Choose and evaluate one example of a current global corporation and how they managed their global organizational structure.

Using the attached references, choose and evaluate one example of a current global corporation and how they managed their global organizational structure. Must be at least 300 words and in APA format.

Drivers and export performance impacts of
IT capability in ‘born-global’ firms: a
cross-national studyisj_404 419..44

Man Zhang,* Saonee Sarker† & Suprateek Sarker‡

*Management Department, Bowling Green State University, BA 3009, Bowling Green,
OH 43402, USA, email: mzhang@bgsu.edu, and Department of Entrepreneurship and
Information Systems, Washington State University, Pullman, WA, USA, †email:
ssarker@wsu.edu, and ‡email: sarker@cbs.dk

Abstract. Past research focusing on large firms has argued that information
technology (IT) capability enhances firm performance. However, these studies
have seldom explored why firms develop IT capability, and have also left a void the
understanding of the role of IT capability in Small- and medium-sized enterprises
(SMEs). This study attempts to fill that void by examining the effect of relevant
environmental and firm-level factors on IT capability, and the effect of

IT capability

on the export performance of Chinese and US born-global firms, a special breed
of export-focused SMEs. Results indicate that environmental factors such as
information intensity, and firm-level factors such as international entrepreneurial
orientation, prompt born-global firms to develop IT capability. Further, our results
also strongly emphasise the positive role that IT capability plays on the perfor-
mance of born-global firms. Finally, a comparative analysis of the Chinese and US
born-global firms revealed a lack of a cross-cultural difference in the factors
leading these firms to develop IT capability, therefore supporting the ‘convergence’
perspective in cross-cultural research.

Keywords: IT capability, born-global firms, resource-based view, international
market performance, export-focused SMEs, national culture and IT

I N T R O D U C T I O N

Small- and medium-sized enterprises (SMEs) make significant contributions to the global
economy. SMEs not only play important roles in developed countries, such as the USA, but

An earlier version of this paper appeared in the ICIS Proceedings in 2007. The authors thank the attendees of the session,

especially Huseyin Tanriverdi and the discussant, Leiser Silva, for their constructive comments. The authors also greatly

appreciate the inputs and encouragement of the Senior Editor, Robert Davison and the review team for this paper at the

Information Systems Journal.

doi:10.1111/j.1365-2575.2012.00404.x

Info Systems J (2013) 23, 419–443 419

also make a significant contribution to developing countries, such as China. For example, in
China they contribute to 99% of the country’s enterprises, 40% of gross domestic product,
60% of exports and 75% of job opportunities (LEAD International, 2003). While about 600 000
new SMEs establish business each year, more than 500 000 existing SMEs face closure
(Small Business Administration Office of Advocacy). How to survive the challenges of
changing environment and competition is a critical question for SMEs. For many scholars,
developing and utilising appropriate information technology (IT) capability is part of the
answer.

According to Rivard et al. (2006, p. 30), the ‘contribution of Information Technology (IT) to
the achievement of business objectives is an important management issue’, both for academ-
ics and for practitioners in today’s digitised world. On similar lines, Feeny et al. (2003, p. 115

)

note that the ‘role of IT capabilities as sources of sustained competitive advantage is now
well-known’. It is thus not surprising that ‘numerous studies’ have sought to examine the role
of IT capability on a firm’s competitive advantage and performance (Rivard et al., 2006, p. 30).
While prior research has undoubtedly informed our understanding of the IT capability construct
and its impact on firm performance (e.g. Bharadwaj, 2000; Bhatt & Grover, 2005), a review of
the literature suggests that studies seldom explore why firms develop IT capability. Also,
empirical examinations on IT capability have typically been conducted primarily on large North
American firms. Yet, past research shows that knowledge based on large firms can not
automatically be considered valid for small- or even medium-sized businesses (e.g. Hunter,
2004).

Indeed, SMEs differ from large firms in various ways (see Table 1 for a summary). Apart from
suffering from resource constraints and having other structural differences, SMEs also differ
from large firms in the type of strategy they use for achieving competitive advantage. Specifi-

Table 1. Possible differences between large firms and SMEs

Category Large firms SMEs (including born-global firms)

Scope of operations Greater, in diverse markets Less

Resources Relatively abundant Resource-poor

Flexibility Not high Flexible and efficient, but bound in

complicated organizational structures (e.g.

Pratten, 1991)

Research and

development (R&D)

Higher resources available and spent for

R&D and maintenance

Little or no resources available for R&D and

maintenance (Johnston & Wright, 2004)

Relationship with

supply chain

Greater control; and therefore can demand

services and quality from vendors, etc.

Little control over vendors, and believes in

‘responsible behavior’ from them (Perrini

et al., 2007)

Strategy/

management

style

Disperse production globally and likely to

adopt single sourcing (Tam et al., 2007)

Prefer multiple sourcing and use combination

of in and outsourcing

Knowledge

management

Employees and artefacts sources of

knowledge

Social interaction-based

Management Formal Informal approaches, less likely to commit to

written policies (e.g. Gray & Mabey, 2005)

420 M Zhang et al.

cally, SMEs tend to rely on using informal social networks (termed as ‘guanxi’ in China,
‘Kankei’ in Japan, ‘immak’ in Korea, or ‘blat’ in Russia) to serve as the initial basis from which
formal networks of business linkages are developed and through which exporting relationships
are formed (Styles & Ambler, 1994; Ellis, 2000; Ellis & Pecotich, 2001; Sapienza et al., 2005).
Unlike large firms, SMEs also often have to reconfigure themselves at short notice, including
building new processes and business models, complementary assets and methods in an effort
to take advantage of new opportunities that may come up unexpectedly (Jantunen et al.,
2005).

Given (a) that SMEs currently constitute a significant proportion of the economies of
countries, especially those of developing nations such as China; (b) that many SMEs around
the world fail within the first few years of their inception (e.g. Watson & Everett, 1996); and (c)
that SMEs differ from large firms in multiple ways, we believe that it is particularly important to
specifically study IT capability of SMEs in today’s global context.

Recently, a special breed of young and export-focused SMEs has drawn the attention of
academics as well as consultants. These organisations, sometimes referred to as born-
global firms, enter the global marketplace soon after their inception, in many cases,
by-passing the domestic market (e.g. Knight & Cavusgil, 1996). One of the striking features
of born-global organisations is that, despite their ‘resource poverty’, they need to develop a
unique set of capabilities that would allow them to leapfrog the stages of internationalisation
and compete effectively with firms having access to much larger resource pools (Kundu &
Katz, 2003). IT capability, one of the key organisational capabilities associated with today’s
organisations (Barney & Clark, 2007), has a potentially important role to play in the success
of born-global firms, which need to rapidly gain access to distant markets; to acquire, inte-
grate and assimilate information about markets and competitors; to maintain a tight network
of relationships within the firm and with external partners; and to develop a high level of
agility/efficiency in order to deal with the dynamic global environment (e.g. Feeny &
Willcocks, 1998; Knight & Cavusgil, 2004). Indeed, Arenius et al. (2006) suggest that born-
global firms can realise superior international performance by developing greater IT capa-
bility. They contend that such firms suffer from the liability of foreignness (arising from the
costs associated with transportation, etc., to foreign markets and lack of familiarity with
the foreign nation’s business environment) and from resource scarcity. IT can help mitiga

the effects of both of these inhibitors. Others suggest that ‘technological capability’ in SMEs
is an enabler of global competitiveness (Dhungana, 2003, p. 7). Moreover, in uncertain
environments, firms must rapidly innovate, adapt and reconfigure themselves to match the
changing environment. IT capabilities can help firms to respond to uncertain environments
with access to information, enhanced information flows and enhanced collaboration (El Sawy
& Pavlou, 2008). Yet, research offers little guidance on the circumstances that prompt born-
global firms to develop IT capability, and what the impacts of such capability are, in born-
global firms. Thus, we seek to offer a contribution in this important arena by addressing a
set of related research questions:

RQ1: What key factors lead born-global firms to develop their IT capability?

IT capability in ‘born-global’ firms 42

A secondary research objective of this study is to confirm, in the context of born-global firms,
what is accepted in the literature for larger firms – the fact that IT capability of export-focused
born-globals has an impact on their international performance. Formally:

RQ2: Is higher level of IT capability associated with stronger international performance of
born-global firms?

We examine the abovementioned research questions through an empirical study of born-
global firms in China and the USA. We selected born-global firms from the two countries as
part of our sample due to a number of reasons. First, born-global firms exist throughout the
developing and the developed world, contributing significantly to their national exports.
Second, their prospects are believed to be particularly promising in developing countries, such
as China, where a large proportion of revenues for SMEs come from exports. Third, the USA
and China are seen as being distinct in terms of a number of factors such as economic
development and especially culture (e.g. Martinsons & Westwood, 1997). We believe that a
comparison between these two diverse nations, where export-focused SMEs play an important
role in their respective economies (OECD, 1997), can potentially reveal interesting insights
regarding IT capability, and shed light on the third research question:

RQ3: What (if any) are the differences in the antecedents and consequences of IT capabilities
arising from the differences in national contexts of the born-global firms?

T H E O R E T I C A L F O U N D A T I O N O F T H E S T U D Y

Born-global firms

Born-globals are SMEs that engage in international operations soon after their inception (e.g.
Knight & Cavusgil, 1996; 2004; Rialp et al., 2005). Different terms have been used to define
born-globals, such as international new ventures, global start-ups, instant exporters, instant
internationals, amongst others (e.g. Rialp et al., 2005). Irrespective of the terms used, it is
widely acknowledged that such firms ‘go international’ soon after formation (Rialp et al., 2005,
p. 135), breaking the rules of stage-wise internationalisation, typically associated with tradi-
tional and large organisations. Based on prior research (e.g. Knight & Cavusgil, 1996; Ras-
mussen & Madsen, 2002), we define born-global firms as young (i.e. ‘born’ after 1980) and
export-focused (i.e. having export sales of at least 25%) SMEs (i.e. having less than 500
employees).

Research model

In developing our model, we drew on prior research that highlights the important role of both
firm-level factors (e.g. Earl & Feeny, 1996) and environmental factors (e.g. Clemons, 2003) on
a firm’s initiative to develop IT capability. Earl & Feeny (1996) argue that there are three
firm-level ‘imperatives’ (or drivers) of IT in global firms: (1) They not only strive to achieve

422 M Zhang et al.

economies of scale but also ‘go further’ in an effort to seek/create new international opportu-
nities – such a characteristic has been referred to as international entrepreneurial orientation
(Knight & Cavusgil, 2004). (2) They focus on local responsiveness to markets and customer
needs around the globe – this is referred to as international marketing orientation (e.g.
Cavusgil & Zou, 1994). (3) They focus on knowledge creation and sharing, both within and
across functional units and locations – this is referred to as the organisation’s learning
orientation (e.g. Sinkula et al., 1997). In this paper, we examine the influence of these three
firm-level factors on IT capability.

In addition, researchers point to environmental uncertainty and information intensity as being
two key environmental factors affecting the role of IT in enhancing the business performance
of organisations (e.g. Bhatt, 2000; Clemons, 2003; Kearns & Lederer, 2004). Specifically, it has
been argued that these two factors can ‘influence the effectiveness of planning mechanisms
and the firm’s ability to earn adequate returns on IT investments’ (Kearns & Lederer, 2004, p.
900); thus, these variables are also included in our model.

Finally, consistent with resource-based view (RBV)-based arguments, which suggest that IT
is a form of organisational capability that can be developed into a valuable, rare and not easily
imitable asset, thereby having a significant effect on firm performance (e.g. Bharadwaj, 2000;
Wade & Hulland, 2004), we also sought to examine the effect of IT capability on born-global
firms’ international performance.

IT capability

IT capability is a complex construct and has been in the past conceptualised as managerial
capabilities or as technological capabilities (Zhang et al., 2008a). Recently, researchers have
proposed a more integrative view of IT capability, suggesting that it is composed of technical
skills and information technologies within the firm (i.e. the technology components), as well as
the managerial resources (e.g. Bharadwaj et al., 1999; Bharadwaj, 2000; Bhatt & Grover,
2005). Within the information systems (IS) discipline, the rich multidimensional RBV-informed
conceptualisation of IT capability by Bharadwaj et al. has been widely adopted. Bharadwaj
et al. (1999) define IT capability as a firm’s ability to acquire, deploy, and leverage its IT-related
resources in combination with other resources and capabilities in order to achieve business
objectives, and suggest that the IT capability construct is composed of six underlying dimen-
sions (pp. 379–381). They are IT business partnerships, external IT linkages, business IT
strategic thinking, IT business process integration, IT management and IT infrastructure.

IT business partnerships refer to the firms’ ability ‘to foster rich partnerships between the
technology providers and technology users’ (Bharadwaj et al., 1999). In other words, this
sub-construct captures the existence of dialogue between business and IS professionals and
the development of users’ understanding of IT’s potential. External IT linkages refer to the
‘technology based linkages between the firm and its key business partners’ (Bharadwaj et al.,
1999). Specifically, it refers to IT such as extranets and other electronic distribution channels
that can facilitate sophisticated interactions between suppliers and customers and foster the
sharing of useful knowledge (Zaheer & Venkatraman, 1994). IT business strategic thinking

IT capability in ‘born-global’ firms 423

reflects the importance of integrating IT and business strategy (Feeny & Willcocks, 1998) and
is concerned with the management’s ability to ‘envision how IT contributes to business value’
and ‘to integrate IT planning with the firm’s business strategies’ (Bharadwaj et al., 1999). The
sub-construct of business process integration refers to the firm’s ability to streamline existing
business processes through the use of IT (Bharadwaj et al., 1999). IT-enabled process
integration enables firms to improve cross-functional processes, which tend to be compart-
mentalised into silos, and consist of a large number of complicated interdepartmental pro-
cesses, thereby making an organisation more flexible and agile. IT management refers to the
firm’s ability to effectively implement IT project management practices, systems development
practices, IT evaluation and control systems, etc. Finally, a firm’s IT infrastructure is composed
of its computer and communication technologies, its technical platforms and its shared data
stores (e.g. Bharadwaj, 2000). Wade & Hulland (2004) suggest that this multidimensional
definition of IT capability proposed by Bharadwaj et al. helps clarify how IT capability affects a
firm’s financial and strategic performance. Given this acknowledgement, and the inclusive and
comprehensive nature of the definition, we adopt the same in this study.

Environmental factors and IT capability

Kearns & Lederer (2004) argue that the two key environmental factors, environmental uncer-
tainty and information intensity, affect the ‘IT focus of the firm’, and hence the extent to which
a firm develops its IT capability. This, we believe, is true for born-global firms as well, where the
need for information technologies and related capabilities is expected to depend on the
environmental uncertainty in the export-market environment and the information intensity
associated with the product/service exported.

Environmental uncertainty refers to ‘those situations where the probability of the outcome of
events is unknown’ (Duncan, 1972, p. 317). Literature suggests that environmental uncertainty
is composed of three components (Duncan, 1972, p. 317): (1) the lack of clarity of information;
(2) the time span in which feedback is received; and (3) the uncertainty in the causal
relationships.

Kearns & Lederer (2004, p. 902) note that uncertain environments create need for more
innovation, and consequently, firms facing such environments rely more heavily on IT-related
capabilities. Specifically they argue that environmental uncertainty: (a) places time constraints
on decision-making; (b) requires that the IT plan be aligned with the business plan; and (c)
needs IT resources to ‘continue to support business strategies and take advantage of emerg-
ing opportunities’. All of these requirements increases a firm’s dependency (and by extension,
its investments) on IT capability (Kearns & Lederer, 2004). Further, it has been argued that
during times of environmental uncertainty, superior capabilities of collecting information (e.g.
IT) can enable a firm to ‘stumble’ upon unexpected information, which can be beneficial in
achieving competitive advantage (Barney & Clark, 2007, p. 45). Similar to large firms, born-
global firms also have high information processing/acquisition needs in uncertain environ-
ments (e.g. Karimi et al., 2004), and this, in turn, should prompt decision-makers to develop
greater IT capability.

424 M Zhang et al.

H1: There is a positive relationship between environmental uncertainty and IT capability in
born-global firms.

Similar to environmental uncertainty, the information intensity may also be argued to drive an
organisation’s development of its IT capability. Information intensity is the extent to which
organisations dealing with certain products/services are dependent on information (Bhatt,
2000; Kearns & Lederer, 2003). Teo & King (1997a,b) suggest that in high information-
intensive industries, operation of products or services require substantial information process-
ing. For example, firms operating in industries with complex products, such as an aircraft,
require substantially more information than in industries with simple products, such as furniture
(Kearns & Lederer, 2003). It has been argued that firms operating in more information-
intensive environments are likely to make a higher level of investment in IT capability (e.g. Teo
& King, 1997a,b; Kearns & Lederer, 2004) so as to maintain their ability to rapidly change
business processes, products and activities (Bhatt, 2000).

H2: There is a positive relationship between information intensity and IT capability in
born-global firms.

Firm factors and IT capability

As discussed earlier, drawing on the suggestions of Earl & Feeny (1996), our model proposes
the effect of three different firm-level factors on IT capability in born-global firms. The factors
are: international marketing orientation, international entrepreneurial orientation and organisa-
tional learning.

International marketing orientation refers to a mindset associated with the achievement of
superior performance by focusing on and being responsive to the needs of customers located
in other countries (e.g. Cavusgil & Zou, 1994). Specifically, marketing orientation has been
defined as the process of: (1) generating marketing intelligence; (2) disseminating marketing
intelligence; and (3) responding to marketing intelligence (e.g. Kohli & Jaworski, 1990). Knight
& Cavusgil (2004, p. 130) define it as ‘a managerial mindset that emphasizes the creation of
value, via key marketing elements, for foreign customers’. Pelham (2000) suggests that firms
with such an orientation must have greater flexibility and better capacity for speeding up
innovation. Such firms would need to gather and analyse more information about customers’
needs and to interact more efficiently with them, and thus strive to develop superior IT
capability.

H3: There is a positive relationship between international marketing orientation and IT
capability.

International entrepreneurial orientation refers to the firm’s overall innovativeness and pro-
activeness in the pursuit of international opportunities (Knight & Cavusgil, 2004). McDougall &
Oviatt (2000, p. 903) define it as ‘a combination of innovative, proactive and risk-seeking
behavior that crosses national borders’. Having an international entrepreneurial orientation
implies that these firms make a ‘leap’ into several international markets, as opposed to gradual

IT capability in ‘born-global’ firms 425

expansion across national borders (e.g. McDougall et al., 1994). Such entrepreneurial firms
continually seek new capabilities, including technologies, that improve organisational perfor-
mance (e.g. Zahra et al., 2000; Choi & Shepherd, 2004) and enable them to plan flexibly, set
realistic goals and make strategic changes responsibly. They thus, frequently depart from
existing ways of work and invest in new technologies (Lumpkin & Dess, 1996), which provide
analytical decision-making support and open networking possibilities with potential partners.

H4: There is a positive relationship between international entrepreneurial orientation and IT
capability in born-global firms.

Organisational learning orientation refers to an organisational focus towards creating, dis-
seminating and utilising knowledge for smooth adaptation to marketplace changes as well as
for questioning taken-for-granted organisational values and practices and revising them
(Sinkula et al., 1997). A learning orientation influences what kind of information is gathered,
how it is interpreted, evaluated and shared (e.g. Dixon, 1992; Sinkula et al., 1997). Earl &
Feeny (1996), amongst others, argue that a focus on learning usually prompts an organisation
to invest more on the informating capabilities of IT, such as superior communication networks
for fostering sharing and learning, and globally accessible knowledge bases and related
processes for codifying and distributing scarce expertise and best practices.

H5: There is a positive relationship between organisational learning orientation and IT
capability.

IT capability and international performance

The positive relationship between IT capability and firm performance has been validated in
prior research (e.g. Bhatt & Grover, 2005). Barney & Clark (2007, p. 156) suggest that several
dimensions of IT including IT management skills (based on the ‘socially complex relations
within the IT function, between the IT function and other business functions in a firm, and
between the IT function and a firm’s suppliers and customers’), amongst others, can enhance
a firm’s competitive advantage. It has been argued that IT capability can potentially lead to high
performance in export-focused organisations as well due to the following reasons: (1) the
pursuit of high value-added applications of IT to maintain a competitive edge (Feeny &
Willcocks, 1998); (2) the reduction of costs for communicating with foreign customers/suppliers
and for gathering information about foreign competitors; and (3) the support/enhancement of
distinctive competencies and skills in other business functions (Prasad et al., 2001). While we
are not aware of empirical studies specifically exploring the impact of IT capability on interna-
tional performance of born-global firms, fragmented literature on SMEs indicates that such
firms are also likely to benefit. Arenius et al. (2006) e.g. suggest that born-global firms can
realise superior international performance by developing greater IT capability, especially given
that IT has the ability to mitigate the effects of two key constraints faced by these organisations
– the liability of foreignness and resource scarcity.

426 M Zhang et al.

H6: There is a positive relationship between IT capability and the performance of born-global
firms.

Cross-cultural differences in the predictors of IT capability

Our third research question in this study was directed towards understanding the cross-
national differences (if any) in the predictors and effects of IT capability. As discussed earlier,
China and the USA have distinct cultures. China differs significantly from Western cultures on
many established cultural dimensions (e.g. it has high power distance and high collectivism as
opposed to Western nations such as the USA, which have low power distance and high
individualism). In addition, there are other aspects of the Chinese culture that affect how IT is
perceived and utilised. We discuss these cultural characteristics below.

Based largely on Confucianism, the Chinese management culture is known to emphasise
issues such as personal relationships amongst people, morality and organisational citizenship
behaviour, control by a ‘paternalistic’ figure and harmony within organisations (Bond, 1991;
Pun et al., 2000). In Confucianist China, managers tend to avoid the use of IT-based commu-
nication, because it can potentially lead to status equalisation (Martinsons & Westwood, 1997).
The Chinese business culture also adheres to ‘horizontal coordination’ through guanxi and
‘personal networks’ (Hofstede, 2001, p. 362; Shin et al., 2007). Because of this emphasis on
guanxi and personalism, Chinese organisational members initiate and maintain contact and
communication through written memos and face-to-face interaction (Martinsons & Westwood,
1997) rather than IT. Further, Davison & Ou (2010) have also argued that owing to guanxi and
the reliance on ‘in-group’ communications, the Chinese preference for communication and
knowledge sharing technologies are also different. Instead of formal knowledge repositories
and communication portals, informal, low-budget tools, such as IMs or blogs, which are
synergistic with informality and flexibility, and are also affordable for resource-poor SMEs,
have been more preferred. Another unique Chinese cultural characteristic is termed as ‘adjust-
ing trust’ (Du et al., 2011b). This type of trust refers to the relationship that originates from the
interactive adjustment of trust amongst a trustor and a trustee, in an effort to keep a balance
between a trustor and a trustee. Such adjustments often occur without the intervention of IT.

Further, the Chinese culture also emphasises high-context communication (e.g. Davison,
2002). The inability of IT to appropriately capture the context results in many Chinese man-
agers finding little value in the use of IT for both internal and external communication,
especially in situations of high uncertainty or high information intensity. Finally, the nature of
Chinese language makes it a challenge to translate systems developed by Western organi-
sations to the Chinese language, accurately and thoroughly (e.g. Zhang et al., 2008b). Even if
they are translated, significant rework is often required, leading to inefficiencies, and a less-
ened effect of IT on the performance (Davison, 2002).

H7: Drivers of IT capability and the effect of IT capability on the performance of born-global
firms will be different in China and in the

USA.

IT capability in ‘born-global’ firms 42

R E S E A R C H M E T H O D

Data collection

To test the hypothesised relationships, we used a survey methodology. First, the survey was
administered to born-global firms in China in 2004. Consistent with the widely accepted
definition of born-global firms by Knight & Cavusgil (1996), we operationalised born-global
firms as follows: (1) these firms were established after 1980 (i.e. they are relatively young) and
entered foreign markets from or soon after their inception; and (2) international sales constitute
at least 25% of their total sales, indicating strong export focus.

In China, to overcome problems related to the absence of adequate postal systems and lack
of reliable archival data (Li & Atuahene-Gima, 2001), instead of the ‘mail survey’ approach, the
alternate (and often recommended) ‘key informant technique’ was used (e.g. Lambe et al.,
2002). In order to increase the accuracy of our data, prior to administering the surveys, they
were pilot tested. Data were collected using an on-site interview, whereby a trained interviewer
completed the questionnaire based on the responses of a designated key informant in the
organisation (e.g. Li & Atuahene-Gima, 2001; Bhatt & Grover, 2005). This practice contributed
to gaining access to the right respondents, to ensuring correct/consistent understanding of the
terms and to obtaining more accurate responses (Li & Atuahene-Gima, 2001). Our data
collection effort focused on organisations located in and around Chengdu and Zhengzhou in
Western and Central China, respectively. Top management of 180 of the 240 firms contacted
in China agreed to participate in the study. Our data collection efforts finally yielded 13

completed questionnaires. Given that our study was focused on born-global firms (which, as
mentioned earlier, are a type of SMEs), from this data set of 136 completed questionnaires, we
deleted those firms that had more than 500 employees (this is an often used, although not
universally accepted criterion for organisations to be classified as SMEs). Deletion of the firms
with greater than 500 employees and having other missing data reduced the Chinese data set
to 81 firms.

Next, the survey was administered to firms in the USA. In the USA, firms were
identified primarily via two databases: Directory of United States Exporters and CorpTech
Directory of Technology Companies (version 2000). Data collection in the USA yielded 185
complete questionnaires. After applying the same criteria used for the Chinese sample (con-
sistent with the criteria of Knight & Cavusgil, 2004), the USA data set was reduced to 66
firms.

The descriptive statistics of the sample (i.e. age, number of employees, exports) are
provided in Table 2, showing that the firms were young SMEs, with high proportion of revenues
coming from exports.

Measures

All measures used in the survey were adapted from established studies. In preparing for data
collection in China, the scales were professionally translated to Chinese, with back-translation

428 M Zhang et al.

and refinements undertaken by two independent bilinguals, as suggested by Douglas & Craig
(1983). Unless otherwise stated, items were measured on a scale of 1 (strongly disagree) to
7 (strongly agree).

IT capability, the core construct in this study, was measured using the scale developed by
Bharadwaj et al. (1999). The measures of each of the dimensions in this scale were considered
‘reliable and valid’ and were found to have good psychometric properties (Wade & Hulland,
2004). Further, the scale had been validated in prior studies based on a survey of senior
executives, and thus seen as appropriate for our study, which also uses organisational survey
data.

Firm performance, especially of large and multinational organisations, is often measured
using objective financial indicators. However, objective financial measures are difficult to
obtain in the case of SMEs or ‘born-globals’, especially in China. Consequently, in this study,
we drew on a scale developed by Zou et al. (1998) to measure perceived international
performance of firms. The scale incorporates two components of export performance: financial
and strategic. Further, the scale also takes into consideration the firm’s performance relative
to its competitors, which has been viewed as a superior approach to measuring performance
(Wade & Hulland, 2004).

All of our independent variables were measured by drawing on existing instruments.
Information intensity was measured using Bhatt’s (2000) scale, which adapts Teo and King’s
instrument to assess global firms. Environmental uncertainty was measured using Karri’s
(2001) scale, which is a recent modified version of Duncan’s (1972) well-established
instrument, and assesses both the environmental turbulence that an organisation faces and
the level of technological uncertainty in which an organisation operates. We measured
international marketing orientation and international entrepreneurial orientation using Knight
& Cavusgil’s (2004) scale that has been widely adopted in the context of born-global firms.
Finally, organisational learning orientation has been typically measured using a variety of
different scales (e.g. Sinkula et al., 1997; Hurley & Hult, 1998). In this study, we have drawn
on Hurley & Hult’s (1998) scale. Please see Appendix I for the instruments.

Table 2. Descriptive statistics of the sample

Characteristic Total sample China subsample US subsample

Number of employees

Mean 137 202 57

Standard deviation 151 162 8

Ages of the firms (years)

Mean 12.15 8.71 16.36

Standard deviation 6.74 5.42 5.75

Current percentage of foreign sales (%)

Mean 59.22 65.94 50.97

Standard deviation 24.66 26.09 20.05

IT capability in ‘born-global’ firms 429

Analyses and results

In order to assess our research questions 1 and 2, in the first phase of the data analysis, we
tested our model using our entire sample of born-global firms (i.e. our sample consisted of both
Chinese and USA born-global firms). Partial least squares (PLS)-Graph version 3.00 (free
software developed by Dr. Wynne W. Chin) was used for analysing the data. Our choice of the
analysis technique (partial least square) was based on the following considerations: (1) PLS
works well with small to medium sample sizes (Chin, 2001; Chin et al., 2003); and (2) PLS has
been shown to be a superior technique when the model has second-order factors (e.g. Chin
et al., 2003), such as IT capability and international performance in this study. In the first stage,
we assessed the validity and reliability of the measurement model, and in the second stage, we
assessed the hypothesised relationships (e.g. Chin, 2001; Gefen & Straub, 2005).

V A L I D I T Y A N D R E L I A B I L I T Y

We first assessed the item validities (including significance and magnitude of factor loadings),
followed by the estimation of the average variance explained, construct reliability and discrimi-
nant validity. All items loaded significantly on their respective constructs (Gefen & Straub,
2005). Further, most items had a loading above 0.70, and none of the items (retained for the
analysis of the hypothesised relationships) had a loading below 0.50 (Hulland, 1999); (2) the
composite reliabilities of each of the items were above 0.70 (Hulland, 1999); and finally, (3)
the average variance extracted (AVE) of all but one of the constructs were over the threshold
value of 0.501 (see Table 3, which shows square roots of the AVE on the main diagonal). We
would like to note that our initial confirmatory factor analysis revealed that one item for each of
the constructs – information intensity, environmental uncertainty and IT management had a
loading less than 0.50. Consistent with prior research (e.g. Hulland, 1999), these items were
dropped from the sample prior to analysing the hypothesised relationships.

In assessing the discriminant validity, we ensured that the square root of the AVE of a
construct exceeded all correlations between that factor and any other construct within the
study, as suggested in prior research (Gefen & Straub, 2005) (please see Table 3).

H Y P O T H E S I S T E S T I N G

To test our hypotheses, we created a hierarchical component model using repeated manifest
variables (to address the issue of second-order factors), following the guidelines of Chin et al.
(2003). Specifically, we repeated the manifest variables (or measurement items) for the
multiple dimensions of IT capability and international performance twice: once for each of
the dimensions, and once for the second-order factors. All of the path coefficients from IT

1Environmental uncertainty had an AVE of 0.449 that may be considered fairly close to 0.50.

430 M Zhang et al.

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IT capability in ‘born-global’ firms 431

capability to its six dimensions were high and significant, with coefficients for three of the six
paths being over 0.702 (Chin et al., 2003). Similarly, both the path coefficients from overall
performance to financial and strategic performance were over 0.70. This suggested that our
second-order factors were indeed indicated by the underlying first order factors.

Results also provide support for most of the hypotheses in our model. Hypothesis 1
predicted that information intensity would have a significant effect on IT capability. This
hypothesis was supported (b = 0.250, p < 0.01). Hypothesis 2, where we predicted that envi- ronmental uncertainty would play a positive role on IT capability, was also supported (b = 0.150, p < 0.05). Contrary to expectations, Hypothesis 3, where we predicted that inter- national marketing orientation would positively affect born-global firms’ IT capability, was not supported (b = 0.008, p > 0.10). Hypothesis 4, which predicted the positive effect of interna-
tional entrepreneurial orientation on IT capability, was supported (b = 0.283, p < 0.01). Simi- larly, organisational learning orientation had a positive effect on IT capability, supporting Hypothesis 5 (b = 0.294, p < 0.01). The environmental and firm factors explained 38.9% of the variance in IT capability. Finally, as hypothesised in Hypothesis 6, IT capability had a signifi- cant positive effect on international performance of born-global firms (b = 0.284, p < 0.01), explaining approximately 8.1% of the variance on the international performance. We sum- marise the results in Figure 1 and in Table 4 (column 2).

Cross-national analysis

In order to empirically assess Hypothesis 7, we split our data set into two parts: one consisting
of the firms in China (n = 81) and the other consisting of firms in the USA (n = 66). We then
tested our model separately using the two data sets. For the most part, results are fairly
consistent with the test of the model using the entire data set. That is, in both China and the
USA, information intensity, environmental uncertainty, international entrepreneurial orientation
and organisational learning orientation had a significant (or marginally significant) positive
effect on IT capability (see Table 4). Consistent with the results based on the entire data set,
international marketing orientation did not have a significant effect on IT capability. Finally, IT
capability had a significant effect on the international performance of the born-global firms in
both countries. We note that while the effect of some of the predictors were significant at
p < 0.10 (especially in the case of the US firms), it is possible that these significance levels are artefacts of low sample size measurement variable ratio, rather than indicative of weak relationships.

D I S C U S S I O N O F T H E R E S U L T S

Drawing primarily on RBV and research on IT capability in large firms, this study posited a
number of relationships linking potentially relevant environmental and firm-level factors to the

2The coefficient of the paths from IT capability to external IT linkages, IT business process integration and IT infrastructure

were 0.443, 0.647 and 0.668, respectively, which we believe is adequate.

432 M Zhang et al.

level of IT capability in born-global firms and the IT capability of the firms to their international
performance. All but one relationship (international marketing orientation → IT capability) were
found to be significant. Overall, the results validate the theory suggesting that certain firm-level
orientations and environmental conditions indeed prompt born-global organisations to develop

Firm Factors

R2= .081 R2= .389

.284***

.294***

.283***

.008ns

.150**

.250***

International Per-
formance of Born-
Global Firms

– Strategic Perfor-
mance

– Financial Perfor-
mance

IT Capability

– IT Business Partner-
ships

– External IT Linkages
– Business IT Strategic

Thinking
– IT Business Process

Integration
– IT Management
– IT Infrastructure

Environmental
Factors

Organisational
Learning
Orientation

International
Entrepreneurial
Orientation

International
Marketing
Orientation

Environmental
Uncertainty

Information
Intensity

Figure 1. IT capability model of born-global firms with path coefficients.

