Journal of Management Studies 29:6 November 1992

0022-2380 $3.50

PREDICTING CORPORATE PERFORMANCE FROM

ORGANIZATIONAL CULTURE*
GEORGE G . GORDON

Department of Business Administration, Rutgers University

NANCY DITOMASO

Graduate School of Management, Rutgers University

ABSTRACT
This article investigates the relationships of culture strength and two substantive cultural values with corporate performance. Culture strength is measured
by the consistency of responses to survey items across people and the two
cultural values are measured by items on the survey that relate to either
adaptability or stability. The data, from management surveys of 11 US
insurance companies in 1981, were correlated with asset and premium growth
rates from 1982 to 1987. Results indicate that both a strong culture regardless
of content and a substantive value placed on adaptability are associated with
better performance for two to three subsequent years on both criterion
measures. The results support the findings of Denison (1990) that strength
of culture is predictive of short-term performance. The present results,
however, suggest a more complex contingency model than that proposed by
Denison.

INTRODUCTION

While the subject of corporate culture generated afloodof publications in the

1980s, few empirical studies have assessed the impact of organizational
culture on corporate performance. A number of authors have established or
supported the hypothesis that successful companies have strong cultures,
defined in various ways (Deal and Kennedy, 1982; Kilmann et al., 1985;
Mitroff and Kilmann, 1984; Ouchi and Price, 1978; Pascale, 1985; Peters and
Waterman, 1982; Schall, 1983; Schein, 1985; Weick, 1985). For the most part,
however, these arguments have been conceptual and anecdotal or have been
case studies without formal measurement of either performance or culture.
This article examines the link between strong corporate cultures and corpo-

Address for reprints: George G. Gordon, Department of Business Administration, Rutgers

University, Newark, New Jersey 07102, USA.

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GEORGE G. GORDON AND NANGY DITOMASO

rate performance for 11 US insurance companies through survey data collected in 1981 and subsequent performance data collected for 1982 to 1987.
The article begins by discussing the meaning of corporate culture and then
turns to the claim that a 'strong' culture leads to superior performance. To
facilitate this discussion, we address three issues: (a) the content of corporate
cultures considered to have positive effects; (b) the various definitions of the
concept of strong cultures; and (c) the relationship between corporate culture
and corporate performance. We then develop the hypotheses of this study and
discuss other aspects of its conceptualization and methodology.

ORGANIZATIONAL CULTURE AND GORPORATE PERFORMANGE

Organizational Culture: The Trait Approach

It is not surprising that the study of organizational culture should propose

numerous definitions of'culture', considering its roots in anthropology, where
Kroeber and Kluckhohn (1963) identified no less than 164 meanings of the
word. Among others, organizational culture has been defined as shared
meanings (Louis, 1985), central values (Barney, 1986; Broms and Gahmberg,
1983), assumptions (Dyer, 1985; Schein, 1985), and beliefs (Davis, 1984;
Lorsch, 1985). In this article, we consider corporate culture to be the pattern
of shared and stable beliefs and values that are developed within a company
across time. The view that culture is a shared phenomenon is widely held
(Bate, 1984; Broms and Gahmberg, 1983; Lorsch, 1985; Posner et al., 1985;
Schein, 1985; Schwartz and Davis, 1981; Trice, 1985). What constitutes
sharing, however, is not at all self-evident. It may be, for example, frequency
or similarity or intensity.
The literature is even more ambiguous about the content of the beliefs or
values thought to produce a strong organizational culture. Saffold (1988) calls
this the trait approach to culture, presumably paralleling the trait approach
to leadership (see discussion, for example, in Gibson et al., 1988, pp. 373-7).
Probably the most widely known discussion of organizational culture traits
is by Peters and Waterman (1982), who outline eight characteristics of
excellent - i.e. well performing - organizations. Kilmann (1985, p. 356) has
suggested that to perform well companies must have adaptive cultures that
involve a 'risk-taking, trusting and proactive approach'. Pascale (1985)
described Bain and Company's use of meetings to build cohesiveness and
IBM's practice of 'probing' to get at the heart of problems as elements of
their 'strong cultures'.
In a more systematic search for the range of cultural elements, Hofstede et
al. (1990, p. 311) utilized in-depth interviews to collect information on values
and practices, indicating that the latter can alternatively 'be labelled conventions, customs, habits, mores, traditions or usages'. This information was
then incorporated into a questionnaire administered to employees in 20
organizational units in two countries. The authors hold that 'this study . . .
empirically shows shared perceptions of daily practices to be the core of an
organization's culture' (Hofstede et al., 1990, p. 311). These practices fit
Saffold's (1988) characterization of cultural traits, and at least two of them.

