected to work overtime would not be
favorable to employee retention.
In order to maintain employees in an organization, managers play a role as well.
They impact the organizational climate, and so there are many things they need to do and
to consider. Managers need to understand the current organizational culture in order to
realize its implications on employee retention (Chatterjee, 2009). They need to prioritize
to understand the strengths and weakness, and ensure proper communication. From the
research, it was found that good two-way communication ensures that employees and
managers are aware of issues. This awareness and communication will lesson the
confusion and rumors in an organization that could stint the growth of the cultural goals
(Chatterjee, 2009). Finally, managers have to understand how their organization is
different from others, especially private versus public organizations. As discussed above,
public and private-sector organizations face different challenges, and so managers and
leaders need to be aware of these differences. They need to do this so as to ensure
employee retention and consider strategies specific to their situation and culture
(Chatterjee, 2009).
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Additionally, while in this paper employee retention, job satisfaction, and
organizational commitment are looked at separately, they all do affect each other. High
turnover leads to lower productiveness, higher costs and so potentially less pay for
employees, and overall disruption to the organization (Koh & Elfred, 2004).
Organizational ethics can enhance job satisfaction and organizational commitment, which
in turn, reduces turnover and absenteeism (Koh & Elfred, 2004). Overall, organizational
culture has a large impact on employee retention, and a positive corporate climate can
encourage high performers to stay, and in turn, increase the revenue and productivity of
that organization.
Organizational culture not only has an impact on employee retention, but it also
impacts the job satisfaction of the employees. One aspect of organizational culture that is
important to consider are values. There is a strong link between the climate of an
organization and the values endorsed within that company (Wallace, Hung & Richards,
1999). Basically, there can be positive and negative climates in an organization that serve
to impact employee’s job satisfaction. In thinking about organizational climate, there are
some differences between that and organizational culture. While climate and culture are
related, the climate of an organization is seen as being influenced by that organization’s
culture and the perceptions of employees at the organization (Hicks & Iles, 2000). In
other words, the culture is what affects the client, and so there is a causal relationship
rather than two synonymous terms. It was found that the priorities set by the managers
and leaders in an organization in terms of attitudes and behaviors had the largest impacts
on the organizational climate (Hick & Iles, 2000). When managers allowed employees to
do work that was challenging, interesting and involved teamwork, that yielded positive
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job satisfaction for the employees (Wallace, Hung & Richards, 1999). On the flip side,
managers who did not endorse these features, or did so in too high of a degree (too
challenging) yielded negative results and low satisfaction for employees (Wallace, Hung
& Richards, 1999. Hence, the corporate climate that is reinforced by managers and
leaders plays a very significant role in employee’s job satisfaction at that organization.
The “fit” of an organization is another important component to consider.
Organizations try to hire employees whose goals and values fit with the organization to
get the best results (Mastaler, 1999). Most firms will hire individuals whose personal
values make them a good “fit” with the firm’s culture, rather than person-organization (PO) “misfits” (Sheridan, 1992, p. 1051). These “misfits” may be people whose values are
not aligned with an organization, and so if someone wanted to work at Wall Street, for
example, and they were more laid back than competitive, they may be labeled as a
“misfit”. Additionally, something to consider is the fact that job-related skills play a role
in the way recruiters search through applicants, but the culture and values of an
organization are listed among the most important factors (Mastaler, 1999). While an an
organization is looking for a good “fit” in the employee, many organizations are finding
that they need to change their culture so as to fit the new generational group. This
concept of fit is very important, and is likely the reason why employees stay longer at
certain organizations than other. Stronger performers stayed 14 months longer in the
organizations that emphasized culture work-tasks values (Sheridan, 1992), presumably
because these employers found the “fit” between themselves and the organization to be
better. Thus, because of the improved fit, the employees experienced higher levels of job
satisfaction and enjoyment in their work environment.
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Furthermore, there is a strong relationship between job satisfaction and job
performance. A positive organizational culture leads to higher job satisfaction, and so job
satisfaction may lead to higher job performance. A study looked specifically at the link
between these two variables. The researchers identified seven ways in which these
concepts are related, and a few will be touched on below. First is the notion that job
satisfaction causes higher job performance (Judge, Thoresen, Bono & Patoon, 2001). In
this question there is a causal element, and while some of the findings were inconclusive,
global job satisfaction did correlate significantly. In looking at this concept the other way
around, there were some interesting discoveries. Job performance, in at least 4 studies
conducted, did cause job satisfaction (Judge, Thoresen, Bono & Patoon, 2001). There
were statistically significant effects, however, other studies conducted did not find
conclusive results (Judge, Thoresen, Bono & Patoon, 2001). The data is somewhat
inconsistent, but the results do shed light on the possibility of a causal effect of job
performance on job satisfaction. In further looking at the research, it was found that
positive emotions at work led to good job outcomes, which indicates that positive
emotions is related to motivation in the workplace (Judge, Thoresen, Bono & Patoon,
2001). Additionally, high levels of job satisfaction are determinants of improved financial
performance (Koh & Elfred, 2004). The more that an employee is satisfied at work, the
better they will do. Thus, the improved work ethic will lead to greater financial gains for
the organization, all because of a positive organizational culture.
