Internal and External Factors that Impact Organisations

Every company has an unique organisational culture. Its culture derives from its past, its present, its current people, technology and physical resources and from the aims, objectives and values of those who work in the organisation (Lynch 2003). In recent years there has been increasing recognition of the role that organisational culture plays in the formulation and implementation of firm strategies and in influencing the success of those strategies. According to Deal and Kennedy (1982) research, they also stated that organisational culture defines the success or failure of organisation. Therefore, it is important to understand culture in an organisation as to help organisational leader in making management decision and in achieving excellences strategy. It is necessary to view strategic management from a cultural perspective because successful organisational performance often rests upon the degree of support that strategies receive from the organisation’s culture (Hodge 1996).

Organisational Culture

Definition of Organisational culture and its importance to strategic management.

When any group of people live and work together for any length of time, they form and share beliefs about what is right and proper. They establish behaviour patterns based on their beliefs, and their actions often become matters of habit which they follow routinely. These beliefs and ways of behaving create the culture of the organisation. Culture is a pattern of shared tacit assumptions that was learned by a group as it solved its problems of external adaptation and internal integration, which has worked well enough to be considered valid in organisation and it is necessary to be taught to new members as the correct way to think, perceive, and feel in relation to those problems that occur in many organisation today (Schein 2009). Culture also influences the selection of people for particular jobs, which in turn affects the way in which tasks are carried out and decisions are made in an organisation. With the word of organisation added to the definition of culture, it can be defined as the patterns of beliefs, values and learned ways of coping with experience that have developed during organisation’s history, and which tend to be manifested in the behaviours of its members (Brown 1998). Organisational culture is the taken-for-granted assumptions and behaviours that make sense of people’s organisational context and it contributes to how groups of people respond and behave in relation to issue they face. It means that culture has important influences on the development of organisational strategy. Strong organisational cultures are important strategic asset as it is the heart of all strategy creation and implementation. In the early 1980s, Berry (1983) mentioned that by using culture, organisations could become more strategically effective. In order to support this statement, the popular global online book-seller known as amazon.com, used their culture which described as intensely customer-focused to drives their organisational strategy creation by focusing more on intensive training of each individual employee as these could reinforce the culture. As the result of using their culture and become more strategically effective, today’s amazon.com has become one of the most successful online shop worldwide (Bezos 2007). Moreover, an effective strategic leader should understand and shape the culture of organisation in order that vision can be pursued and intended strategic implemented. This is something that leaders of Apple Inc. have applied, by leveraging their culture of innovation toward product as well as internal processes; they have been able to survive among their competitors as well as venture into new and profitable markets. In fact that in third quarter of 2012, Apple Inc. has made more than $35 billion revenue as this determine their success in technology industry (Fekete 2001). Moreover, organisational culture is dependent on the leadership such as particular individuals. For example, organisational culture of the body shop company is based on the commitment of their founder, Anita Roddick, to produce only environmentally friendly products (McGuire 2009). Through her commitment, nowadays The Body Shop has grown and prospers to become large and international businesses. From all examples above, it shows us the connection between culture and strategy of an organisation is necessary in order to understand roles of culture that affect the creation and implementation of strategy in an organisation.

Key characteristics of culture in an organisation.

There are some key characteristics of culture in an organisation. Firstly, culture can be shaped by people as employees’ personality and experience create the culture of an organisation. For example, if most of employees are very outgoing, the culture in the organisation likely to be open and sociable. The other characteristics are culture is negotiated; this is because culture cannot be created by only individual person. Employees must try to change the work environment, the direction, the way work is performed, or the manner in which decisions are made within the general norms of the workplace. Its difficulty to change is another characteristic of organisational culture (Heathfield 2012). Changing in culture require people to change their behaviours. It is often hard for people to unlearn their old way of doing things, and to start performing the new behaviours consistently. It takes time and effort to change the culture in an organisation especially in firms with strong culture. Older strong culture organisations have established stories, use symbols, conduct rituals and even use their own language. In this type of strong culture organisations, the core values are widely shared, respected and protected. However, according to Beamish (2008) research, he argued that culture is not static. He mentioned although a strong culture is extremely resistant to change but culture is not static. Once a culture is established in an organisation, it tends to be reinforced by the types of leaders chosen, by the selection, induction and training processes, by the systems, procedures and structures, and by the statements and communications of senior leaders about the way things are done around organisation. In addition, overtime, the environment changes, new technologies develop, new social norms occur, and new competitors emerge, cultures will evolve to match these developments (Beamish 2008). For example, as new technology developed, CEO of General Electronic (GE), Jack Welch develop new strategy called’GrowYourBusiness.com’, aimed at getting the various businesses to embrace electronic commerce as the new way of doing business and this had a significant effect on the required culture (McGuire and Rhodes 1999). Benefits of electronic commerce are cost saving, provide faster answers for customers and offer more interesting assignments for employees. Nowadays most of GE’s customers are using web to track orders, sometimes right to the location of a delivery van and instantly getting details of products. The last characteristics of organizational culture is more than one culture might which means that two or more subcultures might exist in same organisation. However, most of the researchers assume that there should be a single culture for the organisation (Stanford 2010). It might be true for small or extremely focused or geographically concentrated organisations, but for organisations with a broad range of products, customers and geographical locations, separate subcultures are necessary. For examples, the China operation of a multinational manufacturer seeking low-cost production will have quite a different culture from its sales and marketing operation in Singapore and Australia, where the company is trying to present an up-market image. Therefore it is important for an organisation to have appropriate cultures in each unit and to be able to coordinate these cultures for the benefit of the organisation as a whole.