Table 4. Final results

Nature of the effect

Entire sample

(hypothesis support)

China sample

only (n = 81)
US sample

only (n = 66)

Information intensity → IT capability 0.250*** (H1 supported) 0.266*** 0.199**
Environmental uncertainty → IT capability 0.150** (H2 supported) 0.214* 0.161*
International market orientation → IT capability 0.009 ns (H3 not supported) 0.030 ns 0.025 ns
International entrepreneurial orientation → IT capability 0.283*** (H4 supported) 0.334*** 0.280**
Organizational learning orientation → IT capability 0.294*** (H5 supported) 0.246*** 0.287***
IT capability → international performance 0.284*** (H6 supported) 0.429*** 0.321***

***p < 0.01; **p < 0.05; *p < 0.10; ns, not significant.

IT capability in ‘born-global’ firms 433

IT-based competencies that then become valuable in helping the firms survive and/or thrive in
the hypercompetitive global marketplace. We believe more research is needed to make sense
of the result indicating that international market orientation does not influence IT capability.
One possible explanation we offer is that born-global firms with high market orientation tend to
rely more on hands-on experiential observations, personal relationships and face-to-face
connections (e.g. Vaughan, 1999) of owners, managers or personnel, rather than on activities
that are enabled by IT capabilities, such as computer-mediated relationship management and
systematic acquisition, analysis and dissemination of data about markets. Specifically, the lack
of the significant relationship can be explained by the idea of ‘creolisation’ (Abbott et al., 2010),
which encompasses four interconnected processes in cross-cultural interactions: boundary
spanning, cultural hybridity, mixed identity and network expansion. In cross-cultural interac-
tions involving firms, the four processes of creolisation (either in together or separately) play an
important role. Indeed, ‘creoles’, who span boundaries, act as bridge heads with mixed identity
and cultural hybridity and are constantly expanding their networks not only play important role
in cross-cultural communication but also on knowledge exchange and relationship manage-
ment (Abbott et al., 2010). It can be argued that, owing to the high extent of cross-cultural
interactions that born-global firms engage in, these firms (even those with high market orien-
tation) tend to take more comfort in relying on ‘creoles’ for gaining information about their
customers and reaching out to them than on the activities that are enabled by IT capability.

One of the objectives of this study was also to assess the cross-cultural differences in the
drivers and effects of IT capability in Chinese- and US-based firms. While our initial expectation
(based on the unique cultural characteristics of China as compared with the USA) was that
different drivers would lead to IT capability in born-globals in China and in the USA, our results
indicated otherwise. In fact, the results suggest that there is uniformity in the predictors of IT
capability in born-global firms irrespective of the national context (which may also be attributed
to the idea of creolisation due to which all international-focused firms irrespective of their
national contexts rely on similar techniques for cross-cultural interactions). This result may also
be explained by drawing on existing research on national/cultural contexts.

Two different research traditions guide studies associated with national/cultural contexts –
the divergence perspective and the convergence perspective. Researchers adopting the
divergence perspective argue that national cultural differences shape organisational behav-
iours and that ‘there is no culture free context of organizations’ (Sorge, 1982/3, p. 136). The
convergence perspective, on the other hand, holds that ‘the logic of industrialism will eventually
lead us all to a common society where ideology will cease to matter’ (Kerr et al., 1960, p. 101),
with the implication that ‘management philosophies and practices around the world should
become more and alike’ (Hofstede, 2001, p. 34).

While the IS discipline has paid considerable attention on the role of culture (e.g. Leidner &
Kayworth, 2006), and have derived rich insights on technology implementation and use in
different cultural contexts, much of the prior research has adopted the divergence perspective,
examining the role of cross-cultural differences in a variety of IS-related phenomenon of
interest (e.g. Tan et al., 1998). Our research, on the other hand, suggests that little cross-
cultural differences exist in the drivers of IT capability and the effect of IT capability on the

434 M Zhang et al.

international performance of born-global firms. This is particularly interesting, given that the
firms in the study were embedded in the diverse home contexts of China and the USA. We
believe that this result is an indication of the strong effects of globalisation on born-global firms
and lends support to the convergence hypothesis.

The convergence hypothesis suggests that efforts by organisations to survive in an uncer-
tain global arena create similarities amongst the organisations and lead them to model after
each other (DiMaggio & Powell, 1991; Stohl, 2001). We believe that the above perspective
could apply to born-global firms, which benefit from modelling themselves after other born-
global organisations that they perceive as successful (DiMaggio & Powell, 1991), irrespective
of their national origin. Further, owing to the fact that born-global organisations are relatively
young, it may be argued, that ‘reliance on established, legitimated procedures of peers
enhances the born-global firms’ ‘legitimacy and survival characteristics’ (DiMaggio & Powell,
1991, p. 75). Finally, simultaneous operations in multiple foreign markets require born-global
firms to be agile and prepared to adjust themselves to the changing environments of the
foreign nations. Owing to this, such firms find it ‘easier to mimic other organisations than to
make decisions on the basis of systematic analyses of goals since such analyses would prove
painful or disruptive’ (DiMaggio & Powell, 1991, p. 75), or even time consuming (which
born-global organisations can ill afford). We would like to emphasise that we are not proposing
that there are no differences amongst individuals or organisations embedded in distinct
national cultures; instead, we are highlighting a particular case where due to certain unique
characteristics and circumstances faced by born-global firms, the convergence rather than the
divergence perspective provides a meaningful explanation.

Limitations and future research

One potential limitation of the study arises from the specific research methodology employed.
We used a cross-sectional survey technique to collect the data, where a single respondent
provided assessment of the predictor and the criterion variables. Recently, some researchers
have raised common method variance (CMV) concerns regarding such studies (Podsakoff
et al., 2003). However, our use of established instruments (Podsakoff et al., 2003), the widely
known Harmon’s single-factor test (e.g. Podsakoff et al., 2003; Bhatt & Grover, 2005), and
confirmatory factor analysis, viewed as a ‘sophisticated test’ of CMV (Podsakoff et al., 2003,
p. 889), suggest that our study is not significantly affected by this form of data collection.

Another possible limitation of the study arises from the low sample size, especially in
examining our third research question, which involved splitting the data set into two. While, the
ratio of sample size to the number of measurement variables in the study was low for the
cross-cultural analyses, given that the results were significant, we may infer that sample size
was not a major concern.

One more possible limitation of our study could be related to the fact that we did not
specifically examine the role of the type of business that the born-global firm is engaged in on
their IT capability. It is likely that an IT outsourcing supplier might have greater IT capability

IT capability in ‘born-global’ firms 435

compared with an export-oriented manufacturer (Du et al., 2011a). Future research will need
to specifically examine the role of the nature of business on a born-global firm’s IT capability.

Finally, while we have alluded to the role of creolisation in our study (especially in explaining
some of our results), we have not explicitly examined its role in the context of IT capability.
Because creoles might also need to rely on IT to communicate with foreign partners, future
research should examine the role of creolisation on a born-global firm’s IT capability.

I M P L I C A T I O N S A N D C O N T R I B U T I O N S

Theoretical implications

In terms of theoretical directions for research focusing on export-focused SMEs, this study
suggests that RBV provides a potentially useful lens for investigating aspects of born-global
firms, for which traditional theories such as monopolistic advantage theory (Caves, 1982),
product life cycle theory (Vernon, 1966) and stage theory of internationalisation (Johanson &
Vahlne, 1977) have not proved to be particularly useful (McDougall et al., 2003). Wade &
Hulland (2004, p. 110) argue that RBV provides the ‘groundwork for a set of mutually exclusive
and exhaustive information systems assets and capabilities’ and provides a ‘useful way to
measure the strategic value of IS resources’. Our study confirms that there are benefits to
using RBV to assess the IT capability, its antecedents and its effects on the strategic value (i.e.
international performance) in the born-global context.

More broadly, for the IS discipline, the study reaffirms that IT capability does play an
important role, particularly in born-global firms in the USA and China, two diverse national
contexts. Further, the implication for research on export-focused SMEs, which appears to
focus solely on the traditional business functions such as marketing, HR, and finance (e.g. Ball
et al., 2006) while paying little attention to IS, is that it needs to direct attention to the
importance of understanding (and investing in) IT-based systems in firms with a global scope.

Finally, the study makes an important contribution to the existing body of cross-cultural
research in IS. As discussed earlier, cross-cultural research in general draws on either the
divergence or the convergence perspective. Our study indicates that in the context of born-
global organisations, which are dynamic, young and follow rapid internationalisation, the
convergence perspective explains much of their technology-related behaviours and outcomes.
Our hope is that this study will contribute to the awareness of the community of global IT
scholars that the divergence and the convergence perspectives ‘capture the dialectical ten-
sions inherent in the globalization’ (Stohl, 2001, p. 326), and will caution us against the
unquestioning use of one particular view. Indeed, it would be useful to identify contingency
factors that determine when the convergence or the divergence perspective becomes relevant.
Moreover, organisational culture is strongly influenced by national culture. Future research
should focus more on how the interaction between organisational culture and national culture
influence the development of IT capability. In addition, the impact of IT capability may be
socially contingent (Nakata et al., 2008). Future research might explore social contingencies of
IT capability. Such variables can be organisational identification (Ashforth & Mael, 1989), and

436 M Zhang et al.

Guanxi (Davison, 2002) network, if study is taken in Asian context. Additionally, qualitative,
in-depth methods may offer insights on the dynamics of IT impacts.

Practical implications

The study also offers some important practical contributions. First, the study highlights the
importance of IT capability to the performance of born-global firms. Given that born-global firms
are ‘resource-poor’ and have to make decisions regarding resource allocations very carefully,
the study’s results should be seen as an encouraging sign by managers/owners of such firms
that resources spent in developing IT capability is not a ‘waste’, and has a significant effect on
their performance. Managers should realise this point when it comes to carefully selecting
where to allocate their scarce resources. IT capability should be near the top of their list.

The results of our study also provide highlights to born-global firms in high information
intensity and uncertain environments that they should heavily invest in their IT capability.
Specifically, managers of firms in high information intensity industries/products can use their IT
capability to offer more customised products/services to their customers, thereby realising high
performance. Similarly, it is also important for firms in uncertain environments to invest in IT
capability, as such investments can help them develop the required agility, the necessary
sense and response capabilities to help counterbalance the uncertainty. Such capabilities also
foster internal innovation.

Further, our results also indicate that investments in IT capability require some understand-
ing of the firm’s internal culture as well. Specifically, if the firm emphasises a strong learning
orientation, and has fostered an entrepreneurial spirit, then it should invest strongly on IT
capability. Strong IT infrastructure can help such firms sustain the required high levels of
innovation, collaboration and communication, characteristic of highly entrepreneurial and
learning firms, and thereby enable higher performance.

Conclusion

As we have discussed earlier, our study on born-global firms examines the effect of relevant
environmental and firm-level factors on IT capability, and the effect of IT capability on the
export performance of such firms in both China and the USA. Results from our survey of
Chinese and US born-global organisations indicate that environmental factors such as infor-
mation intensity and firm-level factors such as international entrepreneurial orientation prompt
born-global firms to develop IT capability. Results also strongly confirm that IT capability affect
the performance of born-global firms. Consistent with the ‘convergence’ perspective in cross-
cultural research, our comparative analysis of the Chinese and US born-global firms revealed
no differences in the factors affecting the development of IT capability. While our study offers
several theoretical and practical contributions, and also outlines certain avenues for future
research, clearly, there is much to be learned about the role of IT capability in these new
organisational forms operating in the global arena, and we hope this study provides a much-
needed impetus and a useful step in this direction.

IT capability in ‘born-global’ firms 437

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Biographies

Man Zhang is currently an Associate Professor of Interna-

tional Business at Bowling Green State University, Bowling

Green, Ohio. Her research focuses on IT capability and

International Entrepreneurship of export-oriented SMEs in

the global context. Her publications have appeared in

outlets such as Multinational Business Review, Information

Systems Journal, Journal of Business Research, Journal

of International Entrepreneurship, Journal of Global

Information Management, American Journal of Business,

Innovative Marketing, Journal of Technology Research,

Journal of International Business and Economics, etc.

Saonee Sarker is currently the Hubman Distinguished

Professor of IS and Chair of the Department of Manage-

ment, Information Systems, and Entrepreneurship at

Washington State University. She is also a visiting Asso-

ciate Professor of Information Technology at Institute of

Management Technology Ghaziabad, India. Her research

focuses on collaboration in the context of globally distrib-

uted software development teams, technology adoption by

groups and innovation. Her publications have appeared in

outlets such as MIS Quarterly, Information Systems

Research, Journal of Management Information Systems,

Journal of the Association for Information Systems, Deci-

sion Sciences, European Journal of Information Systems,

Decision Support Systems, Information Systems Journal

and Journal of Computer-Mediated Communication. She is

the Principal Investigator of a National Science Foundation

grant awarded to study work–life balance in globally dis-

tributed software development teams. She is an Associate

Editor of the Decision Sciences Journal.

Suprateek Sarker is currently Philip Kays Distinguished

Professor of Information Systems at the Washington State

University, Pullman. Suprateek’s past work has been pub-

lished in numerous outlets including MIS Quarterly, Infor-

mation Systems Research, and Journal of the MIS, Journal

of the AIS, Decision Sciences, European Journal of Infor-

mation Systems and IEEE Transactions. Suprateek cur-

rently serves as a Senior Editor for MIS Quarterly, as

Editor-in-Chief for Journal of IT Cases and Applications

Research and as an Editorial Board Member for Journal of

the AIS, Journal of the MIS, IEEE Transactions on Engi-

neering Management and IT & People. He is a past recipi-

ent of the Stafford Beer Medal from the OR Society (UK),

2006, for European Journal of Information Systems publi-

cation on virtual teamwork that he co-authored with

Sundeep Sahay.

IT capability in ‘born-global’ firms 441

Appendix I. Instrument for measuring the drivers and consequences of it capability in born-global firms

IT capability (6 sub-constructs) (Bharadwaj et al., 1999)

IBP IT business partnerships (5 items)

We have multidisciplinary teams to blend business and technology expertise

We have good relationship between line management and IT service providers

We have good line management sponsorship of IT initiatives

There is a climate that encourages risk taking and experimentation with IT

There is a climate that nurtures IT project championship

EIT External IT linkages (3 items)

We have technology-based links with customers

We have technology-based links with suppliers

We use IT-based entrepreneurial collaborations with external partners

BIT Business IT strategic thinking (3 items)

There is clarity of vision regarding how IT contributes to business value

There is integration of business strategic planning and IT planning

Management has the ability to understand value of IT investments

BPI IT business process integration (3 items)

There is consistency of IT application portfolios, which is a set of different types of IT applications, with

business processes

We restructure business work processes to leverage opportunities

We restructure IT work processes to leverage opportunities

ITM IT management (6 original items; however, item 5 was dropped from the analysis due to its poor

psychometric properties)

Effectiveness of IT planning

IT project management practice

Planning for security control, standards compliance and disaster recovery

Systems development practices

There is consistency of IT policies throughout the enterprise

IT evaluation and control systems

INF IT infrastructure (3 items)

Appropriateness of the data architectures

Appropriateness of network architectures

Adequacy of architecture flexibility

IMO International marketing orientation (3 items) (Knight & Cavusgil, 2004)

Knowledge of customers and competitors

Marketing planning process

Effectiveness of distribution

IEO International entrepreneurial orientation (5 items) (Knight & Cavusgil, 2004)

Top management tends to see the world as our firm’s marketplace

The prevailing organisational culture at our firm is conductive to active exploration of new business

opportunities abroad

Management continuously communicates its mission to succeed in international markets to firm employees

Management develops human and other resources for achieving our goals in international markets

Our top management is experienced in international business

442 M Zhang et al.

Appendix I. Cont.

OL Organisational learning orientation (4 items) (Hurley & Hult, 1998)

Our firm provides opportunities for individual development other than formal training

Our firm encourages managers to attend formal developmental activities such as training, professional

seminars, symposia, etc.

There are people at our firm who provide guidance and counsel regarding one’s career

Career management is a shared responsibility of both employee and the manager

INTENT Information intensity (Bhatt, 2000) (5 original items; item 2 was dropped from the analysis due to

its poor psychometric properties)

The firm needs a lot of product/service-related information for customisation

The product/service is complex to understand or use correctly

The product/service R&D requirements are high

The selling of product/service requires specialised knowledge

Customers need a lot of product/service-related information for ordering products/services

ENVIR Environment uncertainty (Karri, 2001) (6 original items; item 2 was dropped from the analysis due

to its poor psychometric properties)

Competition in product quality

Differences in product standards

Adapting products for overseas markets

Finding new markets for our products

Emerging low-cost competitors

Emergence of new technologies

Firm’s international performance (2 sub-constructs) (Zou et al., 1998)

FP Financial performance (3 items)

Has been very profitable

Has generated a high volume of sales

Has achieved rapid growth

SP Strategic performance (3 items)

Has improved our global competitiveness

Has strengthened our strategic position

Has significantly increased our global market share

IT capability in ‘born-global’ firms 443

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557

www.palgrave-journals.com/bm/

Correspondence: Rafael Bravo
Facultad de Econom í a y Empresa,
Universidad de Zaragoza, Gran
V í a 2, Zaragoza 50005, Spain
E-mail: rbravo@unizar.es

Original Article

Projecting banks ’ identities through
corporate websites: A comparative
analysis of Spain and the United
Kingdom
Received: 10 th October 2012

Rafael Bravo
is Senior Lecturer at Universidad de Zaragoza. He holds a PhD since 2006 and his main research interests are focused
on consumer research and brand management. He has participated in different research projects, and nowadays he
is deepening on the study of corporate brand identity on the banking sector. He has several publications in refereed
journals. He has also published chapters in books, working papers and conference proceedings, and he is a frequent
reviewer in many journals and chair in conferences.

Leslie de Chernatony
is Professor of Brand Marketing at Universit à della Svizzera italiana, Lugano, Switzerland, Honorary Professor at Aston
Business School, Birmingham, UK and Managing Partner at Brands Box Marketing & Research Consultancy. His research
is globally disseminated through books, frequent international conferences and a signifi cant stream of international
journal articles, some of which have won best paper prizes. de Chernatony was elected a Fellow of the Chartered
Institute of Marketing and also a Fellow of the Market Research Society. His work has resulted in TV programmes
and radio broadcasts. He is a frequent speaker at management conferences. Winning several major research grants
helped him and his team investigate factors associated with brand success. He has run many highly acclaimed branding
workshops throughout Europe, America, Asia and Australia. His advice has been sought by numerous organisations
globally on developing more effective brand strategies. On several occasions he has acted as an expert witness in court
cases over branding issues.

Jorge Matute
is Lecturer in Marketing at Universidad de Zaragoza, Zaragoza, Spain. He holds a PhD and a Master in Corporate
Communications and Advertising. His research focuses on topics related to environmental marketing, corporate social
responsibility and corporate image and identity and he has published various articles in different international journals.
He has participated in several research projects and his contributions have frequently been presented in different
international marketing conferences.

Jos é M. Pina
is Senior Lecturer at Universidad de Zaragoza. He holds a PhD in Brand Strategy since 2006. From the beginning of his
professional career, his research interest includes branding strategies such as brand extensions, co-branding, corporate
branding, corporate image, corporate identity and country image. He has articles in refereed national and international
journals and he also frequently reviews research articles for these journals. He regularly attends and disseminates the
results of his research in the main Spanish and European marketing conferences.

ABSTRACT This article analyses similarities and differences in corporate identities
communicated through corporate brand websites between banks operating in Spain
and the United Kingdom. Cross-cultural dissimilarities between Spain and the United
Kingdom, and specifi c features of the banking sector in each country, lead to

Bravo et al

than the more narrowly focused audit-
based approaches to just understand the cur-
rent situation. To better appreciate how
corporate identity contributes to corporate
success, organisations could benefi t from
moving their focus from ‘ what the organiza-
tions is or stands for ’ to more strategic per-
spectives of ‘ how does the organization wish
to be seen? ’ and ‘ what does the organization
wish to become? ’ ( He and Balmer, 2007 ).

Previous research has attempted to
understand how websites are used by
organisations to engage with their publics
and to position their corporate brands
( Esrock and Leichty, 1998 ; Connolly-
Ahern and Broadway, 2007 ). Consistent
with other corporate communications
channels, corporate websites are important
tools for organisations that wish to manage
their representation ( Cornelius et al , 2007 ).
Despite the potential of websites, questions
remain as to how to take advantage of them
to more effectively communicate identities.
For example, given the ubiquity of multi-
national fi rms, there is surprisingly little
published about how the importance of
corporate identity varies between countries,
albeit a paucity of evidences suggests that

INTRODUCTION
In the current context of fi nancial turmoil,
it is even more important to have a strong
and differentiated brand. One of the con-
tributors to corporate brand success is cor-
porate identities that appeal to diverse
stakeholders ( Markwick and Fill, 1997 ;
Suvatjis and de Chernatony, 2005 ; Leitch
and Davenport, 2011 ). Managing the dif-
ferent elements of an organisation ’ s identity
is of particular concern to practitioners who
strive for favourable images and, in the long
term, well-regarded corporate reputations
( de Chernatony, 1999 ).

However, while there is agreement
about the critical role of corporate identity
as a driver of corporate success, no consen-
sus exists among academics about its con-
ceptualisation and defi nition. Leitch and
Davenport (2011) contend that corporate
identity defi nitions ‘ have been studied from
multiple perspectives within multiple
research literatures, which has led to some
scholarly confusion when different research-
ers use the same term to mean different
things ’ . Researchers agree the need for adopt-
ing alternative and complementary perspec-
tives to managing corporate identity, rather

expectations about differences in the communication of corporate brand identities.
As such hypotheses were developed about corporate brand identity according to
these differences. Specifi cally, the hypotheses refer to differences in the main
corporate brand identity dimensions: visual identity, corporate communications,
organisational culture, behaviour, strategy and structure. In order to test the
hypotheses, content analysis was conducted among 60 of the largest commercial
banks, 30 in each country. The results show differences between Spain and the UK
banks corporate websites due to different patterns of portraying corporate brand
identity. Overall, banks in the United Kingdom rely on social and strategic aspects
to project their brand identities, while banks in Spain are more prone to exhibit
information concerning communications. These fi ndings suggest that brand identity
communication should be adapted to each country ’ s cultural markers.
Journal of Brand Management (2013) 20 , 533 – 557. doi: 10.1057/bm.2012.59 ;
published online 7 December 2012

Keywords: corporate brand identity; commercial banks; corporate websites;
content analysis; Spain; the United Kingdom

Banks ’ identities through websites

535

organisations in different countries do not
place the same importance on particular
manifestations of identity ( Maignan and
Ralston, 2002 ). In an increasingly global
economy, companies can benefi t from the
implementation of consistent visual identity
systems. However, the existence of cultural
differences between countries requires that
the mechanisms to transmit corporate iden-
tity are tailored to the cultural markers of
each country for effective communication.
Consequently, this study examines how
banks in two different countries with cul-
tural dissimilarities communicate their cor-
porate identities through their websites.
Building on previous literature, this article
argues that the importance organisations
attach to the projection of different identity
dimensions varies across countries and that
certain dimensions will be more prominent
depending on the market.

To meet these aims, content analysis was
undertaken of 60 websites of fi nancial serv-
ices corporations operating in the United
Kingdom and Spain. These countries
present different institutional environments
in terms of stakeholder involvement and
coordination with other European econo-
mies and institutions ( Jackson and Apostolakou,
2010 ) that result in different patterns of
external disclosure. Additionally, previous
research points at the existence of differ-
ences between British and Spanish consum-
ers regarding their reactions to corporate
branding strategies ( Martinez et al , 2008 ).
Dissimilarities in the Anglo-Saxon and
Latin approaches of organisational structure
and orientation also explain the existence
of differences in the management and com-
munication of corporate identities across
cultures ( Balmer, 2001 ).

This article opens with a literature review
about the nature of corporate identity and
differences across countries. The methodol-
ogy is presented, explaining how informa-
tion was collected and analysed. The main
fi ndings are shown and then, conclusions,

managerial implications, limitations and
future research issues are discussed.

LITERATURE REVIEW

Concept and dimensions of corporate
identity
Like people, companies have their own
identities. Identities symbolise internally
and externally what corporate brands stand
for ( Cornelissen and Elving, 2003 ; Powell,
2007 ). Generally, corporate identity is built
upon central and distinctive attributes that
makes an organisation unique and differen-
tiated ( Albert and Whetten, 1985 ; Dutton
et al , 1994 ). Despite a lack of consensus in
the literature as to the components of
corporate identity, most authors regard this
as being composed of six common dimen-
sions: visual identity, communication,
behaviour, culture, strategy and organisa-
tional structure (see Table 1 ).

Visual identity embodies any visual ele-
ment that is associated with an organisation.
Most authors consider this to include ele-
ments such as the logo, slogan, typography
and corporate colours ( Dowling, 2001 ;
Simoes et al , 2005 ). Some researchers also
include aesthetics in the visual identity,
which includes the architecture of the com-
pany buildings, the style of its shops and
staff dress styles ( O ’ Cass and Grace, 2004 ;
Kirby and Kent, 2010 ).

Corporate communications relate to the
information fi rms wish to transmit to stake-
holders, along with the preferred channels
of communication. It is considered as a
strategic tool that allows the company to
transmit information about the fi rm and its
activities ( Torp, 2009 ; Christensen and
Cornelissen, 2011 ). Internally, corporate
communications can contribute to align the
ideal identity desired by management and
actual identity perceived by employees
( Powell et al , 2009 ). Externally, for many
consumers, the most valuable information
on websites is the contact information and

Bravo et al

communicating the fi rm ’ s identity and
emphasising the positioning of its corporate
brand ( P é rez and Rodr í guez del Bosque,
2011 ). CSR activities can be explained by
altruistic motivations, but also by an organ-
isational self interest in search of social
legitimacy ( Maignan and Ralston, 2002 ;
David et al , 2005 ).

Organisational culture refers to the
collective values and norms shared by the
organisational members ( Schein, 1990 ). It
is founded on the corporate history, devel-
oped in different hierarchical levels, and
refl ected by organisational artefacts ( Hatch
and Schultz, 1997 ). These collective values
assumed by employees infl uence their rou-
tines in their workplaces. However, an
organisation is characterised by a cluster of
heterogeneous subcultures (national identi-
ties, subsidiaries, functional departments,
and so on) that provides a collective per-
sonality ( King, 2007 ). The extent to which
a company ’ s desired identity is projected
is infl uenced by a company ’ s ability to

the different channels to communicate with
the organisation ( Patsioura et al , 2011 ).

Organisational behaviour refers to all the
actions taken by the organisation and its
members which can, or cannot, be control-
led ( Schmidt, 1995 ). Previous research dis-
tinguishes between ‘ corporate behaviour ’
and the ‘ behaviour of the organisational
members ’ that includes the actions per-
formed by employees and the management
team ( Melewar and Karaosmanoglu, 2006 ).
The public and private behaviour of the
staff may constitute a visual representation
of the organisation to the external audi-
ences ( Suvatjis and de Chernatony, 2005 )
and managers are frequently considered as
role models in the work place ( Melewar
and Karaosmanoglu, 2006 ). From a wider
perspective, corporate behaviour refers to
the actions an organisation performs refl ect-
ing its culture and strategy or that occur
spontaneously and without previous plan-
ning. Within the planned actions corporate
social responsibility (CSR) emerges, further

Table 1 : Corporate identity dimensions

Corporate identity
dimensions

Authors

Visual identity van Riel and Balmer (1997) , Balmer and Soenen (1999) , de Chernatony (1999) , Stuart (1999) ,
Alessandri (2001) , Cornelissen and Elving (2003) , Suvatjis and de Chernatony (2005) , Melewar

and Karaosmanoglu (2006) .

Communications Dowling (1986) , Abratt (1989) , van Riel and Balmer (1997) , Balmer and Soenen (1999) , Stuart

(1999) , Cornelissen and Elving (2003) , Suvatjis and de Chernatony (2005) , Melewar and
Karaosmanoglu (2006) .

Culture Dowling (1986) , Abratt (1989) , Markwick and Fill (1997) , van Riel and Balmer (1997) , Balmer and

Soenen (1999) , de Chernatony (1999) , Stuart (1999) , Alessandri (2001) , Cornelissen and Elving
(2003) , Suvatjis and de Chernatony (2005) , Melewar and Karaosmanoglu (2006) .

Behaviour Dowling (1986) , van Riel and Balmer (1997) , Balmer and Soenen (1999) , Stuart (1999) , Alessandri

(2001) , Cornelissen and Elving (2003) , Suvatjis and de Chernatony (2005) , Melewar and
Karaosmanoglu (2006) .

Strategy Abratt (1989) , Markwick and Fill (1997) , van Riel and Balmer (1997) , Balmer and Soenen (1999) ,

Stuart (1999) , Cornelissen and Elving (2003) , Suvatjis and de Chernatony (2005) , Melewar and
Karaosmanoglu (2006) .

Structure Abratt (1989) , Balmer and Soenen (1999) , Stuart (1999) , Cornelissen and Elving (2003) , Melewar

and Karaosmanoglu (2006) .

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

537

minimise incongruities between its subcul-
tures ( Harris and de Chernatony, 2001 ;
Ravishankar et al , 2011 ).

Strategy refers to the scope and direction
an organisation sets for the long term, which
seeks to match organisational resources to
the environment in order to meet stake-
holder expectations ( Johnson and Scholes,
1993 ; Hafsi and Thomas, 2005 ). The strat-
egy component is closely related to the cor-
porate or organisational structure, about
which there is a notable literature on the
strategy-structure-performance relationship
( Amitabh and Gupta, 2010 ). Basically,
organisational structure relates to the
resources and rules guiding employees ’ day-
to-day activities and includes both corporate
structure and the organisation of the brand
portfolio through monolithic, endorsed and
branded structures ( Giddens, 1979 ; Olins,
1989 ; Korver and van Ruler, 2003 ).

Country infl uence in identity
management
Recognising cross-cultural differences is
crucial for companies seeking successful
international expansion; one of the factors
that can contribute to international expan-
sion strategies is the adaptation of the
corporate identity to each market. Some
authors argue that brands with a global ori-
entation should foster a homogenous iden-
tity, while adapting corporate identity
elements to local cultures ( Jord á -Albi ñ ana
et al , 2005 ; Asikhia, 2010 ). In international
settings, companies attach different impor-
tance to their websites to project their
identities ( Lee et al , 2006 ; Robbins and
Stylianou, 2010 ). Therefore, it is necessary
to understand the context to effectively
manage corporate identity communications
since national cultures affect corporate will-
ingness to disclose certain types of informa-
tion in each market ( Haniffa and Cooke,
2005 ; Birth et al , 2008 ). Additionally, it
should be taken into account that
country- and fi rm-specifi c contextual factors

not directly related to culture can also
determine identity projection. For example,
corporate and industrial characteristics
such as company size or institutional and
legislative environments also infl uence fi rm ’ s
behavioural and external reporting patterns
( Adams et al , 1998 ; Jackson and Apostolakou,
2010 ).

Our discussion about identity commu-
nication is based on a multidisciplinary mix
of literature although theoretical underpin-
ning basically relies on contributions regard-
ing cultural markers of every country
( Hofstede, 1984 ). The Hofstede ’ s model
argues that country cultures vary along fi ve
dimensions: power distance, individualism
versus collectivism, femininity versus mas-
culinity, uncertainty avoidance, and long-
versus short-term orientation. It states that
cultural values and cultural differences
between countries are stable and have
existed for a long time. Therefore, previous
research in a large variety of disciplines (for
example, cross-cultural and organisational
psychology, management of communica-
tions, and so on) has frequently adopted
Hofstede ’ s classifi cation to ascertain if cul-
ture matters in explaining consumer and
corporate behavioural patterns. However,
this model has its criticisms since some
authors argue it is based on fl awed assump-
tions ( McSweeney, 2002 ), has validity
weaknesses related to transversal studies
( Smith, 2002 ) and it is contingent on every
country ’ s particular cultural characteristics
( Gannon, 2012 ). This article primarily
employs Hofstede ’ s interpretive view of
national cultures to hypothesise why banks
operating in Spain and the United Kingdom
differ in corporate identity communica-
tions. However, given criticisms of this
model, it also employs a large multidisci-
plinary mix of literature such as website
design and contents ( Halliburton and
Ziegfeld, 2009 ), social theory and organi-
sational psychology ( Morris et al , 2008 ), and
social disclosures ( Tixier, 2003 ).

Bravo et al

different clusters ( Hofstede, 1984 ; Kale,
1995 ; Kumar, 2000 ). In comparison with
Spain, Hofstede ’ s cultural dimensions reveal
that UK society has a lower level of
inequality (power distance) and individuals
attempt to avoid unexpected situations to
a lesser extent (uncertainty avoidance), but
act in a more self-centred manner (indivi-
dualism) with ‘ masculine ’ (competitiveness,
ambition, and so on) rather than ‘ feminine ’
values (quality of life, and so on). According
to Halliburton and Ziegfeld (2009) , com-
panies in the United Kingdom usually tai-
lor the visualisation and design of websites
to the host country although brand features
are globally communicated. Despite the
paucity of literature, some studies report
that differences in masculinity and uncer-
tainty avoidance lead to differences in web-
site design and content. Srite and Karahanna
(2006) posit that it is important in low mas-
culinity cultures to create a pleasant (online)
atmosphere, and the work by Marcus and
Gould (2000) recommends emphasising the
online visual aesthetics in feminine cultures.
From a different angle, Lee et al (2009) show
a negative moderating effect of masculinity
in the relationship between website design
and satisfaction. In this sense, we may think
that cultures with lower scores in masculin-
ity should give more emphasis to visual
identity than cultures with higher scores.
Owing to Spain having a lower score on
masculinity than the United Kingdom, we
put forward the following hypothesis:

Hypothesis 1: Websites of banks operat-
ing in Spain exhibit more elements of
visual identity than UK banks.

