Organizational Culture and Firm Performance A Comparative Study between Local and Foreign Companies Located in Ho Chi Minh City

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1 Organizational Culture and Firm Performance A Comparative Study between Local and Foreign Companies Located in Ho Chi Minh City Vo Thi Quy, International University VNU, Vietnam, vtquy@hcmiu.edu.vn Abstract The topic organizational culture has been researched often in Vietnam and other countries. In Vietnam until now the relationship between organizational culture, job satisfaction and firm performance has received little attention of Vietnamese researchers and practitioners. There is lack of comparative studies between local and foreign companies. This study investigates the relationship between organizational culture, job satisfaction, and firm performance in local companies and foreign companies located in Ho Chi Minh City. The study applied the Multifactor Culture Questionnaire, Firm Performance Index, Job Satisfaction Survey to gather data from local companies and foreign companies located in Ho Chi Minh City. 427 valid questionnaires were collected with 246 foreign respondents and 181 respondents from local companies. The results showed that both supportive culture and innovative culture have a significant and positive impact on job satisfaction and firm performance. The bureaucratic culture has no significant impact. There is a positive relationship between job satisfaction and firm performance. There is no difference between local and foreign companies in terms of innovative culture. For foreign firms, supportive culture is a stronger. For local firms the bureaucratic dominates. To improve job satisfaction and firm performance managers should emphasizes the positive supportive and innovative cultures. Keywords: Organizational culture; job satisfaction; firm performance; Ho Chi Minh City Introduction Blunt and Jones (1992), George and Jones (1996) and Zakaria (1997) argued that all organizations, everywhere, function within a specific culture. Organizational practitioners have been bedeviled by management problems having roots in the organizational culture resulting high performance. Ahiauzu (1986) commented that it is becoming increasingly widely accepted among social scientists, especially managers and organizational theorists that the patterns of management and employee behavior in the work place are largely culture-bound. There is indeed a growing body of literature concerning questions of cultural influences on organizational behavior and performance but that much of it is of poor quality consisting of anecdotes, prescriptions based on Western experience and fantasies. Thus there exists the problem of a dearth of research focusing exclusively on the impact of culture on organizational performance. This is the reason why this study was conducted. 45

2 Literature Review Culture does not have a uniform definition. Griffin and Pustay (1999) presented culture as a collection of values, beliefs, behaviors, habits and attitudes that differentiate societies. Kuazaqui (1999) argued that culture is a sum of behaviors, beliefs, habits and symbols that are passed from generation to generation. Schein (1992) considered that culture can be analyzed as a phenomenon that surrounds everyone all the time. Culture is constantly represented and created by our interaction with others (Schein, 1992). Organizational culture is the shared understanding of the beliefs, values, norms and philosophies of how things work (Wallach, 1983). According to Wallach (1983),there are three types of organizational culture, namely: (1) Bureaucratic, (2) Innovative, and (3) Supportive cultures. A bureaucratic culture is a very organized and systematic culture based on power and control with clearly defined responsibilities and authority. Organizations with this culture are mature, stable, structured, procedural, hierarchical, regulated and power- oriented; An innovative culture is a creative, result oriented, challenging work environment and is portrayed as being entrepreneurial ambitious, stimulating, driven and risk- taking; A supportive culture displays teamwork is people-oriented, encouraging, with a trusting work environment. Open, harmonious, safe, sociable, trusting, equitable, collaborative and humanistic are the characteristic of this culture. Wallach (1983) also stated that an employee is more engage in a job and realizes full potential when the motivation and the organizational culture match. This is very important in recruiting, managing, motivating developing and retaining employees (Wallach, 1983). Job satisfaction is the extent to which people like (satisfaction) or dislike (dissatisfaction) their jobs (Spector, 1997). Job satisfaction is relating to current work. This depends on how much of needs and wants are satisfied (Finn, 2001). Job satisfaction is multi facets including the employee feelings about different job elements, intrinsic as well as extrinsic. It includes specific satisfaction associated with pay, benefits, supervision, organizational practices, promotion, work conditions and relationships with co-workers (Misener et al, 1996). If operations add value to the original cost of resource inputs then a business organization can earn a profit that is, sell a product for more than making it. Value is created when an organization s resources are utilized in the right way, at the right time, and at minimum cost to create for customer high-quality goods and services. The best organizations utilized a variety of performance measures. On the customer side, high performing firms measure customer satisfaction and loyalty, as well as market share. On the employee side, they measure retention, career development, job satisfaction, and task performance. A common measure of overall performance is productivity, the quantity and quality of work performance, relative to resources used. Productivity can be measured at the individual and group as well as organizational levels. Koustelios (1991) reviewed a number of investigations correlating job satisfaction with organizational culture, and found that there is a significant difference in job satisfaction of employees who operate in different organizational cultures. Also, he found that when employees have a match between their present and desired cultures, they are more satisfied with the intrinsic aspects of their work. According to Wallach (1983) job satisfaction depends on a combination of the characteristics of an individual and the culture of the organization. An employee may be more effective when the culture of business related to a level of job satisfaction. The bureaucratic culture based on power and control that makes it difficult for employees to be satisfied because achievement motivation is limited. Employees are motivated to improve performance by having (Wallach, 1983).Bureaucratic culture has negative influence on organizational performance; bureaucratic culture generally has tight task orientation, weak connection, pays attention to rules 46