PREDICTING CORPORATE PERFORMANCE

785

process-oriented vs. results-oriented and loose control vs. tight control, parallel Peters and Waterman (1982).
Many others have also pursued the trait approach to corporate culture,
each with their own preferred content (see, for example. Akin and Hopelain,
1986; Denison, 1984; Ouchi, 1981; Ouchi and Price, 1978; Stevenson and
Gumpert, 1985; Vaill, 1984; and Wilkins, 1984). However, most rely on
anecdotal evidence that particular traits form the basis of company cultures.
Indeed, much of this work has been attacked from both methodological and
conceptual bases. For example, a consistent methodological criticism is the
lack of comparison groups to provide evidence that companies with the traits
differ from those which lack them (Carroll, 1983; Saffold, 1988). And, as
noted by Business Week (1984), a third of the companies identified as excellent
by Peters and Waterman (1982) experienced poor performance within two
years after the book was published. The same studies have also been criticized
for their lack of conceptual development. Many do not discuss the content of
values or behefs, while others seem to point toward very different content
(Safrold, 1988).
Strong and Weak Cultures

According to Saffold (1988, p. 547), the cultural 'trait' approach assumes an

implicit model in which traits impact an organization in proportion to the
'strength' of its culture and ultimately affect performance. Strength, like content,
however, is defined in various ways: as coherence (Deal and Kennedy, 1982;
Weick, 1985); as homogeneity (Ouchi and Price, 1978); as stability and
intensity (Schein, 1985); as congruence (Schall, 1983); as thickness (Sathe,
1983); as penetration (Louis, 1985); as internalized control (DiTomaso,
1987).
While these authors define cultural strength, they do not try to operationalize it. These various authors seem to consider cultural strength a function of
some combination of the following: who and how many accept the dominant
value set; how strongly, deeply or intensely the values are held; and how long
the values have been dominant (see Louis, 1985).
Corporate Culture and Performance

Most empirical research that attempts to relate culture to some type of

organizational outcome has pursued the trait approach. That is, a specified
type of value or belief has been claimed to have particular effects. For
example, Sapienza (1985) found that contrasts in shared beliefs about the
importance of people versus the importance of performance led two companies to adopt different strategies to cope with a change in the laws affecting
their industry. Similarly, within a large sample of banks, Jenster and Bigler
(1986) found a significant relationship between cultural patterns and the
pursuit of particular strategies. Dunn et al. (1985) found a correlation between
a marketing effectiveness scale and customer-oriented cultures, as described
by Peters and Waterman (1982). Amsa (1986) reported that loitering
behaviour (unauthorized rest breaks) in work groups was related to company
beliefs about the desirability of discipline. Finally, specific cultural characteristics have been related to involvement, identification and commit-