Regarding uncertainty avoidance, this is
critical in fi nancial services, and companies
operating in cultures with high levels need
to be particularly careful when developing
their websites. According to the fi ndings
by Lee et al (2009) , in a context of high
uncertainty avoidance, the relationship

When developing a corporate identity,
corporate websites are helpful to commu-
nicate with diverse stakeholders such as
consumers, business partners and employees
( Ingenhoff and Fuhrer, 2010 ). Previous
research has revealed signifi cant differences
in the way companies ’ corporate websites
vary across countries ( Halliburton and
Ziegfeld, 2009 ; Lim et al , 2010 ). In our
research, we focus on identities portrayed
through banks ’ corporate websites in Spain
and the United Kingdom, since these
countries have different cultures, language
and regulations ( Nelson and Paek, 2007 ).
In both these countries, fi nancial services
make a signifi cant contribution to their
economies, albeit the origin and evolution
of the fi nancial services sectors are different.
In the United Kingdom, some of the banks
have their roots in building societies (for
example, Abbey National, Halifax, Bradford
and Bingley, and so on). These building
societies gave emphasis to their collective
character and, as a consequence, a generic
reputation was built over the years. Changes
in regulation, especially during the 1980s,
resulted in increasing competition with
foreign entrants and companies from dif-
ferent sectors such as supermarkets ( He and
Balmer, 2007 ). With such a dynamic mar-
ket, fi nancial services corporations put a
signifi cant effort behind building and com-
municating their corporate identities. In
Spain there are certain parallels, again
brought about by changes in regulation and
increasing competition. Spanish competi-
tion also came from savings banks expand-
ing branches beyond their regional scope,
and providing full services as traditional
banks. Surprisingly, traditional banks in
Spain have been mimicking savings banks
and during the last few years have placed
greater emphasis on CSR actions to
improve their corporate images.

In terms of culture, the United Kingdom
and Spain exhibit signifi cant differences
such that researchers position them in

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

539

between risk and satisfaction is more nega-
tive than in countries with low levels.
From a similar perspective, Jarvenpan and
Tractinsky (1999) highlight that in cultures
with high levels of uncertainty avoidance,
a perception of risk leads to low levels of
trust. Given that Spain has a higher score
on uncertainty avoidance, this suggests that
banks in Spain will include more elements
regarding its communication on their web-
sites to minimise risk perceptions. We thus
propose the following:

Hypothesis 2: Websites of banks operat-
ing in Spain exhibit more elements of
communication than UK banks.

As regards the behaviour and cultural
dimensions, classic social theory and organ-
isational psychology provide some clues to
explain why organisational behaviour varies
across countries ( Morris et al , 2008 ). For
example, classic social theory suggests that
employees in different countries have dif-
ferent relational norms and develop different
habits within their work place. Not only
norms, but also individuals ’ values deter-
mine corporate identity and lead to different
behavioural and communication patterns.
The variation of these values across coun-
tries, as suggested by Hofstede (1984) , will
be translated into different patterns of cor-
porate identity projection among organisa-
tions. For example, Robbins and Stylianou
(2010) reported that Anglo-Saxon compa-
nies disclosed more information about their
culture, culture sensitivity or vision and mis-
sion statements than Latin organisations.
Callahan (2005) also noted that cultural val-
ues were refl ected in the contents of Anglo-
Saxon corporate websites. These differences
may be refl ected in the banks ’ communica-
tion of their corporate culture, and therefore
a higher emphasis is expected from banks in
the United Kingdom than banks in Spain
to disclose information regarding the exist-
ence of a homogeneous culture within the

organisation as well as information regarding
its origin and evolution. Thus, it is hypoth-
esised that:

Hypothesis 3: Websites of banks oper-
ating in Spain exhibit less elements
about their cultures than UK banks.

Previous research also suggests that cul-
tural markers explain corporate proneness
to communicate particular manifestations
of organisational behaviour. For example,
power distance could explain the presence
of specifi c elements, such as organisational
charts, bio-sketches of top leaders and mes-
sages from CEOs, across countries. Indeed,
Robbins and Stylianou (2010) found that
while Anglo-Saxon companies disclosed
more information about managers ’ biogra-
phies and about internal codes of conduct
than Latin counterparts, they were more
favourably disposed to use CEOs ’ messages
as representative of corporate identity. In
the same vein, CSR is driven by different
principles across borders and these princi-
ples are translated into different CSR ini-
tiatives across countries ( Maignan and
Ralston, 2002 ). According to Tixier (2003) ,
there are basically two alternative approaches
for disclosing CSR information: ‘ total dis-
cretion ’ and ‘ high-risk ’ strategies. High-risk
strategy is typical of fi rms that integrate
CSR within their business models and con-
sider CSR disclosure as a source of com-
petitive advantages ( Birth et al , 2008 ).
Specifi cally, cultural sensitivity and CSR
actions appear to be more important for
Anglo-Saxon than for Latin countries
( Jackson and Apostolakou, 2010 ). Latin
organisations are more likely to follow a
total discretion strategy in CSR reporting
since they perceive it as an uncertain strat-
egy that is not valued by public opinion
( Tixier, 2003 ). Tixier’s (2003) dichotomy
has also been supported by other authors
( Dawkins and Lewis, 2003 ) and in other
cultures. For example, Birth et al (2008)

Bravo et al

that may be behind the attitude toward the
communication of strategic issues across
countries: uncertainty avoidance. As a
whole, countries with lower uncertainty
avoidance (the United Kingdom) should be
more open to reveal strategy to stakehold-
ers on their corporate websites. The fol-
lowing hypothesis is therefore proposed:

Hypothesis 5: Websites of banks oper-
ating in Spain exhibit less elements
about strategy than UK banks.

In order to facilitate the execution of the
strategy to achieve stretching targets, organ-
isational structure plays a key role ( Amitabh
and Gupta, 2010 ). Owing to the inter-rela-
tionship between strategy and structure as
drivers of corporate success, stakeholders
such as employees and shareholders are
interested in information on organisational
structure. In the same way that UK com-
panies would be more committed to pro-
viding information on strategy ( Santema
et al , 2005 ; Mabey, 2008 ), information on
corporate websites about structure might
also be more prominent. However, some
differences could arise when it comes to
specifi c items. For example, Han and
Schmitt (1997) demonstrate that collective
societies, such as Hong Kong, attach more
importance to the company behind the
launch of new products. Therefore, in indi-
vidualistic countries such as the United
Kingdom, the endorsed brand structures
should be less frequently employed com-
pared with Spain. As such, from the litera-
ture reviewed, we postulate:

Hypothesis 6: Websites of banks oper-
ating in Spain exhibit less elements
about structure than UK banks.

METHOD
In this study information relating to any
component of banks ’ corporate identities

observed that the high-risk approach pre-
vailed in the Swiss context but, at the same
time, companies in this country presented
an ambiguous attitude towards the media ’ s
power. Indeed, certain institutional factors,
like corporate governance systems, are also
likely to infl uence CSR reporting ( Jackson
and Apostolakou, 2010 ). Therefore, it is
expected that Spanish banks, operating in
a Latin culture, prefer a discrete approach
to manage behavioural and social dimen-
sions of CSR. On the other hand, banks
operating in an Anglo-Saxon context will
be more open to provide both social infor-
mation and information about behavioural
strategies. Drawing on this, we postulate:

Hypothesis 4: Websites of banks oper-
ating in Spain exhibit less elements
about behaviour than UK banks.

The voluntary disclosure of corporate
strategy is increasingly becoming a com-
mon practice despite the fear shown by
some companies, sectors and even countries
( Higgins and Diffenbach, 1989 ; Garc í a-
S á nchez et al , 2011 ). Regarding the coun-
try issue, Spanish companies do not seem
to be especially willing to provide strategic
information beyond the legal or standard
contents ( Santema et al , 2005 ; Garc í a-
S á nchez et al , 2011 ). Santema et al (2005)
reported that UK companies are more
prone to describe their strategy in their
annual reports than other European com-
panies. Mabey (2008) also observed that
compared with the United Kingdom,
Spanish companies seem to follow a tacit
rather than an explicit approach to describe
certain strategies. Sometimes, the commu-
nication of the strategy may differ not only
in the host country but also in the destina-
tion country. Thus, it is not uncommon
for the English versions of a company ’ s
website to have different objectives than
their foreign counterparts ( Callahan, 2005 ).
In general, there is a Hofstede ’ s dimension

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

541

was the subject of analysis. The sample
consisted of the main commercial banks
operating either in Spain and / or the United
Kingdom. This means that foreign banks
were considered if they had a website suited
to the host nation (for example, www.
deutsche-bank.es or www.citibank.co.uk ).
Therefore, the article does not solely focus
on organisations with Spanish or British
origins. However, for simplicity we will
refer to them as UK and Spain entities in
the article. Specifi cally, 30 of the largest
retail banks operating in each country were
selected (60 in total) using size criteria (for
example, assets, branches, and so on).
According to the data collected by the
European Banking Federation (EBF) , the
UK ’ s banks had in 2010 the highest assets
( S 8844.26 billion), loans ( S 3557.43 billion)
and deposits ( S 4563.31 billion) across all
the banks operating in European countries
as well as Southern Caucasus (Armenia,
Azerbaijan) and Russia. In order to establish
comparisons appropriately, we sought to
select two countries whose banking sectors
were relatively similar in quantitative terms,
yet with differences from a cultural view-
point. This requirement was fulfi lled by
Spain and the United Kingdom since,
within the big fi ve (France, Germany, Italy,
Spain, United Kingdom), Spanish and UK
banking sectors are the most similar ones
in key variables such as loans per GDP
(Spain = 1.87; UK = 2.10), deposits per
GDP (Spain = 1.78; UK = 2.69) and total
number of banks (Spain = 337; UK = 327),
yet with cultural differences as earlier con-
sidered. The banks selected are shown in
Appendix A.

All the information disclosed on the
banks ’ websites was analysed as well as any
reports and documents that the banks
uploaded onto their websites, such as annual
reports, corporate responsibility reports,
and so on. The aim of covering not only
the website information but also all the
documents uploaded fi lls a gap in the

literature, which previously had focused
solely either on the website information, or
any of the documents uploaded.

Content analysis was undertaken. This
methodology is suitable for text research
and the classifi cation of data. It has been
widely used in previous research in corpo-
rate identity (for example, Knox and
Bickerton, 2003 ; Baak and Singh, 2007 ;
Cornelius et al , 2007 ; Haniffa and Hudaib,
2007 ; Rodrigues and Child, 2008 ). Fol-
lowing the accepted procedure, the fi rst
step was to create a coding of all the ele-
ments of the bank ’ s corporate identities.
This resulted in 212 identity elements.
These elements were categorised into the
six most frequent dimensions of corporate
identity, as previously described, that is,
visual identity, communication, behaviour,
culture, strategy and structure. The data
collected fi tted easily into these dimen-
sions. As the analysis was undertaken, sub-
categories within the six dimensions were
created to facilitate understanding ( Florek
et al , 2006 ; Rowley, 2009 ). Appendix B
shows the categorisation of the identity ele-
ments into the different sub-categories and
dimensions.

In order to ensure the quality of the
analysis, we followed the recommendations
made for content analysis and developed
training and control systems for the
researchers ( Bakeman and Gottman, 1986 ).
In the fi rst round of coding some of the
banks ’ identities, discussions took place
between the researchers to reach agreement
on categorisations. Subsequently, regular
meetings were held to discuss and refi ne
the classifi cation criteria. Each identity ele-
ment was independently analysed by two
researchers and the concordance coeffi –
cients of the categories analysed were in all
cases above 90 per cent. These fi gures are
acceptable for this type of methodology
( Neuendorf, 2002 ; Ingenhoff and Fuhrer,
2010 ) and are in line with other studies
( Perry and Bodkin, 2000 ; Gram, 2007 ).

Bravo et al

typography ’ ). Afterwards, we calculated the
average score for all the banks. In the same
example, average of scores for all the banks
(HSBC = 0.4; Santander = 0.2) is 0.25 for
the logo and slogan category. The results
of all these summary-categories are shown
in Table 2 .

To test the hypotheses, we analyse mean
differences in corporate identity dimensions
between banks operating in Spain and the
United Kingdom. When investigating any
signifi cant differences, we considered
whether these differences are due to the
variable ‘ country ’ (banks in Spain versus
banks in the United Kingdom) or due to
other variables such as size of the bank (in
terms of number of employees), specialisa-
tion (specialised bank versus non-special-
ised) and country of origin (domestic versus
foreign). To control the effect of the latter
variables, we performed a series of hierar-
chical multiple regressions. In the fi rst stage,
only control variables (size, specialisation,
country of origin) were entered in the
regression; afterwards, the country variable
(banks in Spain versus banks in the United
Kingdom) was included to study the addi-
tional effect over the regressions and to
check any signifi cant effect. Main results
from multiple regressions can be seen in
Table 3 .

Regarding the visual identity dimension,
this can best be appreciated through the
constituent categories of the logo and slo-
gan and that of aesthetics. Coherence
between the colours of the logo and the
colours of the website and a clear slogan
was noted in most of the banks ’ websites.
Concerning aesthetics, the most common
elements in both the Spanish and UK web-
sites were pictures of the banks ’ emblematic
buildings, their management and employ-
ees. No systematic differences were found
between both countries, and only banks in
Spain showed signifi cantly more logo-web-
site coherence than those in the United
Kingdom (Spain = 93.3 per cent; UK = 63.3

When discrepancies arose, the researchers
met to revise the dissenting category. No
pattern of systematic differences was found
between researchers.

Owing to the notable amount of data,
the analysis was carried out between May
2010 and January 2011. Given that websites
are dynamic, and they can be modifi ed
regularly, each entity was analysed at
approximately the same time by both
researchers.

RESULTS
The coded data were classifi ed according
to the six dimensions of corporate identity
and to facilitate understanding, categories
were created within these dimensions
whereby related issues were clustered
together. Within each category, we calcu-
lated the percentage of websites containing
information regarding the components of
that category in each country. Comparisons
between the elements of corporate identity
between the banks in Spain and the United
Kingdom are shown in Appendix B.

We also analysed every category as a
whole, and summary-category data were
calculated following a similar procedure to
the one used by Ettredge et al (2001) . Given
that every category may be considered as a
dichotomous variable (value 0 when no
such information appears on the web and
1 when it appears), we fi rst calculated coef-
fi cients between the number of categories
of information that appears in every bank
website divided by the total number of cat-
egories. For instance, the score of HSBC
in the logo and slogan category is 2 / 5 = 0.4,
due to there being information on the web-
site of HSBC in two out of the fi ve catego-
ries considered in the logo-slogan category
(specifi cally, there is information in the
categories ‘ coherence logo-website ’ and
‘ clear slogan ’ ; and there is no information
regarding the categories of ‘ existence of
logo variants ’ , ‘ reference to identity stand-
ard manual ’ and ‘ reference to a specifi c

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

543

per cent; P < 0.01). Overall, no signifi cant differences were found between the two countries in the summary-categories related to the slogan (Spain = 0.29; UK = 0.22; P > 0.1) and related to aesthetics (Spain =
0.32; UK = 0.33; P > 0.1). As such, Hypothesis
1 is not supported.

The communication dimension is com-
posed of categories related to communica-
tion channels (internal and external) and
nature of information (internal and exter-
nal). The most frequently observed chan-
nels were internal meetings, intranet,
customer call-centres and social networks.

Table 2 : Differences across countries in the corporate identity dimensions

Total

Spain

Means
test

Hypotheses

Visual identity
Logo and slogan 0.25 0.29 0.22 t =1.50 H1 (Spain > UK)

Not

supported

Aesthetics 0.32 0.32 0.33 t = − 0.74

Communication
Internal channels of communication 0.18 0.27 0.10 z =1.70* H2 (Spain > UK)

Partially supported
External channels of communication 0.41 0.43 0.39 t =0.89
Internal information 0.41 0.50 0.32 t =2.26**
External information 0.37 0.46 0.28 t =2.60**

Culture
Corporate subcultures 0.39 0.41 0.37 z =0.48 H3 (UK > Spain)

Not supported
Corporate history 0.26 0.23 0.28 z =0.73

Behaviour
Suppliers CSR 0.33 0.28 0.38 t =0.88 H4 (UK > Spain)

Partially supported
Customers CSR 0.52 0.46 0.58 t =2.13**
Community CSR 0.27 0.26 0.27 t =0.04
Employees CSR 0.45 0.35 0.54 t =2.08**
Environmental CSR 0.43 0.36 0.49 t =1.39
Employees ’ behaviour 0.14 0.19 0.09 z =1.67*
Managerial behaviour 0.32 0.23 0.41 z =2.09**

Strategy
Plans 0.22 0.22 0.22 t =0.00 H5 (UK > Spain)

Partially supported
Multichannel strategy 0.76 0.77 0.74 t =0.28
Effi cient management models 0.15 0.24 0.07 z = − 1.67*
Product portfolio (in general) 0.36 0.42 0.30 t =2.74***
Financial products 0.70 0.79 0.62 z =3.26***
Specifi c professional services 0.36 0.51 0.21 z =3.59***
Non-fi nancial products 0.07 0.08 0.05 z = − 1.66*
Other additional services 0.32 0.30 0.34 t = − 0.75
Segmentation by consumers 0.44 0.37 0.51 t = − 2.00*
Segmentation by companies and institutions 0.37 0.30 0.44 t = − 1.83*

Structure
Organisational structure 0.33 0.50 0.17 � 2 =7.50*** H6 (UK > Spain) Not

supported

Note : *P < 0.10; **P < 0.05; * * *P < 0.01.

Bravo et al

channels (Spain = 0.43; UK = 0.39; P > 0.1).
Multiple regressions confi rm the signifi cant
effect of country variable when controlling
for other variables. Consequently, Hypothesis
2 is partially supported.

Regarding the cultural dimension, no
differences were found between countries
on the two constituent categories of cul-
ture, that is, history (Spain = 0.23; UK = 0.28;
P > 0.10) and subcultures (Spain = 0.41;
UK = 0.37; A > 0.10); thus Hypothesis 3 is

The most common categories of informa-
tion were general fi nancial information,
annual reports, awards and stock market
information. From Table 2 , banks ’ websites
in Spain overall cited more internal com-
munication channels (Spain = 0.27; UK =
0.10; P < 0.10) and provided more informa- tion both internally (Spain = 0.50; UK = 0.32; P < 0.05) and externally (Spain = 0.46; UK = 0.28; P < 0.05). However, differences were not signifi cant in the case of external

Table 3 : Main results in multiple regression analyses

F change a Country b Size b Specialis. b Origin b

Visual identity
Logo and slogan 0.06 0.26* — — —
Aesthetics 0.79 — — — —

Communication
Internal channels of comm.. 0.01 0.27*** — 0.35*** —
External channels of comm.. 0.36 — — — —
Internal information 0.03 0.29** — 0.26** —
External information 0.01 0.51*** 0.26** — —

Culture
Corporate subcultures 0.71 — 0.47*** — —
Corporate history 0.40 — — — —

Behaviour
Suppliers CSR 0.78 — 0.35*** 0.30** —
Customers CSR 0.13 — — — —
Community CSR 0.53 — 0.32** —
Employees CSR 0.07 0.24* — 0.23* —
Environmental CSR 0.36 — 0.28** 0.24* —
Employees ’ behaviour 0.03 0.28** — 0.28** —
Managerial behaviour 0.24 — 0.47*** 0.22** —

Strategy
Plans 0.94 — — 0.24* —
Multichannel strategy 0.40 — 0.27* — —
Effi cient manag. models 0.01 0.31** — 0.34*** —
Product portfolio 0.01 0.33*** — 0.45*** 0.22*
Financial products 0.03 0.25** — 0.51*** 0.36***
Specifi c prof. services 0.01 0.51*** — 0.35*** —
Non-fi nancial products 0.87 — — 0.31** —
Other additional services 0.78 — — — —
Segmentation consumers 0.02 0.26** — 0.55*** 0.26**
Segmentation companies 0.07 0.22* — 0.43*** —

Structure
Organisational structure c 0.01 4.26** — 0.19** —

Note : a sign. of F -change when adding variable country; b standardised parameters of the variables; c logistic regression
(omnibus test of model coeff. and odds ratio for each variable); *P < 0.10; **P < 0.05; ***P < 0.01.

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

545

rejected. When digging deeper into the
components of these two categories, some
differences emerge. While banks in both
countries did not differ in the publication
of information concerning corporate his-
tory and evolution, banks in Spain showed
more information about the former heads
of banks (Spain = 20 per cent; UK = 0 per
cent; P < 0.05). Besides, banks in the United Kingdom were more multicultural than those operating in Spain. Signifi cant differ- ences arose regarding the attribute homo- geneous culture (Spain = 16.7 per cent; UK = 0 per cent; P < 0.05) and for the items that refl ect organisations including infor- mation about cultural diversity (Spain = 33.3; UK = 56.7; P < 0.10) and multicultural teams (Spain = 20; UK = 43.3; P < 0.05).

As regards the behavioural dimension,
fi ndings indicated that CSR was one of the
most salient manifestations of the corporate
ethos. The attributes of CSR were clus-
tered into fi ve categories relating to the fi ve
target stakeholder. As shown in Table 2 ,
banks in the United Kingdom were more
likely to create distinctive identities through
social reporting, where they have higher
scores in all the CSR categories. However,
two CSR categories were statistically
different, that is, those relating to custom-
ers (Spain = 0.46; UK = 0.58; P < 0.05) and employees (Spain = 0.35; UK = 0.54; P < 0.05), suggesting that banks in the United Kingdom placed more emphasis on internally and externally involving stake- holders in the CSR activities. The fi ndings also showed that banks in both countries differed because of the importance placed on managing organisational members ’ behaviour. While banks operating in the United Kingdom were more intense controlling their executives ’ conduct (Spain = 0.23; UK = 0.41; P < 0.05), banks in Spain were more interested in control through audi ting employees ’ decisions, routines and work activities (Spain = 0.09; UK = 0.19; P < 0.10). Multiple regression

analyses confi rm two out of the four
signifi cant relations detected in the mean
differences. Specifi cally, the variable ‘ country ’
explains differences in CSR aimed at employ-
ees and behavioural control of employees.
The other two relations are diluted when
including variables size and specialisation.
Therefore, Hypothesis 4 is partially supported
since banks in the United Kingdom are more
prone to create distinctive identities through
CSR communications.

Focusing on the strategy dimension,
there were no differences between banks
in the United Kingdom and Spain about
showing on their websites aspects of stra-
tegic plans or, to a lesser extent, marketing
plans. However, interesting patterns emerge
when investigating specifi c business strate-
gies. Many banks in Spain cited explicitly
that they were following a specialisation
strategy (Spain = 53.5 per cent; UK = 33.3
per cent; P > 0.1) and customer loyalty
(Spain = 20 per cent; UK = 0 per cent;
P < 0.01) rather than customer recruitment (Spain = 6.7 per cent; UK = 23.3 per cent; P < 0.1). Websites talking about online channels are common between all the banks, as are telephone banking services and, to a lesser extent, mobile banking serv- ices. Some differences were found regard- ing the use of effi cient management models with more information on the Spanish web- sites (CRM, market research procedures, and so on), contrary to expectations. However, the UK websites exhibited more information on global products, which refl ects their international approach on banking policy (Spain = 36.7 per cent; UK = 66.7 per cent; P < 0.05).

Projecting their products, around 80 per
cent of banks communicated that their
product portfolios consist of investment
funds, loans, mortgages, cards and insur-
ances, with a greater emphasis on savings
products in Spain (Spain = 73.3 per cent;
UK = 90 per cent; P < 0.1). In addition some banks ’ websites spoke about products

Bravo et al

For both countries, most banks adopted
a monolithic brand identity, followed by
the endorsed option. Compared with the
United Kingdom, banks in Spain were
more likely to use their corporate brands
as umbrellas for all their different business
units ( � 2 = 7.95; P < 0.01). It should be noted that this information was gathered from the visual observation of logotypes and brand names exhibited on the websites. Most banks did not explicitly disclose their branding strategy through either statements on the webpage or formal documents like brand image plans.

CONCLUSIONS, LIMITATIONS AND
FURTHER RESEARCH
The fi ndings have consequences from an aca-
demic and managerial perspective since they
advance knowledge of cross-cultural differ-
ences in the corporate website strategies in
the banking sector. There are not many stud-
ies devoted to cross-cultural differences on
websites, and none of them are focused
exclusively on corporate identity in the bank-
ing sector. This work has led not only to
show the existence of differences between
Spain and the United Kingdom, but to inter-
pret these differences at the light of their
causes. At the light of the results obtained,
we can extract three main conclusions.

First, the overall conclusion for the
academia in this work is that cross-cultural
research as the Hofstede ’ s cultural dimensions
theory or alternative classifi cations ( Hofstede,
1984 ; Kale, 1995 ), comparative studies bet-
ween Anglo-Saxon and Latin companies
( Callahan, 2005 ; Robbins and Stylianou,
2010 ), or theories from social organisation
( Morris et al , 2008 ) are helpful to explain
some of the differences that have been found
in this study between banks in Spain and the
United Kingdom. However, there are other
forces that may also play to explain differences
and similarities. Thus, different legal or envi-
ronmental context may reinforce differences
between countries.

beyond their core business, such as selling
properties in the case of Spanish banks
(Spain = 40 per cent; UK = 0 per cent;
P < 0.01). Surprisingly around 7 per cent of the banks spoke about selling electronics and electrical appliances, shopping, leisure products and health-related services. Services such as fi nancial simulations were more likely to be available on websites from banks in the United Kingdom than Spain (Spain = 36.7 per cent; UK = 66.7 per cent; P < 0.05). In general, the summary-categories showed a higher presence of products, either fi nancial or non fi nancial, in the port- folios of banks operating in Spain. Regarding the target of these products, most banks target all types of customers and companies, although some groups such as personal / private / large deposits seem to be particu- larly attractive. In general, more information about segments was found for the UK banks. This result is consistent when seg- menting by both consumers (Spain = 0.37; UK = 0.51; P < 0.1) and by companies (Spain = 0.30; UK = 0.44; P < 0.1), which is in line with Hypothesis 5. Multiple regres- sions also confi rm that these differences are due to the ‘ country ’ variable. However, since information on product portfolio and general strategy was not systematically higher for the United Kingdom, only mod- erate support is noted for Hypothesis 5.

For the organisational structure dimension
the heterogeneity of measures prevented the
building of a global measure. Contrary to
Hypothesis 6, the most representative item
in organisational structure, the presence of
organisational charts, was exhibited more on
Spanish websites (Spain = 0.50; UK = 0.17;
P < 0.05). When reported, the most common structure presented is functional organisa- tional chart. Regarding the committees, the most cited ones are ‘ nomination and remu- neration ’ , ‘ audit ’ and ‘ board risk ’ committees. However, this specifi c information on organ- isational structure did not show signifi cant differences across countries.

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

547

While cultural aspects may infl uence
fi rms ’ interests in exhibiting certain identity
dimensions, it must be noted that there are
singularities in stakeholder environments
that contribute to explaining the reported
dissimilarities. Banks operating in the
United Kingdom have to deal with het-
erogeneous environments where their cor-
porate cultures would benefi t from being
aligned with the numerous subcultures
resulting from the nationalities or the
branch locations where staff work. This is
also the case of the specifi c composition of
the product portfolios, which may refl ect
the legal and tax environments ( Melewar
and Bains, 2002 ). From a strategic view-
point, banks from both countries may not
share the same objectives, being subjected
to different regulations from the Economic
and Monetary Union (EMU) and the Bank
of England. Therefore, the role of environ-
ment pressures in communicating cor porate
brand identity should be further explored.

Besides, there are factors that may reduce
the differences across countries in the man-
agerial practices in this sector. Thus, we
may think in the globalisation phenomenon
where companies and consumers behav-
iours are becoming more and more homo-
geneous. The banking sector is not an
exception, where stakeholders are com-
posed by individuals from different nation-
alities, and many banks are becoming more
and more international. In general, this
study ’ s results suggest that while cultural
factors may help to explain some differ-
ences in online disclosures across countries,
they cannot be considered the only infl u-
ence upon corporate identities ’ manifesta-
tions. Certainly, cultural factors determine
certain aspects such social reporting and
information concerning behavioural pat-
terns, which may be affected by the social
and political structure of society as well as
from the nation ’ s history ( Adams, 2002 ).
However, many of the banks included
in the study are large corporations that

transcend national boundaries. In such a
globalised context, country- and culture-
specifi c features may have a relative impor-
tance explaining which specifi c elements of
corporate identity are more relevant in
every country.

As revealed in this study, specifi c factors
related to size and specialisation contribute
to explaining differences in corporate iden-
tity communications. Consequently, while
certain similarities and differences in cor-
porate identity communication can be
interpreted in terms of cross-cultural differ-
ences as the Hofstede ’ s dimensions, future
research should incorporate alternative the-
oretical approaches and complementary
variables. This does not mean that the
Hofstede ’ s model or alternatives are invalid,
but the sole inclusion of these models are
not effective enough to explain cross-
cultural differences in communication
behaviours. Complementing it with environ-
mental, institutional and other organisa-
tional variables will allow researchers and
practitioners to obtain a nuanced view of
how cultural traits are refl ected in corporate
identity manifestations.

Second, another contribution for the
academia is in comparing the results
obtained in every particular corporate iden-
tity dimension with previous research, and
then to discuss the causes of the expected
or unexpected results at the light of the
literature and how this study complement
it. As expected from ideas developed from
the literature, banks in high uncertainty-
avoidance societies (Spain) try to minimise
perceived risk by disclosing more informa-
tion and channels of communication at the
same time as concealing ‘ confi dential ’ issues
related to strategy. Fear of showing some
aspects of corporate strategy, especially in a
sector that consumers perceive as risky, may
be justifi ed as strategy provides the sense of
purpose and uniqueness of companies ( Hafsi
and Thomas, 2005 ; Simoes et al , 2005 ).
Only the information on product portfolio

Bravo et al

was higher in Spanish banks than the UK ’ s
banks, which may be considered as a tacti-
cal and commercially driven policy rather
than purely strategic. Although information
on organisational structure was also higher
in Spanish banks, the results might be
explained by the role of other cultural
dimensions, such as power distance, rather
than differences in uncertainty avoidance. A
similar result is also reported by Robbins
and Stylianou (2010) contrasting British and
North American companies against Latin
countries.

Regarding the behaviour dimension, the
results provided mixed support about the
greater emphasis placed on this by UK
banks due to cultural differences ( Marcus
and Gould, 2000 ). British banks were more
intense in the externalisation of CSR and
in the implementation of mechanisms to
control and audit managerial behaviour.
Regardless of the level of individualism
(higher in the United Kingdom), British
banks may see social disclosures as an effec-
tive approach to increase corporate credi-
bility and enhance corporate image ( Adams,
2002 ). Moreover, UK banks are also more
prone to disclose information about prac-
tices to control managerial conduct, while
Spanish banks presented more information
concerning employees ’ behaviour. It could
be that the lower power distance of British
banks is refl ected in an interest for com-
municating information about their manag-
ers to refl ect managerial and employees ’
roles within the organisation.

Contrary to expectations, neither visual
identity nor corporate culture showed sta-
tistical differences across the samples. In the
case of visual identity, it was proposed that
the higher masculinity of UK society would
lead to a higher emphasis on visual elements
such as logo or aesthetics. In line with
previous comparative studies, differences
related more to the content rather than
design of websites ( Callahan, 2005 ; Robbins
and Stylianou, 2010 ) with differences in

quality rather than quantity of disclosure.
This result may be explained by the fact
that visual elements are less relevant in the
banking sector than in other sectors like
clothing, although it could also show the
role of consulting agencies designing cor-
porate websites. As suggested by Callahan
(2005) , these observational studies do not
allow researchers to identify who the
designers are and what motivated their
designs. Perhaps, differences and similarities
in corporate identity externalisation are due
to agencies ’ differences across countries, to
others ’ banks websites design and contents
or to other institutional factors, and not to
merely cultural dissimilarities between
Spain and the United Kingdom.

The fi ndings on corporate culture confl ict
with previous studies that show differences
in issues such as cultural statements or organ-
isational history across countries ( Robbins
and Stylianou, 2010 ). According to Marcus
and Gould (2000) , and following Hofstede’s
(1984) cultures ’ characterisation, one could
argue that cultural differences between coun-
tries could be the reason behind these
results. Nevertheless, it is interesting to note
that British banks, in a highly individualist
country, display more social information
than banks in a more collectivist cultures.
Therefore, Hofstede ’ s model may not be as
applicable to the study of certain dimensions
of corporate identity through websites.
Additionally, it is signifi cant that most Spanish
and UK banks do not seem to show a special
emphasis on country of origin and their cul-
tural elements (for example, fl ags, symbols,
and so on) through their websites. Country
of origin information is commonly found
in the history sections of websites, yet there
was not a systematic pattern of disparity
bet ween banks in Spain and in the United
King dom. Future research could investigate
the infl uence of the country, rather than the
importance attached to the country, when
it comes to the communication of corporate
identity.

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

549

Third, from a practitioner ’ s perspective,
this study provides a tool for bank manag-
ers to analyse the communication of the
bank ’ s corporate identity. From a revision
of the concept of corporate identity, this
work has built a list of elements to consider
in a bank ’ s corporate website. Every bank
can use this list to analyse systematically
whether it is interesting or not to show
each kind of information. Together with
the list, this work also provides a picture
of the situation in this sector in both coun-
tries, pointing at the differences and simi-
larities in the display of corporate identity
information in the websites. This image is
of interest for managers of banks that are
becoming international. Not only for those
banks that goes international from Spain to
United Kingdom or the other way around,
but also for banks going to other different
countries. Managers should study the anal-
ogies with the characteristics of this work
for their specifi c case. In the same vein, this
study is also of interest for managers of
companies that are becoming international,
and they should study the analogies of the
banking sector with the characteristics of
their specifi c industry.