3 as well as procedures for their own interests, and uses rules and procedures. A supportive organizational culture improves organizational performance. Ogbonna & Haris (2000) reported that innovative culture is positively related to organizational performance. A positive organizational culture has the potential to enhance organizational performance, employee job satisfaction, and the sense of certainty about problem solving (Kotter, 2012). If an organizational culture becomes incongruent with the changing expectations of internal and/or external stakeholders, the organization s effectiveness can decline (Ernst, 2001). The evidence regarding the organization culture and performance is mixed. Studies showed that the relationship between many cultural attributes and high performance has not been consistent over time (Denison, 1990; Sorenson, 2002). Based on what we know about culture-performance relationships, a contingency approach seems to be a good one for leaders to adopt (Burns & Stalker, 1961; Burt, Gabbay, Holt, & Moran, 1994). Hypotheses and research model Based on the preceding discussed literature, the following research model (Figure 1) and hypotheses were proposed: H1: Bureaucratic culture is negatively associated with job satisfaction H2: Innovative culture is positively associated with job satisfaction H3: Supportive culture is positively associated with job satisfaction H4: Bureaucratic culture is negatively associated with firm performance H5: Innovative culture is positively associated with firm performance H6: Supportive culture is positively associated with on firm performance H7: Job satisfaction is positively associated with firm performance In this study we also want to know whether there is the difference between foreign and local companies in terms of Organizational culture, Job satisfaction and Firm performance. Bureaucratic culture H1 JOB SATISFACTION H2 H3 Innovative culture H5 H4 H7 Supportive culture H6 FIRM PERFORMANCE Figure 1.The proposed Research Model 47

4 Measurement Five latent variables are measured by thirty seven items. Table 1 show all items utilized in this study.the study used a quantitative approach. 500 questionnaires were sent to employees of local companies and foreign companies located in Ho Chi Minh City. 427 valid questionnaires were collected with 246 respondents from foreign companies and 181 from local companies. Table 1. Measurement scale of Variables Variables Bureaucratic Culture Innovative Culture Statement I do not have the right to decide in my work I follow all the requirements of the company I have no chance of promotion at work The company did not value my opinions Firms with bureaucracy reduction initiatives Managers foster an organizational culture that promotes learning and creativity I am encouraged to develop new and more efficient ways to do my job Our culture encourages high performance and process improvement My job enables me to make use of my skills and abilities My job gives me professional growth and advancement future Supportive Culture Job Satisfaction Firm Performance I have freedom to make important decisions regarding to my work I have clear understanding of the goals and objectives of my organization I feel free to ask advice/support from my manager My company encourages employees to work to the best of their abilities My company is able to maximize employee potential I enjoy working at my company I am sufficiently challenged by my work I receive personal satisfaction from doing a good job I get a sense of personal accomplishment from my work I have good working relationships with my co-workers My company s brand name is increasingly popular My company received the trust of employees My company received the loyalty of employees My company received the trust of customers My company received the loyalty of customers 48

5 Sample characteristics Table 2 describes the characteristics of survey sample. Table 2.Respondent profile Characteristics Frequency Percentage Gender Male Female Less than 25 years old Age From 25 to 40 years old Above 40 to 65 years old Above 65 years old 9 2 High school 30 7 Education Undergraduate Graduate Staff Position Middle manager Top manager 38 9 Less than 2 years Experience From 2 to under 5 years From 5 to 10 years Above 10 years 26 6 Reliability Testing The factor analysis of 21 cultural items resulted in 3 cultural constructs with 17 remaining items due to the items with a loading factor lower than 0.5 were deleted from the scale. These constructs account for percent of the total variance. The factor analysis of 8 job satisfaction items resulted in one construct with 5 remaining items. The construct accounts for percent of total variance. The factor analysis of 9 firm performance items resulted in one construct with 5 remaining items. The construct accounts for percent of total variance. Cronbach Alpha was used to test the reliability of the measurement. The results are shown in Table 3. Table 3. Summary of Cronbach Alpha Variables Number of Items Cronbach's Alpha Supportive Culture (SC) Bureaucratic Culture (BC) Innovative Culture (IC) Job Satisfaction (SA) Firm Performance (FP)

