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How Strategy and Culture Interact?

Conference Paper February 2013

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 How Culture and Strategy interact? A conceptual Model
By:

Muhamamd Zaheer

Muhammad Rizwan Saleem

Abstract:

Organizations start their working from sensing their environment. Information from sensing is
used by people, at all levels, in organization to formulate a strategy to create a fit between
organization and its environment. In this process culture of the organization plays central role
as it influences the strategy of the organization by influencing people involved in strategy
formulation. Sometimes when environment changes there is need to change the culture as
existing strategy fails to match with environment. The failure of strategy is determined by the
success or failure of the organization which is measured by the profit earning of the
organization.

Introduction:

Economic organizations aim at earning profit so that they could ensure their survival and have a
source to grow. Earning of profit is considered one of the main measures used to assess the
performance of an organization. Broadly speaking based on performance an organization may be
categorized as success or failure. Success or failure of an organization is assessed by different
measures and among those earning of profit is considered the most popular one. Earning of
profit is a financial measure and it results when revenues of the organization exceeds its total
cost. It is considered most important measure because it is the sign of the positive financial
health of the organization on which survival and growth of the organization depend.

The ability of a firm to produce good performance certainly depends on the strategy of an
organization. Strategy of an organization, in turn, depends on the environment and culture of an
organization. Environment is the sum name of all those factors and forces which not only
surround an organization but also affect the way it works and its performance (Bovee, Thill,
Wood & Dovel, 1993). According to Bovee et.al (1993) organizational environment is divided
into internal and external environment. External environment consists of factors outside an
organization that have the potential to influence an organization and its performance while
internal environment consists of the forces with similar potential that lie within an organization.
Most important factor in an organizations internal environment is its culture which has a
significant role in the effectiveness of its performance. According to its ability to influence,

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external environment is generally divided into two levels Macro /Broad/General and Micro/
Task/Specific environment (Kotler, 1997; Bartol & Martin, 1998; Griffin 2008). Macro
environment consists of demographic, political & legal, social & cultural, economic, natural and
technological forces which remain out of the control of an organization and have general
influence on an organization (Bovee et.al, 1993). The best way out suggested to an organization
to cope with macro environment is to adapt to it. Micro environment is the collective name of all
those factors which mainly make up the value delivery system of an organization. Customers,
suppliers, distributors and competitors are the factors normally included in micro environment of
an organization. Any organization can develop partnership with most of micro environment
factors for responding to the macro environment.

Culture of an organization is all about the way an organization and its people work. Culture of an
organization is generally known as organizational culture and it is the collective name of all the
norms, values, routines, rules & regulations, stories that guide the inside working of an
organization (Johnson, Scholes & Whittington, 2008). People inside the organization, people
include both employees at all levels and owners of the organization, are consciously or
unconsciously influenced by the culture of the organization. Organizational cultures are of
different type and intensity. As far as intensity is concerned organizational culture is classified as
weak or strong culture. Whatever is the strength of the culture, it does affect the way people
work and the resultant working of the organization.

Strategy of an organization is best described as an effort to create fit between organization and its
environment (Johnson et.al, 2008). Strategy of an organization may be formal or informal and it
is made at different levels in an organization. In strategy formulation process either people at all
levels play their role or it is made by the people working at the top. The interesting thing is to
understand that how culture and strategy interact to respond to the environment. Future of an
organization depends on its performance which is seriously affected by the strategy an
organization employs. This paper is aimed at exploring how strategy and culture interact and
affect the performance of the organization. It will also be explored that how performance may
become the cause of change in culture and strategy of the organization.

The paper is organized as firstly we will discuss culture, secondly strategy ,thirdly relationship
between culture and strategy, fourthly relationship between culture and performance and strategy
and performance and finally we will discuss our proposed model that how strategy and culture
interact.