Marketing managers in the fi nancial
services sector should be aware of the
cultural differences that exist between the
United Kingdom and Spain when com-
municating their corporate identity in
these countries. Otherwise, incongruence
between organisational and country cul-
tures may cause problems ( Scholtens and
Dam, 2007 ), which is key in this sector
where organisations are expanding their
commercial activities abroad. Even though
differences have been found in content
rather than in the design of websites, it is
signifi cant that visual identity has been pre-
viously reported as a major driver to atti-
tude towards websites ( Patsioura et al ,
2011 ). Therefore, visual identity should
also be adapted to the particular character-
istics of each country. In the same vein, the

importance of CSR should not be under-
estimated. Only two of the 60 banks did
not display any information regarding their
roles within society, which indicates that,
in both countries, banks employ social report-
ing to legitimise their behaviour and to pro-
mote more favourable images. Internally,
Powell et al (2009) note that in order to cre-
ate a trustworthy CSR-based identity, fi rms
require more than top down communica-
tions and monolithic brand structures. The
same rationale is applicable to strategy,
where the competence in an international
environment favours the launching of global
products that, nonetheless, try to meet
the particular needs of different groups.
Furthermore, this policy signals the local
approach of Spanish banks, with the excep-
tion of a few signifi cant cases (mainly
Santander and BBVA). Regarding the brand-
ing strategy, there was a predominance of
monolithic brand identity over the ‘ endorsed ’
and ‘ branded ’ alternatives. In fact, a pure
branded strategy was not identifi ed in any
case. The monolithic mould that has tradi-
tionally characterised the banks ( Morison,
1997 ) continues to dominate. Regardless of
the presence of additional identities, the lev-
eraging of a strong corporate name seems to
be an appropriate option to transmit confi –
dence to stakeholders. In a time of mergers
characterising numerous Spanish banks, wise
decisions need to be made about the brand-
ing strategy that should prevail.

Finally and for future research purposes,
it is also advisable to consider a broader
sample of countries as well as including
qualitative information about different chan-
nels beyond the Internet. Furthermore, it
is desirable to explore alternative forms of
cultures and business structures ( Powell,
2011 ). This study raises the question as to
whether stakeholders in both Spain and the
United Kingdom give similar weighting to
each dimension of corporate identity,
or whether it is just bank managers who
perceive these differences.

Bravo et al

ACKNOWLEDGEMENTS
The authors want to thank the fi nancial
support provided by the following sources:
Plan Nacional I + D + i project (ECO2009-
08283) and GENERES project (ref. S-09,
Departamento de Ciencia, Tecnolog í a y
Universidad del Gobierno de Arag ó n y
Fondo Social Europeo). The authors would
like to thank the editor and reviewers for
their useful feedback and comments.

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© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

553

APPENDIX A

Table A1 : List of banks

Spain UK

Altae Alliance & Leicester
Banco Espirito Santo Bank of Scotland
Banesto Barclays
Banif Cater Allen Int. Ltd.
Bankinter Cheltenham & Gloucester
Bankoa Citibank
Barclays Clydesdale Bank
BBVA Co-Operative Bank
BNP Paribas Credit Suisse First Boston
Caixa Geral Egg Banking Plc
Citibank Halifax
Deutsche Harrods Bank Limited
Dexia Sabadell HSBC
Etcheverria JP Morgan
Fibanc-Mediolanum Lloyds TSB
Gallego Mbna Europe Bank Limited
General Electric Money

Bank
Mizuho Int. Plc

Guipuzcoano Natwest
ING Direct Northern Bank
Inversis Northern Rock
Madrid RBS
March Royal Bank of Canada

Europe Limited
Pastor Sainsbury ́ s Bank
Popular Santander (UK)
Pueyo Standard Chartered
Sabadell Standard Life Bank
Santander Tesco Bank
UBS Bank UBS
Urquijo Sabadell Ulster Bank
Valencia Yorkshire Bank

Bravo et al

APPENDIX B
.

Table B1 : Differences in the main elements of corporate identities across countries

Indicator Total ( % ) Spain ( % ) UK ( % ) � 2 test

VISUAL IDENTITY
Logo and slogan
Logo-website coherence 78.3 93.3 63.3 7.95***
Clear slogan 36.7 33.3 40.0 0.28
Logo variants 15.0 20.0 10.0 1.17

Aesthetics
Pictures of the architecture 60.0 63.3 56.7 0.28
Pictures of management 58.3 50.0 66.7 1.71
Pictures of employees 48.3 43.3 53.3 0.60
Pictures of offi ces 36.7 46.7 26.7 2.59

COMMUNICATIONS
Channels of internal communication
Internal meetings and presentations 41.7 36.7 46.7 0.62
Intranet 25.0 46.7 3.3 15.02***
Internal improvement mechanisms 25.0 33.3 16.7 2.22
Employee hotline 13.3 23.3 3.3 5.19**

Channels of external communication
Customer call centre 95.0 93.3 96.7 0.35
Press room 88.3 86.7 90.0 0.16
LinkedIn 81.7 83.3 80.0 0.11
Facebook 73.3 63.3 83.3 3.07*
Twitter 66.7 53.3 80.0 4.80**
Application for candidates to upload their curricula 65.0 73.3 56.7 1.83
Complaints forms and suggestions box 58.3 40.0 76.7 8.30***
Representation offi ces 55.0 40.0 70.0 5.45**

Internal information
General fi nancial information 73.3 80.0 66.7 1.36
Annual reports 56.7 66.6 46.6 2.44
Corporate governance codes 48.3 63.3 33.3 5.40**
Corporate social responsibility reports 50.0 43.3 56.7 1.06
Statutes and regulations 35.0 53.3 16.7 8.86***
Reports of the directors 26.7 36.7 16.7 3.07*

External information
Prizes awarded 68.3 50.0 86.7 9.32***
Stock market information 55.0 76.7 33.3 11.38***
Rating agencies reports 55.0 50.0 60.0 0.61
Money laundering prevention 43.3 66.7 20.0 13.30***
Audit and compliance reports 36.7 60.0 13.3 14.07***
Quality certifi cates 38.3 43.3 33.3 0.64

CORPORATE CULTURE
Corporate subcultures
Importance of cultural diversity 45 33.3 56.7 3.30*
Importance of multicultural teams 31.6 20 43.3 3.77**
Existence of a homogeneous culture 8.3 16.7 0 5.45**

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites

555

Table B1 : Continued

Indicator Total ( % ) Spain ( % ) UK ( % ) � 2 test

Corporate history
History of the organisation 90 90 90 0.00
Evolution of the organisation 81.6 80 83 0.11
Information about the former head 10 20 0 6.66**

CORPORATE BEHAVIOUR
Suppliers CSR
Existence of codes of ethics in purchasing policies 36.7 30 43.3 1.14
Preference of responsible purchases 30 26.7 33 0.32

Customers CSR
Security recommendations for online transactions 75 66.7 83.3 2.22
Accessibility to communications for disabled

customers
60 40 80 10.00***

Actions to promote fi nancial inclusion 45 33.3 56.7 3.30*

Community CSR
International solidarity initiatives 48.3 40 56.7 1.67
Information and incentive actions of CSR 46.7 33.3 60 4.29**
Assistance and social integration actions 41.7 33.3 50 1.17
Support to entrepreneurship 38.3 26.7 50 3.45*
Exhibitions and conferences sponsorship 33.3 40 26.7 1.20
Research and development support 28.3 40 16.7 4.02**
Collaboration with universities 23.3 36.7 10 5.96**
Historical and artistic heritage conservation 15 26.7 3.3 6.40**

Employees CSR
Social benefi ts for employees 51.7 40 63.3 3.27*
Promotion of employees ’ social voluntary work 45 33.3 56.7 3.30*
Special fi nancial conditions for employees 41.7 40 43.3 0.07
Health-care special benefi ts for the staff 38.3 26.7 50 3.45*

Environmental CSR
Actions against climate change 58.3 43.3 73.3 5.55**
Responsible practices within the organisation 58.3 43.3 73.3 5.55**
Financing environmental projects 48.3 43.3 53.3 0.60
Sustainable fi nancial products 43.3 36.7 50 1.08
Promoting rural development 6.7 13.3 0 4.28*

Employees ’ behaviour
Existence of a code of conduct 30 43.3 16.7 5.07**
Existence of a code of conduct for stock markets 26.7 46.7 6.7 12.27***
Employees ’ commentaries on the entity 16.7 30 3.3 7.68**

Managerial behaviour
Existence of a code of conduct 33.3 20 26.7 1.36
Actions aimed to control managers ’ salaries 33.3 30 36.7 0.30
Publication of managers curricula and awards 26.7 6.7 46.7 6.23**
Publication of messages from managers 21.7 6.7 36.7 7.95***
Control of extra-professional activities of the

managers
20 6.7 33.3 6.66**

STRATEGY
Plans
Strategic plans 41.6 40.0 43.3 0.07
Marketing plans 1.6 3.3 0.0 1.02

Bravo et al

Table B1 : Continued
Indicator Total ( % ) Spain ( % ) UK ( % ) � 2 test

Multichannel strategy
Online banking services 95.0 93.3 96.7 0.35
Telephone banking services 76.6 73.3 80.0 0.37
Mobile banking services 55.0 63.3 46.7 1.68

Effi cient management models
Internal quality systems 18.3 26.7 10.0 2.78*
CRM systems 15.0 30.0 0.0 10.59***
External market research 18.3 33.3 3.3 9.02***
Internal market research 20.0 23.3 16.7 0.42
Performance assessment systems 11.6 20.0 3.3 4.04**

Financial products
Deposits 81.6 73.3 90.0 2.78*
Investment funds 85.0 83.3 86.7 0.13
Pension plans 66.6 83.3 50.0 7.50***
Mortgages 73.3 76.7 70.0 0.34
Loans 86.6 83.3 90.0 0.58
Cards 86.7 86.7 86.7 0.00
Insurance policies 80.0 83.3 76.7 0.42
Securities 66.6 83.3 50.0 7.50***
Renting 33.3 63.3 3.3 24.30***
Leasing 41.6 70.0 13.3 19.82***

Specifi c professional services
Virtual TPV 25.0 43.3 6.7 10.76***
Common agricultural policy (PAC) 10.0 20.0 0.0 6.67***
Payment and collection solutions 46.6 63.3 30.0 6.70***
Risk management services 63.3 70.0 56.7 1.15
Consultancy services 33.3 56.7 10.0 14.70***

Non-fi nancial products
Motor vehicle selling 3.3 3.3 3.3 0.00
Electronic and appliance selling 6.7 6.7 6.7 0.00
Leisure time products selling 6.7 6.7 6.7 0.00
Household goods selling 6.6 3.3 10.0 1.07
Food products selling 6.6 3.3 10.0 1.07
Jewellery selling 5.0 3.3 6.7 0.35
Tickets selling 1.6 0.0 3.3 1.02
Property selling 20.0 40.0 0.0 15.00***
Health services selling 6.7 6.7 6.7 0.00
Mobile recharge 3.3 6.7 0.0 2.07
Travel selling 5.0 3.3 6.7 0.35

Other additional services
Financial simulators 51.7 36.7 66.7 5.41**
Links of interest 46.6 43.3 50.0 0.27
Software downloading 51.6 50.0 53.3 0.07
Income tax returns services 8.3 16.7 0.0 5.45**
Valuation services 1.6 3.3 0.0 1.02

Segmentation by consumers
Individuals 88.3 80.0 96.7 4.04**
Young people 41.6 40.0 43.3 0.07
Personal / private / large deposits 71.7 76.7 66.7 0.74
Senior citizens 23.3 23.3 23.3 0.00
Children 30.0 20.0 40.0 2.86*

© 2013 Macmillan Publishers Ltd. 1350-23IX Journal of Brand Management Vol. 20, 7, 533–557
Banks ’ identities through websites
557
Table B1 : Continued
Indicator Total ( % ) Spain ( % ) UK ( % ) � 2 test

Resident international customers 21.6 13.3 30.0 2.45
Non-resident international customers 50.0 26.7 73.3 13.07***
Shareholders 41.3 39.3 43.3 0.10
Undergraduates 23.3 6.7 40.0 9.32***

Segmentation by companies and institutions
General companies 71.6 60.0 83.3 4.02**
Stores 35.0 26.7 43.3 1.83
Self-employed / professionals 35.0 36.7 33.3 0.07
SME banks 45.0 30.0 60.0 5.45**
Agriculture / stockbreeding / cooperatives 21.6 20.0 23.3 0.10
Entrepreneurs 30.0 20.0 40.0 2.85*
Institutions 25.0 40.0 10.0 7.20***
Business banks 40.0 23.3 56.7 6.94***

Other related categories
Differentiation 15.0 23.3 6.7 3.27*
Cost leadership 3.3 6.7 0.0 2.07
Specialisation 35.0 36.7 33.3 0.07
Customer recruitment 15.0 6.7 23.3 3.27*
Customer loyalty 10.0 20.0 0.0 6.67***
Mixed strategy 16.6 23.3 10.0 1.92
Product diversifi cation 31.6 50.0 13.3 9.32***
Countries where it competes 46.6 40.0 53.3 1.07
Global products 51.7 36.7 66.7 5.41**
Investment strategy 51.6 53.3 50.0 0.07

STRUCTURE
Organisational chart
Organisational chart 33.3 50.0 16.7 7.50***

Other related categories
Functional chart 65.0 50.0 80.0 1.36
Decentralised decision making 6.6 10.0 3.3 1.07
Commercial autonomy (branches) 1.6 3.3 0.0 1.02
Representative board of directors 11.7 16.7 6.7 1.46
Nomination and remuneration committee 38.3 40.0 36.7 0.07
Audit committee 36.6 40.0 33.3 0.29
Board risk committee 33.3 30.0 36.7 0.30
Monolithic brand identity 78.3 63.3 93.3 7.95***
Endorsed brand identity 21.7 36.7 6.7 7.95***
Branding Plans 3.3 3.3 3.3 0.00

Note : * P < 0.10; ** P < 0.05; *** P < 0.01.

Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

Crossing disciplinary,
epistemological and conceptual
boundaries in search of better
cultural sense-making

tools

A review of principal cultural approaches
from business and anthropology literatures

Taran Patel
Grenoble School of Management, Grenoble, France

Abstract
Purpose – The purpose of this paper is to compare three cultural approaches from anthropology
and business literature: National Culture Approach (NCA), Corporate Culture Approach (CCA), and
Transactional Culture Approach (TCA). The author grounds these approaches in different epistemological
standpoints and locate them at different positions on the unity-infinity continuum. The author outlines
their strengths and weaknesses, and offer the Douglasian Cultural Framework (DCF) as a transactional
tool for cultural sense-making.
Design/methodology/approach – Reviewing conventional NCA/CCA frameworks reveals that while
their simplicity renders them attractive to users, their assumption of stable, internally homogenous and
coherent cultures has its limitations. Conversely, reviewing anthropology-based TCA literature reveals
that while TCA overcomes some limitations of NCA/CCA frameworks, it also has its weaknesses – it
overemphasizes “self-interest” as the preferred form of rationality, and some TCA scholars render cultural
comparisons impossible by supporting cultural infinity. Finally, examining DCF reveals that it overcomes
some limitations of NCA/CCA frameworks, while simultaneously advancing TCA. Nevertheless, DCF too
has limitations which are also exposed.
Findings – Most NCA/CCA scholars support the “unity” argument of culture, while some transactional
scholars support the “infinity” argument. DCF finds a perfect balance between the two through
“constrained relativism”. Also, since DCF focuses on human transactions, it is not limited in its applications
to specific levels and scales. It can therefore be applied to scenarios spanning across levels and scales.
Finally, it offers a compromise between the differentiation and fragmentation perspectives of corporate
culture, and brings out the best of the interpretivist and post-modernistic traditions.
Research limitations/implications – The exposition of DCF opens up new avenues for research
which have hitherto remained unexplored for want of appropriate frameworks, for instance the UN
Peace Corps., NATO, Medecins Sans Frontiers, etc.
Originality/value – By focusing on human transactions, the paper allows for a much more dynamic
conceptualization of culture as compared to static NCA/CCA frameworks.
Keywords Interpretivism, National culture, Corporate culture, Douglasian cultural theory,
Functionalism, Transactional culture
Paper type Literature review

Introduction
Business and anthropology literatures offer a wide variety of approaches for cultural
sense-making. In this conceptual paper, we compare three such approaches: the
National Culture Approach (NCA), the Corporate Culture Approach (CCA) and
the Transactional Culture Approach (TCA). We outline the strengths and weaknesses of
each approach and offer the Douglasian Cultural Framework (DCF) as a transactional

Journal of Organizational Change
Management
Vol. 28 No. 5, 2015
pp. 728-

748

The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/0953-4814.htm

728

JOCM
28,5

tool for cultural sense-making. We argue that DCF not only overcomes some of the
weaknesses of NCA and CCA frameworks, but also contributes towards enriching
TCA. As such, our present paper builds on past literature in three ways: first, while
Patel and Rayner (2012) reviewed NCA and TCA, our present work also includes CCA
literature in the discussion, thereby offering a richer comparison between the three
approaches and a more thorough overview of business and anthropology literature on
culture; second, it grounds the three approaches in different epistemological standpoints,
and third, it locates the three approaches at different positions on the unity-infinity
continuum. We begin by outlining the varied definitions of culture and by presenting the
unity-infinity debate.

For Louis (1981) culture is a “shared system of values, norms and symbols” and
“conveys an entire image, an integrated set of dimensions/characteristics and the whole
beyond the parts” (Alvesson, 1987, p. 4). For Hofstede (1980\1984, p. 25) culture is “the
collective programming of the mind which distinguishes the member of one human
group from another”. Adler and Doktor (1986, p. 181) suggest that “culture consists of
patterns, explicit and implicit, of and for behavior, acquired and transmitted by
symbols constituting the distinctive achievement of human groups, including their
embodiment in artifacts; the essential core of culture consists of traditional ideas and
especially their attached values”. These definitions imply that culture has a traditionally
derived stable core that distinguishes one social entity (e.g. nation or company) from the
other, that members of a social entity have shared values or a common “programming”,
and that these result in similar behaviors among members of that entity. We call this the
“unity” argument of culture.

Other scholars disagree with the idea of a traditional “essential core” or that culture
represents some kind of “distinctive achievement”. Instead, they argue that culture is
made afresh each day through social interactions and is primarily concerned with
everyday experience (Douglas, 1970). For instance, Alvesson (1987, p. 13) conceptualizes
culture as changing “ideologies” or as “organizational frames of reference”. Many
organizational scholars conceptualize culture as changing patterns of beliefs and values
(Westley and Jaeger, 1985). Other scholars extend the argument even further and claim
that there are as many cultures as there are social contexts (Geertz, 1980), thereby
rendering cultural comparisons across entities impossible. This is the “infinity”
argument of culture. While supporters of the unity argument dictate that culture within
a social entity is homogenous and stable, and that members will have similar
behaviors, proponents of the infinity argument declare that there are as many cultures
as there are social contexts. In the present paper, we seek to minimize this unity vs
infinity divide, and seek to find ways of explaining both similarities and variations in
human behavior within and across social entities. Doing this is important for better
understanding of culturally complex scenarios – where using the unity argument may
be overly simplistic and using the infinity argument may be futile due to resulting lack
of comparability.

Cultural discourse is further complicated by the variety of epistemological stances
that scholars have adopted in past years. Functionalist researchers “freeze” culture by
representing its characteristics in a static way, resulting in static models that facilitate
cultural comparisons (e.g. Hofstede, 1980\1984), but are incapable of explaining cultural
change (Schultz and Hatch, 1996). Functionalist scholars also insist that “culture
implies stability” (Schein, 1991, p. 245). On the other hand, interpretivists seek to
understand the construction of culture through a cyclic processes of interpretation,
sense-making, understanding, and action (Hatch, 1993). Finally, postmodernist scholars

729

Cultural
sense-making

tools

focus “on the processual as opposed to structural character of human institutions” and
on “disparity, difference and indeterminacy” (Cooper and Burrell, 1988, pp. 100-101

)

rather than the origin of things. The postmodernist stance in its extreme is illustrated
by Baudrillard’s (1988) conception of culture as a “network of floating signifiers that
offers momentary seduction rather than the ability to store and transmit meaning”
(Poster, 1988, p. 3). We find this postmodernist tradition to be consistent with the infinity
argument of culture, and the functionalist tradition to be coherent with the unity argument.
We position ourselves between the interpretive and the postmodernist traditions. For us,
culture is the outcome of ongoing interactions between individuals and their social
contexts. People’s behaviors change as they move from one context to another. Yet, the
“network of floating signifiers” may not be as momentary as Baudrillard claims. We
believe that despite the semblance of chaos, a systematic pattern can be discerned in
people’s behaviors.

In subsequent sections, we review NCA and CCA frameworks, which are commonly
cited in business literature, and assess their strengths and weaknesses. Next, we
introduce anthropology-based TCA, which has hitherto been neglected by business
scholars. Then we offer the DCF as a transactional tool for cultural sense-making.
We show how DCF offers some advantages over NCA and CCA frameworks while also
advancing TCA literature. The limitations of DCF are also discussed. We conclude
by drawing a comparison between these approaches and by offering suggestions for
future research.

NCA
Proponents of NCA treat culture as being stable and homogenous within a nation,
society, and/or geographic region. For instance, after studying 72 countries and regions,
Hofstede (1980\1984) identified four cultural dimensions as distinguishing members
of one country from another: high vs low power distance, uncertainty-avoidance vs
risk-taking, individualism vs collectivism, and masculinity vs femininity. Subsequent
research led to the generation of another dimension labeled “Confucian dynamism”
or “long-term orientation” (Hofstede and Bond, 1988). Scores were attributed to
countries on afore-mentioned dimensions. For instance, India and France received
scores of 48/100 and 71/100, respectively, for individualism, implying that India is
more collectivistic than France. Hofstede’s model has inspired several replication
studies (Deshpande and Farley, 1999) and has been the framework of choice for many
scholars (Meschi, 1997; Barkema and Vermeulen, 1997). Following Hofstede (1980
\1984), Trompenaars and Hampden-Turner (1997) offered seven cultural dimensions
believed to distinguish societies and influence how businesses are conducted between
them. The seven cultural dimensions are: first, universalism vs particularism; second,
individualism vs collectivism; third, affective vs neutral in expressing emotions;
forth, specific vs diffused relations; fifth, achievement vs ascription-oriented; sixth,
sequential vs synchronic attitude to time; seventh, internal vs external locus of
control. The GLOBE project is another study which offers nine cultural dimensions
distinguishing societies from one another. These nine dimensions of societal culture
are: first, uncertainty-avoidance; second, power distance; third, collectivism-I; forth,
collectivism-II; fifth, gender-egalitarianism; sixth, assertiveness; seventh, future-orientation;
eighth, performance-orientation; ninth, humane-orientation (House et al., 2004). Based
on scores obtained on these dimensions, significant similarities within societies and
significant difference between them were identified with regards to leadership effectiveness
(House et al., 2004).

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Hall’s (1960) typology of high-context vs low-context cultures is also frequently cited
in cross-culture communication literature (Cardon, 2008). In high-context cultures
information is widely shared, thereby requiring extensive cultural programming while
low-context cultures are the opposite. With regards to varied conceptualizations of
time, Hall and Hall (1990) explain that in monochronic cultures (e.g. US, Germany) time
is used in a linear way making it possible for people to concentrate on one thing at a
time, while polychronic cultures (e.g. Mediterranean countries) are characterized by the
simultaneous occurrence of many activities. Hall and Hall (1990) also classify countries
based on their treatment of time as being past (e.g. Iran, India), present and future-
oriented, with occasional overlaps between categories (e.g. USA is both present and
future-oriented).

Taking a slightly different approach, Schwartz (2004) conceptualizes cultural
dimensions as a set of problems that individuals need to resolve. He offers three main
cultural dimensions: first, conservatism vs autonomy: relation between the person and
the group; second, hierarchy vs egalitarianism: the extent to which equality is valued
by members; third, mastery vs harmony: members’ relations with the natural and social
world. Schwartz explains that these dimensions often occur concomitantly in societies
because they are grounded in common underlying values (e.g. the coexistence of
egalitarianism and intellectual autonomy in Western Europe). Based on data from
67 national groups, Schwartz (2004) offers seven transnational cultural groupings:
West European, East European, English-speaking, Latin American, South Asian,
Confucian-influenced and sub-Saharan Africa. Nevertheless, he cautions against
excessive reliance on transnational categorizations and stresses the importance of
in-group variations. He also reveals considerable universalism in human motivation
across countries (Schwartz, 2006).

As seen in this section, most NCA scholars (barring Schwartz, 2004, 2006) have
traditionally adhered to the unity argument of culture, and have propagated broad
generalizations at the national/societal/regional level. Nonetheless, recent years have
seen significant changes in this area of research. For instance, drawing from
psychology literature, Leung et al. (2002) have expanded the dimensional map of
culture by creating a social axiom survey, the robustness of which has been confirmed
through subsequent studies (Leung and Bond, 2004). As another example of recent
developments, Taras et al. (2010) show that the predictive power of Hofstede’s (1980
\1984) and Hofstede and Bond (1988) dimensions is significantly lower than personality
traits and demographics for certain organizational outcomes, but higher for others.
Thus, they place boundary conditions within which Hofstede’s framework may be
effectively used. Inspired by cognitive psychology, other scholars such as Leung et al.
(2005) argue that the human mind is fluid and interacts dynamically with the
environment, resulting in changing human behavior. Similarly, Tinsley and Brodt
(2004) analyze cultural differences in conflict behaviors through a discussion of frames,
schemas, and scripts. In addition to a much-desired shift from static to dynamic
conceptualizations of culture (Leung et al. 2005), such studies also reveal a move away
from unity and towards the infinity argument of culture. Notwithstanding these
developments, the use of “nation’ as a proxy for culture continues – a practice that has
attracted much criticism from other scholars (see Child and Tayeb, 1983; Usunier, 1998;
Tung, 2008). Therefore, while we applaud these developments, we suggest that scholars
look for explanations of human behavior beyond nationality.

In conclusion, we summarize the strengths and weaknesses of NCA frameworks.
A major strength of NCA frameworks is that they allow for broad comparisons across

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nations/societies/regions and are therefore considered useful by some practitioners and
scholars. Conversely, these frameworks ignore the existence of multiple cultures within
a country (McSweeney, 2009). They neglect that people’s workplace behavior could be
influenced by factors other than culture (Cullen et al., 2004), and assume homogeneity of
management practices within nations (Tung, 2008). When applied to cross-border
business collaborations, NCA frameworks focus excessively on cultural differences
between firms from different nations, rather than on the connectivity and potential
similarity between them (Angwin and Vaara, 2005). Finally, most NCA scholars treat
national identity “as a passive embodiment of a predetermined cultural template” – a
viewpoint contested by Ailon and Kunda (2009) who show that national identity is a
flexible cultural creation to which people actively attribute changing meanings.

CCA
Here we call upon Martin’s (2004) review of CCA and her categorization of past studies
as following one of three perspectives: integration, differentiation or fragmentation.
Proponents of the integration perspective conceptualize corporate culture as shared
beliefs and values that help individuals to understand the company and guide their
behaviors (Weick, 1985). We find that Hofstede et al. (1990) and Trompenaars and
Hampden-Turner’s (1997) frameworks are consistent with this perspective. Hofstede
et al. (1990) propose six dimensions which help define the culture of an organization:
first, process vs result-orientated; second, employee vs job-orientated; third, parochial
vs professional; forth, open vs closed communication; fifth, loose vs tight control
systems; sixth, normative vs pragmatic. Similarly, Trompenaars and Hampden-Turner
(1997) suggest that a company may have one of four kinds of corporate cultures: the
Eiffel tower, incubator, family, and guided missile cultures. Martin (2004) explains that
integration scholars (e.g. Schein, 1985) believe (rather simplistically) that once the top
management announces a set of espoused values, these are accepted by all employees,
and are reinforced through subsequent recruitment and socialization. If deviances are
observed, these are explained away as failure to achieve a “strong” culture. Cultural
change is seen as a systematic attempt to replace the old way of working with a new
one. Martin (2004) concludes that despite its promise of a harmonious and controllable
culture, the integration perspective has little empirical support.

Contradicting the integration viewpoint, Alvesson (1990) argues that it is highly
unlikely that employees will adhere to a commonly defined organizational identity.
Corporate culture, Alvesson (2002) explains, is simply a partially successful attempt by
management to exercise control over lower ranking employees. Other scholars favor
the idea of overlapping, nested subcultures that co-exist in an organization in
relationships of intergroup harmony, conflict or indifferences (Martin and Siehl, 1983).
According to this viewpoint, which Martin (2004) calls the differentiation perspective
(e.g. Bartunek and Moch in Frost et al., 1991) subcultures appear along functional,
occupational and hierarchical lines. While differentiation studies question the over-simplified
coherence of the integration view, they continue to emphasize consistency, consensus
and clarity within sub-cultures, and continue to relegate ambiguities to the interstices
between sub-cultures (Martin, 2004).

A third group of scholars argues that each employee is affected by corporate culture
through socialization and also actively re-creates corporate culture through daily
networking (Smircich, 1983). According to this viewpoint, which Martin (2004) calls
the fragmentation perspective, corporate culture is dynamic. Like differentiation
scholars, fragmentation scholars believe in the co-existence of multiple corporate

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cultures. However, in fragmentation studies (see Robertson and Swan, 2003) claims of
clarity, consensus and consistency (even at the sub-cultural level) are believed to
undermine organizational complexity. Rather than underplaying ambiguity,
fragmentation scholars consider it integral to organizational culture. For them,
“if consensus exists, it is (within) issue-specific networks, which disappear as soon as
the issue disappears […] culture looks […] like a roomful of spider webs, constantly
being destroyed and rewoven” (Martin, 2004, p. 10-11). This is consistent with
Thompson and Wildavsky’s (1986) observation that in no organization can a single
well-defined organizational goal be sustained for long. It soon gives way to a variety of
conflicting goals, and to the emergence of mutually competing sub-groups. For
fragmentation scholars, change is never-ending because new cultures are created and
old ones disappear as individuals move in and out of networks. Since cultural change is
beyond individual control, these scholars offer few guidelines for the same.

We observe that most fragmentation scholars favor post-modernism, while most
integration scholars prefer functionalism. Further, most integration scholars favor the
unity argument, while most fragmentation scholars support the infinity argument of
culture. Interestingly, while differentiation scholars attempt a compromise between
unity and infinity, they end up emphasizing stability and consistency at the sub-cultural
level. Although CCA offers a variety of ways for exploring culture at the organizational
level, it suffers from certain drawbacks. First, CCA scholars tend to juxtapose
organization and culture (Alvesson, 1987), implying that an organization’s boundary
surrounds a culturally homogenous entity. This is problematic, especially in complex
structures such as multinational companies or international strategic alliances, which
bring together people not only from different nations and organizations, but also from
different professions, interest groups, and sub-units. Such entities are characterized by
ongoing mergers, acquisitions and take-overs, resulting in continuous restructuring,
evolving corporate boundaries and increased diversity of goals (Angwin and Vaara,
2005). Therefore, assuming cultural homogeneity in such structures is simplistic and
erroneous. Second, many CCA frameworks are grounded in the assumption that
companies are embedded within larger national cultures (Leung et al., 2005) or
that corporate cultures are influenced by national cultures of leaders (Hofstede, 1980
\1984). This viewpoint is strongly contested by scholars such as Fredrik Barth (1992).
Finally, one cannot neglect the inherent contradiction of holding both NCA and CCA
frameworks simultaneously (Barth, 2007; McSweeney, 2009), which would imply little
difference between corporate cultures within one country – a viewpoint heavily
contested by companies who pride themselves for their distinct corporate cultures.

Having reviewed NCA and CCA from business literature, we now turn towards
anthropology-based TCA in search of alternative tools for cultural sense-making.

TCA
A review of anthropology-based TCA literature reveals substantial richness and variety.
Ekeh (1974) divides the literature broadly into “individualistic” and “collectivistic”
theories. While the former derive from the British and American social anthropological
tradition, the latter have their roots in European sociological tradition, more precisely in
the work of Levi-Strauss, Durkheim and Mauss (Kapferer, 1976). In contrast with
conventional NCA and CCA frameworks, TCA scholars (Barth 1966a, b) uphold that
cultures are neither the outcome of national/corporate affiliations, nor are they carried in
heads and hearts of people. Cultures are created daily through social transactions which
involve patterned transferences of material and immaterial items between individuals

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and groups (Kapferer, 1976). Guided by their postmodernist standpoint, TCA scholars
believe that cultures are dynamic; they transform both meaning and behavior.
Understandably, TCA scholars have little tolerance for structural-functional approaches
to culture.

Barth (1956, 1959a, b) disagrees with the structural-functional depiction of the world
as divided into separate yet internally coherent “societies”. Instead, he argues, that
since individuals form the elementary parts of every social interaction, they will hold
memberships in groups at a variety of levels and scales, and also in groups which
transect boundaries (Barth, 1992). We find Barth’s explanation to be more convincing
than NCA/CCA frameworks in the context of modern organizations where employees
are members of varied and overlapping groups, and where predicting people’s behavior
on the basis of their membership in one group – either country or company – might be
overly simplistic. Second, Barth (1992, 2007) argues that rather than being determined
by larger frameworks (such as society or nation) within they are located, smaller social
entities (companies, clubs, etc.) also exercise their own autonomy and influence on
the former. Hence, it would be unfair to apply generalizations drawn at the national
level to other lower levels (Barth, 2007). Consequently, rather than viewing modern
organizations as being subject to the national cultures within which they are located,
one may view them as housing many different cultures within themselves, which
dynamically influence one another across levels. Third, Barth (1953) recognizes the
futility of identifying a community or a place as an object of study. This is consistent
with our dissatisfaction with juxtaposing organization and culture. Instead Barth
prefers to focus on conceptualizing both variation and conformity of human behavior,
an endeavor in which he was joined by Leach (1954) and Geertz (1973). Finally, Barth
(1956) calls upon anthropologists to study those transactions that produce generally
shared meaning and to construct generative models of culture, rather than simply
categorizing cultures (Barth, 2007). Similar calls have also been made by Thompson
and Ellis (1997).

Since Barth (1966b) was not convinced by structural-functional explanations of
human behavior, he began investigating alternative explanations, an endeavor which
led him to the idea of “rationalities”. When people enter into a new social environment,
he explained, they do not really know how to behave. However, they have a set of
disparate values to choose from, and they choose to act according to those values which
they believe will benefit them most. If individuals are rewarded for their actions, their
behavior will be reinforced. If they are punished, they will adjust their values and
behaviors accordingly. Through repeated interactions an individual’s repertoire of
values will become systematized and consistent with those around her. In such social
transactions, each party attempts to gain a value that is greater than or at least equal to
the value lost.

