Int. J. Management and Enterprise Development, Vol. 9, No. 3, 2010
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Organisational culture, leadership and performance measurement integratedness Luu Trong Tuan Asian Institute of Technology (AIT), Klong Luang, Pathumthani 12120, Thailand and National University, Ho Chi Minh City, Vietnam E-mail:
[email protected] Abstract: This research analysed the linkages among organisational culture, leadership and integratedness of performance measurement in plastic manufacturing companies in Vietnam. The findings revealed that transactional leadership is correlated with clan culture and hierarchy culture. Transformational leadership, on the other hand, promotes adhocracy culture and market culture, which in turn positively impact the integratedness of performance measurement. A direct relationship between transformational leadership and the integratedness of performance measurement was also detected. Keywords: organisational culture; transformational leadership; transactional leadership; integratedness of performance measurement; enterprise development. Reference to this paper should be made as follows: Tuan, L.T. (2010) ‘Organisational culture, leadership and performance measurement integratedness’, Int. J. Management and Enterprise Development, Vol. 9, No. 3, pp.251–275. Biographical notes: Luu Trong Tuan is currently a Business Administration (BA) teacher at National University – Ho Chi Minh City. He received his Master’s degree from Victoria University, Australia, in 2004. His research interests include organisational behaviour and performance measurement.
1
Introduction “I am telling you, no single company in Vietnam is aware that the organizational culture and leadership they are shaping now impact the way they measure their members’ performance. Many of them reckon the use of performance measurement system is determined by the trend of brand building in the market.”
This statement came up during my dialogue with a manager of a plastic manufacturer located in Ho Chi Minh City of Vietnam. The statement struck my mind with a lot of questions: Do organisational culture and leadership style influence the implementation of performance measures? What organisational culture types and leadership styles will lead performance measures beyond financial measures and to what extent? Copyright © 2010 Inderscience Enterprises Ltd.
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A positive organisational culture embraces certain essential elements. Firstly, it is not only nurtured purely by a mission, but also by a lucid organisational vision, which is a ‘mental image of a possible and desirable future state of the organisation’ (Bennis and Nanus, 1997). Organisational visions are most effectual when conspicuously communicated by top organisational leaders, who display strong values and own dynamic, charismatic personalities (Greenberg and Baron, 1997). Secondly, organisational culture is shored up by organisational values that are consistent with the goal of the organisation and aligned with the personal values of organisational members (Qubein, 1999). Organisational vision and values pervade all levels of the organisation and are consistently modelled by top management. Thirdly, employees are highly valued at all levels of the organisation, and there subsists widespread employee interaction both within and across functional departments (Clemente and Greenspan, 1999). Fourthly, the culture is adaptable, acclimatising briskly to peripheral conditions and is consistent, behaving fairly towards all employees (Ahmed et al., 1999). Finally, organisational culture is perpetuated in some way, perhaps through tangible symbols, slogans, legends or ceremonies that underscore organisational values (Greenberg and Baron, 1997). These characteristics of a positive culture cannot exist without extensive employee support. Even within an organisation that has a strong overall culture (the ‘dominant culture’), there will also be several subcultures (Greenberg and Baron, 1997). The values of the dominant culture need to be aligned with the values of each of the subcultures as well as the personal values of each individual. Leadership, the personal values of leaders, is the principal shaper and builder of organisational culture. Schein contended cogently, “we must recognize the centrality of this culture management function in the leadership concept” (1985, p.2). According to Trice and Beyer (1993) and Schein (1985), a strong visionary or charismatic leader accounts for the unique character of an organisation’s values and assumptions. Constructing on attribution theory (Calder, 1977), scholars propose that most organisational members believe that leaders are accountable for organisational outcomes. The perpetuating nature of organisational routines (March and Simon, 1958) and the dominant impact of the larger social, technological and cultural environments lead certain researchers (e.g. Safford, 1988) to demote leadership to the role of an endogenous factor that interacts with a variety of other organisational variables including culture in influencing organisational outcomes. In light of the clashing views, the question of how organisational culture impacts leadership as well as how organisational culture and leadership enhance the integratedness in performance measurement implementation, an area where little empirical proof exists (Scott et al., 2003; Wang and Ahmed, 2003), will be unpacked in this study.