Furthermore, organizational ethics plays a role in the effects of organizational
culture on job satisfaction. While organizational ethics dates back hundreds of years, with
corporate scandals and organizational failures on the rise, there has been a higher degree
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of attention on this subject area (Koh & Elfred, 2004). In an article that focuses on the
relationship of organizational ethics on employee satisfaction, it was hypothesized that
ethics are very positively associated with employee attitudes (Koh & Elfred, 2004). The
link between ethics and job satisfaction can be explained through two theories:
organizational justice and cognitive dissonance. Organizational justice theory entails that
employee’s perceptions of the justice at an organization impact their job attitudes and
satisfaction (Koh & Elfred, 2004). Cognitive dissonance theory sheds light that
individuals try to minimize dissonance in their lives. Assuming that employees try to be
ethical, if they perceive that their managers are not supporting ethical behavior, they will
have negative feelings towards the organizational climate (Koh & Elfred, 2004). In turn,
this unfavorable attitude will reduce their job satisfaction (Koh & Elfred, 2004).
These findings reveal that ethics is indeed important to many individuals. If
employees feel that an organization is not being managed ethically, their perceptions of
low justice and their experience of cognitive dissonance will cause them to have lower
respect for that organization (Koh & Elfred, 2004). In tern, this lack of respect will lead
employees to be less satisfied with their work and with the company they are working
for. Additionally, when there are problematic events in a company, organizational justice
and ethics can lead to more constructive behavior and less destructive behaviors (Koh &
Elfred, 2004). That means that in times of crisis, employees who feel their company is
more ethical will be more loyal than neglectful in handling the situation. Ultimately, the
evidence has revealed that higher ethical organizational cultures are associated with
higher levels of job satisfaction in the workplace. Overall, the organizational culture and
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climate are imperative components that have an impact on employee’s satisfaction at
work.
A final aspect of consideration is the effect that organizational culture has on
commitment and performance. Organizational commitment is a state that characterizes
the employee’s relationship with the organization (Lok, 1999). This commitment impacts
an employee’s desire to continue with an organization (Lok, 1999). Additionally, it is
apparent from an analysis of different studies, that corporate culture and the
organizational commitment of the employee impact the performance of those workers
(Lok, 1999). In thinking about performance, employees who are more experienced and
educated have more potential to be productive (Manolopoulos, 2008). These individuals
perceive performance as related to many motivators, including extrinsic and intrinsic
motivation for their performance (Manolopoulos, 2008). It is important to consider the
meaningfulness of jobs and opportunity for creativity and personal advancement for these
higher achieving individuals.
Additionally, literature reveals that corporate culture and organizational
commitment has an impact on performance in the workplace (Zabid, Sambasivan &
Johari, 2003). Therefore, culture can increase organizational commitment and promote
success (Zabid, Sambasivan & Johari, 2003). These are important concepts for managers
especially to consider. The findings reveal that performance is impacted by the
organization culture, and that managers should shape corporate cultures that are more
beneficial to employees in that setting (Zabid, Sambasivan & Johari, 2003). As discussed
earlier in the paper, managers are also the most able to determine the values of the
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organizational culture. Their leadership styles will encourage or discourage certain
employment features (e.g. challenge, overtime) that will play a role in the overall
organizational culture. When hiring new employees, managers can find the individuals
who are the best match with the organizational culture. These candidates will yield the
best performance, and can motivate the employees with the appropriate type of
commitment in the organization (Zabid, Sambasivan & Johari, 2003). Again, that concept
of “fit” comes into play, and so employees that share the same values will likely have a
higher occupational commitment. However, some compromise may be in order to find
individuals who share the same values and goals.
The research also illustrates an example of this concept of matching
organizational culture with performance. If an organization has a culture that is
bureaucratic in nature, then the managers may consider changing the culture and then
choosing the commitment types for employees in the organization (Zabid, Sambasivan &
Johari, 2003). There will be inherent differences between organizations that are, for
example, competitive versus bureaucratic. Overall, this study gives a good overview of
the relationship between organization culture and performance, and gives suggestions to
enhance the manager role.