While Barth’s transactional model and his idea of rationality were well-received and
while they overcame many limitations of structural-functional orthodoxies, they also
received some criticism. For instance, Thompson (1996, p. 18) pointed out that
“transaction theory has no directions. It simply has this systematizing, integrating and
homogenizing process, and the idea that we follow it: we start off all over the place and
we all end up at the same place.” In contrast, in Thompson’s (1996, p. 18) understanding
“social life is absolutely not a one-way journey to a single destination”. Barth’s concept
of rationality was also criticized for its frequent reference to actors pursuing
“self-interest”. Other scholars like Skvoretz and Conviser (1974, p. 60) revised the
definition of “interest” and showed that human behavior is guided by a variety of

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rationalities: individualism, competition, group-gain, equity or reciprocity. They also
replaced the idea of individuals seeking “maximal benefits” with the notion that
individuals pursue “satisfactory benefits”. While this constitutes a valuable revision of
Barth’s initial model, more work on the variety of rationalities is desired. Also, some
transactional scholars inadvertently propagated the infinity argument of culture.
For instance, in his study of the Balinese culture, Geertz (1980) explains that in certain
contexts culture is so unique that reducing it to the dichotomous categories preferred
by western social scientists is erroneous. Instead, one ought to treat each culture as
distinct and unique. While we share Geertz’s dissatisfaction with dichotomous cultural
frameworks, we do not agree that each culture is unique. The idea that each culture is
unique is consistent with the infinity argument, and would render cultural comparisons
impossible.

To summarize, we have so far reviewed three cultural approaches in this paper:
NCA, CCA and TCA. Most conventional NCA and CCA frameworks support the unity
argument of culture, which is inadequate for cultural sense-making in complex
business structures. Conversely, TCA and Barth’s concept of rationalities enable a
better understanding of complex cultural realities, but this advantage is partially
mitigated by an excessive focus on self-interest and by the fact that some transactional
scholars promote the infinity argument of culture. We reckon that an optimal
transactional cultural framework would be one that offered richer explanations of
rationalities, while simultaneously resolving the unity-infinity dilemma. Mary Douglas
offers one such a framework.

DCF as a transactional tool
In this section, we present an overview of the work of Mary Douglas, the famous British
anthropologist. Although many experts refer to Douglas’s work as “Cultural Theory”,
Douglas herself always insisted that her invention was a framework or a heuristic
device, not a ‘theory”. Hence, we choose to refer to her work as the DCF. Using DCF as a
label also helps avoid confusion with other cultural frameworks and theories which
abound in business literature. When Douglas (1970) first presented her four-fold
cultural framework, it was perceived by many as a static classificatory tool. It was only
later that Thompson (1996) related the four cultures of DCF to four forms of rationality,
thereby converting this seemingly static model into a dynamic transactional framework,
and simultaneously addressing past calls for richer explanation of rationality.

According to DCF, human behavior is the result of ongoing interactions between an
individual’s preferences on two social dimensions –“group” and “grid” – and her social
context (Douglas, 1970). “Group” represents the extent to which people are restricted in
thought and action by commitment to a larger social unit, while “grid” is the extent to
which people are controlled by role differentiation due to criteria such as gender, color,
rank, descent, or age (Gross and Rayner, 1985). Gross and Rayner (1985) offer five
predicates for group: proximity between members, transitivity of relationships,
frequency of interactions among members, impermeability of group, and scope of a
person’s involvement in the unit’s activities. They also offer four predicates for grid:
specialization of roles, asymmetry in role exchanges, entitlement and accountability.
Four cultures emerge from different grid-group configurations in which people arrange
themselves (see Figure 1).

These four cultures of DCF should not be confused with the cultural categories offered
by conventional NCA/CCA frameworks. While the latter explain people’s behaviors
based on their national origin/corporate affiliations, DCF explains people’s behaviors as a

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function of their grid-group preferences. Also, since people arrange themselves along
different grid-group configurations at different times and in different contexts, the four
cultures are not rigid categories (Mars, 2001a; Mars, 2008), but shifting patterns of
preferences. Considering that the four cultures emerge from different preferences of grid
and group, assessing the strength of these dimensions becomes crucial for cultural sense-
making. Fortunately, Mars and Mars (1993, 2004) offer a solution in the form of a qualitative
instrument called LISTORG. A more sophisticated version of the same instrument – now
called LISTOR-SPARCK[1] – was recently presented by Mars (2012).

DCF scholars explain that members of different cultures are held together in a
relation of mutual competition and interdependence. The competitive, hierarchical, and

Hierarchical culture: This high group-high grid
scenario is usually found in bureaucratic structures
(Gross and Rayner, 1985). It emerges when people
attribute great importance to both grid and group.
Since members attribute high importance to group,
they share strong bonds with one another and expect a
two-way accountability. They prefer to follow rules
and regulations and attribute great importance to
standardized ways of working. They willingly
sacrifice opportunities in favor of stability and
security. Since the grid score is also high, inequality
in roles and status is also observed. Those with lower
status show respect and deference to those who are
‘senior’ (Coyle and Ellis, 1994). Although an
individual’s status in the system is determined by
his/her position, this can change with time. Members
of this culture prefer a process-oriented rationality and
are less concerned with the outcome.

Competitive culture: This is a low group-low grid
scenario, which comes to the fore in the free
market. Since members attribute little importance
to the group, they do not hold themselves
accountable to group members, nor do they expect
other members to account to them. Little
importance is given to the past, and individuals
prefer spatial and social mobility. Since all
boundaries are provisional and subject to
negotiation (Douglas, 1996; Coyle and Ellis, 1994),
this culture allows maximum freedom for
negotiating contracts or choosing allies (Gross and
Rayner, 1985). The low grid strength implies that
unlike members of the hierarchical culture,
members of the competitive culture do not
segregate among themselves. Self-regulation and
the respect for individual rights are valued. They
follow a pragmatic, substantive and competitive
rationality and are more concerned about the
bottom-line, rather than about processes, rules and
roles (Thompson, 1996).

Egalitarian culture: This high group, low grid scenario
is well-illustrated by Mars’s (1988) study of the Israeli
Kibbutzim. Like their hierarchical counterparts,
members of the egalitarian culture also attribute great
importance to the group. They emphasize group
bonding and make clear distinctions between members
and non-members (Gross and Rayner, 1985). Since
members are closely bonded, they share common
values, engage in frequent face-to-face interactions,
and enjoy many-sided relationships. They support
collaborative decision-making and reciprocal
exchanges (Douglas, 1986). Voluntary respect for the
concern of others is the guiding principle. However,
unlike the hierarchical culture, these members give less
importance to grid or social classification. Hence,
within the group, members apply few restrictions on
one another. Although members are consensual and
egalitarian with one another, they are very critical of
those outside their group. Thus, while they
demonstrate an egalitarian rationality towards their
own members, they pursue a critical rationality
towards non-members (Thompson, 1996).

Fatalistic culture: This is low group-high grid
scenario, which emerges when individuals have
been forced out of decision-making and/or
competition (Gross and Rayner, 1985). In this
culture, individual behavior is highly constrained
by socially assigned classifications. In other words,
people have little freedom regarding whom they
interact with or how they choose to live their lives
(Coyle and Ellis, 1994). They also enjoy little
group support, which leads to a sense of isolation.
Not surprisingly, the rationality that members of
this culture prefer is fatalistic. Members believe
they have little control in terms of what happens to
them. As Mars (2001b) explains fatalistic members
are prone to sabotage inspired by frustration. While
fatalism is not an advocated culture, organizations
experiencing problems may tend in this direction,
or at least be viewed that way by their members
(Patel, 2007).

G
R
I
D

GROUP

Source: Adapted from Patel and Rayner (2012); Patel (2007); Mars (1988, 2001b) and
many others

Figure 1.
The four cultures of
DCF, their values,
rationalities and
behavioral
preferences

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egalitarian cultures are active cultures (see Mars, 1972, 2005 for illustrations; Mamadouh,
1999) and their members compete with each other for a dominant position in the system
by converting others around them to their own worldview (Thompson, 1996). They
organize perceptions and knowledge in line with their way of life, and socialize new
entrants accordingly (Rayner, 1991). Members of the fatalistic culture, being passive,
simply align themselves to whichever culture is strongest at the time. Members of
different cultures also depend on one another for their survival, so that if one culture were
to disappear, they would all disappear (Thompson, 1996). For instance, the principled and
rule-based hierarchical culture provides a way of countering the excessive market-focused
rationality of the competitive culture. While the latter helps harness opportunities for
creativity and entrepreneurship (see Patel, 2007 for examples), it also counters hierarchy’s
excessive affinity for rules and procedures. While the egalitarian group helps members of
the hierarchical and competitive cultures to bridge their differences (Thompson, 1996), the
fatalistic culture makes a less-obvious but valuable contribution to the system by offering
coping mechanisms in the face of adversity (6, 2003). Thus, each culture has its own
strength and weakness, and eliminating any one would lead to the collapse of the entire
system. The question therefore is not which one is right, but rather which one is more
appropriate than the other in a specific context (Thompson and Wildavsky, 1986). In light
of the perpetual tension between the members of the four cultures, one may ask how they
manage to transact with one another. Thompson (1996) explains that when forced to work
with one another, members of different cultures bring forward their similarities and
temporarily underplay their differences. In so doing, they attempt to create a workable
coalition with one another. Not surprisingly, such alliances cannot last forever. Differences
soon resurface between the members of different cultures, eventually leading to a rupture
(Thompson, 1996).

Like other cultural frameworks, DCF has also been subject to much evolution in past
years. While earlier scholars (like Douglas) supported the stability hypothesis – the
notion that individuals look for stability and consistency in the different social
environments in which they operate, this soon gave way to the mobility hypothesis – the
notion that DCF can best be used to explain people’s behaviors within specific contexts
(Rayner, 1992) (Tansey and O’Riordan, 1999). This shift from static to a dynamic
conceptualization of culture is consistent with similar shifts in NCA and CCA literature.
Also, there is considerable divergence among DCF scholars on many issues. For instance,
while many scholars consider belonging to the fatalistic culture to be the outcome of
coercion, others uphold that for some individuals withdrawing themselves from the
influences of other cultures might be a voluntary choice. This has led Thompson (1997) to
propose a fifth culture – the hermit – which he locates in the center of the grid-group
framework. Notwithstanding this debate, for the purpose of the present paper, we
continue to use the more commonly cited fourfold model of DCF. Next, we compare DCF
to conventional NCA/CCA frameworks and outline its strengths and weaknesses.

Comparing DCF with NCA/CCA frameworks
Comparing DCF with conventional NCA/CCA frameworks results in six interesting
insights. First, while proponents of NCA/CCA frameworks ground their explanations of
human behavior in national/societal origin and/or corporate affiliations, DCF scholars
offer a richer understanding of people’s behaviors by evoking four different kinds of
rationalities. As Thompson (1996) explains members of the hierarchical culture follow a
process-oriented rationality, and are guided in their behavior by rules and procedures.
Following the communal and critical rationality, members of the egalitarian culture

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behave in ways that support communal interests of their members. The substantive
rationality of the competitive culture encourages its members to behave in ways that
optimize self-gains, even if this leads to compromising rules or communal interest.
Finally, people adhering to the fatalistic rationality pay lip-service to whatever measure
contributes to their self-preservation. Second, since DCF focuses on transactions, and
since transactions occur at every level of human interactions, DCF can be used for
cultural sense-making at the national, international, regional, and/or corporate levels.
Thus, DCF allows researchers to transcend national, societal and corporate boundaries,
making it an appropriate device to study complex business scenarios.

Third, although discussing “levels of culture” becomes moot when one focuses on
transactions, if applied to the corporate level, DCF offers an ideal compromise between
integration, differentiation and fragmentation perspectives. Unlike integration
scholars, DCF scholars favor cultural plurality. However, the four cultures of DCF
are not static internally coherent sub-cultures (as differentiation scholars would argue).
In fact, even within sub-cultural groups individuals are constantly shifting positions
due to changing grid-group preferences, but these movements do not always lead to
crossing cultural boundaries. Conversely, when individuals do cross cultural boundaries,
these shifts need not always be as unpredictable as fragmentation scholars contend. Most
people shift between cultures when they move from one issue-based network to another
(Thompson, 1996). Individuals “flit like butterflies from context to context, changing the
nature of their arguments as they do” (Rayner, 1992, p. 107-108). This is illustrated in
Price and Thompson’s (1996) example of Swiss villagers who switch from competitive to
egalitarian behaviors in their forest management when avalanches threaten their homes.
Therefore, by studying people’s underlying preferences and their changing contexts,
cultural shifts can be understood, and their direction can also be anticipated.

Fourth, DCF scholars explain conformity and variations in collective action in
grid-group terms. They explain that any two individuals/entities with similar grid-group
preferences will display similar behaviors in that context (Douglas, 1970). This
conformity is neither permanent nor is it a function of people’s national origin/corporate
affiliation. Also, individual behavior is a function of the social pressure that individuals
experience within a context (Thompson, 1996). Therefore, the same individual may
experience different degrees of social pressure and may behave differently at different
times. Alternately, different people within an entity may experience different degrees of
social pressure resulting in considerable behavioral plurality within that entity. Consider
Patel’s (2007) example of an Indo-French alliance where one manager cited company
policy to explain his reluctance to being recorded, while other managers in the same
company were either unaware of such policies, or simply chose not to follow them. Thus,
DCF explains both conformity and variations in human behavior.

Fifth, DCF offers a resolution to the unity-infinity dilemma. The unity argument to
which conventional NCA/CCA frameworks adhere, does not explain behavioral
diversity within a social entity. Conversely, the infinity argument results in an inability
to compare across cultures (Thompson, 1996). Since DCF explains human behavior in
terms of grid-group preferences, and since the grid-group preferences from one
scenario can easily be compared to those in another, it explains behavioral diversity
without subscribing to infinity. DCF supports the idea of cultural plurality, and
plurality obviously introduces relativism. However, cultural relativism need not
be unlimited. It is in fact, subject to constrained relativism (Thompson et al., 2005).
This concept of constrained relativism helps bridge the conceptual divide between
unity and infinity.

738

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28,5

Finally, in our understanding, DCF can best be positioned between interpretivist
and postmodernist traditions. Consistent with the interpretivist stance, DCF scholars
relate people’s underlying preferences to their actions. Also, in the post-modernist
tradition, DCF scholars believe in ongoing cultural change. Yet, unlike extreme post-
modernists, DCF scholars do not consider cultural change to be chaotic and
unpredictable. In fact, they explain that when faced with cultural change there are only
12 possible alternatives – three directions that members of each of the four cultures
may choose to pursue. What remains impossible to predict though is the precise
direction that an individual will choose to take. Thus, DCF scholars attempt to bring
forward the best of both the interpretive and post-modernistic traditions, thereby
allowing for better cultural sense-making.

Notwithstanding its strengths, DCF also has its share of criticisms. We discuss five
of these in this section. First, Mamadouh (1999) points out that the variety of labels
used for the four cultures has led to considerable confusion in past literature. For
instance, the high grid-high group culture has been called hierarchy (hierarchist or
hierarchical) or bureaucracy, and the low grid-low group culture has been variously
referred to as markets, competition, entrepreneurs, individualism (individualistic or
individualists). The use of such confusing labels has encouraged scholars to use DCF as
a classificatory rather than an explanatory device. Tansey (2004) shares this concern
and adds that the use of labels such as “individualists” and “hierarchists” have led
researchers (e.g. Sjöberg, 1998) to incorrectly assume that the four cultures are
personality or psychological types rather than emerging cultural patterns. He explains
that this might also be the outcome of using positivistic methodologies (e.g. survey
instruments), which are inappropriate for theoretical frameworks like DCF. He
recommends qualitative instruments such as interviews and participation-observation
for studies grounded in DCF. Second, applications of DCF are prone to illustrative
examples and bird-spotting (Mamadouh, 1999). In other words, some DCF scholars
remain content with simply spotting the presence of the four cultures in a social system.
We believe that this tendency can be overcome by focusing on the how the four
cultures are generated, rather than simply pointing out that they co-exist in a specific
context and using systematic criteria for assessing grid and group (e.g. Mars’s [2012]
LISTOR-SPARCK). Third, some scholars (e.g. Renn, 1992) complain that DCF fails to
capture the full richness of observed behavior. This criticism, we believe, is grounded in
a wrong understanding of DCF’s objectives. It is not the goal of DCF to force-fit every
observed behavior into the four cultures. The objective is simply to understand
dynamic human interactions between members of the four cultures (6 and Mars, 2008).
Although cultures often exist in hybrid forms (see Rayner, 1994), discussing them in
their pure forms is only required to facilitate an understanding of the framework. Four,
some scholars (see Milton, 1996) complain that DCF does not give sufficient importance
to human agency. We disagree. In our understanding DCF conceptualizes human
behavior as the outcome of an ongoing interaction between individuals and their
contexts. It neither attributes human behavior solely to the individual, nor solely to the
context. Finally, DCF has sometimes been criticized for not clarifying the level of
analysis. DCF scholars defend their stand by explaining that cultural interactions are
independent of levels and scales – if transactions fall into a number of distinct spheres,
the same individual could be a member of different cultural groups across levels and
scales in different contexts (Thompson, 1997; see also Barth, 1992). While many
scholars consider this flexibility an asset, others worry that frameworks (like DCF) that
are too widely applicable may have weak predictive powers (Mamadouh, 1999).

739

Cultural
sense-making
tools

Theoretical implications
We offer two main theoretical implications. Since proponents of most NCA/CCA
frameworks assume cultural homogeneity within nations/societies/regions and/or
companies, they consider cultural differences to be problematic (Meschi, 1997; Barkema
and Vermeulen, 1997). While cultural similarity or lesser “cultural distance” between
the national and/or corporate cultures of collaborating firms is considered a pre-requisite
for sound inter-firm relations (Vanhonacker and Pan, 1997), a large “cultural distance” is
deemed to have a negative impact on the viability of the relationship (Hallen et al., 1979;
Hofstede, 1980\1984). Since most NCA/CCA scholars ask questions in line with their
“difference-oriented” lens, it is not surprising that the responses they get are also along the
same lines (Ofori-Dankwa and Ricks, 2000, p. 173). This practice inadvertently feeds into
reinforcing “the symbolic production of a sense of difference” (Ailon-Souday and Kunda,
2003, p. 1090). Conceptually speaking, these approaches are not very different from past
approaches in comparative anthropology, wherein the “procedure of comparison consisted
of a morphological matching of forms so as to locate differences” (Kapferer, 1976, p. 3). In
contrast, using DCF for cultural sense-making draws our attention away from the dead-
end argument of national/corporate culture differences and towards cultural transactions
as an alternative cultural lens. Proponents of DCF show that cultural differences are not
only inevitable, they are also required for the viability of social relations.

Second, studies using conventional NCA/CCA frameworks often cite culture as “an
explanation of last resort’ (Thompson et al. 2005). Patel (2007) notes a similar tendency
among international managers who evoke cultural differences when all other explanations
of failure (bad planning, poor design, inadequate resources, etc.) are found wanting.
Sometimes, managers cite culture as an “uncaused cause”. This means that while culture
is seen as causing problems, it is itself incapable of being explained (Thompson, 1996).
We reckon that as long as managers/scholars continue to focus selectively on national
origin/corporate affiliations to make sense of people’s behaviors, they will inevitably continue
to treat culture as “an explanation of last resort” and as an “uncaused cause”. Conversely,
DCF not only explains people’s behaviors without relying on their national/societal origin
and/or corporate affiliations, but also relates their underlying values with behavioral
preferences and subsequent actions. Table I summarizes our findings.

Conclusions, limitations and suggestions for future research
In recent years many scholars (Child and Tayeb, 1983; Angwin and Vaara, 2005; Ailon and
Kunda, 2009) have expressed dissatisfaction with the way culture has been conceptualized
in business literature. They have urged researchers to desist from using “nation” as a proxy
for culture and have called for new angles in cultural research. Notwithstanding, business
literature continues to be dominated by national origin/corporate affiliations based
explanations of people’s behaviors due to lack of alternative frameworks. By proposing DCF
as an alternative tool for cultural sense-making, we partly address this void. We also
address Leung et al.’s (2005) call for new ways of conceptualizing the dynamicity of culture.
While these scholars rely on cognitive psychology, we draw on anthropology-based
transactional culture literature to explain human behavior. Finally, following Barth (2007)
we offer DCF as a generative model of culture which explains how cultures emerge – thereby
countering the tendency among culture scholars to simply categorize cultures. Although
DCF has enjoyed much popularity in anthropology (Thompson and Ellis, 1997), political
science (Thompson et al., 1990) and public administration (Wildavsky, 1987), its use in
business studies remains fairly limited. We hope that our present paper will partially
redress this disequilibrium.

740

JOCM
28,5

N
C
A

C
C
A

T
C
A

D
C
F
as

a
tr
an
sa
ct
io
na
l

fr
am

ew
or
k

F
oc
us

C
ul
tu
re

th
e

na
ti
on
al

/s
oc
ie
ta
l/

re
gi
on
al

le
ve
l

C
ul
tu
re

at
th
e
co
m
pa
ny

or
ga
ni
za
ti
on

le
ve
l

H
um

an
tr
an
sa
ct
io
ns

(a
t

an
d

ac
ro
ss

va
ri
et
y
of

le
ve
ls
)

H
um
an
tr
an
sa
ct
io
ns

(a
t
an
d
ac
ro
ss

a
va
ri
et
y
of
le
ve
ls
)

C
ul
tu
ra
l

di
ff
er
en
ce
s

be
in
g

pr
ob
le
m
at
ic

In
te
gr
at
io
n
an
d
di
ff
er
en
ti
at
io
n

pe
rs
pe
ct
iv
es

:c
ul
tu
ra
l

di
ff
er
en
ce
s

as
be
in
g
pr
ob
le
m
at
ic

F
ra
gm

en
ta
ti
on

pe
rs
pe
ct
iv
e:

cu
lt
ur
al

am
bi
gu

it
y

C
ul
tu
ra
l
tr
an
sa
ct
io
ns

ra
th
er

th
an

cu
lt
ur
al
di
ff
er
en
ce
s
C
ul
tu
ra
l
tr
an
sa
ct
io
ns
ra
th
er
th
an
cu
lt
ur
al

di
ff
er
en
ce
s,
cu
lt
ur
al

di
ff
er
en
ce
s
co
ns
id
er
ed

es
se
nt
ia
l
fo
r

so
ci
al

vi
ab
ili
ty

T
re
at

m
en
t

cu
lt
ur
e

[…
]

St
at
ic
,a
s
an

un
ca
us
ed

ca
us
e,
an

ex
pl
an
at
io
n
of

la
st

re
so
rt

In
te
gr
at
io
n

pe
rs
pe
ct
iv
e:
st
at
ic

th
e
or
ga
ni
za
ti
on
al

le
ve
l

D
if
fe
re
nt
ia
ti
on

pe
rs
pe
ct
iv
e:
st
at
ic

at
th
e
su
bc
ul
tu
ra
l
le
ve
l

F
ra
gm
en
ta
ti
on
pe
rs
pe
ct
iv
e:

dy
na
m
ic
an
d
ch
ao
ti
c

D
yn

am
ic

D
yn

am
ic
,b

be
ha
vi
or

pa
tt
er
ns

ca
n
st
ill

be
di
sc
er
ne
d

St
an
dp

oi
nt

th
e
un

it
y-

in
fi

ni
ty

ar
gu

m
en
t

C
on
ve
nt
io
na
l
N
C
A
:U

ni
ty
ar
gu
m
en
t

R
ec
en
t
N
C
A

fr
am

ew
or
ks

:I
nf
in
it
y

ar
gu
m
en
t

In
te
gr
at
io
n
pe
rs
pe
ct
iv
e:

it
y
ar
gu
m
en
t
D
if
fe
re
nt
ia
ti
on
pe
rs
pe
ct
iv
e:

be
tw

ee
n

it
y
an
d

in
fi
ni
ty

F
ra
gm
en
ta
ti
on
pe
rs
pe
ct
iv
e:
in
fi
ni
ty
ar
gu
m
en
t

In
fi
ni
ty

ar
gu
m
en
t

C
on
st
ra
in
ed

re
la
ti
vi
sm

:c
ul
tu
ra
l

pl
ur
al
is
m

w
it
ho
ut

im
pl
yi
ng

cu
lt
ur
al
in
fi
ni
ty

E
pi
st
em

ol
og
ic
al

st
an
dp

oi
nt

C
on
ve
nt
io
na
l
N
C
A
:F

un
ct
io
na
lis
t

R
ec
en
t
ad
va
nc
es
:p

os
t-

od
er
ni
st

In
te
gr
at
io
n
pe
rs
pe
ct
iv
e:

fu
nc
ti
on
al
is
t

D
if
fe
re
nt
ia
ti
on
pe
rs
pe
ct
iv
e:
fu
nc
ti
on
al
is
t
F
ra
gm
en
ta
ti
on
pe
rs
pe
ct
iv
e:

po
st
-m

od
er
ni
st

In
te
rp
re
ti
vi
st
,p

os
t-

m
od
er
ni
st

B
et
w
ee
n
in
te
rp
re
ti
vi
st

an
d
po
st
-m
od
er
ni
st

(c
o
n
ti
n
u
ed

)

Table I.

Comparing NCA,

CCA, TCA, and DCF
as a transactional

framework

741

Cultural
sense-making
tools

N
C
A
C
C
A
T
C
A
D
C
F
as

a
tr
an
sa
ct
io
na
l
fr
am

ew
or
k

St
re
ng

th
s

F
ac
ili
ta
te
s
br
oa
d
cu
lt
ur
al

co
m
pa
ri
so
ns

ac
ro
ss

na
ti
on
s/

so
ci
et
ie
s/
re
gi
on
s

F
ac
ili
ta
te
s
cu
lt
ur
al

co
m
pa
ri
so
ns

an
d

of
fe
rs

a
ri
ch

va
ri
et
y
of
fr
am
ew
or
ks

to
st
ud

y
cu
lt
ur
e
at

th
e

co
rp
or
at
e
le
ve
l

E
xp

la
in
s
hu

m
an

be
ha
vi
or

th
ro
ug

h
di
sc
us
si
on

of
“r
at
io
na
lit
y”

ra
th
er
th
an
na
ti
on
al

or
ig
in
/c
or
po
ra
te

af
fi
lia
ti
on
s

O
ff
er
s
ri
ch
er

un
de
rs
ta
nd

in
g
of

ra
ti
on
al
it
ie
s,
tr
an
sc
en
ds

na
ti
on
al
/

so
ci
et
al
/c
or
po
ra
te

bo
un

da
ri
es
,

of
fe
rs

a
co
m

pr
om

is
e
be
tw

ee
n

in
te
gr
at
io
n
an
d
di
ff
er
en
ti
at
io
n

pe
rs
pe
ct
iv
es
,e
xp

la
in
s
co
nf
or
m
it
y

an
d
va
ri
at
io
ns

in
co
lle
ct
iv
e
ac
ti
on
,

ov
er
co
m
es

th
e
un

it
y-
in
fi
ni
ty

di
le
m
m
a

L
im

it
at
io
ns

In
ca
pa
bl
e
of

ex
pl
ai
ni
ng

cu
lt
ur
al

ch
an
ge
,i
gn

or
es

ex
is
te
nc
e
of

m
ul
ti
pl
e
cu
lt
ur
es

w
it
hi
n
a
co
un

tr
y,

ne
gl
ec
ts

th
e
im

pa
ct

of
fa
ct
or
s
ot
he
r

th
an

cu
lt
ur
e
on

be
ha
vi
or
,a
ss
um

es
ho
m
og
en
ei
ty

of
pr
ac
ti
ce
s
w
it
hi
n

na
ti
on
s,
fo
cu
se
s

ex
ce
ss
iv
el
y
on

cu
lt
ur
al

di
ff
er
en
ce
s,
tr
ea
ts

na
ti
on
al

id
en
ti
ty

as
a
pa
ss
iv
e
em

bo
di
m
en
t
of

cu
lt
ur
e

Ju
xt
ap
os
es

or
ga
ni
za
ti
on
an
d

cu
lt
ur
e,
as
su
m
es

th
at

co
m
pa
ni
es

ar
e
em

be
dd

ed
w
it
hi
n
na
ti
on
al

cu
lt
ur
e,
ho
ld
in
g
N
C
A

an
d
C
C
A

si
m
ul
ta
ne
ou
sl
y
ge
ne
ra
te
s
a

co
nc
ep
tu
al

co
nt
ra
di
ct
io
n

F
oc
us
es

ex
ce
ss
iv
el
y
on

‘s
el
f-
in
te
re
st
’,
so
m
e

tr
an
sa
ct
io
na
l
sc
ho
la
rs

pr
om

ot
e
th
e
in
fi
ni
ty

ar
gu

m
en
t,
th
er
eb
y
re
nd

er
in
g

cu
lt
ur
al
co
m
pa
ri
so
ns

im
po
ss
ib
le

T
en
de
nc
y
to

us
e
D
C
F
as

a
cl
as
si
fi
ca
to
ry

de
vi
ce
,c
on
fu
si
ng

la
be
ls
,f
ou
r
cu
lt
ur
es

so
m
et
im

es
w
ro
ng

ly
tr
ea
te
d
as

pe
rs
on
al
it
y
or

ps
yc
ho
lo
gi
ca
l
ty
pe
s,
ap
pl
ic
at
io
ns

vu
ln
er
ab
le
to

bi
rd
-s
po
tt
in
g,

m
ay

be
se
en

as
ha
vi
ng

w
ea
k
pr
ed
ic
ti
ve

po
w
er
s

Table I.

742

JOCM
28,5

Our present paper suffers from certain limitations. First, while it offers a satisfactory
appraisal of different cultural approaches from a theoretical angle, this appraisal
remains incomplete due to insufficient reflections on the methodological underpinnings
of different approaches. Studies grounded in NCA generally follow a positivistic
epistemology, and therefore rely on quantitative methodologies, which produce broad
generalizable results. Conversely, studies grounded in frameworks such as DCF are
inspired by either the interpretive or the post-modernist tradition. Such studies
generally tend towards qualitative methodologies and favor depth of understanding
over broad generalizations. Since the choice of frameworks, choice of methodologies,
and epistemological preferences are intricately linked with one another, an in-depth
reflection on methodological appropriateness is required for a more complete appreciation
of cultural frameworks. Therefore, our present criticism of different cultural approaches is
partial, at best. The second limitation of our work is that due to space constraints, we have,
at best, offered a superficial appreciation of popular cultural approaches from business and
anthropology literature, without being able to expose their full conceptual and empirical
richness. Our coverage of cultural approaches from business and anthropology literature is
far from exhaustive.

To conclude, in this paper we argue that DCF enjoys certain advantages over other
commonly cited cultural approaches. Nevertheless, this does not release DCF scholars
from the responsibility of making appropriate methodological choices. As Tansey (2004)
explains, if combined with inappropriate methodologies, DCF will be reduced to just
another classificatory tool (e.g. Sjöberg, 1998), not very different from the ones we criticize
in this paper. Therefore, we recommend discretion and care in the way scholars use DCF.
Second, while our present paper encourages business scholars to use DCF, the scope of
DCF’s applications should not be limited only to business studies. Many features that
characterize modern business entities – for instance, constant change, plurality of
identities and belief systems, dynamicity – are also found in non-business entities, such as
the NATO, the UN Peace Corps and “Medecins sans Frontiers”. Each of these entities
brings together people from different nations, professions, religions, and backgrounds to
interact with one another in challenging, unstable and dynamic environments. Therefore,
transactional frameworks such as DCF can also be used for cultural sense-making in such
entities. Finally, we recommend that future scholars follow Barth’s (2007) advice and
develop other generative frameworks of culture like DCF. Such generative frameworks
will open up avenues of research hitherto left unexplored due to lack of appropriate tools.

Note
1. LISTORG is an acronym for: labor, information, space, time, objects, resources, and group

incorporation. This instrument was then revised to LISTOR-SPARCK, where SPARCK
stands for: selection and promotion, propinquity of residence, association at work, roll over of
work and leisure, common histories, and kinship.

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Corresponding author
Professor Taran Patel can be contacted at: Taran.Patel@grenoble-em.com

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AdvancesIn Management Vol

7(2) February (2014)

Evolving Relationship between the Parent and
Subsidiaries in Multinational Companies

Miroshnik Victoria
1*

and Basu Dipak

1. School of Business A dminist rat ion, T okyo Int ernat ional Universit y, JAP AN

2. School of Int ernat ional Economics, Facult y of Economics, Nagasaki Universit y, JAP AN

*vmiroshnik1969@gmail.com

Abstract

There are some specific espoused values in every
important multinational company which form their

organizational cultures and create valu es which

turn may form commitment of its employees. The

transmission of organizational culture from the

headquarters to subsidiaries appears to be a core of
the mechanism of managing overseas subsidiaries in

multinational companies. The problem of setting up

operations in a foreign country with a very dif ferent
culture has its transaction cost. The thrust of the

argument regarding the transaction cost is that
companies design their managerial control to promote

the reductions of these transaction costs. Both

political and cultural problems reinforce the
transaction cost arguments. The central question in

the literature on MNCs is the extent to which their

various foreign affiliates (or subsidiaries) act and

behave as local firms versus the extent to which their

practices resemble those of the parent corpora tion or

some other global standard

Keywords: Multinational Companies, Strategy, Cultural

Control, Parent Subsidiary Relat ionship

Introduction
A mult inat ional company (MNC) today is becoming the

central agent promoting globalizat ion. Operating across

products and markets, nations and cultures, MNCs face

diverse problems and complex situat ions and therefore

create the most complex form of organization in existence.

The transmission of organizat ional culture from the

headquarters to subsidiar ies appears to be a core of the

mechanism of managing overseas subsidiar ies in

mult inat ional companies
6,100

. During the process of

transmitting culture, a parent unit of a company should

successfully transfer the set of the core values that compos e

its organizat ional culture from their parent unit to the

subsidiaries worldwide.