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Internal and external factors that impact organisational culture.

Organisational culture is subjective by several factors which affect its development, performance and growth. Organisational culture originates and keeps evolving from the dynamics of the interaction between internal and external factors (Wilson and Bates 2003). Internal factors consist of organisation’s values, leadership style and structure (Kwamme 2010). Values in an organisation determine the inner culture of each individual employee. Moreover, managerial focus and leadership style has known as the contributor of shaping organisational culture as it could preserve an innovative and creative culture in an organisation. Healthy organisational structure includes procedures, expectations and policies are likely for employee to be motivated, more efficient and creative that could influence the culture in an organisation. On the other, external factors that affect organisational culture, includes business relationships, technology, laws and policies (Kwamme 2010). Business relationships have a great impact on employee’s behaviour and the culture in an organisation. For instance, if an organisation has association with a further business and that business is based on high prospects, staff may react in their working as the reason of those high prospects. As the result of today’s technology advancement, it could lead to changing in culture of an organisation particularly with an increasing interaction between human and machine. Furthermore, technological creating competitive organisational culture as it reduces face-to-face interaction between human. Lastly, organisational regulations, policies and external work related acts significantly influences organisational culture, for example employee who work in organisation that performs a strict “work to rule” policy, they exhibit characteristics such as do things as they are told, less passionate about their job and refuse to be creative, thus it could directly change the whole culture in an organisation. This combination of internal and external factors will influence the organisation’s culture and have an effect on interpersonal relations. What is important is to be aware of it and to take account of how plans to develop the organisation may be affected by and affect its culture (Wilson and Bates 2003).

Organisational cultures and organisation’s performance

Studies of Peter and Waterman (1982) stated that high-performance organisations usually have strong organisational culture. A strong culture will help to align the elements required for effective implementation. Each organisation in same industry requires different business strategies. Different strategies require different cultures. Clearly, the culture of the organisation needs to be matched to the business strategy of the organisation. The issue is to align the culture with the strategy, not to seek some ideal culture. There are some views on the relationship between organisational cultures on organisation’s performance. The most common one known as strong-culture thesis, that assumed the commitment of employees and managers to the same set of values, beliefs and norms will have positive results that directly correlated with the level of profits in a company (Dess 2008). It is possible that success brings about a common set of orientations, beliefs and values. This culture may be more than just a by-product of high performances, but values and meanings may reproduce a successful organisation and thus contribute to performances. Since the cultural values are observable and measurable, it can be compared directly between organisations, employees and organisational performance. Recently, employee engagement has become a key measure of people’s commitment to the organisational culture and high scores have been linked to high organisational performance. For example, Italian eye ware and eye care company Luxottica improved its employee engagement and achieved improved performance. This company found that employees in its Australian and New Zealand operation of total 6500 people were disengaged and 56% of them did not understand the business strategy. However after employee engagement program was constructed which include understanding the culture of the organisation, Luxottica has achieved 15% of improvement in engagement, 30% reduction in recruitment costs and an 8% reduction in turnover (Story 2009). Many business leaders are convinced that culture does have a substantial influence on performance. Therefore, when an organisation performs consistently at their capability, the outcome is not only improved strategic success but also an organisational culture permeated with a spirit of high organisational performance.

Organisational culture influence on strategy

Because of its crucial role in organisation performance, it is necessary to examine the relationship between culture and strategy because chance of success will be higher if there is a close incident fit between culture and strategy. Organisational cultures should be accompanied by any changes in strategy of organisation; otherwise the strategy is probably failed. In other hand, if supportive cultural arrangement is supported by right strategy, most likely the strategy will be succeeding (Montanari, Morgan and Bracker 1990). The taken-for-granted nature of culture makes it centrally important in relation to strategy and the management of strategy. George Davis (2010), the founder of clothing retailers Next and GIVe, sees culture as central to management. He added that culture is the thing that makes us do things and stops us doing things. There are benefits in the taken-for-granted nature of culture. Josephine Dumont (2010) supported this view and stated that because of all employees take as given the way the firm operates, it reduces the need for constant supervision. The stronger the fit between culture and strategy, the less managers have to depend on policies, rules and procedures, which means that lesser supervision needed to enforce what people should and should not do. There are then benefits to the taken-for-granted aspect of culture. Moreover, a positive culture might influence in achieving strategy in an organisation. For example, Hong Kong and Shanghai Banking Corporation (HSBC) is the second largest financial institution in the world which comprises of more than 10,000 offices in eighty countries. HSBC has their own unique and effective culture as part of its strategic management. One of the known practices within the HSBC organisational culture is its regard for work-ethic endorsement. This practice involves the careful screening of employees with the necessary skills and high potential for improvement. Through this culture, the HSBC are able to create an effective workforce that is determined to succeed and is highly committed to work. It believes that when employees are highly committed with their job and always do their very best, it could help in achieving strategy and plan in an organisation. Business strategies of HSBC are to increase revenue growth, developing brand strategy further, improving productivity and maintaining the company’s prudent risk management and strong financial position (HSBC 2011).