Review of the Literature:

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As societies around the world have their cultures so do the organizations working in the social
environment have their distinct cultures. Culture differentiates one organization from another, in
management literature term culture is not that old (Schein, 1990). People have been talking
about organization climate and group norms (as in Hawthorne studies) the concept of culture has
been quite recent (Schein, 1990). According to Hofstede (2011) Culture is the collective
programming of the mind that distinguishes the members of one group or category of people
from others(P.3). According to Schein (1990) culture can be defined as:

(a) a pattern of basic assumptions, (b) invented,

discovered, or developed by a given group, (c) as it
learns to cope with its problems of external
adaptation and internal integration, (d) that has
worked well enough to be considered valid and,
therefore (e) is to be taught to new members as the
(f) correct way to perceive, think, and feel in
relation to those problems. (P.111)

According to Becker (1982) culture is "shared understanding developed by the members of an

organization as to how to respond in particular situations. Strength or consistency of a culture
depends on stability of the group, time period and shared experiences by the group that will
reinforce certain assumptions (Schein, 1990). In strong cultures, values are intensely held and
norms prevail. Whereas in weak cultures, values are changing and norms do not develop.
Organization culture develops a mindset that works within the invisible boundaries of culture.
Though culture is not written yet its effects are far reaching. According to Desson and Clouthier
(2010) organizational culture can be considered as the personality of an organization that
possesses its workers unique values, beliefs and inter-personal behaviors.

Harrison (1972) argued that organizational culture is of four types. He discussed that these four
types are power, role, task and person. He further explained that power culture encourages
domination of stronger over weaker and supports market domination and expansion strategies
whereas the focus of role culture remains on having well developed procedures. Role culture
mainly emphasizes on means instead of ends. Task culture encourages everyone in the
organization to always think of the mission of the organization. This type assigns more
weightage to ends rather than means. Harrison also elaborated the person culture and according
to him this culture gives central value to employees and provide them friendly environment with
personal development opportunities.

Quinn and Rohrbaugh (1983) have also presented four types of organizational culture based on
their competing values framework. According to their research these four types are clan,
hierarchy, adhocracy and market cultures. Tharp (2009) has well elaborated these four types as
that clan culture is a type of culture which is like an extended family and provides liberty to
people to live as family. In this culture people and their development are the main focus. Leaders
serve as mentors and show parental attitude. Hierarchy culture makes an organization driven by
strong and well defined rules and regulations. Leaders are mainly efficiency focused and
coordinate the activities well. In adhocracy culture emphasis is on creating new things in

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innovative way. This is a culture that demands innovation by encouraging a culture of creativity.
People are allowed to take risk and do experiments. Market culture is result driven which
encourages people to be competitive and add to productivity as much as they can.

Culture of an organization is something which needs to be understood as it affects all the

activities performed in the organization. It also affects the way organization responds to the
external environment. Most significant effort which was made to understand the apparently
invisible part of the culture was by Johnson et.al (2008). They presented the idea of cultural web
as a useful analytical tool to understand culture. In their words cultural web is as follows:

The cultural web shows the behavioral, physical and symbolic manifestations of a culture that
inform and are informed by the taken-for granted assumptions, or paradigm (Johnson et al
2008).

Johnson et al (2008) argued that cultural web is based on seven factors which are organizational
structure, power structure, control systems, ritual & routines, symbols, stories and Paradigm.
Detail of these factors can be seen from the figure 1 and table 1, below:

Fig. 1 Cultural Web of an Organization

Source: Johnson et al (2008)

Table 1

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Cultural Description Analytical question
manifestation
Organizational The formal and informal hierarchical How formal or informal are the
Structures relationships that constitute the structures?
management and power structure of the
organization
Control Systems Administrative systems which What is most closely
emphasize what is important to the monitored/controlled and why?
organization.
Rituals and The established protocol for doing What core beliefs do these reflect
Routines things. The symbolic underwriting of in management?
what is deemed as important in the
organization.
Stories One means through which the culture of What are the stories told and what
the organization is reproduced and core beliefs do these stories
advanced to new members by existing reflect?
members of the organization.
Symbols Signifiers of meaning beyond the What symbols act to censor and
immediate functionality of the symbol. control behavior?
Power Structures Those who control the expressive What are the core assumptions and
capacity of organizational members beliefs of top leadership?
including, some times top management.
Paradigm The assumptions that managers share How would you characterize the
about the nature of organizational dominant cultural assumptions that
experience. underpin the paradigm?
Source: Johnson et al (2008)

Cultural web explains (see table 1) the mechanics of a culture and to an extent we can have an
idea of the type of cultutre from the cultural web. This concept of cultural web can be of use
specially when it is important to understand that how cultutre affects strategy and how strategy
changes the culture.