In this paper, we have tried to formulate a theory from the

transmission of organizational culture and tried to evaluate

it in the context of the literature on multinat ional

companies.

* Author for Correspondence

There are some specific espoused values in every important

mult inat ional company which form their organizational

cultures and create values which in turn may form

commitment of its employees. These commitments are the

indicator of successful performance of a company because

creation of commitment leads to success of the company.

We can call this interrelat ionship between culture and

commitment as company citizenship. This company

citizenship can be transmitted from one part of the globe to

another by a multinational company through the

transmission of its organizational culture, as a part of the

company‟s strategic management process.

Formation of this company citizenship based on firm‟s

organizat ional culture creates unique competitive

advantage of a multinat ional company as the part of its

internat ional strategy. A company citizenship can be

formed even in a country with a very different national

culture because the strong organizational culture of a

mult inat ional company which gave rise to the values of

corporate management and operations management, can

override difference in national culture between the home

and the host countries of multinat ional companies.

This paper is trying to evaluate the above concept in

modern business world that the multinational companies,

not countries, are establishing their own cultures over the

globe. The corporate cultures of leading mult inat ional

companies are forming their own company citizenships

within their borders and spreading their way of doing

things globally. As there are different multinat ional

companies with different organizat ional culture, there

would be different company citizenships for different

mult inat ional companies rather than just one Anglo-

Amer ican „jet-set Global‟ culture
124

The „Jet-Set‟ culture emphasizes individualism, self-

reliance, competition, uniqueness, hedonism and emotional

detachment within a group. Vertical individualistic culture

(US corporate culture) values competitiveness. Horizontal

individualistic culture (Australia, Sweden) de-emphasizes

hierarchical different iat ions
128

Effect of Globalizat ion according to this concept is the

creation of a „Jet-Set Culture‟ who belongs to an emergent

global culture which promotes primarily the vert ical

individualistic US corporate culture irrespective of national

boundaries
44

. This global culture consists of people who are

attached to other members of this global culture through a

process of self-selection. Core values of global managers

Advances In Management Vol. 7(2) February (

2014)

are not derived from ethnic group, national origin but from

a cultural cross-pollinat ion
38

Some successful multinat ional companies are developing a

common pattern of drivers of business practices through the

formation of the „company citizenship‟ by transmitting the

parent‟s organizational culture to the subsidiar ies as the

strategic cultural control of the subsidiaries to enhance

performances.

Company Citizenship as a Competitive

Advantage
The continuous growth of a company is needed for the

preservation of the values of organizationa l culture.

Continuous progress and respect that can be gained to be

associated with a company with continuous growth is the

end objective of the employees. A deep religious value to

perpetuate growth is also the objective of the corporate

growth. Employees think and operate with their outlook for

the long-term prospect of the organizat ion and harmony

with the work place and broad social environment.

These feelings lead them to develop a fam ily feeling within

the work place and responsibility towards the fellow

employees and the community at large. They believe they

have a responsibility towards the organization and the local

and global societies as a multinat ional company is a global

organizat ion.

O‟Reilly, Chatman and Caldwell
99

have identif ied certain

dimensions of values of organizat ional culture. Shingo
122

has defined values at the core of the operations

management system of Toyota. These values are

innovat ion, stability, respect for people, outcome

orientat ion, detail orient ation, team orientat ion and

determinat ion. These values are closely related to what

Triandis
124

has described as „collectivist‟ values which

should give way to the „individualist ic‟ values in a fully

„globalized‟ value system according to the supporter of the

„Jet-Set Culture‟.

The classic question is what Barney has raised
14-17

relat ion to Porter‟s theory
108,110

of the competitive

advantage of a firm whether culture can be a source of

competitive advantage and therefore can be regarded as a

strategic resource of a company. Organizational culture is

an important resource of an MNC because organizational

culture is unique and hard to imitate or competitors and

which in case it is successfully transmitted to the

subsidiaries, may influence the overall performance of the

company
53,83,84

Managers of multinational companies are expected to

coordinate these subsidiar ies so as to integrate them into a

proper strategy to create unique resources against their rival

companies. However, the most difficult part is to find a

roadmap to implem ent such a strategy. Thus, the issues

regarding globalizat ion/localizat ion
19,21

and centralizat ion/

autonomy
4
in relat ion to the HQs-subsidiary relat ionship

are becoming extremely important.

Parent-Subsidiary Relationship in the

Multinational Companies
Analys is of the related lit erature revealed that the research

on the multinat ional companies evolved into some critical

directions over the last few decades. There was a shift in

emphasis towards the multinat ional subsidiary as a unit of

analys is. That approach created a good understanding of

the various strategic roles of the subsidiaries
6,33,84

Mult inat ional companies are always interested to reduce

the risk and uncertainty in overseas business operations
21

The problem of setting up operations in a foreign country

with a very different culture has its transaction cost. The

thrust of the argument regarding the transaction cost is that

companies design their managerial control to promote the

reductions of these transaction costs. Both polit ical and

cultural problems reinforce the transaction cost arguments.

There are two types of analysis to reduce transaction costs

through the increased efficiency of the subsidiaries. Many

scholars in the domain of international business put

emphasis on entrepreneurship or the autonomy of the

subsidiaries as the major issue which would create

resources like innovat ions, efficiency on supply of factors

of production, technology of production and cost efficiency

of distributions
116

. There are others who emphasize the

adaptation of parent company‟s organizat ional culture and

control of subsidiaries through culture to create „resources‟

in the subsidiaries to outwit their rival MNCs
10,95,96,120

The way in which the headquarters implement its

internat ional strategy across the globe can influence the

structure of the HQ-subsidiary relationship. That leads to

the issue of the transmission of organizational culture to the

subsidiaries as an international competitive strategy
3,107,138

Thus, the coordination and control mechanism is a basic

issue of discussion in the related literature
5,12,61

The subsidiary initiative is promoted by high level of

distinctive subsidiary capabilit ies and is suppressed by a

high level of decision centralizat ion, a low level of

subsidiary credibility and a low level of corporate-

subsidiary communication. Subsidiary initiative leads to an

enhancement of credibility, head office openness,

corporate-subsidiary communication and distinctive

capabilit ies
41,106

Mechanisms of coordination are many which can be

divided into two main forms: formal and informal
83

Formal system has explicit rules and regulations. Informal

system depends on a process of socializat ion and

communications to inject the values of the organizat ions to

individual members
89

. The main research contributions on

formal mechanisms came from Harvard Multinat ional

Enterprise Project and from the Stockholm School
60,61

Advances In Management Vol. 7(2) February (2014)

International comparative studies
93

also mentioned

informal cultural coordinat ion through human resources

management policies.

Analys is of the internal structures, such as culture, is the

key to understand the management of the multinat ional

firms, particularly the coordination mechanism between

HQs and subsidiaries. In a classical bureaucratic model of

organizat ion, coordination relies on the use of explicit

formal rules and regulations. An organizat ion with informal

cultural coordination relies on an implicit organization-

wide culture to influence the members of that organizat ion.

Mainly Japanese and Scandinavian companies follow this

type of coordination through culture
12,13,60,61,98

Types of Multinational Companies and Parent-

Subsidiary Relationship
Mult inat ional companies are not homogeneous. The central

question in the literature on MNCs is the extent to which

their various foreign affiliates (or subsidiaries) act and

behave as local firms versus the extent to which their

practices resemble to those of the parent corporation or

some other global standard
48

. Peterson and Brock
106

divided the development of the literature on multinat ional

companies into four eras: the International Era (60s), the

Global Era (70-80s), the Transnational Era (1990-2000s)

and the Internal Era (2000 and future research). Older

MNCs may enjoy the positive „influence‟ of age. They are

likely to control more resources than younger firms because

the accumulation of resources and capabilities may take

place over time
34

. Affiliates of MNCs are traditionally

viewed as mere instruments of their parents
33

. However,

MNCs‟ affiliates evolve in both sc ale and scope over time

and the interplay of affiliate level entrepreneurship and the

affiliat e‟s competitive environment could substantially

impact on the overall performance of the MNC. Foreign

affiliat es learn from the host country environment and

contribute substantially to their parent‟s stock of resources

which in turn strengthen the MNC as a whole.

There are different types of MNCs depending upon their

different management system and their different parent-

subsidiary relationships. For example according to

Perlmutter
105

, there are three types of MNCs: ethnocentric,

polycentric and global. According to this typology, the

management practices in foreign affiliates of MNCs could

resemble those of the MNC’s home country (ethnocentric),

could conform to local practices of the affiliat e’s host

country (polycentric) or could adhere to a worldwide

standard (global). Examples of ethnocentric MNCs are the

older American MNCs and recent Japanese MNCs.

Examples of polycentric firms are normally older European

MNCs. Examples of global firms are recent American and

European MNCs where Japanese MNCs have not yet

accepted this „global‟ standard
38,42,51

In the early days, subsidiaries of the MNCs

observed

„ethnocentric’ behaviour and when they became more

mature, the subsidiaries started behaving in a „polycentric‟

way. The recent tendency of the subsidiar ies is to follow

the „global standard‟. Adler
1
and Bartlett and Ghoshal

described the management practices of the MNC in terms

of an overall or ientat ion and evolut ion. A number of

variables are important to classify the MNCs: “1)

Environment/Industry; 2) Corporate level strategy; 3)

Corporate level organizat ional design; 4) Subsidiary

strategy/role; 5) Subsidiary structure; 6) Control

mechanism; 7) Human resource practices”
58

Historically mainly the Br it ish multinat ional companies

during the days of the Br itish Empire and subsequently

during the 1950s and 1960s used to employ management

agents in their overseas subsidiar ies, giving them a lot of

freedom to manage those units. In the init ial per iod of the

global f irms, from 1920 to 1950, European multinat ional

firms used to have a decentralized country-centered

strategy for control where subsidiar ies were practically

independent national ent it ies focused primarily on their

local market. Controls of the subsidiar ies were in terms of

long training of the host executives in the parent‟s countries

and the extensive usage of executives of the home

country
83

These mechanisms became insufficient for managing

subsidiaries characterized by high levels of intra-firm

internat ional interdependence, the management of which is

critical to many of today’s complex global firms
83,84

. In the

next period, between 1950 and 1980, global firms tended to

have a centralized hub with a global strategy where the

subsidiaries had to implement functional strategies decided

at the headquarters. The decision making process was

highly centralized at headquarters.

The subsequent period, started in the late 1970s, saw a

strategy of „reciprocal interdependence‟ where managers

tried to integrate multinational production centers with

flows of materials, components, technology, financial

resources, creative ideas and people. In this complex

organizat ional structure, new informal mechanisms have to

be added to the existing structural and formal managerial

devices
4,6,106

The headquarters-subsidiary relationship depends on the

centralizat ion or decentralisat ion of the decision making

process
54

. However, a number of American mult inat ional

companies still prefer strictly controlled subsidiary units

using bureaucratic controls
83-8

whereas some Japanese

mult inat ional companies are using organizat ional culture as

control mechanisms for the subsidiary units
27

International business literature also mentioned the area of

network-based system where a subsidiary‟s position within

its various networks can give it influence over the strategic

decision making process of the MNC
5
. It was suggested

that a transition is taking place towards new modes of

organizing transnational corporations’ innovative activit ies.

Advances In Management Vol. 7(2) February (2014)

First, different units of multinational f irms, including

foreign-based subsidiar ies, are increasingly involved in the

generation, use and transmission of knowledge. Secondly,

mult inat ionals are developing external networks of

relat ionships with local counterparts, through which foreign

affiliat es gain access to external knowledge sources and

application abilit ies. As a result of this evolutionary

process, multinat ionals’ organizat ion is subject to both

centripetal and centrifugal forces. The summary of related

literature is shown in table 1.

Strategy-Structure

Regarding the parent-subsidiary relat ionship, early

literature on MNCs emphasizes the relationship between

structure and strategy with an implicit assumption that

structure would change in response to strategy
19,105

. Bartlett

and Ghoshal
19

have mentioned three main types of MNCs

from the perspective of the used dominant strategies such

as global, mult i-domestic and transnational. Global

companies have centralised strategic plans with

bureaucratic control (for Japanese companies with cultural

control) with very low level of independence for the

subsidiaries. Multi-domestic companies have low level of

bureaucratic control but with average level of social and

cultural influences. Transnational companies may have

subsidiaries as strategic centres in certain cases.

Subsidiar ies are interdependent centres to develop products

but their knowledge is shared. There is a low level of

bureaucratic control from the HQs but a high level of

cultural control from the HQs with continuous flow of

people moving around between the HQs and the

subsidiaries.

Thus, there is a close link between the strategy and

structure of MNCs of different types. Harzing
58

also

supported Bartlett and Ghoshal‟s
19

theory and found that

global companies with centralized control are opposite to

mult i-domestic companies with fairly autonomous

subsidiaries. However, the transnational companies

combine the characteristics of both global and multi-

domestic companies.

The relationship between the HQs and the

subsidiaries

depends on the issue of centralizat ion and the integrat ion of

the subsidiar ies in the decis ion making process
54

. The issue

here, according to Peterson and Brock
10

is: “… how to

integrate portfolio of subsidiaries to maximize their

usefulness to headquarter”.

Bartlett and Ghoshal
21

observed

that there may be a positive relat ionship between the

innovat ion achievements of a subsidiary and its close

integrat ion with the overall strategy of the HQ of a

mult inat ional company. The control methods of the HQ

depend on this relationship
21,22

There may be positive relat ionship between centralizat ion

and global product standardization and a negative

relat ionship between centralization and local modif ication
54

According to Bartlett and Ghoshal
21

, “High levels of

normative integration and information exchange can

enhance the salience of the convergent interests and in this

situation local resources and autonomy may lead to more

vigorous participat ion of the subsidiary in the tasks of

creating, adopting and diffusing innovat ions that benefit the

company as a whole.”

Shared vision and creation of similar values for managerial

philosophy can be more effective
21

. Subsidiar ies in turn can

have their own networks and strategies in local markets
106

Interestingly, that localizat ion issue is getting increasingly

important despite of the media advertisement for

globalizat ion. The relationship between the HQs and the

subsidiaries may be different over time as a result

. A

combination of integration and national init iat ives within a

mult ifocal strategy has already gained importance
112

Globalization/localization issues
According to Bart lett and Ghoshal‟s

19,21
typology, an MNC

is a portfolio of differentiated but interdependent

subsidiaries based on the strategic importance of the local

environment and the competencies held by the local

organizat ion
58

. Based on these, four generic roles of

national subsidiar ies can be imagined: the strategic leader

(strong locational advantages and competencies), the

implementer (weak locational advantages and

competencies); contributor (weak location with strong

competencies) and the „black hole‟ (strong locational

advantages and weak competencies). Bouquet and

Birkinshaw
39

have mentioned that the recent advances in

information technology may have changed this structure a

little where the HQ may subdivide activit ies among the

subsidiaries to perform different roles

. Japanese

subsidiaries in the US A are largely „contributors‟ rather

than „strategic leaders‟ for production. They benefit from

the transfer of competencies developed in Japan; they

operate in the US A in an environment with relat ive

locational disadvantages
133

Role of Subsidiary

Subsidiar ies may have different roles given according to

their unique resources. As the subsidiaries may face

different problems and situations than other subsidiaries

and the HQ they may receive a different administrative

system
136

. That has provoked some authors to accept

subsidiaries as units of analysis to analyze the strategic

roles of the subsidiaries which are different for different

countries
84

. That has a close relationship with the „World

Product Mandate‟ concept where a subsidiary may receive

reinvestments from the local government and may have

superior resources as a result
33

. High or low levels of

pressure to globalize may classify subsidiar ies into

different categories. So called „Integration-Responsiveness‟

(IR), can be a strategy for the subsidiar ies
131

. This leads to

the concept of „centre of excellence‟ for a subsidiary where

a subsidiary in a specific location can be selected by the

HQ as the centre of excellence
5
.

Advances In Management Vol. 7(2) February (2014)
5

Centratralization vs. autonomy issues
The dominant role of the HQ may be replaced by a period

of increasing heterarchical behaviour of the subsidiar ies
58

Centralization is important in mainly Amer ican MNCs, in

new subsidiary developments rather than in an already

established company purchased by an MNC, in large

subsidiaries and major MNCs with a large international

organizat ion. The age of a subsidiary is also important
132

. A

mult i-domestic MNC is a group of quasi-autonomous

entit ies
112

. An MNC with a globally integrated strategy

requires a more complex system of subsidiary management.

A more globalized MNC has more centralized controls.

A subsidiary with a close relat ionship with the local firms

has a lower level of HQs control
5
. A subsidiary of a

company with a higher level of corporate relationship with

the HQs has more central control while subsidiar ies in h igh

technology areas have a higher degree of independence. A

subsidiary with extraordinary resources and a specialist in

products normally has a higher degree of autonomy
136

. A

subsidiary with higher technological ability normally has a

higher degree of independence but a firm in a knowledge

industry, for example, may have a higher degree of central

control
19

Subsidiar ies start with market seeking ventures but as they

grow older, they develop their own resources and build

some unique capabilit ies. There are external and internal

environments of a subsidiary. Subsidiaries engage in

entrepreneurial activit ies to enhance their competitiveness

given their capabilit ies.

Alte rnative Models of HQs-Subsidiary

Relationship
The HQs-Subsidiary relat ionship is main ly concerned with

the control of subsidiar ies and maximising their potentials

for headquarters
106

. The nature of these controls moved

from formal restrictions of autonomy to a flexible cultural

control
120

Among the range of models of the MNC subsidiary-HQ

relat ionships, Bartlett and Ghoshal‟s
21

typography has

indicated a number of different types of subsidiar ies from

the perspective of the ability to carry out the different

innovat ion tasks such as creation, adoption and diffusion. A

three-fold typology of subsidiary roles such as world

product mandates (WPM), specialized contributor and local

implementer proposed in the related literature was

confirmed by the empirical study by Birkinshaw et al
36

. In

another study Birkinshaw et al
35

described several factors

that can change the role of a subsidiary such as local

environment, changes in global environment, competition

from other countries and subsidiary‟s desire to have

autonomy. Subsidiar ies may create entrepreneurial

activit ies as a result of limit ed resources, improve the

utilizat ion of resources or lend out resources in unique

ways. Thus, two significant changes emerged in the MNC

literature shift from hierarchy to „heterarchy‟ structure i.e.

from a formal structure of management to a network and a

change of focus from the HQ to the subsidiary.

Hierarchical vs. Heterarchical approaches

Transnational structure is more heterarchical than the

traditional multinat ional structure. Formal control of the

subsidiaries gave away to cultural control in some c ases
111

Autonomy is considered to be beneficial not only for the

subsidiary but also for the HQ. MNCs of Swedish origin

display more „heterarchical‟ structure
60

which may create

more knowledge, ideas and opportunity for both the

subsidiaries and the HQ. These subsidiar ies focus on the

local environment and the HQ begins to lose its centrality

in this view of organization
106

That leads to the discussion between two types of

development regarding the HQs-subsidiary relat ionship.

Centralized organizations are hierarchical whereas

decentralized organizat ions are heterarchical
60

. Acquired

subsidiaries have a greater degree of autonomy than

Greenfield operations. Industries in the newer fields like

information technology may have a higher degree of

autonomy but large manufacturing industries like

automobiles or heavy industries may have a lower level of

autonomy and a higher degree of integration
61

According to White and

Poynter
136

there are three types of

subsidiaries: (1) World Product Mandate subsidiaries

(WPMs) that are allowed to have autonomy to develop a

new product to be distributed worldwide in different

subsidiaries, (2) Subsidiar ies that have specialised

productions and as a result a higher degree of autonomy

and finally (3) Subsidiar ies that are operating within the

local specialised market and exercising relat ive

independence. Certain subsidiar ies may have the role of

COE (Centre of Excellence) to capitalize on unique

resources of location for the MNC as a w hole
18

. There may

be a relationship between the size and the autonomy of the

subsidiaries but the conclusions are not definite
132

The key findings are that internal products flows are lower

in the WPM system than in other systems of subsidiar ies.

In general, lower autonomy implies higher intra-network

goods‟ transfer
60,61

. The level of performance can be lower

in the subsidiar ies producing specialised products
36

Subsidiar ies require resources, regarding finance,

technology, management and information; autonomy alone

cannot improve

performance.

Considerable efforts are then necessary to use for

innovat ion of the coordination procedures and mec hanisms

in order to enhance the generation, circulation and use of

knowledge
106,138

. Intra-company transfers become ever

more important with the increased interdependence of

subsidiaries: a significant share of the enormous

contribution of MNCs to world trade and investment comes

from intra-firm trade that involves dispersed sourcing of

raw materials, manufacturing of components and use of

Advances In Management Vol. 7(2) February (2014)
6

transnational distribution channels. These exchanges are

accompanied by interpersonal interaction among managers

in different organizational units i.e. headquarters and

subsidiaries. Such interactions across borders are the

channel for achieving coordination on a global sc ale.

Interactions across distance are critical because they ensure

the MNC’s integration and existence as a single ent ity.

Recent theoretical developments have led to the

conceptualizat ion of interactions across subsidiar ies as a

network when the MNC structure has evolved into a

complex differentiated system
22,58

. MNCs respond to

complex global competit ive environments by increasing

internal structural complexity.

The need to disperse activit ies throughout the world due to

polit ical, technological and even sheer size-related

considerations forced managers to partly forego potential

economies of scale that would accrue from concentration of

activit ies. However, at the same time, the competitive

pressures that impel coordination of the widespread

activit ies of the multinat ional corporation grow constantly.

This dual tendency puts the organizat ional abilit ies of MNC

managers to the test to coordinate even more closely

operations that tend to be farther apart, not only

geographically, but also technologically.

The MNC has two competitive focuses: external

competitive area outside the MNC and internal competitive

area within the MNC; each of these poses threats and

opportunities for the subsidiaries. A subsidiary more

focused on external competition may have more autonomy;

a subsidiary focused mainly on the internal area is more

integrated and has less autonomy. If a subsidiary is

embedded within corporate relationships there will be more

control by the HQ on the subsidiary. A product-specialist

subsidiary is controlled more intens ively by the HQ
37

. A

high degree of autonomy of a subsidiary is important for

local and global market init iat ives but a low degree of

autonomy is associated with internal market and hybrid

init iat ives.

However, viewing multinat ionals in terms of an overall

orientat ion obscures the internal differentiation of

management practices within an MNC
19

. An MNC should

be properly viewed as a nexus of differentiated practices.

According to this view, MNC affiliates are composed of

many separate practices, ranging from manufacturing to

finance and human resources, each of which faces distinct

pressures for global efficiency and for local responsiveness.

Subsidiary init iat ives can be of many types depending on

the target-market, local, global, internal or hybrid. A high

degree of internal communications promotes the internal

market where a lower degree of communication may

promote the local market.

Role of Culture in MNCs

Culture plays a big role in this integrat ion of strategy, goals

and values. However, at the same time c ulture may create

new problems for the managers to apply a strategy

worldwide. Indeed, according to Prahalad and Doz
111

,
Bartlett and Ghoshal
21

and Harzing
58

formal control in the

HQs-subsidiary relat ionship may not necessarily be more

effective than cultural control.

Ouchi
95,96

and Jaeger
71

were among the first authors who

attempted to differentiate the mult inat ional companies into

two main categories: American style organizations and

Japanese style organizat ions. In the American style

organizat ion the characteristics are (a) short term

employment; (b) individual decision-making process; (c)

individual responsibility; (d) rapid evaluat ion and

promotion; (e) explicit formalized control; (f) specialized

career path; (g) segmented attitude. In the Japanese style

organizat ion the characteristics are (a) long term

employment; (b) consensual decision-making process; (c)

collective responsibility; (d) slow evaluation and

promotion; (e) implicit informal control; (f) non specialized

career path and (g) holistic attitude.

That leads us to the typology of Ouchi
95,96

. According to

Ouchi
95

, there are three types of multinat ional

organizat ions: Type A, Type J and Type Z. Type A refers

to the typical Amer ican organizat ional style of management

of MNCs whereas type J refers to the typical Japanese

organizat ional style and type Z refers to the emerging

„ideal‟ organizat ional style. In a Japanese company (Type

J), coordination is based on a broad organizat ional culture

which is different from the American style of organization

(Type A) and the emerging Western or global ideal style

(Type Z).

Type A ( American organizat ions) has explic it formalized

coordination over subsidiar ies. Type J (Japanese

organizat ions) with collective responsibility has implicit

informal coordinat ion. Type Z (emerging global

organizat ions) has implicit informal coordinat ion with

explicit formalized measures. This type of company has

values which are shared by the members of the

organizat ion as well as a model code of conduct for the

members. Type A subsidiary would have a reasonable

flexibility to adapt to the local laws and customs. In both

type A and type Z, responsibility depends upon the

individuals and thus the type J and type Z may not allow

these flexibilities
95,96

Ouchi‟s analysis is criticized as too idealist ic, as in reality

not all American, Japanese, or Western companies have the

same characteristics
25,119

. For example, a number of

Scandinavian companies appear to have some features

similar to the above mentioned Japanese (Type J) styles

organizat ions
60,61

. However, analysis of the literature

reveals the fact that an individualistic culture fits with

Amer ican style organizations (Type A) and a collectivist

culture fits with Japanese style organizat ions (Type J)
98

Thus, the question is whether the Japanese style

organizat ional culture can be transmitted to a subsidiary in

Advances In Management Vol. 7(2) February (2014)

a country where the national culture is dissimilar to that of

Japan.

Coordinat ion of the subsidiaries through organizational

culture rather than bureaucratic structure is only possible if

the values of the organizat ional culture of the parent unit

can be transmitted to the overseas subsidiar ies
10

. When a

number of key or pivotal values concerning organizat ional

related behaviors and state of affairs are shared across units

and levels by members of an organization a central value

system may emerge
57

. To characterize an organization‟s

culture in terms of its central values require f irst to identify

these values and to measure the importance the members of

the organizat ion normally attach to these values.

If the employees are attached to these central values of the

organizat ion, performance of the organization increases

because of the increased commitment of the members of

the employees
2
. In order to examine this hypothesis, it is

essential to explore: whether the employees have similar

values to those espoused by the organization and whether

the values of the organizational commitment are relat ed to

the values of the organizat ional culture. A mult inat ional

company can have a strategic advantage over its rivals as

the values of the organizational culture cannot be replicated

easily in a different type of organization and thus, these

values of the organizational culture create distinct

competitive advantages for this multinat ional

company
14,15,17,108-110

. The purpose of „coordination through

organizat ional culture‟ is effective only when this

coordination creates competitive advantages for the

subsidiaries by creating commitments among the

employees of the subsidiary units by making the values of

the employees of different national cultures similar to the

espoused values of the parent organization
113,134,135

Developm ent of a strong organizat ional culture that

includes a deep knowledge of the company‟s policies and

objectives and a strong share of organizational values and

beliefs, now involves a process of corporate acculturation

and socializat ion involving all employees at both

subsidiaries and in the headquarters
120

. Procedural justice

enhances subsidiary- managers’ compliance directly and

indirectly through the attitudes of commitment, trust and

outcome satisfaction. These effects were more powerful for

managers of subsidiaries operating in global

industries
35,48,62

Direct monitoring, reporting and evaluations of

performances are called „first order coordination

mechanisms‟ whereas creation of shared values of a strong

organizat ional culture and indirect internalizat ion of a set of

values common in the HQS to guide the behaviors of the

employees is called „second order coordination

mechanisms‟
120

. Japanese multinat ional companies, the

Type J multinat ional companies, usually rely on the

„second order coordination mechanism‟ in HQs-

subsidiaries relationship to enhance organizational

effectiveness
10,27

Indeed, the type J multinat ional companies rely on

informal, implicit mechanisms for control based on the

organizat ional culture and tend to export that kind of

cultural coordination to their foreign subsidiar ies
6,11

Moreover, the type J organizat ions use managers as bearers

of organizational norms and values in a subtle and complex

coordination system
100

. In those organizations the internal

organizat ional culture of the foreign subsidiary is expected

to resemble that of the home operation.

Managers in MNCs form a social network that stretches

across continents. That can lead to cultural changes in the

subsidiaries. Indeed, to achieve integrat ion without

destroying subsidiary autonomy, administrative means of

coordination are increasingly complemented by normative

ones that are based on enhanced socialization to instill

espoused corporate values and increased reliance on lateral

linkages
97

. Organizational culture is the glue that binds

different geographically dispersed units of an MNC.

Control of subsidiar ies through organizational culture to

reduce transaction costs means transmission of the parent

organizat ional culture as a part of the strategic planning

process of the multinat ional company so as to mold the

foreign employees psychologically in order to carry

forward the original organizational purpose of the parent

company
25,27

. This transmission of organizational culture

may reduce transaction cost by reducing uncertainty

regarding the motives and behaviour of the foreign

employees
10,104

. Transplantations of organizational culture

of the parent operation to its overseas subsidiaries create

certainty regarding the behaviour of the employees of host

national origins
5,23,113

Transmission of Culture from the HQs to the

Subsidiaries in Multinational Companies
Indeed, strong organizational culture is now critical for

MNCs in the age of global competition. Corporate values

that care for the employees as individuals and promote the

meaning and purpose of the organizat ion are crit ical for the

success of the company
32,76,123

. Interactions among the

employees and senior managers can affect the outcomes of

participat ions. Mult inat ional companies can create unique

resources for competitive advantages in their overseas

subsidiaries if they transfer successfully the values of their

organizat ional culture to these subsidiar ies and can create

similar organizat ional commitments among the employees

in overseas
102,118

This type of organization is called „Type Z‟ organizat ion

with long-term employment, consensual decision-making,

individual responsibility, slow evaluation and promotion,

moderately specialized career paths and holist ic concern

including the family
80,81

. Such organizat ions rely upon

informal, implicit mechanisms for coordination based on

the organizat ional culture and try to export their own

Advances In Management Vol. 7(2) February (2014)

national character to their foreign operations.

Normative integration is possible there through a typically

strong organizational culture which they try to export to

their subsidiaries
52

. This strategy is implement ed using

extensive personal contacts, training and socialization to

transplant the original value system of the parent company

to their overseas subsidiar ies. Social coordinat ion as used

by the Japanese multinat ional companies using

organizat ional culture increases the ability of the company

to influence the local subsidiar ies to behave according to

the company‟s ultimate purpose to create c ommitment
97

Through rotations of different functional areas, the

employee comes across the corporate ideology and the

values of the organization as a whole. It works through the

human resource management system of the company

whose duty is to familiar ize the employees to the

organizat ional culture of the company. For example, the

trust can be created through frequent interactions between

the members and the consensual decision making process
88

Stability and harmony in relationship are the core elements

of this organizational culture.

For example, in Japanese mult inat ional companies the

human resources management division or „Jinjibu‟ creates

internat ional, interpersonal verbal information networks

throughout the company w orldwide
26

. It emphasizes

conflict avoidance, respect and concern for people,

importance of long lasting relat ionships with others,

harmony, uniformity, group orientations and consensus

orientat ions. The end-result is very high level of loyalty for

the company
77

Cultural influence is the outcome of transfer of

organizat ional culture from home to host countries of a

mult inat ional company
63,64

. It gives rises to a new model of

MNCs. A high ratio of expatriate managers and the

tendency of the subsidiary to leave much of the strategic

and business decision-making in the hands of the HQs are

the characteristics of these type of MNCs
70

. Japanese

mult inat ional companies are typical examples.

HQs-Subsidiary Manage ment in Japanese

Multinational Companies
The HQs-subsidiary management in recent years has seen

three major types such as type A (Amer ican system) and

type J (Japanese system) and type Z (emerging global

system) associated with the matching overall organizat ional

style of the mult inat ional company
95,96,119

. In both type J

and type Z companies through constant personal

interactions with headquarters, members remain in close

contact with the rest of the world and usually the firm of

this type tries to transfer its organizat ional culture to its

overseas subsidiary
12

. These activit ies are accomplished by

an emphasis on the use of expatriates, extensive training

and socializat ion and a high frequenc y of personal contacts

between headquarters and the subsidiary
119

. The advantages

of such activit ies are low employee turnover and a greater

control. However, the disadvantages are possible conflict

with local culture and therefore, less flexibility for

subsidiary management.

From the perspective of the operations of the management

systems, Japanese subsidiaries outside Japan have three

distinctive types : transplants, hybrids and branch-plants. It

is the result of gradual evolution of the transmission

mechanism of the Japanese management system to the

subsidiary
51

. During the 1980s and 1990s Japanese

headquarters used to transplant Japanese management and

production techniques directly from home to the overseas

subsidiary
117

Since the 1990s onwards a hybrid system of home and host

management systems influenced different production and

organizat ional relat ions
1
. In its weakest version, some

specific best practices were implemented in the subsidiary

leaving other elements incompatible with the local cultural

characteristics and business practices as local as possible
94

The third approach is the branch-plant where the subsidiary

plays a subordinate role and acts as a site within a wider

internat ional division of operations, playing a specific

selective role in a wider context
5
. Thus, transplant of

organizat ional culture was evolutionary but it was a

strategy to start with for the Japanese MNCs.

Besser
31

analyzed successful Toyota plants in the USA and

found out they have almost identical personnel

management system as in the Japanese Toyota‟s plants.

Basu et al
26

found similar characteristics in Japanese

automobile plants in Br itain. Basu et al
25

considered this

characteristic of Japanese MNCs as their global strategy.

Although there are high risks of failure to take into account

of the local environment, the success can yield a substantial

competitive advantage in terms of both productivity and

quality of the final products. Even in the hybrid version

where the subsidiary can have substantial freedom, the

basic elements of the Japanese management system are

implemented in all plants of major Japanese MNCs

abroad
51

The principal challenge of top management is to create an

environment in which people can exploit information more

effectively; in this regard, networking is the key concept.

Networking based on personal relationships is effective in

communicating complex information, sensing subtle

signals and transferring knowledge
73,76

. „Keiretsu‟ or

extensive networking is the core characteristic of HQs –

subsidiary management in Japanese corporations and it is

extended to most Japanese multinat ional companies.