786

GEORGE G. GORDON AND NANGY DITOMASO

ment to the firm (Koberg and Ghusmir, 1987; O'Reilly, 1983; Posner et ai,
1985).
Very few empirical studies have related cultural characteristics to some
measure of corporate financial performance. Gordon (1985) contrasted companies in dynamic industries, where technologies, participants and products
changed frequently, with companies in the more static utilities industry,
where few such changes occurred. He found that companies in highly
dynamic industries were characterized by cultural values that enhanced
adaptability, whereas utilities were characterized by cultural values that
enhanced stability. He further found that the same values differentiated the
fastest growing and most profitable companies within each type of industry
from the less successful ones. On the other hand, Reynolds (1986) found that
employee responses to a culture questionnaire in a company identified as
'excellent' by Peters and Waterman (1982) did not differ from those in two
other companies with less impressive performance.
Two studies of culture and performance have used data from the Survey
of Organizations (Taylor and Bowers, 1972) to determine relationships
between employee perceptions and attitudes and firm success. Hansen and
Wernerfelt (1989) refer to these as organizational variables and Denison
(1984) as cultural, but the differences are more semantic than substantive.
Hansen and Wernerfelt classified the 'emphasis on human resources' and
'emphasis on goal accomplishment' scales from the Survey of Organizations
as organizational variables and classified industry profitability, relative market share and company size as economic variables. Their study tested the
relative importance of organizational and economic factors in predicting fiveyear return on assets. They found both the emphasis on human resources
and on goal accomplishment to be significant predictors, with the organizational data accounting for about twice as much variance as the economic.
Denison (1984) related two characteristics from the Survey of Organizations, 'organization of work' and 'decision-making practices' to subsequent
returns on sales and investment. He found higher returns for companies
above the average on each measure than for companies below, with differences tending to widen across the five years following the survey. This study
is also the only one which, in addition to examining the impact of cultural
traits, attempted to determine the impact of cultural strength (conceptualized
as consistency) on organizational performance.
Denison defined consistency as the inverse of the variance in questionnaire
responses across work groups within companies. Defined this way, Denison's
concept of consistency is an amalgam of Louis' (1985) concepts of sociological
and psychological penetration, since low variance implies both pervasiveness
and homogeneity of perceptions. Denison (1984; 1990) found low variances
on four different traits - organization of work, emphasis on human resources,
decision-making processes and co-ordination significantly correlated with
companies' standardized Return on Investment (ROI) for the subsequent
two years. This latter study gives tentative support to the notion that a firm's
culture strength, as defined by the degree of agreement on cultural characteristics across respondents, relates to subsequent financial performance.

PREDICTING CORPORATE PERFORMANCE

787

HYPOTHESES

The present study, following a strategy similar to Denison (1984; 1990),

examines the effects of culture strength, measured as the consistency of survey
responses within a company, on subsequent financial performance. The study
also provides a follow-up to Gordon's (1985) work relating cultural values on
adaptability versus stability to corporate performance. The insurance industry, from which the sample is drawn, long operated in a very static environment, in Gordon's terms; but change brought on by deregulation and
competition has required companies to be much more adaptive to new
product and distribution opportunities. From both of these previous works,
we derive three hypotheses for the firms in this industry:
HI: The greater the culture strength, the stronger the firm's financial
performance will be in subsequent years.
H2\ The higher the relative value placed on adaptability, the stronger the
firm's financial performance will be in subsequent years.
H3\ The higher the relative value placed on stability, the weaker the firm's
financial performance will be in subsequent years.
METHOD

Data Collection Instrument

The culture data examined here are taken from The Survey of Management
Climate (Gordon and Cummins, 1979), an instrument applied in hundreds of
companies in a wide variety of industries. This study examines the 1981 data
from surveys of 11 insurance companies.
Although the instrument is labelled a climate survey, it is neither an
extension nor an adaptation of the climate instruments described in the
literature (Litwin and Stringer, 1968; Payne and Pheysey, 1971; Taylor and
Bowers, 1972). Instead it grew out of interviews in approximately 30 organizations, where respondents were asked to describe the way in which the
organization operated, that is, its objectives, the means used to accomplish
them, and the influences they perceived to be at work. For each of the early
surveys, these interviews became the basis of questionnaires customized to
the organization. Only after it was determined that similar issues were
emerging repeatedly across organizations, was a standardized questionnaire
developed.
The instrument therefore grew out of the type of qualitative fieldwork
frequently employed in current studies of organizational culture, and the
procedure was similar to that used by Hofstede et al. (1990) in developing
their measures of organizational culture. In contrast to Hofstede et al.,
however, our instrument is more consistently organizationally than individually oriented. It measures managers' perceptions of how their organizations operate, and by extension, the values that drive the behaviours of those
in the organization.