According to appendix 1, it shows the effect of culture in an organisation to strategy development. In the situation of declining performance of an organisation, managers or leaders need to improve the implementation of existing strategy such as trying to lower cost, improve efficiency, tighten controls or improve accepted way of doing things. If this not effective, a change of strategy may occur, however change in line with the existing culture. For example, when there are attempts to change highly bureaucratic organisations to be customer-oriented so there is a need to change a culture’s of an organisation. However, some employees do not readily to accept the cultural change in an organisation as they are used to the culture they had before. People prefer the familiar and typical culture as to minimise uncertainty or ambiguity in the organisation.

The connection between success and culture may seem obvious as successful business is the result of successful execution of a good strategy, and therefore culture is all about execution (Stanford 2010). Strategy can be effectively implemented only when an organisation’s culture is both strong (consistent) and healthy (employees are engaged and committed, customers are satisfied and other stakeholders are included in organisational discussions). Appendix 2 summarises the link between the two through the case of Southern Airlines. They believe that the link between strategy and its culture are the one of the reasons that makes this organisation become successful. The culture in an organisation is strong as there is consistency of what people see, hear and feel about it and employees are clear of how things are done and are willing and able to help the airline achieve its goals. Furthermore, their business strategy is good includes stretching and addressing short-term and longer-term goals and they are clearly articulated. As the result of the strong culture and good strategy, Southern Airlines has reached their business success in airline industry. The CEO of Southeast Airline, Gary Kelly (2009) added that strong culture contributes to business success and is instrumental in some of the strategic decision of the organisation.

Organisational Culture and Strategic Decision

Nowadays, terms of strategic is used more often in its broader sense, including strategic decision. There are some important key elements of strategic decisions that are related primarily to the organisation’s ability to add value and compete in market place (Lynch 2003). This include making sustainable decisions that can be maintained over time, it must be able to delivers sustainable competitive advantages over its actual or potential competitors, it has to exploit the many linkages that exist between the organisation and its environment and lastly it must have the ability to move the organisation forward a significant way beyond the current environment. Therefore, it is the responsibility of strategic decision maker to reach and maintain key elements of good strategic decision to an organisation. It is important to a strategic decision maker to make decisions by considering the different cultures, agencies, agendas, personalities and desires in an organisation (Guillot 2003). Strategic decision makers must not only be aware of the culture within an organisation, but they must also work to shape an organisation’s culture to help achieve its objectives. If an organisation needs to improve the public’s perception of its customer service, then strategic decision makers must steer the organization’s culture so it promotes or encourages high achievement in customer service activities. Changing an organisation’s culture helps guard against unethical or illegal behaviour by members of the organization. Organisational culture directly affects how the members of the organisation view and interact with the environment the organisation operates in, including their interactions with the general public. For example, Howard Levin, President and CEO of Digicon Electronics, he took the time to understand the company as an organisation and he even undertook the benchmarking the company’s culture against companies with reportedly effective business culture and not just in that industry. Every operational improvement and new strategic decisions he undertook was linked to the new culture that he was building for the company. He was determined that the company would have a culture that would support enlightened leadership. Over time, the student of culture became the teacher as Digicon became an industry leader (Want 2006).

Conclusion

In conclusion, this academic essay has explored the role of culture in the overall scheme of organisation in terms of strategic management. An organisational culture is observable and powerful force in organizational that can influence the development and change of organizational strategy. Culture and strategic management of the organisation are closely tied together. Adjustment in one often signals the need for changes in the other. Therefore, strategic system approach emphasizes the need for alignment between culture and all other aspects of the organisation. It is important for organisation to have creative and learning organization in order to improve company’s efficiency and effectiveness, as well as being the source of inspiration on changing and improving organisation. Moreover, it is a power and beneficial potential when culture and organisation’s performance well integrated in a set of effective values, beliefs and behaviours with the purpose of achieving organisation’s systems since cultural values are observable and measureable through stakeholders (organization, employees and organizational performance). In addition, a chance of success will be higher in organization if there is a close incident fit between culture and strategy. When culture has clear values, beliefs and behaviours and it connects to the vision, objectives and strategic, it will encourage to the right behaviours and actions on supporting the strategy. Therefore, with understanding of organisational culture, strategic leader will be able to make a wiser decision by means adapting with external environment on strategy formulation and encourage and leads his/her people on strategy implementation.