„Keiretsu‟ is an effective instrument for the transmission

mechanism of organizat ional culture of Japanese

mult inat ional companies who are using these networks to

create that coordination at all levels
91,92

Advances In Management Vol. 7(2) February (2014)

As each phase is autonomous yet loosely linked, interaction

between phases is induced and an abundant sharing of

information is promoted in the innovat ion generat ion

process. The same Keiretsu system provides competitive

advantages for the Japanese firms worldwide by having a

division of labor and production within a vast geographical

area depending on the relative facilit ies for each country in

that region. Japanese firms through the Keiretsu system

embrace their partners in host countries and integrate their

production and distribution activit ies
28,69,87,92,131

Competit ive advantages come from the community of firms

rather than from a firm.

This organizational culture to stimulate in-group

responsibilit ies creates a culture of trust that enhances

corporate performance of the firms within the Keiretsu

system
52,121

. „Collectivism‟ of organizational culture along

with the sense of interdependence promotes that corporate

performance. Harmony of the firm, network and culture

creates this competitive advantage by creating

organizat ional commitment. If an organization has a „strong

culture‟ with „well integrated and effective‟ set of values,

beliefs and behavior, it normally demonstrates high level of

corporate performance
10

. Some of the characteristics of

organizat ions mentioned above may have relationship with

successful administrative practices, positive attitudes of the

workers and as a result, higher levels of productivity
88

Similarity of organizational culture creates the similar

attachment for the employees in the subsidiar ies as in the

home operations of the Japanese mult inat ional companies.

Values, through efficient communications and socializat ion

practices, promoted by the human resources management

departments, can unite the multinational company globally.

Prior research has demonstrated that a cultural change that

results from continuous contact between two or more

distinct cultural groups in their employment, commonly

known as acculturation process
114

is possible. This process

changes in individual‟s overt and covert traits when the

individual‟s cultural group is experiencing acculturation

collectively
25,63,120

. As a result of such acculturation, the

cultural, physical, psychological and social change in an

organizat ion may occur
29,30

Indeed, the influence of organizational culture is the most

important feature in the Japanese companies
12,23,69

. All the

organizat ional members are being acculturated and

socialized towards a common set of organizational

values
95,96

. Cultural inf luence emerges from these

organizat ional values in a very implicit and informal way.

The frequent interaction of the organizat ional members

through the consensual decision-making process intensifies

this influence
23,27

. Physical as well as the mental proximity

are indispensable for the success of this type of

influences
20,67,95

. The non-specialized career paths using

mult i-functional teams bring the employee closer to the

overall organizat ional philosophy
74

. Through rotation to

different functional areas, the employees are led to be

involved in the corporate ideology and, therefore, accept

the values of the organizat ion
10.

Indeed, the acculturation process works through the human

resource management system of the company whose duty is

to familiarize the employees from overseas subsidiar ies to

the values of the organizat ional culture of the parent unit of

a multinational company
117

Conclusion
The concept „Company Citizenship‟ has a fundamental

ideal. It suggests that the c entral purpose of management is

to facilitate communication across all of the organization‟s

boundaries so that the entire company works together to

address given business challenges. With efficient

disseminat ion of culture, the company‟s ability to make

decisions increases dramatically because individuals

throughout the firm can gain access to important strategic

ideas. This should be considered as unique hard-to-imitate

resources, a very important factor for the international

strategy of the MNC. This improves the firm‟s ability to

make rapid decisions and execute them.

The key is to create an environment of understanding the

core goal of the organization and the set of values

associated with them which form the organizational culture

of the company. The leaders of the organization must take

the reins in galvanizing and maintaining a persistent effort

towards creating and then promoting these value-

components of organizational culture throughout entire

organizat ion through the purposeful managerial activit ies.

That would create resources both in the HQ and in the

subsidiaries to outwit the rival firms. Thus organizational

culture can be utilized as a „resource‟ in the international

strategy of an MNC.

Many companies fear that a localizat ion policy may

weaken their connections with their foreign subsidiar ies,

weakening control over employees
75

. Cultural distance

between the home operation and the foreign subsidiary

operations can be reduced by transmitting organizat ional

culture from the HQs to the subsidiar ies. In that case, the

transfer of responsibility from the parent to local

subsidiaries would be less of an obstacle to organizat ional

efficiency than expected. This acculturation process takes

place through the cultivat ion of an appropriate

organizat ional culture to create unique resource for the

MNC as its international strategy.

Creation and sustenance of organizat ional culture in a

Japanese multinational company is the responsibility of the

human resources division or ‘Jinjibu‟ in Japanese. This

Jinjibu divis ion is the heart of the organizat ional culture

where either junior and senior employees, Japanese or

foreigners, all are exposed to the acculturation process

while they receive various trainings in the HQs over the

entire life of their employment. The core responsibility of

the HRM divis ion in this type of organization is the

Advances In Management Vol. 7(2) February (2014)

creation, development and transmission of values that form

the organizat ional culture of this company throughout the

entire organizat ion whether it is a home operation or an

overseas operation.

Control of the subsidiar ies through organizat ional culture

rather than bureaucratic structure is possible only if the

values of the organizational culture of the parent unit can

be transmitted to the overseas subsidiar ies. When a number

of key or pivotal values concerning organizat ional related

behaviors and state of affairs are shared across units and

levels by members of an organizat ion, a central value

system may emerge. To characterize an organizat ion‟s

culture in terms of its central values, it requires first to

ident ify these values and to measure the importance of the

members of the organization normally attached to these

values. If the employees are attached to these central values

of a multinational company, performance of the c ompany

may increase because of the increased commitment of the

members of the employees.

These controls create competitive advantages for the

subsidiaries by creating commitments among the
employees of the subsidiary units by making the values of
the employees of different national cultures similar to the

espoused values of the parent organization. To achieve

integrat ion without destroying subsidiary autonomy,

administrative means of coordination and control are

increasingly complemented by normative ones that are

based on enhanced socializat ion to install espoused

corporate values and increased reliance on lateral linkages

to maintain them.

From the above discussion we can conclude that the

hypothesis of „Company citizenship‟ is an evolving concept

increasingly adopt ed by the mult inat ional companies but its

solid app licat ions are in the Japanese and Scandinavian

mult inat ional companies so far. Multinational companies

from other countries are slowing adopting some features of

this evolving concept but they have not embraced this

concept wholeheartedly yet. Thus the hypothesis is partially

satisfied.

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Table 1

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Authors Focus Em pirical/

Conceptual

Key Findings

1 Perlmutter
105

Whole

configuration

Conceptual This seminal paper describes 3 types of HQs orientations

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2 Ouchi
95,96

HQ and

Subsidiar ies

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Whole
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4 Adler
1
Whole

configuration

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5 White and

Poynter
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Specific

subsidiaries

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Jaegar
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Whole

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Egelhoff
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Specific
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9 Prahalad and

Doz
112

Whole

Organizat ion

Empir ical Typology based on Multi-focal strategy, integrated product

strategy and locally responsive strategy

10 Bartlett and

Ghosal
19

Specific
subsidiaries

Empir ical Typology based on strategic leader, contributor and local

implementers, subsidiar ies in relat ion to the HQ.

11 Jarillo and

Martinez
85

Specific
Subsidiar ies

Spain

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subsidiary and active subsidiary

12 Hedlund
61

Specific

Subsidiar ies

Swedish companies

in Europe

Empir ical Characteristics of the Swedish model of HQ-subsidiary

relat ionship have a new tendency of a slight ly more formal

control.

13 Birkinshaw et al
36

Subsidiar ies Empir ical High autonomy subsidiary and independent product

development

14 Selmer and De

Leon
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HQ & Subsidiar ies Empir ical Cultural control of the subsidiar ies.

15 Andersson and

Forsgren
5

HQ and
Subsidiar ies

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the HQ have influences on the subsidiary’s market

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16 Taggart
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Subsidiar ies Empir ical Measures of subsidiary autonomy

17 Harzing
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HQ and

Subsidiar ies

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mult idomestic and transnational is developed.

18 Doeringer,

Lorenz and

Terka
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Specific
Subsidiar ies

(Br itain)

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are different in Japanese subsidiar ies in Br itain from their

HQs in Japan.

19 Onishi
98

Specific
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(Thailand)

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time employment, seniority system, consensual decision-

making, quality circles and house unions) to the Thai

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Advances In Management Vol. 7(2) February (2014)

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10

Specific
Subsidiar ies

(China)

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Dunning and

Lundan
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Reproduced with permission of the copyright owner. Further reproduction prohibited without
permission.

A critical review of the Burke-Litwin model

of leadership, change and

performance

Hermann Spangenberg*
Callie Theron
Stellenbosch University

ABSTRACT

_____________________________________________

This study proposes major changes to the Burke and Litwin
(1992) leadership, change, and performance model against
the background of significant changes in the external
environment and new developments in business
management. Improvements include, first, a more logical
structuring without being subject to a specific

leadership

paradigm – a limitation that caused distortions in the
original model. Second, by incorporating business
processes reengineering, the strategy pillar of the
adapted model has been significantly rationalised and
strengthened. Third, culture is expanded to a fully-fledged
pillar in the model, while human capital is included due to
its growing contribution to organisational effectiveness
and performance. Fourth, by modelling external
contextual factors surrounding the adapted model

the new model systematically explores the interaction
between leadership and the external environment

Understanding the impact of these dynamic factors is
crucial in preventing well-functioning

organisations

from being affected by global financial disasters. Last,
the reconfigured model extends the original model by
adding a thorough discussion of the outcomes of
leadership – namely, performance and effectiveness at the
organisational, team, and individual levels.

In 1992 Burke and Litwin developed and published a
leadership, change and performance model for diagnosing
organisational effectiveness (see Figure 1). It was intended
to be used as an organisation development (OD) instrument.
Beckhard (1969), an OD practitioner and researcher,
defines OD as an organisational intervention that is planned,
takes place across the organisation or unit, is managed

from the top, and increases organisational effectiveness
and health by means of planned interventions in the
organisation’s processes based on behavioural science
knowledge. The principles of OD are still used today
(Martins and Coetzee, 2009; French, Bell and Zawacki,
2005; Waddell, Cummings and Worley, 2004).

The Burke-Litwin model predicts behaviour and
performance outcomes within a cause-effect paradigm,
with cause being organisational conditions and effect
being results. This cause-effect model guides bo

organisational diagnosis and planned, managed change
(Martins and Coetzee, 2009). Research furthermore
confirms well-defined cause-effect relationships between
the organisation’s internal and external environments,
linked to organisational effectiveness (Chawane, Van
Vuuren and Roodt, 2003; Burke and Litwin, 1992). While
the model is considered relatively complex, its contribution
to the outcomes of the organisational diagnostic process in
cross-cultural research settings is considered significant
(Martins and Coetzee, 2009; Jones and Brazzel, 2006;
Furnham and Gunter, 1993).

A major benefit of the model is its ability to explain
the meaning of and distinction between transformational
and transactional leadership. A clear exposition of the
transformational-transactional paradigm facilitates a
sound understanding of the difference between leadership
and management (cf. Kinnear and Roodt, 1998). These
differences are illustrated respectively by the yellow and
green sections in Figure 1.

In addition to its holistic and causal nature, the model
emphasises the importance of the impact of the external
environment on the organisation. The model holds that
“[o]rganisational change, especially an overhaul of
the company’s business strategy, stems more from the
environmental impact than from any other factor”

INTRODUCTION

29Management Dynamics .Volume 22 No 2, 2013

(Burke and Litwin, 1992: 529). To emphasise its
importance, the external environment is placed in a pivotal
position at the top of the model. In fact, it forms the apex of
the transformational triangle, with mission-strategy,
leadership, and organisational culture forming the baseline
of this triangle.

Under the umbrella of the external environment, leadership
provides overall direction to the organisation, and
co-ordinates the other two streams of mission-strategy and
organisational culture to drive the organisation forward.

The limitations of the current Burke-Litwin model are
twofold. First, concern has been expressed that the model’s
relevance could be decreasing because, as far as the present
authors could ascertain, it has not been adapted in any
way since 1992. Second, the structuring of the model to
incorporate the Bass and Avolio leadership model –
consisting of transformational and transactional leadership
– led to a problematic layout of the Burke-Litwin model
(Bass and Avolio, 1994; Burke and Litwin, 1992; Bass,
1985).

Since the beginning of the 1990s, a noteworthy change has
occurred in business management in the United States of
America (USA) with the advent of business process
reengineering (BPR) – a major change management tool
that facilitates the implementation of strategy and
organisational performance overall (Davenport and Short,
1990; Hammer, 1990). At a broader level, change
management is increasingly seen as a permanent business
function that can help improve productivity and profits by
ensuring that organisations continuously adapt to the
prevailing competitive environments (Metre, 2009).
However, Burke and Litwin have neither incorporated a
change lever such as BPR into their model of 1992, nor
have they adapted the model since. This failure has
rendered the model, and particularly its strategy
component, less effective than it could have been.

Furthermore, serious and widespread corruption scandals
in the USA since 2000, and particularly the 2008 – 2012
financial fall-outs that spilled over to Europe, shocked the
world. These major external environmental developments
call for fresh thinking about leadership and change models
such as the Burke-Litwin model.

PROBLEM STATEMENT

Individual
and organisational

performance

Motivation

External environment

Leadership

Management
practices

Work
unit

climate

Mission
and strategy

Structure

Task and
individual skills

F
ee

d
b
ac

k Systems
(policies and procedures)

Organisational
culture

Individual
needs and values

F
eed

b
ack

FIGURE

BURKE-LITWIN MODEL (1992)

Source: Burke and Litwin (1992: 528)

30 Management Dynamics .Volume 22 No 2, 2013

Problematic design of the Burke-Litwin model

Criteria for developing the adapted Burke-Litwin model

A major concern with the model is that aspects of its pilla

seem to be problematic. For example, the leadership and
organisational culture pillars are intertwined: the work
unit climate is positioned under leadership, although it
logically belongs under organisational culture (Porter and
McLaughlin, 2006). Furthermore, the systems component
(policies and procedures), which those authors define as
“standardised policies and mechanisms that facilitate work,
primarily manifested in the organisation’s reward system,
management information systems (MIS), and in such
control systems such as performance appraisal, goal
and budget development, and human resource allocation”
(Burke and Litwin, 1992: 532), is classified under
organisational culture, whereas it naturally resides
under the strategy pillar along with structure. It seems as
if these positionings were created to accommodate
transformational-transactional leadership, a leadership
approach that became prominent at the end of the 1980s
(Bass and Avolio, 1994; Burke and Litwin, 1992; Bass,
1985).

Another issue is the positioning of the external environment
at the top of the model. This positioning may create the
impression that the external environment controls
organisational leaders. However, the 2008 – 2012 financial
disaster in the USA and Europe and the international
recession that followed were not simply the result of
existing environmental conditions where leaders had been
merely passive spectators. In fact, executives of large
financial corporations took decisions that precipitated the
subprime mortgage financial disaster (Nemchek, 2010).
More importantly therefore, leaders – rather than the
external environment – could and should determine how
events unfold under given circumstances. Moreover,
leaders have to transform organisational conditions and
contribute materially to the creation of benevolent external
business conditions.

Against the background of these arguments, a substantial
redesign of the Burke-Litwin model is proposed.
The purpose is to empower leaders by enhancing their
understanding of the future in terms of potential financial
disasters, political upheavals, and major market swings.
A model with such an approach may enable leaders to create
and effectively manage the future to the benefit of the
organisation, its people, and the external environment.

The purpose of this review is twofold: to analyse critically
the Burke-Litwin model and its current usefulness in the
light of changes in the external environment; and to identify
and describe the outcomes of leadership. The first objective
is thus to streamline the model by including key inputs
from the external environment and new developments in

contemporary business management. The second objective
is to explore the outcomes of leadership, such as
performance and effectiveness at the organisational, team,
and individual levels. A proper understanding of the
consequences of leadership and leadership behaviours is an
important requisite for, and contributor to, the effectiveness
of business leaders as well as for leaders in the public sector
and non-profit organisations.

Since this study is based on a review of the weaknesses of
the Burke-Litwin model, and since it proposes significant
changes to the model, more than one research methodology
was used. In order to analyse the model, a thorough study of
the relevant literature was conducted.

The Burke-Litwin model reflects causality – an approach
that is replicated in this review. Jaccard and Jacoby (2010)
describe six types of causal relationship between input and
output. Two of these are relevant to the current study: the
direct and the indirect causal types. In a direct causal
relationship, a particular cause is assumed to have a direct
impact on the outcome variable; while in an indirect causal
relationship, a particular variable influences another
variable indirectly through its impact on an intermediary
variable. An example of the second mode is the positive
impact of leadership on organisational performance through
an intermediary dimension such as team cohesion
(Michalisin, Karau and Tangpong, 2007).

Furthermore, model building is used in substantially
redesigning the Burke-Litwin model. In the adapted model
a new pillar, human capital, is added (see Figure 2) to
replace two intertwined pillars in the original model: those
of leadership and culture. In view of the importance of
the outcomes of leadership, a comprehensive outcome
component is also proposed (Jaccard and Jacoby, 2010).

Because of the weaknesses of the Burke-Litwin model
described above, it was decided to set criteria for the
development and evaluation of potential elements for
inclusion in the adapted model. The criteria are openness,
adaptability, incorporation of futuristic leadership,
comprehensiveness, and outcomes.

Openness

The first requirement is that the model should be structured
in a manner that acknowledges that leaders have to
interpret and report to the external environment. Openness
may enable leaders and organisational members to identify
financial threats and other danger signs timeously
(Kipp, 2005).

PURPOSE OF THE REVIEW

METHODOLOGY

31Management Dynamics .Volume 22 No 2, 2013

Adaptability

Lingering geopolitical upheavals and macro-economic
uncertainties that are likely to prevail may impact on
organisations in ways that are not always predictable.
The model should therefore be sufficiently adaptable to
accommodate these and other developments that may
necessitate changes to the model (Yukl, 2008; Porter and
McLaughlin, 2006).

Incorporation of futuristic leadership

In view of the fluidity in the external environment described
above, continuous vigilance and futuristic leadership
(supported by an adaptive-innovative approach to
visioning), and creation and implementation of strategy
should be the main driving force of this model (Svensson
and Wood, 2006; Veldsman, 1999).

Comprehensiveness

The model and its contents should be sufficiently
comprehensive and holistic to form the basis of an
independent OD instrument that could be used to assess the

A BRIEF DESCRIPTION OF THE ADAPTED
BURKE-LITWIN MODEL

effectiveness of diverse organisations, including business,
government, and non-governmental organisations.

Outcomes

Clear descriptions should be given of the outcomes of
organisational, team, and individual performance and
effectiveness. Understanding the outcomes of leadership
may enable leaders to come to a better understanding
of their own purpose, functioning, and effectiveness as
leaders (Jing and Avery, 2008).

The proposed adaptation of the Burke-Litwin model is
graphically depicted in Figure 2. Input to this model consists
of contextual factors from the external environment
combined with internal contextual factors, while
organisational, team, and individual performance and
effectiveness represent the outcomes. The process aspect
of the model consists of three levels: the strategic triangle
(leadership, strategy, organisational culture, and human
capital), the management level (managing structures and
core organisational processes, organisational climate,
and human talent), and the process efficiency, individual
values and motivation, and individual talent level.

In Figure 2 feedback loops go down, up, and sideways.
Arrows pointing in all directions express the open-system
principle, where change in one component will eventually
have an impact on all the others.

The revised model offers a fresh perspective on the
prerequisites for organisational performance. It purposely

moves beyond the transformational-transactional
distinction made in the Burke-Litwin model. To realise
organisational and people effectiveness and performance,
leadership plays a pivotal role; but it also involves a much
more intricate process than that acknowledged by the
transformational-transactional paradigm (Spangenberg
and Theron, 2002; Bass and Avolio, 1994).

Placing leadership at the apex of the model does not imply
that leadership only has three dimensions or is built on only
three pillars. Rather, the adapted model attempts to
emphasise that leadership is a multidimensional process
that is responsible for driving the three levers of
performance illustrated by the model.

The adapted model is significantly more streamlined than
the original model. At the top of the model, a change

–

oriented strategic triangle is driven by leadership; one step
lower is the management level, geared to strategy
implementation; while process efficiency, individual values
and motivation, and individual talent comprise the third
level.

With regard to the pillars, three congruent, compatible
pillars represent major organisational drivers: strategy,
organisational culture, and human capital. The novel
inclusion of human capital in the model is supported by
literature that shows the increasing contribution of human
capital and talent in organisational performance and
effectiveness (Yukl, 2008; Becker and Huselid, 2006;
Youndt and Snell, 2004).

The discussion of the impact of the external and internal
contexts on leadership and organisational performance is
structured around four themes (see Figure 2):

The contextual issues that were considered are external and
internal contextual factors, and their interrelations with
leadership and performance.

A CRITICAL REVIEW OF THE ADAPTED
BURKE-LITWIN MODEL

The impact of context on leadership and organisational
performance

•

•
•
•

the strategic triangle consisting of leadership at the
helm; strategy; organisational culture; and human
capital (leadership at the helm will be discussed first,
followed by strategy, organisational culture, and
human capital in a subsequent section);

The management level;

The process efficiency, individual values and
motivation, and individual talent level; and

The outcome level, comprising organisational, team,
and individual performance and effectiveness
measures.

32 Management Dynamics .Volume 22 No 2, 2013

Defining the organisational context

Schneider (1998) contends that, despite unpredictable
external or internal interferences, leaders can create
conditions that are conducive to individual and team
effectiveness. Schneider describes such a condition as
providing a context for performance – the circumstances
that influence the ability of employees to contribute
meaningfully to the achievement of organisational goals.
In other words, leadership in organisations does not take
place in a vacuum, but takes place in organisational contexts
(Porter and McLaughlin, 2006).

Fiedler (1996: 249) summarises the above views as follows:

External contextual factors

The impact of contextual factors from the external
environment has been addressed by various researchers.
Yukl (2008) and Howell and Avolio (1993) emphasise the
impact of high uncertainty and turbulence on leaders and
leadership styles, while Gordon (1991) contends that stable
versus dynamic markets moderate the effect of cultural
traits on performance. Other enduring factors that may

affect business effectiveness and performance are the state
of the economy, market forces, politics, and labour unions
(Mair, 2003; Burke and Litwin, 1992).

Possibly the most damaging external contextual influence
on the world economy during the past decade was the
subprime mortgage scandal, leading to the major global
financial crisis referred to earlier. Three studies that have
been conducted since then provide a sound understanding of
the impact of this major crisis – initially on financial
corporations in the USA, and later spilling over to financial
institutions in Europe. Demyanyk and Von Hemert (2011)
analysed the quality of subprime mortgage loans, and
discovered that the upswing and downswing of the
subprime mortgage market followed a typical situation of a
lending boom that led to a bust scenario, where unjustifiable
growth led to the market downfall. Second, Kregel (2008)
contends that the crisis was the result of insufficient margins
of safety criteria on how creditworthiness was assessed.
The core of the problem was the under-evaluation and faulty
pricing of risk by leaders responsible for managing the
approval of mortgage loans. Third, according to Nemchek
(2010), the poor judgement and decision-making by leaders
and followers described above, combined with poor
oversight and irregularities, caused the subprime mortgage
debacle.

Most serious researchers in the area agree that leadership success is
the result of the characteristics and behaviour of the leader, the
nature of the leadership situation as well as the interaction between
the leader and the leadership situation.

Organisational, team and individual performance
and effectiveness

Managing
structure and

core processes

Process
efficiency

Managing
organisational

climate

Individual values
and motivation

Managing
human
talent

Individual
talent

Strategy Organisational
culture

Human capital

Leadership

Exter
nal contextual factors

x
te

a
l

c
o

n
te

x
tu

a
l

fa
c
to

rs
E

x
te

rn
a
l

c
o
n
te
x
tu
a
l
fa
c
to
rs

FIGURE 2
REVISED BURKE-LITWIN MODEL

External contextual fac
tors

Internal contextual factors

33Management Dynamics .Volume 22 No 2, 2013

Considering the above catastrophe and the range of those
involved who perpetrated it, it is clear that external
contextual influences may pose a material threat to the
performance of companies worldwide. Contextual
influences may, furthermore, play a crucial role in the
understanding of developments in the organisation’s
external environment.

Against this background, the adapted model positions
external contextual factors as a sphere that surrounds the
entire model. This positioning indicates that external
contextual factors influence the organisation at all levels,
from leadership at the helm down to various organisational
levels, including team and individual outcomes. These
external factors can also interact with processes, systems,
and individuals at all organisational levels.

This ‘overarching, hovering above and around’ positioning
of contextual factors allows leadership to be positioned
where it belongs: at the top of the future-directed strategic
triangle but within a dynamic contextual sphere that
surrounds it. External contextual factors, combined with
internal contextual factors, pervade the entire organisation.
The inclusive, dynamic role of external and internal
contextual influences is one of the proposed major changes
to the Burke-Litwin model.

Internal contextual factors

In their extensive study of internal contextual factors
and their influence on leadership, Porter and McLaughlin
(2006) identified seven factors: organisational
culture/climate, goals/purposes, people/composition,
processes, state/condition, structure, and time. Contextual
factors, with examples of each factor, are presented in Table
1. It is significant that Porter and McLaughlin’s reference
to contextual factors is consistent with the proposed adapted
Burke-Litwin model. The strategy pillar of the model is
confirmed by three contextual factors: goals/purposes,
processes, and structure. The organisational culture and
human capital pillars of the model are endorsed respectively
by organisational culture/climate and people/composition.
The other two factors, state/condition and time, seem to be
generic factors.

The open-system nature of the proposed adapted Burke-
Litwin model is geared toward uncluttered interactions
among various components of the model, and its wide-open
interactions with the external environment are consistent
with the dynamic, interactive approach proposed by Porter
and McLaughlin (2006).

The strategic triangle will be discussed in two sections;
‘Leadership at the helm’, followed by a discussion of the
base of the triangle under the headings ‘Strategy’,
‘Organisational culture’, and ‘Human capital’.

Leadership at the helm

The four components of the strategic triangle referred to
above (leadership, strategy, organisational culture, and
human capital) function in an interactive manner, since
none of them can function effectively without the full
support of the other three. The strategic triangle could in
essence be seen as a strategic adaptive level, since it is
oriented towards adaptation and bringing about change.
In this role it is open to influences from external forces, and
its four components together lead the organisation into the
future. At the same time, the strategic triangle is action-
oriented and oversees the management of all internal facets
of the organisation.

Leadership and the philosophy of the adapted model

The leadership philosophy of the adapted model differs
from the Burke-Litwin model in some important
ways. First, leadership serves as the main driving and
inspirational force for each of the other three components.
The positioning of leadership at the apex of the adapted
model attests to its power. Furthermore leadership, rather
than the external environment, serves as the main driving
force of change in the organisation. Leaders are responsible
for the creation of a vision-directed, high-performance
organisational culture, with the appropriate strategy and
suitably qualified, high-quality human capital required
for implementing the vision and strategy (Barrasa, 2004;
Yukl, Gordon and Taber, 2002; Appelbaum and Paese,
undated). In the Burke-Litwin model, however, the external
environment is positioned at the apex of the model,
and Burke and Litwin (1992: 530) state that

Porter and McLaughlin (2006: 574) also emphasise the
dynamism of contextual factors:

In the future, we believe there is a strong need for the leadership field
to focus on the dynamic aspects of organisational context
relationships. In effect, there is a need to build more movies rather
than just snapshots. Many current studies are static. At best, they
reveal only simple, one-time pictures of the interplay of the
organisational context with leadership in organisations.

[o]ur point here is that for the most part organisation change is
initiated by forces from the external environment (e.g. changes in
the competitive environment, government regulations,
technological breakthroughs).

The strategic triangle: Leadership at the helm

• . While the Burke-Litwin
model does not address the future in any way,
the philosophy of the adapted model holds that
leaders should take full responsibility for the current
and future performance of the organisation. Top
executives should not only be aware of what is
happening in the external environment globally, but
should also proactively study the future and develop
farsightedness. Futuristic leadership has become
increasingly important, while long-term visioning,
forecasting, and planning will have to become
priorities for business enterprises and government
departments alike. O’Brien and Robertson (2009) are

Leaders manage the future

even more forceful: with rapid change and constant

34 Management Dynamics .Volume 22 No 2, 2013

uncertainty, they argue, a reliance on leadership
competencies resulting from earlier well-established
beliefs, traditions, and practices will not suffice
in the future. They argue that a changing business
environment requires new leadership skills that are
associated with the demands of the future.

. Positioned as a circle
surrounding the model, external influences can
interact with elements of the model at all levels: the
strategic triangle, the management level, the process
efficiency and individual level, and the outcomes
level. This openness enables free and speedy
communication with the outside world.

. Ethical leadership should be incorporated
into the visioning, strategic planning, and
implementation of strategy. While future-directed
leadership may alert and enable organisations to
respond promptly and appropriately to external threats
that could have widespread consequences, strong
ethics could ensure that leaders act appropriately and
in an ethical manner. Business- and government-
related organisations should heed Spangenberg and
Theron’s (2005) suggestion of developing and
implementing an ethical vision along with the
organisation’s business vision.

•
•

Leaders create openness

Leaders should implement ethical, authentic

leadership

Interaction between leadership and context

The recent financial crisis that started in the USA clearly
illustrates the interrelationship between leadership and
the external environment. Awarding subprime loans that
were irregular in the first place, then bundling them
and putting the bundles up for sale, was not only poor
judgement and decision-making, but also highly unethical
behaviour (Nemchek, 2010). Thus, poor judgement and
decision making – equalling poor leadership – created an
unstable business environment in the USA that, in turn,
became a very depressing business context for
organisations and leaders thousands of kilometres away.

The lesson here is that one person’s leadership – or lack
of it – may become another person’s context – or woes. The
authors contend that leadership and context are, in a sense,
reciprocally related. High-powered executive leadership
and external context may alternate as the main drivers of
organisational action or reaction.

The role of vision

Vision has been defined as an idealised future goal state,
as a plan for future goal achievement, and as an image of the
future that articulates the values, purposes, and identity of
followers (Strange and Mumford, 2005). The emphasis is
placed on the composition of a distinct image of an
organisation’s future. Furthermore, vision involves a set of

TABLE 1
COMPONENTS OF ORGANISATIONAL CONTEXT WITH EXAMPLES

Components Examples

Organisational culture/climate • Types of organisational culture (e.g. bureaucratic, adaptive)
Norms that reflect the organisational culture
Cultural emphasis on ethics

Goals/purposes Goals, strategies and missions of individuals, groups and organisational units

People/composition Demographic variability within the organisation
Capabilities of individuals and groups

Processes Type(s) of technology in use
Task factors (e.g. differentiation, complexity, ambiguity)
Mode of governance
Degree of standardisation of processes within the organisation
Policies (e.g. human resource management policies)

State/condition Stability or crisis
Availability of resources
Organisational health (e.g. financial, reputational)

Structure Size, shape and type of organisation
Degree of formalisation and centralisation
Hierarchical levels of individuals and groups under consideration
Spatial distances among individuals/groups

Time Duration of leadership effects
Organisational life cycle stage effects
Chief executive officer/TMT succession history

•
•

•
•
•

•
•

•
•
•

•
•
•
•

•
•
•

Source: Porter and McLaughlin (2006)
Components and examples are presented unedited

1
1

35Management Dynamics .Volume 22 No 2, 2013

beliefs about how people should act and interact in order to
create an idealised future state.

Both Strange and Mumford (2005) and Kantabutra (2006)
emphasise the importance of meaningful content in a vision.
The rationale is that without meaningful content, vision
attributes alone may not be able to impact significantly on
sustainability and business performance. Humphreys
(2004) argues that vision should meet the requirements of
a strategic management process. In this process, strategy
can be described as a circular progression in which the
starting and finishing line should be redrawn continually by
a consistent, comprehensive examination of the various
environments surrounding the organisation.

Applying futuristic leadership

In view of the leadership dynamics discussed above,
the present authors contend that leaders are responsible for
creating the near future and visioning the distant future.
In order to create the future, they need to develop
farsightedness to understand and interpret emerging trends,
both positive and negative. Leaders need to be so well-
informed and insightful that they can, to a degree, predict
major shifts in the global economy, with particular emphasis
on markets.

With tomorrow’s decision-making and organisational
behaviour in mind, leadership effectiveness and its
evaluation are firmly future-oriented, and take a futuristic
view of the ways in which management and business
practices are conducted. From a postmodern, future-
oriented perspective, Veldsman (1999) believes that the
future comprises the context that provides meaning and

justification for leadership actions. Leaders must therefore
have insight into and accept the nature of possible future
scenarios and corresponding responses.

This exposition of futuristic leadership raises two questions:
how to build the bridge to the future, and how to enable
leaders to cross that bridge. Veldsman (1999) sheds light on
building the bridge by listing the crucial issues: future
challenges, associated opportunities, associated threats, and
corresponding responses (see Table 2). For the purpose of
this review, future challenges (with responses required) are
portrayed because they provide a good idea of some of the
major challenges that leaders face, as well as possible
strategies to deal with them.

In order to deal with an elusive future, shifting contexts,
and the resultant challenges, Veldsman (1999) promotes a
change in style. He suggests a style by which leaders
can respond to the individuals, groups, organisations, or
communities that are being influenced. Furthermore,
an appreciation of increasing organisational complexity
is needed. Yukl (2008) identified a range of skills for
handling different and complex situations that may be
of value in this context. These research-based skills are
cognitive complexity, systems thinking, situational
awareness, ability to learn, social intelligence, emotional
intelligence, and behavioural intelligence (Yukl, 2006; Boal
and Hooijberg, 2000; Zaccaro, Gilbert, Thor and Mumford,
1991). Yukl (2008) also notes the importance of personality
characteristics and values such as integrity, emotional
maturity, and the socialised need for power, all of which are
also required for effective ethical leadership.

While the previous section focused on the leadership
aspect of the strategic triangle, the focus now shifts to the
foundation of the triangle: strategy, organisational culture,
and human capital.

In the context described above, futuristic leadership
becomes relevant. Svensson and Wood (2006: 528) state
that

[f]uturistic leadership orientation refers to a derivation and focus on
the organisational performance of tomorrow’s decision-making
and business behaviour.