788

GEORGE G. GORDON AND NANGY DITOMASO

The version of the instrument used in this study asked managers to describe
their companies on 61 items using seven-point scales presented in a semantic
differential type format. Earlier analyses of these items yielded eight factors
(Gordon and Cummins, 1979) ranging in reliability (coefficient alpha) from
0.80 to 0.87. The eight factors are labelled:
1.
2.
3.
4.
5.
6.
7.
8.

Clarity of strategy/shared goals

Systematic decision-making
Integration/communication
Innovation/Risk-taking
Accountability
Action orientation
Fairness of rewards
Development and promotion from within

These factors are consistent with many of the dimensions discussed in the
culture literature. Examples include action orientation (Peters and Waterman, 1982), integration/communication, and innovation/ risk-taking (Kanter, 1983; Reynolds, 1986) and fairness of rewards and development and
promotion from within (Alston, 1986). As noted earlier, however, no set of
cultural traits is widely recognized as critical or accepted as comprehensive.
We do not have measures for several 'values' that have become important in
the culture literature, namely, a focus on quality, service and so on. We,
nevertheless, believe the factors provide a good overall representation of the
content alluded to in much of the literature on corporate culture. For the
purposes of this study, average scores on the highest loading items on each
factor were computed for each company to produce the eight culture content
scales.
Sample

The 11 companies in the sample were all in the life/health sector of the
insurance business and varied in assets from $691 million to $18.7 billion,
with a median of $1.9 billion. Participants in each company consisted of
everyone in the top four to five levels of management. Questionnaires were
distributed to participants (with a cover letter from the company chairperson)
through each company's internal mail and were returned directly to the
investigator in pre-addressed envelopes. All questionnaires were administered
and returned during a two-month period in mid-1981. Returns exceeded 90
per cent of those surveyed and ranged from 34 to 132 participants per
company, with a mean of 77, for a total of 850.
The fact that respondents were limited to managers represents both
advantages and disadvantages. On the one hand, the management, especially
the middle to upper level management represented in this study, is clearly
not a representative sample of the employees in the companies studied.
Previous research has shown that management is considerably more positive
about their companies than people at lower levels (Hay Group, 1986).
Previous work also has shown that different levels in a company may
represent different sub-cultures (Davis, 1985; Martin and Siehl, 1983; Riley,

PREDICTING CORPORATE PERFORMANCE

789

1983). On the other hand, it is the management, especially senior management, that must support, if not initiate, any major efforts on the part of their
companies. As Schein (1990, p. I l l ) claims, '. . . cultural origins and dynamics can sometimes be observed only in the power centers where elements
of the culture are created and changed by founders, leaders, and powerful
persons'. Following the same logic, culture measured at this level will be most
predictive of future behaviour and performance of the firm. Also, because
each survey included only middle and upper management, the samples are
much more comparable across companies than if, as is often done in comparative studies, diflerent employee groups had been sampled.
Culture Measures