According to the general understanding, strategy is a way-out or method adopted or crafted to

achieve the set aims or objectives. It is also argued that strategy is to create a fit between
organization and its environment (Johnson et al, 2008). Drucker (1974) has defined strategy as a
purposeful action. Moore (1959) considered strategy as design for action and Newmann and
Morgenstren (1944) believed that strategy is about providing choices to cope different situations.
Glueck (1980) believed that strategy is a comprehensive and integrated plan which is developed
to achieve the basic objectives of the organization. Porter (1996) has strongly argued that
strategy is about creating a different positioning in the market and it is necessarily attained by
making tradeoffs. Mintzberg (1987) has presented that strategies are both plans for future and
patterns from the past. Mintzberg and Waters (1985) and Mintzberg (1987) have argued that
strategies are of two types; deliberate and emergent. They discussed that deliberate strategies are
those which result in a formal planning whereas emergent strategies get shaped over the passage
of time as organization acts and learns. Mintzberg (1987) further elaborated that strategy can be a
plan, ploy, pattern, position and perspective. As a plan it is something intended and developed to

5
achieve an identified objective whereas strategy as pattern emerges unintended from the
consistent behavior of the organizations. Position view of the strategy emphasizes on getting a fit
between organization and its environment by having a distinct position with reference to the
competition. As perspective strategy is the manifestation of what is in the collective mind of the
organization. Mintzberg (1994) has discussed that formal planning is the phenomenon which
emerged in the mid of 1960s and it was considered as key to success in market.

Janicijevic (2012) and Johnson et al (2008) have explained the process of strategy making as the
sum of three main activities that are strategic analysis, generation of strategic choices and
selection of the most suitable one and putting that to practice. They elaborated that strategic
analysis includes the analysis of internal factors and external environment. Analysis of internal
factors includes the analysis of resources and skills of the organization. This analysis results in
the identification of strengths and weaknesses of the organization. External analysis which
studies the micro and macro forces existing outside the organization results in the understanding
of key opportunities and threats/challenges. Under the light of the results of internal and external
analysis strategic options are generated and then these are evaluated to select the most suitable
one. The selected strategy option is then put to practice.

Johnson et al (2008) discussed that strategy is crafted at three levels; corporate, business and
functional level. They further pointed out that corporate strategy sets direction for the
organization, business strategy deals with earning competitive advantage and operational
strategy helps achieve the competitive advantage. Porter (1985) has well explained that at
business level, any organization has three generic strategy options which are cost leadership,
differentiation and focus. Miles et al (1978) have discussed that strategies are of four types.
These are prospector, analyzer, defender and reactor. Prospectors are those organizations which
scan their environment, find out opportunities and offer innovative products to exploit the
opportunities. They are risk takers and believe in being ahead of others. Defender organizations
try to protect their existing market share and avoid risk taking. Analyzers study the environment
carefully and try to take calculated risks whereas reactors operate on ad hoc strategy without any
clear strategy directions.

Relationship between culture and strategy:

Baird, Harrison and Reeve (2007) have discussed that there is a relationship between culture and
strategy. They have also argued that both should be aligned for the success of the organization.
Gupta (2011) has not only confirmed the relationship between culture and strategy but also found
that in different types of industries, different cultures give rise to different types of strategies. He
further revealed that there is link between prospector strategy and adhocracy culture, clan culture
with analyzer strategy, hierarchy culture with defender strategy. Type of the culture has impact
on the quality of product and services introduced by an organization (Klein, 2011). He also
discussed that flexible and adaptive cultures help produce innovative products which result in
successful strategy.

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Naranjo-Valencia et al (2011) have argued that organizational culture determines the strategy of
the organization as they confirmed in their study that type of strategy an organization uses
depends on the culture of that organization. They also focused that innovation strategies are
produced by adhocracy culture whereas hierarchical culture gives rise to imitation. Scholz (2011)
has emphasized that there is a strong link between corporate culture and corporate strategy. He is
also of the view that for creating strategic fit, link between strategy and culture should be strong.
Yarbrough, Morgan and Vorhies (2011) are of the view that link between organizational culture
and strategy affects the results and performance of an organization. They shared that culture of
the organization affects those who make the strategy for the organization and the strategy which
is made affects the resultant performance of the organization.