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Literature review
2.1 Organisational culture 2.1.1 Definitions of organisational culture Culture has been portrayed by numerous authors as ‘the way we do things around here’ (Deal and Kennedy, 1982) or ‘something to do with the people and unique quality and style of organisation’ (Kilmann et al., 1985). From the anthropological perspective,
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culture is conceptualised either as a system of shared symbols and meanings (Geertz, 1973) or as a system of shared cognitions (Rossi and O'Higgins, 1980). Organisational culture has been defined in several ways due to the different research framework adopted by the various authors. One of the most common definitions of organisational culture involves a set of values, beliefs and behaviour patterns forming the core identity of organisations and shaping the employees’ behaviour (Deal and Kennedy, 1982; Deshpande and Farley, 1999; Jones, 1983; Schein, 1992). Expanding Schein’s (1992) definition with the notion of understandings, Daft (2005) views organisational culture as a set of key values, assumptions, norms and understandings that is shared by members of an organisation and taught to new members as correct. Organisational culture also acts as a cognitive map that impacts the fashion in which the context is defined, for it provides the selection mechanisms or norms and values through which people enact events (Jones, 1983). Frost et al. (1985, p.17) have contributed with this definition of organisational culture: “Talking about organizational culture seems to mean talking about the importance for people of symbolism – of rituals, myths, stories and legends – and about the interpretation of events, ideas, and experiences that are influenced and shaped by the groups within which they live.”
Meaning – and meaning-giving processes – is a momentous aspect of this theory of organisational culture: “Meaning refers to how an object or an utterance is interpreted. Meaning has a subjective referent in the sense that it appeals to an expectation, a way of relating to things” (Alvesson, 2002, p.4). The rendezvous of most of the definitions on organisational culture is the shared nature of the values, beliefs, philosophies, norms, meanings, etc. Several authors alleged that the function of organisational culture is to generate a feeling of esprit de corps within the organisation (Van Maanen and Barley, 1985, p.39). Contending through a General Behavioural Model that one’s current behaviour is contingent on his/her past behaviours, his/her revealed and stated preferences, the aggregates’ influences and external factors or resource constraints either shared or unique to each behaviour/person, Wu (2007) regards organisational cultures as accumulated individual choices and as interactions among critical masses of people with different preferences and past choices, thereby highlighting accumulated nature rather than shared nature.
2.1.2 Aspects of organisational culture Quinn and Rohrbaugh’s (1983) competing values framework (CVF) was developed by Quinn (1988) into a model of organisational culture predicated on two dimensions: 1
organisational process (organic vs. mechanistic)
2
organisational orientation (internal vs. external).
The CVF was further developed and adapted by Cameron and Freeman (1991) and Deshpande et al. (1993), which permits the instrument to investigate organisational culture at a deeper level and identify further implications. As illustrated in Figure 1, the vertical axis depicts the continuum from organic to mechanistic processes, ranging from an accent on flexibility and spontaneity to control, stability and order. The horizontal axis
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depicts the relative organisational emphasis on internal maintenance (smoothing activities and integration) to external positioning (competition and environmental differentiation). The four culture types adhocracy, clan, hierarchy and market are assigned to the CVF quadrants. This framework shown in Figure 1 is predicated on four sets of attributes: 1
the dominant characteristics or values
2
the dominant style of leadership
3
the bases for bonding
4
the strategic emphasis present in the organisation.
In Asian studies, the researchers describe these four cultural styles as rabbit, monkey, elephant and tiger, respectively (Jacobs, 2002). This concept has been extensively used by Deshpande et al. (1993, 1997) in their Asian and cross-cultural research. Figure 1
CVF-based model of organisational culture types
Source: Adapted from Deshpande et al. (1993).