For purposes of this study, three separate measures were used. The first,
culture strength, was designed as an attempt to replicate Denison's (1984; 1990)
findings that consistency of company values predicts short-term profit performance. Culture strength was measured by the inverse of each of the eightscale standard deviations averaged across all eight scales for each company.
While Denison (1990) operationalized the culture strength construct by
computing the variance across groups within companies, we computed standard deviations across individuals within companies. The standard deviation,
of course, represents a measure of dispersion around the mean, and thus is
also consistent with Saffold's (1988) recommendation that one measure
culture strength by dispersion. Since smaller standard deviations imply
greater agreement among managers on the types of values driving the
company, we assume that such agreement - or consistency - is an indication
of the strength of the organizational culture.
The other measures, adaptability and stability, were based on Gordon's
(1985) work indicating that companies tend to develop cultures that match
their environments. The adaptability measure is a combination of two of the
scales, action orientation and innovation/risk-taking, because in Gordon's
work the better-performing companies in dynamic or fast-changing industries
(high tech manufacturers) scored high on those measures. Stability is a
combination of three factors, integration/communication, development and
promotion from within and the fairness of reward. In Gordon's study, these
scores were high in the better-performing companies in stable industry
environments (utilities). Gordon found none of the other three factors related
to financial performance in either stable or dynamic environments.
Because the use of survey data to study cultural phenomena is still
relatively unexplored, the literature offers little guidance regarding the best
form of measure to use, and arguments can be made for several measures.
We employed two different variations of the adaptability and stability measures. First, we used an unweighted average of the raw scores on the scales
comprising each measure. These will be referred to subsequently as adaptability (Adap) and stability (Stab). Second, we used standardized deviation
scores, which set all means equal to zero. That is, for each company, the
mean across the eight factor scores was subtracted from each individual factor
score and divided by the standard deviation across the eight factors. This
procedure produces standardized deviation scores and is similar to that

790

GEORGE G. GORDON AND NANGY DITOMASO

employed by Hofstede et al. (1990) in their development of the 22 practices

that formed the basis of their culture measure. We then separately averaged
the standardized deviation scores for the two adaptability and three stability
scales described above to create the deviation-adaptability (DevAdap) and
deviation-stability (DevStab) scales.^'^
The issue here is similar to that raised historically with ipsative versus
normative scoring of psychological tests (Cattell, 1944) such as interest or
personality inventories. In this case, ipsative scoring parallels our use of
deviation scores while normative scoring is similar to our use of raw score
means. The issue is that any instrument of this type, whether a personality
test or organizational survey, can produce a halo effect, in which all items
tend to be rated either high or low for a given respondent or company. Thus,
in an organizational context, should we consider a company as innovative if
it is high compared to other companies on that factor even if its innovation
score is lower than its score on most of the other factors? This could well
occur in a specific gas utility where very little technical innovation is needed
or appropriate, but where morale is very high. The question has no absolute
answer. One must determine what makes most sense conceptually given the
topic at hand. We believe that the deviation scores are more refiective of a
company's value system, and therefore most relevant for a study of organizational culture. However, we report both raw and deviation measures for
comparison.
Measures of Performance

Measuring corporate performance in the life insurance industry presents a

unique problem because the majority of companies in the industry (and seven
of the eleven in the sample) are mutual companies, owned by policyholders
and not by stockholders. Because of this unique ownership structure, such
companies do not make profits per se and do not use generally accepted
accounting principles (GAAP) in reporting company results. Thus, the
profitability measures used by Denison (1990), such as the Return on Sales
(ROS) or Return on Investment (ROI), are not available for many life
insurance firms.
One measure commonly employed in the life insurance industry is the gain
or loss in admitted assets, or 'growth in assets'. This measure refiects the
income contribution of many business functions, including sales, investment,
actuarial and underwriting. Growth in assets thus represents the contribution
of a variety of 'profitable' and efficient activities to the company's growth.
Growth in assets, however, includes a large component of very stable investment earnings, and thus tends to cloud performance changes resulting from
short-term management actions.
A measure more sensitive to management actions is new premium income,
clearly a key revenue component in any life insurance company. However,
during the period of the study, the nature of the revenue stream in the
insurance industry was changing very dramatically. Following the interest
rate fluctuations of the 1970s, many companies began to offer interestsensitive products to their clients in addition to insurance, and the significant
changes in policy portfolios resulted in large short-term gains. These gains.

