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Linking Organizational Culture with Performance:

The Mediator and the Moderator

Authors: ZHANG Mian, YANG Baiyin, & LI Hai

Reporter: LI Hai

2011-7-1, Budapest

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INTRODUCTION: Gap and Problem

Organizational Culture Performance?

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The purpose of this study

• is to investigate the relationship between organizational culture’s two functions (i.e., external adaptation and internal integration) and firm performance

• while centering on possible mediator and moderator.

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MODEL

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THEORIES• Why?• resource-based view (Barney 1986; 1996) • dynamic capabilities theory (Teece et al. 1

997; Teece 2007)

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resource-based view

• This view posits that an organization’s sustained competitive advantage derives from unique bundles of resources that are valuable, rare, imperfectly imitable and not substitutable (Barney 1991; 1996).

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• Internal integration comes from firm-specific bundles of cultural traits that are difficult if not impossible to imitate.

• H1: Internal integration associates positively with firm performance.

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dynamic capabilities theory

• dynamic capabilities theory proposes that an organization’s ability to integrate, build and reconfigure internal and external competences is critical to achieve congruence with the changing business environment (Teece 2007).

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• Organizations with adaptive culture can develop their human resources capability through absorbing new knowledge and experience from external environment.

• In turn, the developed human resources capability will ultimately enhance a firm’s performance.

• H2: Human resource capability mediates the positive association between external adaptation and firm performance.

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The Moderating Role of Environmental Uncertainty

• An organization with clear vision, mission and values is more likely to focus on its core resources and less distracted, thus usually has superior performance compared to its rival.

• H3: Perceived environmental uncertainty moderates the positive relationship between internal integration and performance. The relationship between internal integration and performance in high level of environmental uncertainty is stronger than that in low level of environmental uncertainty.

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• In highly uncertain environment, an organization’s adaptive culture is beneficial more to attract and retain talents as well as motivate its member.

• H4: Perceived environmental uncertainty moderates the positive relationship between external adaptation and human resource capability. The relationship between external adaptation and performance in high level of environmental uncertainty is stronger than that in low level of environmental uncertainty.

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METHOD: Sample• top managers attending the courses of Ex

ecutive Development Program (EDP) in a university located in a north metropolis, China.

• 362 valid surveys• a valid response rate of 86.2 percent.

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• Among 362 sample organizations• the average number of employees was 5,430 (S

D=16,999). • The average length of company history was 25.5

years (SD=27.5) and the average annual sales volume was 2.35 billion RMB (about 300 million US dollars; SD=7.36 billion RMB).

• 52 percent were state-owned enterprises (SOEs), 30 percent were private-owned companies, and 15 percent were joint ventures or foreign-invested companies.

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Measures• Five variables (perceived financial perform

ance, human resource capability, internal integration, external adaptation, and perceived environmental uncertainty) were measured with well-established instruments.

• Respondents reported their subjective perceptions for each of variables regarding to their organizations.

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Testing Hypotheses

• We assessed the hypothesized model with structural equation modeling technique using Jöreskog and Sörbom’s (1999) LISREL program.

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• We tested Hypotheses 1 and 2 with total sample. And compared hypothesized model with three alternative models.

• As for Hypotheses 3 and 4, we conducted two-group comparisons with the SEM methodology (Williams, Edward, & Vandenberg 2003; Williams, Vandenberg, & Edwards 2009).

• We divided the whole sample into two groups (high and low environmental uncertainty). Next, we estimated and compared the path coefficients in two groups.

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RESULTS　 Variables M SD 1 2 3 4 5 6 7 8 91 Total　employment 6.6 1.97

2 Company's　history 26.6 27.49 0.32***

3 Ownership　type:　State-owned 0.5 0.50 0.23*** 0.38***

4 Ownership　type:　JV/foreign　invested

0.2 0.36 0.04 -0.16** -0.42***

5 Perceived　environmental　uncertainty

3.6 1.25 -0.07 -0.12* -0.16** 0.00 (0.86)

6 Internal　integration 3.0 0.81 0.12* 0.02 0.06 -0.06 0.19*** (0.87)

7 External　adaptation 3.5 0.80 -0.14** -0.14* -0.19*** -0.03 0.35*** 0.40*** (0.83)

8 Human　resource　capability 3.1 0.86 -0.11* -0.15** -0.14** -0.09 0.09 0.37*** 0.56*** (0.85)

9 Perceived　financial　performance 3.2 0.94 0.02 -0.10 -0.09 -0.11* 0.18** 0.26*** 0.41*** 0.57*** (0.86)

Means, standard deviations and simple correlations in the study

Reliability coefficient alphas are presented in diagonal in parentheses. * p < 0.05; ** p < 0.01; *** p < 0.001

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Fit indices of structural models in the study

Structural　models Description χ2 df χ2/df CFI NFI IFI RMSEA

Hypothesized　model Figure　1371.26 98 3.80 0.97 0.97 0.96 0.09

Alternative　model　1 Figure　1　plus　a　path　from　internal　integration　→　human　resource　capability 368.20 97 3.80 0.97 0.97 0.96 0.09

Alternative　model　2 Figure　1　plus　a　path　from　external　adaptation　→　performance 370.69 97 3.82 0.97 0.97 0.96 0.09

Alternative　model　3 Figure　1　plus　two　paths:　　internal　integration　→　human　resource　capability　and　external　adaptation　→　performance

367.48 96 3.83 0.97 0.97 0.96 0.09

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Parameter estimates in structural model

Paths　in　Structural　ModelSamples

Overall　Sample Low　PEU High　PEU

Direct　effects

Internal　integration　　Firm　performance 0.14(3.01**) 0.08(.99) 　　0.29(4.57**)

External　adaptation　　Human　resource　capability 0.69(10.88**) 0.72(8.38***) 0.66(7.05***)

Human　resource　capability　　Firm　performance 0.64(9.85**) 0.55(5.62***) 0.66(7.61***)

Correlation　b/w　internal　integration　&　external　adaptation 0.52(11.67***) 0.61(11.16***) 0.45(6.26***)

Testing　Moderator　of　Environmental　Uncertainty

Internal　integration　　Performance 2(1)　=　4.49**

External　adaptation　　Human　resource　capability 2(1)　=　0.60　(n.s.)

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• H4 not supported

H1

H2

H2

H3

H4

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Thanks