6 Testing results for H 1, H 2, H 3 The results showed that Supportive culture and Innovative culture have a significant positive effect on Job satisfaction. Bureaucratic culture has insignificant on Job satisfaction. Table 4 shows that there is a linear relationship between Supportive Culture and Innovative Culture and Job Satisfaction. Table 4. Regression coefficient Organizational culture and Job satisfaction Unstandardized Standardized Collinearity Statistics Model B Std. Error Beta t Sig. Tolerance VIF 1 (Constant) SC BC IC Dependent Variable: Job Satisfaction, R 2 = 0.56 Testing results for H 4, H 5, H 6 The results showed that Supportive Culture and Innovative Culture have a significant positive effect on Firm Performance. Bureaucratic Culture has no a significant relation with Firm Performance (P-value = 0.707). Table 4 shows that there is a linear relationship between Supportive Culture and Innovative Culture and Firm Performance. Table 5. Regression coefficient Organizational culture and Firm performance Unstandardized Standardized Collinearity Statistics Model B Std. Error Beta t Sig. Tolerance VIF 1 (Constant) SC BC IC Dependent Variable: Firm Performance, R 2 =

7 Testing results for H 7 Table 6. Regression coefficient Job Satisfaction and Firm performance Unstandardized Standardized Collinearity Statistics Model B Std. Error Beta t Sig. Tolerance VIF 1 (Constant) SA Dependent Variable: Firm Performance, R 2 = To study the difference between foreign and local companies in terms of Organizational culture, Job satisfaction and Firm performance, the two-sample (independent groups) t-test was used, and the result showed in Table 7 below. Table 7.Independent Samples Test Variables Local Mean Foreign Mean Difference P-value SC BC IC SA FP From the Independent Samples Test results showed in Table 7 we can conclude that there are significant difference between local companies and foreign companies in term of supportive culture, bureaucratic culture, job satisfaction and firm performance. However, there is no significant difference between local and foreign companies in terms of innovative culture. 51

8 Table 7. The Summary of Hypothesis Testing Hypothesis Coefficient P - value Result H 1 : Bureaucratic Culture has a negative effect on Job Satisfaction β = Rejected H 2 : Innovative Culture has a positive effect on Job Satisfaction β = Accepted H 3 : Supportive Culture has a positive effect on Job Satisfaction β = Accepted H 4 : Bureaucratic Culture has a negative effect on Performance β = Rejected H 5 : Innovative Culture has a positive effect on Firm Performance β = Accepted H 6 : Supportive Culture has a positive effect on Firm Performance β = Accepted H 7 : Job Satisfaction has a negative effect on Performance β = Accepted Conclusion and implications Supportive Culture and Innovative Culture has significant and positive influence on job satisfaction and firm performance; whereas Bureaucratic Culture has insignificant effect on them. The research results imply that those cultural factors are the effective tools to explain and predict job satisfaction and firm performance. Therefore managers should build supportive and innovative culture to improve job satisfaction and firm performance. Although this research has successfully explored the relationship between traits of organizational culture, job satisfaction and firm performance, some limitations still exist. First, sampling technique was used is convenience sampling so the generalization of research results is limited. There are many factors affect job satisfaction and firm performance, however this study just focuses on studying the relationship between culture types and job satisfaction and firm performance. References Blunt, P. and Jones, L. M. (1992). Managing Organizations in Africa. New York: Walter de Gruyter& Co. Burns, T. and Stalker, G. M The management of innovation. London: Tavistock. Burt, R. S., Gabbay, S. M., Holt, G., & Moran, P. (1994). Contingent organization as a network theory: The culture-performance contingency function. Acta Sociologica, 37(4), Denison, D. R. (1990), Corporate Culture and Organizational Effectiveness, New York: Wiley. Eslami, J. andgharakhani, D. (2012).Organizational Commitment and Job Satisfaction. ARPN Journal of Science 52

9 Finn, C. P. (2001). Autonomy: An important component for nurses job satisfaction. International Journal George. J.M. and Jones, G.R. (1996).Understanding and Managing Organisational Behavior. New York: Addison-Wesley Publishing Co. Inc. Griffin, R. W. and Pustay, M. W. (1999). International business: A managerial perspective.2 Ed, Addison- Wesley: New York, Kötter et al. Implementation Science 2012, 7:21 Koustelios, A. (1991). The Relationships between Organizational Cultures and Job Satisfaction in Three elected Industries in Greece. PhD Dissertation. United Kingdom: University of Manchester, Faculty of Education. Ogbonna E and Harris LC (2000) Leadership Style, Organisational Culture and Performance: Empirical Evidence from UK Companies, The International Journal of Human Resource Management 11(4): Schein, E. H. (1992). Organizational culture and leadership. Jossey-Bass: San Francisco, Sørensen, J. B The strength of corporate culture and the reliability of firm performance. Spector, P. E. (1997). Job satisfaction: Application, assessment, causes, and consequences. Thousand Oaks, CA: Sage. Wallach, Ellen J Individuals and organizations: The cultural match. Training & Development Journal, Vol 37(2), Feb 1983, Zakaria, F, (1997). The Rise of Illiberal Democracy. Foreign Affairs, Vol 76 (6),