PREDICTING CORPORATE PERFORMANCE

791

however, were temporary and began to wane as the 'easy' sales were
exhausted. Such spurts and subsequent settling back during this period
significantly affected the consistency of year to year performance of the
insurance industry and of the companies in our sample.
Assets and total premiums for each company were obtained from Best's
Insurance Reports (1988) for the years 1981-7 and growth rates were
calculated for each of the years from 1982 to 1987. Because of significant
acquisitions and divestitures of business by one of the companies from 1984
to 1987, only their 1982 and 1983 growth data were usable. Thus, the n for
1982 and 1983 is 11 companies while the n for 1984 to 1987 is only 10. Because
the study includes a single industry in a single time period, there is no need
to standardize performance against multi-industry, multi-period norms, as
was necessary for Denison.

RESULTS

Performance

Table I presents the correlations in year-to-year performance for the companies in the sample. As anticipated, asset growth is more consistent than
premium growth. One can also see from the negative correlations between
1985-6 and 1986-7 that considerable changes in premium growth took place
at that time. This pattern suggests that major environmental changes affected
these companies beginning in 1985, making it unlikely that any hypothesized
relationships would hold up over the entire period.
Table 11 presents the yearly growth rates for the insurance industry as a
whole and for our sample. Again, the greater stability of asset over premium
growth rates is clear. The industry experienced an unusual drop in premiums
in 1983 and an unusual spurt in 1986. Although the sample as a whole was
not subject to fluctuations on premium growth as wide as the population's,
some of the individual companies did have extreme fluctuations on this
measure. The most dramatic was one company which experienced a swing
from 0.1 per cent in 1985 to 77.5 per cent in 1986, and then back to 5.5 per
cent in 1987. The premium growth of the sample is sometimes above and
sometimes below that of the industry, but asset growth is consistently below
the industry.

Table I. Year-to-year correlations in growth of assets and premiums

Correlations
1982/3

1983/4

1984/5

Assets

0.89***

0.95***

0.84***

Premiums

0.54*

0.42

0.23

Year

*p < 0.05

**/) < 0.01

***/) < 0.001

1985/6

0.50
-0.35

1986/7

0.77**
-0.36

792

GEORGE G. GORDON AND NANGY DITOMASO

Table II. Year-to-year growth in the industry and the current sample
Percentage growth from previous year
1984
1985
1986

1982

1983

Sample
Assets
Premiums

9.6
12.2

10.3
16.0

9.5
16.6

10.8
7.7

10.8
14.5

8.8
13.3

Industry
Assets
Premiums

11.9
14.0

11.3
-1.6

10.4
13.3

14.2
15.7

13.5
24.5

11.3
9.7

1987

Culture Variables

Table III presents the intercorrelations among our culture measures. As one
can see, culture strength, as measured by the average standard deviation
across factors, is significantly related to both stability (r = 0.88) and adaptability (r = 0.59). Adaptability and stability are themselves positively correlated 0.75, and are thus not highly differentiated when measured by raw
factor scores. But when we partial out the overall average of the factor scores
from the correlation between adaptability and stability, we get a partial
correlation of 0.81, which is what one would expect from their conceptual
definition.
The more predictable 0.79 correlation of DevStab and DevAdap further
supports the claim that the deviation scores are more consistent with the
cultural values emphasized in each company than are raw scores. Adap and
DevAdap are positively correlated (0.92), but Stab and DevStab have a
negative and non-significant relation of 0.20. Even so, for the reasons
already discussed, we report all of the measures in the relationship with
performance, but we focus on the deviation scores.
Culture Strength and Growth

All but one of the correlations between culture strength (AvgSD) and asset
growth for the first four years and premium growth for the first three years
following the survey are significant beyond the 0.10 level (see table IV). Thus,
the extent to which individuals agree in their view of the total culture is
predictive of future performance. One might want to know if agreement on
Table III. Intercorrelations among the culture measures