Culture, Strategy & Performance of organization:

According to Hofer (1983) performance is a concept that has unique context related with the
phenomenon being studied. An organizations performance can be viewed from many different
angles and as a result interpretations of successful performance differ substantially (Carton,
2004). Success also differs with type of organization; for a non-profit organization success will
have different meaning (for example providing free education to primary students). For a profit
organization success might be attaining a particular net profit which may be used as indicator of
good performance. In this paper we have not confined performance to any particular organization
type (profit or not for profit) or any particular financial measure (for example profit). We have
taken a holistic view of performance in which achieving organizational objectives has been
considered as success otherwise a failure.

Shahzad et al (2012) have argued that culture of an organization has strong impact on
organizational performance. They have explained that strong cultures affect performance more
than the weak cultures. In their opinion culture affects the performance of employees and their
performance contributes to the organizational performance. They also discussed that if all the
employees are well aligned with culture, organizational performance could improve manifold.
Ilie and Gavrea (n.d) have mentioned that there is a relationship between culture and
performance of the organization but this relationship is unclear as different studies have
produced different results. There is association between performance and culture of an
organization (Chatman et al .n.d.). They further argued that strong culture if promotes the norm
of adaptability it can still ensure good performance in dynamic environment. Aluko (2003) has
confirmed the relationship between culture and performance with the emphasis that culture is not
the sole determinant of organizational performance.

Saffold and Trinity (1988) are of the view that performance of an organization is affected by its
culture but this relationship is strong in those organizations where cultures are strong. Rose et al
(2008) have shown that culture not only assists in improving the performance of organization but
also it plays a role when changes are required. Cultures of organizations are powerful enough to
influence the performance of the culture (Lee & Yu, 2004). They have further explained that

7
culture influences the processes of organization which in turn affects the performance. Gordan
and Ditomoso (1992) have also argued that not only culture and performance are linked but also
strength of cultures has a role to play in the performance of organization.

Andrews, Boyne and walker (2003) are of the view that strategy of an organization definitely
affects its performance in positive and negative way. They concluded that prospector strategy has
positive and defender strategy has negative relationship with the performance of a firm. They
also added that those firms which have strategy to find out new markets perform far better than
those which remain in existing markets. Snow and Hrebiniak (1980) suggested that strategy of
an organization has a link with its distinctive competence and performance. They explored that
prospector, analyzers and defenders outperform reactors. Allen and Helms (2006) tested and
confirmed the relationship between strategy practices and performance for example Porters
generic strategies and firm performance. Their argument also realized that different generic
strategies have different impact on the performance of a firm. Conant, Mokwa and Varadarajan
(1990) also confirmed the superior performance of those organizations which employ prospector
strategy. They explained that prospectors have superior marketing competence which helps earn
superior and distinct performance compared to other organizations. Effective operational strategy
such as just in time has a significant role to play in the performance of an organization ( Ahmed,
Montagno & Firenze, 1996). Further to the previous role of HR strategy is also proved to be
significant in performance of an organization (Youndt et al, 1996).

Conceptual Model: How culture & Strategy Interact?

Explanation:

Different Parts of model:

For the better understanding a simple model has been used in the paper. In the model there are
two boxes; Box O and Box E. Box O represents organization and Box E represents the
environment. Result of the interaction of the two boxes appears in terms of success or failure
which is shown on the right of the boxes.

Box O stands for the organization and in the organization C & P are visible. C stands for culture
and P stands for people and numbering of P shows the different level of people working in the
organization. Flow of Arrows from different dimensions of C to P shows the influence of culture
on people. Arrows are two ways which shows that not only culture influences people but people
also influence the culture of the organization. Arrows are also flowing from P1 to P2 to P3,
which shows the flow of information and influence of different levels of people on one another.
People here include both employees and owners of the organization.