The strategic triangle: Strategy, organisational culture,
and human capital

Future challenges Responses required

Rapid, unpredictable and continuous change Manage change proactively, coherently, in an integrated manner and holistically

Exploding variety in terms of beliefs, values,
approaches, means and products/services informed and confident judg ments by and for themselves

Widespread ambiguity around frames of reference,
beliefs and meaning systems internal personal securities

Increasing complexity in the scope and range of systems,
structures, processes, technologies and interactions relative to the issues at hand

Growing interdependence of systems, structures,
processes, relationships, people and products/services

Build capacity within individuals, groups, organisations and communities to
exercise e

Build common frames of reference, vocabularies and meanings,
and self-referenced

Think and respond in a systemic manner at the right pitch of complexity,

Create integrated organic action networks with requisite checks and balances

TABLE 2
FUTURE CHALLENGES WITH RESPONSES REQUIRED

Source: Veldsman (1999)

36 Management Dynamics .Volume 22 No 2, 2013

Strategy

Kipp (2005) defines strategy as helping to mobilise an
organisation’s resources into a unique, viable position based
on appropriate internal capabilities, anticipated changes in
the environment, and the actions of clever competitors.
Strategy formulation is facilitated by leadership behaviours
such as monitoring the external environment and evaluating
threats and opportunities. Bigler (2001) adds that the
formulation and revision of competitive strategy act as a
critical source of influence on organisational performance.
Cravens, Greenley, Piercy and Slater (1998) contend that
successful market-driven strategies are created by
becoming market-oriented, finding superior customer value
opportunities, handling value propositions with distinctive
competence, creating strategic relationships, and bringing
about organisational change as and when required.
Cravens (1998) furthermore propose that, in order to
gain market leadership, an organisation must effectively
combine the various dimensions of strategy into an
integrated process of strategic analysis and action. Mair
(2005) and Mintzberg (1994) consider strategy as a creative
and proactive process that goes beyond making decisions.
They concur that the problem with strategy is not a lack of
planning or strategic thinking, but an inability to take
strategic action.

Organisational culture

Gray, Densten and Sarros (2003) consider organisational
culture as the way an organisation functions, for example by
defining the core values, assumptions, interpretations, and
approaches that characterise the organisation. Due to
organisational culture’s strong central position in the
adapted model, it comprises much more than just ‘the way
we do things around here’. In view of the increasing
importance of futuristic leadership described earlier, and the
necessity of an adaptive-innovative organisational culture
and approach to attain competitive advantage, a strong,
dynamic cultural approach is considered a priority.

Kwantes and Boglarsky (2007) confirm that organisational
culture can have a strong impact on both employee personal
effectiveness and productivity, particularly cultures that
optimise employees’ ability to approach their tasks in a
constructive and self-fulfilling way. Employees who
engage in these behaviours enhance their job performance,
productivity, and job effectiveness. Several studies also
reveal positive relationships between organisational culture
and indices of personal fulfilment such as morale (Connell,
2001) and satisfaction (Fraser , 2002). To summarise,
organisational cultures or styles that promote employee
goal orientation, self-control, and trust, combined with
using their abilities in a productive and self-fulfilling way,
lead to meaningfulness and thus to a greater contribution
and better performance by employees.

et al.

et al.
•
•
,

In a study of the impact of organisational culture on overall
organisational effectiveness involving 169 organisations
in the USA, Denison, Haaland and Goelzer (2004) found
that all 12 organisational culture factors investigated were
related to effectiveness. According to Kwantes and
Boglarsky (2007), recent research in the USA clearly
reveals a positive relationship between organisational
culture and productivity. Earlier studies quoted by the
same authors confirm that organisational culture is
positively related to a number of other valued
organisational outcomes such as overall performance
(Sorenson, 2002; Denison and Mishra, 1995), sales growth
and profits (Sin and Tse, 2000), and quality (Fraser, Kick
and Barber, 2002).

developed a coherence model demonstrating a positive
relationship between marketing culture and marketing
effectiveness.

O rg a n i s a t i o n a l e f f e c t i v e n e s s p ro d u c t i v i t y,

performance, and performance-related outcomes

Employee effectiveness, productivity, performance,

and morale

Žostautienė and Vaičiulėnaitė (2010)

According to Schneider (1995), organisational culture
strongly influences employee effectiveness. A collaborative
organisational culture that emphasises harmony, affiliation,
and teamwork encourages maximum involvement by
employees. This involvement, in turn, engenders positive
identification with the organisation. Furthermore, it
creates a willingness to perform beyond normal work
requirements, making a meaningful contribution to
organisational goals.

Nadler, Shaw, Walton and Associates (1995) emphasise
the importance of adapting to changes in the external
environment in order to function effectively. In a study
of the impact of transformational leadership and
organisational culture on business performance, Xenikou
and Simosi (2006) found that achievement orientation
had a significant, direct effect on business unit
performance. This means that work environments that
encourage goal setting along with the achievement of
goals and high performance contribute to improved
performance.

In their study of the research prevalence of contextual

factors, Porter and McLaughlin (2006) concluded that,

in both conceptual and empirical research, organisational

cultures supportive of innovation and change emerged as

the most frequently considered organisational culture

types. Successful adaptation often requires innovative

changes rather than incremental adjustments to traditional

practices. Innovation in delivering products or rendering

services is facilitated by strong cultural values of

creativity, flexibility, tolerance of mistakes, product

quality, and customer service.

• Adaptive culture

37Management Dynamics .Volume 22 No 2, 2013

Yukl (2008) puts these findings and views in a broader

context when he concludes that innovative adaptation is

essential in a dynamic, uncertain external environment that

experiences rapid technological change, combined with

fast-changing customer demands, intense competition,

and political and economic uncertainty. In view of these

developments, it seems that an adaptive-innovative

organisational culture may be a critical lever in promoting

futuristic leadership and organisational performance.

Human capital

Hitt and Ireland (2002) define human capital in terms of the
degree to which an organisation’s staff complement has the
competence and motivation to function effectively.
International research indicates that human capital has a
strong impact on organisational performance (Yukl, 2008;
Bowen and Ostroff, 2004; Youndt and Snell, 2004; Gelade
and Ivery, 2003). This view is supported by an empirical
study involving a sample of 50 autonomous business units
within the same organisation (Wright, Gardner and
Moynihan, 2003). Their results indicate that human capital
practices and organisational commitment are significantly
related to organisational performance measures as well as
operational costs and profits before tax.

Furthermore, there are signs that during the past decade the
management of human capital (also called strategic human
resource management [SHRM]) has moved from focusing
only on sound human capital management to include a
concern for the strategic position of the organisation, and
how this strategic positioning should be managed. Some
human capital managers are concerned about how to design
and implement a human capital system that effectively
supports the implementation of strategy (Becker and
Huseled, 2006). Those authors, in a recent involvement in
strategy literature, suggest a renewed emphasis on strategy
implementation as the focal mediating construct in SHRM.

Also considering human capital as a source of competitive
advantage, research by Campbell, Coff and Kryscynski
(2012) suggests that diverse approaches can be used to
create human capital-based competitive advantages. These
approaches include compensation design, employee
selection, and job design.

Intellectual capital – a critical requirement of adaptiveness
and innovativeness for futuristic leadership – is a major
facet of human capital. Youndt and Snell (2004)
conceptualise intellectual capital as having three distinct
components: human, social, and organisational capital. In
order not to confuse human capital with the human capital
pillar of the model, it will be called human capital
(competence). Human capital (competence) is defined as an
individual employee’s knowledge, skills, and expertise.

Organisational capital is the institutionalised knowledge
and experience captured and stored in databases, manuals,
and other structures. Youndt and Snell (2004) suggest that
social capital is located in neither of the individual or
organisational levels. Adler and Kwon (2002) and Nabapiet
and Ghoshal (1998: 339) consider social capital as

Based on the results of an empirical study, Youndt and Snell
(2004) conclude that intellectual capital correlated
significantly with organisational performance. More
specifically, their research indicated that in the intellectual
capital-performance regression model, each of the three
kinds of intellectual capital correlated significantly with
increased organisational performance. In their model, social
capital was by far the strongest predictor of performance.
A clear link between social capital and performance
supports the contention that knowledge tied up in
relationships among employees, customers, suppliers,
associates, and so forth tends to lead, inter alia, to process
and product innovations and better problem solving.
These enhanced capabilities, in turn, lead to increased
production and service delivery efficiencies, as well as the
resultant customer satisfaction.

Findings about the human capital (competence)
performance link lend support to the general view that
talented people are probably the most critical factor in
developing and delivering superior products and services.
Both Youndt and Snell (2004) and Pfeffer (1994) note that
researchers and practitioners have argued for quite some
time that many of the fastest-growing companies in recent
decades achieved their remarkable growth and competitive
advantage through their talented employees.

In view of the proven significance of human capital, its
position as one of the strategic drivers of organisational
performance in the adapted Burke-Litwin model is well
justified.

While the strategic level is about visioning and creating
strategy regarding the future of the organisation, the
organisational culture, and the people, management is about
implementing the vision and strategy and running the
organisation on a daily basis.

The management level

concerns itself with managing structures and core
organisational processes, creating and sustaining a
supportive unit or team climate, and managing human
talent.

Managing structures and core organisational processes

With the changing of competition in business from cost and
quality to flexibility and speedy reaction, the usefulness
of process management is gradually being recognised
(Herzog, Polajnar and Tonchia, 2007). Herzog

Specifically, we argue that it is the fit between the HR architecture
and the strategic capabilities and business processes that
implement strategy, that is the basis of HR’s contribution to
competitive advantage (Becker and Huseled, 2006: 900).

an intermediary form of intellectual capital that consists of
knowledge resources that are embedded within, available through,
and derived from networks of relationships.

–
et al.
The management level

38 Management Dynamics .Volume 22 No 2, 2013

describe the contribution of process management in
creating sustainable competitive advantage as business
process reengineering (BPR). The advent of BPR in 1990
was a major development, since it is only through fully
functioning core organisational processes that an
organisation can perform effectively and produce the
desired financial returns (Tonchia and Tramontano, 2004;
Davenport and Short, 1990; Hammer, 1990).

Senior leaders and middle managers have the strongest
influence on the implementation of organisational strategy
and plans, as well as on the creation of formal business
structures and processes. Referring to the implementation of
strategy, Edwards and Peppard (1998; 1994) consider BPR
as a natural link to organisational strategy, and suggest that it
can help to bridge the gap between strategy formulation and
implementation. In this context, BPR defines the business
architecture that allows the organisation to focus more
clearly on customer needs.

In a comprehensive study that tested three different
change initiatives – continuous improvement, BPR, and
benchmarking – it was found that BPR had the greatest
impact on performance (Lok, Hung, Walsh, Wang and
Crawford, 2005). The study furthermore identified three
core requirements for effective operation:

Executive commitment

Another survey-based study of BPR involving 73 medium-
and large-sized Slovenian manufacturing companies
(Herzog , 2007) identified several crucial factors that
must be taken into account to enhance the prospects of
success. Some of the factors are related to the Lok
(2005) study. Crucial factors identified are:

The crucial importance of some of the factors that strongly
influence the implementation of BPR and related change
initiatives also emerged from these two studies. These were:
top management commitment, strategic alignment, process
orientation, and employee empowerment and commitment.

Managing organisational climate

Burke and Litwin (1992) contend that climate has to do with
impressions, expectations, and feelings of employees about

how the local work unit is managed and how effectively
they and their colleagues work together every day. The key
concern is the immediate group or unit. Spangenberg and
Theron (2004) describe work unit climate as a global
perception of the psychological environment of the unit.
It comprises working atmosphere, teamwork and work
group cohesion, consensus on the vision and core values,
achievement orientation, and commitment to the unit.

Effective management of the business (strategy) combined
with sound management of people (human capital) in an
affirmative organisational culture places the leader in a
favourable position to create a positive organisational
climate. Such a climate, in turn, may contribute to an overall
adaptive, performance-related orientation.

Issues discussed below include climate drivers such as
employee involvement (EI) and the influence of team
cohesion on performance, followed by the impact of climate
on innovation and performance.

In a study of the impact of EI on organisational outcome
measures, Riordan, Vandenberg and Richardson (2005)
found that employee involvement was related to increased
financial performance and reduced employee turnover.
Furthermore, a climate perceived to be favourable to EI
was found to be related to increased employee loyalty and
organisational commitment. This finding implies that an
EI-friendly climate is a powerful intervening factor that
could improve competitive advantage.

A study by Michalisin (2007) of the influence of team
cohesion on organisational performance indicated that
leadership was not directly related to superior performance.
It was, however, significantly associated with team
cohesion which, in turn, was significantly associated with
superior performance. These results suggest that effective
leadership may strengthen performance indirectly by
influencing key group process mechanisms. Furthermore,
the findings also suggest that leader behaviour, thanks to its
positive impact on the development of team cohesion, can
yield superior organisational performance.

In their study of the impact of contextual factors on
leadership, Porter and McLaughlin (2006) cited studies
that confirmed the role of climate in the stimulation of
innovation in organisations. In a survey of 32 Taiwanese
companies, Jung, Chow and Wu (2003) found that a climate
that supported innovation increased a transformational
leader’s positive effect on organisational innovation.
In a study of willingness to lead involving multiple
organisations, Morrison and Phelps (1999) found that an
employee’s willingness to lead and take charge was directly
related to management’s openness to change, and to an
overall climate that supported innovation and change.

In a study of perceptions of organisational effectiveness in
which adaptability emerged as the core of organisational
effectiveness, the second major finding was the central
role played by organisational climate (Nicholson and

• ;

•
•
•
•
•
•

Strategic alignment, which was the major influence on
the success rate of both re-engineering and other
continuous improvement programmes; and

Employee empowerment.

Education and training, teamwork and employee
cooperation;

Information technology support;

Process orientation, need for organisational changes,
and value of BPR implementation; and

Levers and results (i.e. tools and techniques, and
results orientation).

et al.
et al.
et al.

39Management Dynamics .Volume 22 No 2, 2013

Brenner, 1994). Climate stood out both as a predictor of
perceived future success, and as an intervening variable.
Nicholson and Brenner (1994) therefore consider climate as
essential for understanding organisational performance.
A favourable attitudinal climate seems to be a precondition
for the continued effectiveness of an excellent, market-
client-driven organisation.

The reviewed research evidence of the impact of
organisational climate on employee psychological health
and performance, and its positive, sometimes direct, impact
on organisational performance, confirms its standing as an
independent component in the adapted model.

Managing human talent

Effective management of human talent by means of sound
human resource processes should enable employees to
develop sufficient competence to perform well, contribute
to unit or group effectiveness, and experience personal
satisfaction. Key functions of human talent management
are the identification of talent and productive deployment
of employees. The starting point of this broad process is the
identification of those factors that constitute effective work
performance. Campbell, McCloy, Oppler and Sager (1993)
identified eight distinct dimensions of job performance
(see Table 3).

The eight dimensions of job performance could be regarded
as sufficient to explain the structure of performance at a
general level. However, in view of the significant changes
occurring in contemporary organisations, Pulakos, Arad,
Donovan and Plamondon (2000) contend that the need
for adaptive workers has become increasingly important.
Based on intensive literature studies and empirical research,
Pulakos identified eight dimensions of adaptive
performance, which are set out in Table 4.

The changing nature of work verifies the adapted Burke-
Litwin model’s emphasis on future-directed leadership and
the facilitative role of an adaptive approach to leadership,
management, and work. Since the external environment,
and often also the internal organisational environment, may
be uncertain for some time, it would also be wise to develop
sufficient competence in the dimensions required for
adaptive work performance.

The process efficiency, individual values and motivation,
and individual talent level not only receives inputs from the
strategic and management levels, but also provides these
upper levels with the proficiencies and human capabilities
required for effective functioning. In fact, an organisational
vision can only be implemented effectively when leadership
successfully implements corporate strategy, with the help of
substantive human capabilities and effective organisational
processes. Metaphorically speaking, this level serves as a
talent reservoir that provides critical input to higher levels as
well as lower down to the output levels.

Process efficiency

Appropriate efficiencies are required for the effective
functioning of the key organisational processes. Efficiency
is generally considered to be the degree to which the
organisation curtails the cost of finances, operations, and
human capital in pursuit of effective organisational
functioning. Yukl (2008) suggests measures such as costs as
a percentage of revenue, costs relative to those of
competitors, and employee labour productivity. Yukl also
adds the critical issue of process reliability, which he
considers to be one of the three most important determinants
of organisational effectiveness. In their major empirical

et al.

The process efficiency, individual values and
motivation, and individual talent level

TABLE 3
DETERMINANTS OF JOB PERFORMANCE

TABLE 4
DIMENSIONS OF ADAPTIVE PERFORMANCE

Job-specific task proficiency Maintaining personal discipline

Non-job-specific task proficiency Maintaining peer and team performance

Written and oral communication Supervision/leadership

Demonstrating effort Management/administration

Source: Campbell . (1993)et al

Handling emergencies or crisis situations Learning work tasks, technologies and procedures

Handling work stress Demonstrating interpersonal adaptability

Solving problems creatively Demonstrating cultural adaptability

Dealing with uncertain/unpredictable work situations Demonstrating physical adaptability

Source: Pulakos . (2000)et al

40 Management Dynamics .Volume 22 No 2, 2013

study of BPR, Herzog (2007) listed related issues such
as cost reduction and decreased response times by using
automation, as well as the degree of recognition the
employee received for his or her contribution to improved
process operation.

Individual values and motivation

The three main forces of the proposed adapted Burke-
Litwin model – strategy, organisational culture, and human
capital utilisation – may influence the individual in a
collective way. For example, these forces may impact on the
individual’s values, motivation, and commitment. In turn,
individual needs, values, and motivation are intrapersonal
drivers that lead a person to achieve both work success and
personal satisfaction.

Giving attention to the needs of employees is therefore a
major management priority. Pillay and Meindl (1998)
believe that leadership associated with creating
collectivistic values in work groups, along with an increased
sense of community, may be beneficial. It is generally
accepted that leaders can influence mutual cooperation and
organisational commitment. Today’s better-educated
employees aspire to more than just equitable remuneration
(Gibson, Ivansevich and Donnelly, 1994). They want a
sense of involvement and sharing in the organisation’s
vision. They also want to be comfortable with the
organisation’s culture and to experience a sense of
belonging.

Individual talent

At the strategic triangle level, human capital significantly
impacts on organisational performance. At the management
level, human determinants of work performance (including
the increasing need for adaptive workers) do the same.
At the efficiency level, the emphasis is on individual talent
and skills.

It is generally accepted that work talent consists of
appropriate task-related skills, knowledge, experience, and
education of employees (Burke and Litwin, 1992).
The value of talented employees with high levels of
competence and motivation is based on the fact that they
may be more productive than other employees because
they will work faster and smarter. Research indicates that
talented employees can improve both process efficiency
and process reliability (Hatch and Dyer, 2004).
Furthermore, talented employees can stimulate change and
adaptation by their involvement in the development of more
innovative products or services, by marketing these
effectively, and by providing excellent customer service
(Vermeulen, Jong and O’Shaughnessy, 2005; Baer and
Frese, 2003). It is not surprising, therefore, to find that
talented employees with superior knowledge and skills are
increasingly being seen as a valuable asset and a basis for
competitive advantage.

The purpose of outcome measures is to assess whether
the performance of an organisation is satisfactory and
sustainable, particularly if it is a business organisation.
However, some concerns can be raised about the validity
of organisational performance outcome measures.
Leadership research is often criticised for relying
excessively on subjective measures (for example, the
quality of superior-subordinate relationships) in studying
the effect of leadership on organisational performance
(De Hoogh, Den Hartog, Koopman, Berg, Van den Berg,
Van der Weide and Wilderom, 2004). In this process, other
functions that leaders are expected to fulfil may be
neglected.

Also excluded are organisational and environmental
factors that play a major role in mediating the leadership-
performance relationship (House and Aditya, 1997). These
authors also differentiate between micro-level research that
focuses on the leader and his or her followers, and macro-
level research that has a much wider focus, including the
organisation and its environment.

De Hoogh (2004) and Den Hartog, Van Muijen
and Koopman (1997) add that the relationship between
leadership and organisational outcome indicators is often
fairly indirect. The same authors further contend that
measures of organisational performance are largely
dependent on environmental constraints that reflect
influences outside the jurisdiction of the leader.

In view of the limitations of various performance criteria
and the multidimensionality of performance discussed
above, Jing and Avery (2008) propose the use of multiple
performance criteria that are obtained by different methods.
For example, a number of studies reveal positive relations
between employee satisfaction, customer satisfaction, and
an organisation’s financial performance (Schneider, White
and Paul, 1998; Johnson, 1996; Schmitt and Allscheid,
1995). Based on this, it seems fair to conclude that positive
changes in employee and customer satisfaction lead to
positive changes in organisational performance.

Outcome measures in the proposed adapted Burke-Litwin
model will be discussed in terms of organisational, team,
and individual performance, and effectiveness.

Financial performance

A number of quantifiable criteria are proposed for effective
financial performance of organisations. Mair (2003)
stresses the importance of profit growth as a measure of
organisational performance over time. The significance of
profit growth lies in the fact that it integrates growth and
profitability – two cornerstones of financial performance. In

et al.
et al.

OUTCOME MEASURES

Organisational performance and effectiveness
measures

41Management Dynamics .Volume 22 No 2, 2013

measuring the performance of two business units, Xenikou
and Simosi (2006) used two objective financial measures,
both of which used the percentage of the annual
performance goal that was met by each business unit.

Niven (2002), however, notes that financial measures of
organisational performance reflect the impact of leaders’
past behaviour concerning organisational performance, and
that these measures have no futuristic predictive power.
Nonetheless, Kantabutra (2006) includes financial
outcomes in his model as an indicator of organisational
performance, combined with employee and customer
satisfaction measures.

Organisational effectiveness

Yukl (2008) defines an organisation’s effectiveness in terms
of realising its mission and survival, as well as maintaining
favourable earnings, sufficient financial resources, and
asset value. Porter and McLaughlin (2006) suggest an
organisational state that includes stability, availability of
resources, and organisational health (e.g. finances and
reputation). In a study of Chinese companies in transition,
Chen (2008) found that the relationship between internal
employee communication and organisational effectiveness
was more significant than was previously believed.
In fact, the integration of employee internal communication
into managerial structures and practices was vital,
resulting in prominent corporate communication leaders
becoming part of the organisation’s dominant coalition.
Communication excellence was ensured in this way,
leading to overall organisational effectiveness.

Market standing

According to Spangenberg and Theron (2004), market
standing includes market share (if applicable),
competitiveness and market-directed diversity of products
or services, customer satisfaction, and reputation for
adding value to the organisation. Kaiser, Hogan and Craig
(2008) concur with regard to market share, and also
emphasise the importance of customer-related issues such
as customer retention and growth.

Productivity

Productivity is the quantity and quality of production or
services, and efficiency in transforming inputs into outputs
(Kaiser , 2008), while production and efficiency
consist of outputs such as meeting goals, quantity, quality,
cost-effectiveness, and task performance (Kwantes and
Boglarsky, 2007; Spangenberg and Theron, 2004).

Customer satisfaction

Customer satisfaction has been quoted frequently as a vital,
non-financial strategic performance measure (Gates, 2000;
Bird, 1995); Seiders, Voss, Grewal and Godfrey (2005),
and Fornell (1992) consider customer satisfaction as a
vital precursor of loyalty to the organisation, as reflected by

repurchase. They also list related issues such as protection
of present customers from the competition, reduced costs
of future transactions, lower costs of attracting new
customers, and an improved reputation for the company.
These trends are confirmed by a more recent major study
using longitudinal analyses of large-scale secondary data
obtained from multiple sources (Luo and Homburg, 2007).
Those authors found that customer satisfaction increased
the efficiency of future investments in advertising and
promotion. This finding is explained by the possibility
that customer satisfaction creates free word-of-mouth
advertising, thereby saving marketing costs.

Future growth

Future growth comprises an overall index of projected
future performance, and includes profits and market share
(if applicable), capital investment, staff levels, and
expansion of the unit (Spangenberg and Theron, 2004).

Team performance and effectiveness

Based on a process perspective on leadership and team
development, Sheard and Kakabadse (2004) list some
major attributes and outcomes of team effectiveness.
Probably the most important effectiveness issue is the
management of opposites, which requires the ability to
adopt different approaches in different situations. This, in
turn, calls for a second competence, that of context
sensitivity, where the leader and team adapt to the changing
operational context together. A third effectiveness
dimension that is critical to the team’s performance is the
excellence of its interpersonal relationships.

Further evidence of the impact of teams on organisational
outcomes is supplied through a meta-analysis of teamwork
processes (Lepine, Piccolo and Jackson, 2008). Those
authors found that three first-order teamwork-oriented
process dimensions – transition, action, and interpersonal –
showed a positive association with team performance
and member satisfaction. In a supplementary analysis,
teamwork processes were positively related to team
cohesion (attraction and commitment to the team, members,
and task) and team potency (a shared belief in the team’s
effectiveness).

Individual performance

In addition to the well-known production-oriented
employee performance criteria of quantity, quality, cost-
effectiveness, and timeliness, a more comprehensive
performance model developed and used by the University
of Rhode Island is presented in this text (Scholl, 2003).
The performance criteria are effort-motivation, ability,
skills and competence, role perception, and availability of
resources.

et al.

Team and individual performance and effectiveness
measures

42 Management Dynamics .Volume 22 No 2, 2013

•
•
•
•

If working conditions are consistent, the more effort an
employee puts into his or her work, the more positive
the performance outcomes will be.

Employees will only realise the agreed-upon goals
if they develop the necessary task-related skills,
supported by supplementary skills such as analytical,
conceptual, writing, and computer skills.

To meet the performance expectations of one’s
superior, one has to clearly understand his or her
expectations. Only effort and ability used in the right
direction will produce high performance.

The final component required for excellent
performance is the availability of the necessary
equipment, information, and qualified staff.

Effort-motivation

Ability, skills and competencies

Role perception

Resources

Individual effectiveness

Kwantes and Boglarsky (2007) describe personal
effectiveness in terms of goal-oriented behaviours and a
sense of direction, beliefs about control over what happens
to an individual, degree of trust in others, and a person’s
general view of the future. These aspects reflect both
productivity and psychological well-being, which are
considered essential elements of employee effectiveness.

Individual satisfaction

Individual satisfaction centres on satisfaction with the task
and work context, with empowerment and career progress,
and with the outcomes of leadership, such as trust in and
respect for the leader and acceptance of the leader’s
influence (Spangenberg and Theron, 2004). Van Dyck
(1996) considers employee satisfaction as a key
performance measure for business organisations.

This discussion offers a brief review of the extent to which
the adapted model meets the development criteria set at the
beginning of the article, followed by a discussion of some of
the major issues emanating from the adaptation of the
Burke-Litwin model.

Openness

The positioning of the external environment as a sphere
surrounding the model, and the free flow of information
to and from the external environment involving all

organisational levels, processes, systems, and individuals,
attest to the openness of the model.

Adaptability

In view of macro-economic and political uncertainties that
are likely to continue, the adapted model is designed to be
sufficiently adaptable – and open – to accommodate these
and other external forces that may necessitate changes to the
model.

Futuristic leadership

Fluidity and frequent instability in the external environment
take a heavy toll on forward thinking and planning.
Futuristic leadership, supported by an adaptive-innovative
approach, is therefore the main driving force of this model.

Comprehensiveness

The adapted model, which has three congruent, independent
pillars and extensive outcome measures, is more
comprehensive than the Burke-Litwin model, and forms the
basis of an independent OD instrument that can be used to
assess the performance and effectiveness of a variety of
medium to large private or public organisations and work
units.

Outcomes of the model

Wide-ranging outcome measures – organisational, team,
and individual performance and effectiveness measures –
provide leaders with additional insights into leadership, its
outcomes, and its consequences.

The first issue that arises from the adaptation of the Burke-
Litwin model is the changes required to ‘open up’ the model
to enable a freer information flow to and from the external
environment. The second issue relates to being aware of
future challenges, accepting responsibility for future
performance, and developing the required skills to deal with
organisational and environmental complexity. The third
issue is the growing importance of an adaptive-innovative
organisational culture in dealing with futuristic leadership
and organisational performance. The fourth issue is the
increasing role of human capital as one of the most
important contributors to effective organisational
performance.

The first major difference between the Burke-Litwin model
and the adapted model is the two models’ distinctive views
of the influence of external contextual factors. The Burke-
Litwin model positions the external environment at the top

CONCLUSIONS AND MANAGERIAL
IMPLICATIONS

Degree to which the adapted model meets the initial
development criteria

Major issues emanating from the adaptation of the
Burke-Litwin model

More comprehensive interaction with external
contextual factors proposed

43Management Dynamics .Volume 22 No 2, 2013

of the model, with direct contact downwards towards the
mission and strategy, leadership, and organisational culture
level. Furthermore, it has direct contact with individual and
organisational performance.

In contrast, the adapted model acknowledges and
emphasises the pervasive, expansive nature of external
contextual factors, and positions them in the form of a
sphere that surrounds the entire model. The significance of
this design is that external contextual factors not only exert
influence on the organisation by interacting with the
strategic triangle and performance (outcomes) as in the
Burke-Litwin model; but also interact with the management
and the process efficiency and individual talent levels. Thus,
they impact directly on the model everywhere along and
inside the circle.

The openness of the adapted model described above enables
direct interaction between the external environments and,
for example, core processes, systems, and employees at all
levels. This wide, open, unrestricted, and speedy flow of
information may assist leaders to deal timeously with major
changes in business, the economy, and socio-political
developments, as well as with potentially harmful financial
developments in the external environment. Thus leaders,
rather than the environment, should determine how events
unfold under given circumstances. Clearly, an organisation
in which all employees have access to information from the
external environment is more empowered and, therefore, in
a more favourable position to perform effectively.
Moreover, leaders have to transform external organisational
conditions and contribute materially to the creation of
benevolent external business conditions.

These highly interactive relations among elements of the
adapted model and external contextual factors may
represent something of what Porter and McLaughlin (2006)
mean when they call for the building of more movies than
snapshots.

The second major difference between the models is the
adapted model’s emphasis on futuristic leadership. Since
the external contextual factors surround the entire adapted
model, they allow leadership (rather than the external
environment) to be positioned at the top of the model, from
where it directs the strategic triangle and collectively leads
the entire organisation into the future. This positioning
requires insight from the leader into shaping the nature
of the future, as well as acceptance of this responsibility.
Futuristic leadership has become an imperative, with
leaders taking full responsibility for the current and future
performance of the organisation.

Lessons from the 2010-2012 recession require top
executives to appreciate fully the impact of events in the
global external environment. Therefore, leaders must

proactively study the future and actively appraise current
and future challenges. Direct liaison with a reputable
institute involved in futures research can assist leaders
in many ways – for example, in obtaining a picture of
expected future developments, understanding a
progressively more difficult external environment, and – as
far as the corporation is concerned – developing an
increased understanding of organisational complexity.
Yukl’s (2008) research-based strategic leadership
capabilities for handling diverse, complex situations
discussed earlier are relevant here, together with ethical
leadership dimensions such as integrity, emotional maturity,
and a well-balanced need for power.

Both models acknowledge the importance of organisational
culture in the leadership-change process. While the Burke-
Litwin model accentuates transformational leadership,
the adapted model emphasises innovation and
adaptation. Yukl (2008) considers an adaptive-innovative
organisational culture to be indispensable for fostering
future-directed leadership and organisational performance.
It is also significant that Porter and McLaughlin’s (2006)
major study of organisational culture concluded that
organisational cultures that supported innovation and
change emerged as the most prominent organisational
culture types.

The inclusion of human capital in the adapted model is due
to its increasing importance as a lever in bringing about
organisational effectiveness and performance. During the
last decade it has begun to function more broadly than its
traditional human resources role. Today it plays an
increasingly important facilitating role in the building
of strategic organisational processes and capabilities.
This capacity, in turn, facilitates the implementation of
strategy that contributes materially to the organisation’s
competitive advantage (Campbell , 2012; Becker and
Huselid, 2006).

At a human capital (competence) level, there is an
increasing understanding of how human talent influences
an organisation to bring about superior performance.
For example, in a study of the impact of intellectual capital
on performance, Youndt and Snell (2004) found that both
social capital and human capital (competence) had a strong
impact on performance. This finding on the role of social
capital has major implications for organisations, as it
confirms the value of the sound distribution of knowledge
and information among staff and closely-related external
associates. With regard to human capital (competence),
recent studies confirm the importance of human talent in
developing and delivering superior products and services
(Kehinde, 2012; Collings and Mellahi, 2009).

The adapted model, futuristic leadership, and handling
of organisational complexity

Increasing need for an adaptive-innovative
organisational culture

Growing importance of human capital

et al.

44 Management Dynamics .Volume 22 No 2, 2013

In conclusion, the purpose of this critical review was to
sensitise leaders and managers to the important role
of the future, the external environment, and particularly to
the unexpected impact these forces may have on the
organisation. The danger of these forces is exacerbated
by the impact of changing markets and competition.
To handle these challenges, there should be a strong
emphasis on developing an adaptive-innovative
organisational culture. The strategic triangle of the
adapted model is strengthened with the inclusion of
human capital. During the past decade many human capital
managers have become much more directly involved with
the development and implementation of corporate strategy.
The inclusion of human capital provides the model with
three strong, congruent pillars – strategy, culture, and
human capital – driven by future-oriented, adaptive
leadership. In order to protect the organisation from major
financial fallouts and unacceptable internal behaviour,
organisational culture should be strengthened by placing
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Journal of Managerial
Psychology

Journal of Managerial Issues

Leadership in

The Leadership Quarterly

Journal of Leadership
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Žostautienė, D. and Vaičiulėnaitė, L. 2010. Coherence
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*To whom all correspondence should be directed: Prof Hermann Spangenberg, formerly from the Stellenbosch University Business School (USB),
spangenberg2@telkomsa.net. Tel.:(27)21-880-0363

48 Management Dynamics .Volume 22 No 2, 2013

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