AvgSD

AvgSD

Stab

Adap

0.88**

0.59*

-0.08

0.42*

0.75**

-0.20

0.51 +

-0.73**

0.92**

Stab
Adap

DevStab
*/><0.10

DevStab

X
/) < 0.05 */) < 0.01

DevAdap

-0.79**

PREDICTING CORPORATE PERFORMANCE

793

any of the specific scales is driving the relationship. In this regard we found
that the correlations with performance of the inverse of the standard deviations for each of the eight individual scales were generally similar to, but
smaller than, the average of all the scales (AvgSD). There was no pattern of
some scales being clearly better predictors than others. While it might be
tempting to speculate how agreement on different scales might be differentially related to success, the small number of companies and the large
combination of scales (8) times years (6) times criteria (2) in this study make
it impossible to do any more than speculate. It is, however, useful to compare
the results on overall culture strength (AvgSD) with those reported by
Denison. He found significant correlations of approximately 0.50 +/- 0.05
between consistency of culture on three of his four measures and ROI for the
first two years after the survey. The correlations in his study then dropped
below 0.25 for the next three years, and even become negative during this
period.
The findings here are similar to Denison's, with the relationship showing
significance for about the same period and the correlations being of similar
magnitude. Thus Hypothesis 1 is supported and is consistent with Denison's
finding that strong culture, measured as consistency of survey responses
within organizations, is related to organizational performance in ensuing
years. This similarity in the two studies exists despite differences in the
samples used and in the studies' measures of both culture and performance.
Culture Content and Growth

The direction of correlations with the growth scores for the two deviation
scores of adaptability and stability are quite different, as would be anticipated
from their negative intercorrelation. The DevAdap correlations with the two
growth measures are primarily positive, while most of the DevStab correlations are negative. Furthermore, the correlations with asset growth, the more
stable criterion, are almost always smaller than the corresponding correla-

Table IV. Correlations between measures of culture and average growth of assets and premiums
Year

1982

1983

1984

1985

0.68**
0.64*
0.56*
-0.14
0.55*

0.08
0.10
0.19
-0.25
0.37

0.26
0.18
0.23
-0.32
0.33

-0.13
-0.15
-0.07
-0.08
0.10

-0.16
-0.02
-0.57*
0.69**
-0.75**

0.46+
0.12
-0.03
0.14
0.00

Assets growth
AvgSD
Stab
Adap
DevStab
DevAdap

0.31
0.39
0.21
-0.07
0.22

0.44+
0.38
0.23
-0.04
0.30

0.45+
0.30
0.12
0.15
0.26

Premium growth
AvgSD
Stab
Adapt
DevStab
DevAdap

0.78**
0.73**
0.65**
-0.42+
0.57*

0.47+
0.25
0.32
-0.30
0.44+

0.44+
0.54+
0.63*
-0.37
0.54+

+/i<0.10

*/) < 0.05

**/) < 0.01

1986

1987

794

GEORGE G. GORDON AND NANGY DITOMASO

tions with premium growth, which we would expect, because we assume

premium growth is most readily impacted by management actions and
therefore most sensitive to cultural issues. Within this sample and time frame,
companies with cultures that emphasized adaptability tended to enjoy significantly greater sales growth over a three-year period following the survey than
those with cultures that emphasized stability. Given the pattern of correlations for the two deviation measures against both growth measures, we can
also conclude that the results lend support to Hypotheses 2 and 3. These
findings are consistent with Gordon's (1985) finding that companies in
dynamic industries perform best when their culture fosters adaptability rather
than stability.
We should, of course, comment on the pattern of effects from 1985 on. As
noted in table III, there is a negative correlation between premium growth
in 1985 and 1986, resulting mainly, as discussed earlier, from some extremely
wide swings in performance for specific companies in the sample and in the
industry as a whole. Since these performance swings tended to be temporary
rather than sustained, in this particular case it is reasonable to conclude that
the significant and reversed correlations in 1986 resulted more from chance
and temporal fiuctuations of measurement than from the existence of important relationships.