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Box E stands for the environment with which any organization interacts. Box E is divided into
two parts; E1 and E2. E1 and E2 represent two different environment situations .e.g. E1 shows
initial environment and E2 stands for environment after change.

R is the arrow which results in the interaction of organization and environment. R may be
success or failure. Success shows the fit between organization and its environment and failure
results in when organization fails to match with its environment.

People (P,P1,P2,P3) By People we mean both employees and owners of organization

working in the organization. Different numbers with P shows
people working at different levels of hierarchy of organization.
Environment (E1,E2) Environment includes both macro and micro environment.
Success Success means organization is meeting objectives (earning profit
for example).
Failure Failure means organization is not meeting objectives (not earning
profit for example)

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 Fig. 2 How Culture and Strategy interact? A conceptual Model

Part A

Learning

(O) Organization (E) Environment

Culture (C) E1: Factors
Sensing
People (P) Culture, Political, Social

C Economic, Technological

C P1 C Strategy Results
P2 Supplier, Buyer & Competitor

P3

Success Failure

10
 Part B

Learning

(O) Organization (E) Environment

Culture (C) E2: Factors
Sensing
People (P) Culture, Political, Social

C Economic, Technological

C P1 C Strategy Results
P2 Supplier, Buyer & Competitor

P3
Change
C

Failure

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Working of diagram:

Arrow from Box E to O shows the environment sensing of the organization; which type of
environment is there or what are different environment realities. Actually organizations start
their working from this step. After the environment sensing, people of the organization think or
act to respond to the environment. Their thinking is known as attempt to formulate strategy to
create fit between organization and its environment. People in the organization are influenced by
the culture of the organization. As we know that culture of the organization is all about the way
an organization works. Culture definitely influences the way people think and act. It is also
noticeable that history of the organization does affect the culture of the organization and every
event which is happening is becoming the part of history (Johnson et al, 2012). Arrows in Box O
clearly show that on one hand culture influences the people during strategy making process and
on the other hand people at different levels influence each other. This is very interesting to note
from the study of Mintzberg (1987) that strategy is the manifestation of the organizational
culture. Arrow from Box O to Box E shows the strategy of the organization that aims at creating
a fit between organization and its environment. Strategy has created a fit or not depends on the
result, if result is success, shown by resultant arrow on the right of the diagram, fit has been
created or vice versa. Whatever is the result of the interaction of organization and its
environment; it feeds back to the organization as learning and becomes the part of its history.
Arrow from Result to Box O shows the learning of the organization. This learning of the people
also becomes the part of the culture by strengthening it or challenging it.

Now we move to the part B of the diagram which is exact replica of part A except one difference
and the difference is new environment situation represented by E2. In this part it is shown that
strategy of the organization does not create a fit with environment because the result is failure.
This failure demands change in strategy which requires change in existing culture of the
organization. It is well known that changing culture is not an easy task. Initially it demands the
assessment of the magnitude of change and then a suitable strategy to change the culture. For
assessment of the type of change model by Balogun and Halley (1999) can be used. This model
helps identify the type of change. According to it required change can be of four types;
Adaptation, evolution, reconstruction and revolution. After assessment of type of change, next
step is to map the change by using cultural web presented by Johnson et al (2008). Once the
mapping is complete change may be introduced by using the model of Kurt Lewin. The model
suggests that for changing culture first existing values are unfrozen and then change is
introduced. Once change has been introduced new values are again frozen. This is represented by
the arrow flowing from environment to organization and labeled as change. This is how strategy
influences the culture. This model was making it conceptually clear that how culture affects
strategy and vice versa.

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Concluding Remarks:

Discussion of the model and review of the literature clearly show that there is a relationship
between culture and strategy. This is a two way relationship in which culture shapes strategy and
strategy changes culture. Initially culture of the organization influences the people working at
different levels of organization, who in return transfer the influence of culture to strategy while
strategy making process. The resultant strategy then becomes the manifestation of culture. But
when environment changes and existing culture fails to produce a strategy for creating fit with
environment, need for changing culture arises. Change in culture may be made possible by using
any suitable model of change. This paper has implications for both theorist and practitioners.
Practitioners may learn to create a match between strategy and culture whereas theorist may
explore new ways to understand the culture and strategy of the organization.

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