As discussed above, there are many ways in which organizational culture can lead
to organizational commitment. Past studies have defined organizational commitment as
the strength of an individual’s identification and involvement with a particular
organization (Koh, & Elfred, 2004). Organizational commitment is defined by three
factors, which are agreement of the organization’s goals and values, a willingness to exert
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effort for the organization, and a desire to maintain membership with that organization
(Koh, & Elfred, 2004). Certain measures that are related to these constructs are leadership
style, job satisfaction, and certain demographic information such as age, education, and
experience (Lok, 1999). Interestingly, it was found that innovative and supportive
organizational subcultures had a positive effect on commitment to an organization (Lok,
1999). However, a bureaucratic subculture had a negative effect on commitment, and the
differences in leadership styles also influenced commitment in the study (Lok, 1999). The
results also revealed that job satisfaction was the strongest association for commitment to
the organization (Lok, 1999). Overall, the subcultures of an organization and the degree
that there is support in that environment leads to higher commitment. There are many
factors to consider, such as age, years in positive, and intrinsic factors of motivation, that
all play significant roles in the level of commitment.
Moreover, there are three components of organizational commitment: the
affective or emotional attachment, the continuance or costs of leaving the organization,
and normative feelings of obligations to remain with the organization (Koh, & Elfred,
2004). Basically, employees who have affective commitment stay with a company
because they want to, and those with continuance commitment or normative commitment
feel that they out to (Koh, & Elfred, 2004). Greater job satisfaction leads to stronger
organizational commitment, because when employee’s needs are satisficed, they are more
likely to commit to that organization (Koh, & Elfred, 2004). Ethics is another essential
dimension of organizational culture, and when the top managements encourages an
ethical climate, it can lead to a higher job satisfaction and increased organizational
commitment (Koh, & Elfred, 2004).
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The literature also reveals that there is a relationship between the leadership at an
organizational and employee commitment. A particular study focused on the subculture
of an organization rather than the overarching organizational culture. They found that
there are both direct and indirect relationship between “perceived” leadership styles, the
corporate culture and subculture, and commitment (Lok, Westwood & Crawford, 2005).
Essentially, when employees at an organization identify with the subculture, and find it to
be supportive and innovate, it brings about a positive attitude about being a part of that
organization (Lok, Westwood & Crawford, 2005). In fact, the most important aspect of
the perceived subculture of an organization was the leadership style there. The findings of
this study can be used for practical use in encouraging leaders to promote positive
attitudes and behaviors so as to impact employee commitment (Lok, Westwood &
Crawford, 2005). What is called a “consideration style” is important in that it encourages
close and supportive interactions in which goals and values can be shared (Lok,
Westwood & Crawford, 2005). Subcultures are found to be very important, and
employee’s perceptions of these cultures greatly impact their desire to commit to an
organization and perform at their highest level.
Organizational attitudes, or the way that employees feel and think about
organizations, is also connected to diversity. A positive climate for diversity was found to
related strongly to positive organizational attitudes (Hicks-Clark & Iles, 2000). The
perception that an organization is just and has some flexibility predicts the commitment
that an individual feels for that organization. Additionally, perceiving support from an
organization is linked to future career satisfaction (Hicks-Clark & Iles, 2000). All in all,
the results confirm the importance of climate and diversity on retention, motivation, and
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performance (Hicks-Clark & Iles, 2000). Ultimately, organizational culture and
subcultures do impact the performance in that organization, and also the level of
commitment employees feel.
In conclusion, employee retention, satisfaction, and commitment are the result of
employees who feel they are in a positive organizational climate. The organizational
culture impacts the climate, and there are also subcultures to be considered as well.
Ethics, diversity and leadership all come into play when thinking about organizational
culture, and there are important differences to consider between public and private
organizations. While some findings may be inconclusive, it is important to note the
financial gains that can be made with having a good employee/organizational fit. There
are opportunity costs to be considered with turnover rates, and if workers do not feel job
satisfaction, their performance and commitment to stay with the organization will go
down. In order to maintain productive and loyal employees, organizations need to work
hard to ensure that there is apt motivation and the policies are just and fair (Hicks-Clark
& Iles, 2000). Overall, organizational culture is very important for all human resource
managers to consider, and its effects on employee retention, job satisfaction,
performance, and commitment should not be ignored. All Human Resource Managers
should be knowledgeable about what makes a good organizational culture, and aware of
the value of having a positive work environment.
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