GONGLUSIONS

This study points up a number of interesting issues, both theoretical and

methodological. For one, it supports the finding that a strong culture, as
measured by the consistency of perceptions of company values, is predictive
of short-term future company performance. The pattern of results is similar
to Denison (1990), who proposes a contingency theory. He argues: 'consistency is an indication of a system that is currently well coordinated . . . and
that currently performs well. In the longer term, however, the lack of variety
connected with such a system limits the organization's ability to adapt to
changes in the environment' (Denison, 1984, p. 18). While our results are
similar to Denison's, this study suggests a more complex explanation. Indeed,
given the gross approaches to the measurement of two very complex phenomena, culture and performance, and the differences in underlying measurements and contexts, the similarity in results is striking. However, we also
found that a culture of adaptability but not stability is also predictive of shortterm performance. The best explanation may be that both a strong culture
from the standpoint of consistency, and an appropriate culture from the
standpoint of content, will produce positive results, but a combination of the
two is most powerful. Although we cannot directly test interaction effects with
a sample of 10, the hypothesis warrants further research.
While the need for a culture to be appropriate for an industry has been
discussed in some detail by Gordon (1991), the explanation of how consistency alone enhances performance is less clear. We can assume that if
management has a consistent perception of company behaviour, then they
should have a common orientation in given situations. For example, if'action'

PREDICTING CORPORATE PERFORMANCE

795

over 'study' is valued in the company, then one would expect quick reactions
to new opportunities. This conduct may make the company a performance
leader when the costs of not taking action are greater than the potential losses
from ill-conceived actions. The alternative, of course, may also be true, acting
too precipitously may lead to higher costs and therefore lower performance
when more caution is warranted for high-level decisions. Which conduct is
most consistent with good performance depends, we assume, on various
characteristics of the company and its industry.
More important for our analysis here is the extent to which a company's
management personnel see the same trade-offs and act similarly in similar
circumstances. A consistent outlook on the part of management may improve
performance because it indicates that the company has chosen a policy, for
example, on whether it is better to act quickly as opportunities present
themselves or cautiously to avoid undue risk. A company where individual
managers act according to their own preferences rather than a widelyaccepted corporate pattern may suffer both from missing important opportunities and from failing to develop selected opportunities in an orchestrated,
powerful manner.
Both this study and Denison's suffer from the same shortcoming insofar as
they measure culture at one point in time and performance over a long period.
In neither, for instance, are we able to determine whether subsequent changes
in culture in specific companies actually caused their performance to change,
rather than the changes in performance being a sustained effect from the
culture at the time of the survey. An important issue for further study is
whether culture strength (consistency) changes actually do occur within the
space of just a few years, and if so, the nature and extent of these changes.
A further research question is whether lowered consistency presages lowered
performance or whether its impact is contingent on the extent and direction
of change occurring in the economic, political and social environment.
From a methodological standpoint the current study also points up the
difficulties in trying to predict ongoing corporate performance from any
measure obtained at one point in time. Even if culture has a strong influence
on how well people do their jobs and how well the aggregate company
performs, external events can sharply affect corporate results, for example,
an unfavourable ruling from an Insurance Commissioner or the rush of the
market toward a previously unsuccessful product.
For some time the literature has focused on the beliefs and values that make
companies successful. A prior question may be the extent to which beliefs
and values are held in common, no matter what their content. If so, it is
important to examine the potential effects of consistency in values held across
organizations, as we have attempted to do here. Further, it appears that
different beliefs and values may be more productive in different industries.
In this study, a culture of adaptability was more related to success than one
of stability for an industry undergoing significant and rapid change. But the
opposite may well be true in companies where technologies, products and
customer needs change very slowly, if at all. Clearly, the composition and
effects of organizational culture are highly complex, and they require a great
deal more study to sort out the pieces and the relevant relationships.

796

GEORGE G. GORDON AND NANGY DITOMASO

NOTES

*We would like to thank Emilio Venezian for his help during the preparation of this
manuscript.
'"' For each organization let:
D(factor) = S (factor)-M
SD
where S (factor) is the factor score
M is the mean of 8 factor scores
SD is the standard deviation of the 8 factor
scores from their mean
Then for each organization:
DevAdap=D(Action) +D(Innovation)
DevStab =D(Integration)-l-D(Deve]opment)-l-D(Fairness)

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