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In a nutshell, while validating the usefulness of the above culture types, Deshpande et al. (1993) emphasised that these culture types are dominant ones rather than mutually exclusive ones. Most companies can and do have components of various types of cultures. Consequently, identifying a typology of cultures also makes it possible to determine if organisations are dominated by one type or have attributes of different types. The author of the present research, nonetheless, suggests that organisational culture should be viewed in a more dynamic way because ‘we live in a world of endless and relentless change’ (Hargreaves, 2002, p.189) and ‘in a complex and fast-changing society’ (Hargreaves and Fink, 2003, p.693). As displayed in Figure 2, an organisation must first define its dominant culture type, then reinforce the attributes of this culture type which are aligned with organisational vision and strategy and minimise the effects of its attributes which diverge from organisational vision and strategy on organisational performance and effectiveness. While consolidating the current dominant culture type, the organisation incessantly observes and discerns or even generates changes in the organisational core competencies and core values, vision and strategy (as these components can become sclerotic), as well as detects changes in the external environment (through environmental scanning), and defines new organisational culture type which best addresses and supports these changes as suggested by Pool (2000) that organisational culture allows an organisation to address ever-changing problems of adaptation to the external environment and the internal integration of organisational resources, personnel and policies to support external adaptation. The organisation should actively discover or create these changes even though the culture of the organisation may change over time (Goffee and Jones, 1998). After building this new culture type in the organisation, the organisation must then endeavour to manage both organisational culture types simultaneously. As the old culture becomes a barrier to the new vision and strategy, the organisation must gradually make a transition to the new, and at this point, it must resume the cycle: while maximising the operation within this new culture, it must again discern new changes and construct a more appropriate organisational culture type.
2.1.3 Vietnamese culture and its link with Vietnam plastic industry Although an individual may self-select into a particular industry or occupation, nationality is typically something that temporally precedes entry into an organisation, and thus may be regarded as a determinant of schema formation linked to organisational culture. Vietnam has been deemed as one of the backward countries in terms of technology (Le, 1995). This situation could be ascribable to various wars inflicting devastation to the country. There are economic factors that provide equally powerful explications. Nonetheless, it is more revealing to examine how Vietnamese culture accommodates technology. Traditionally, the Vietnamese believe that there are three worlds: the physical world that is concrete and soulless, the human world that involves people in its immediate vicinity as well as in a much wider community and the spiritual world that appears to be remote but also close to the human mind. The Vietnamese people have had a strong traditional respect for human and spiritual values. They found it less appealing to explore the physical world than the spiritual one, as they believed the inner strength of an individual can bring peace, harmony and happiness to life (a belief that was strongly influenced by the prevailing Buddhism), whereas the knowledge of the physical world does not necessarily lead to the achievement of happiness, and sometimes it could even
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lead to the destruction of civilisation. This spiritual world can interfere strongly with any endeavours to explore the physical world in which technology owes its existence. Under the influence of Confucianism, the Vietnamese mind was ‘more easily attracted to social philosophy than to physics and chemistry’ (Le, 1995, p.6). Unlike the West, which highlighted the significance of intellectual development, the Vietnamese traditional Confucian-style education underscored the human world in terms of the moral obligation of individuals to the community at large (Le, 1995). It is, thus, comprehensible why technology was not promoted in the Vietnamese society in the olden days. Since renovation (Doi moi) and the open-door policy, in the context of a highly competitive world, the role of technology has been incrementally viewed as decisive for the country to fulfil its industrialisation and modernisation goals. At the organisational level, it is becoming more and more evident that technology is a crucial factor in determining an organisation’s survival, development and competitiveness. While realising the magnitude of technologies, most managers still do not fully understand their capabilities. Figure 2
Dynamic organisational culture
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Moreover, in the Westerners’ eyes, Vietnam has a rather ‘fraught’ approach to technology acquisition (Engholm, 1995, p.173). Vietnam undervalues intellectual knowhow, and this is reflected in its technology transfer regulations, which restricts its overall value in an investment contract. Engholm (1995, p.173) stated that the Vietnamese want state-of-the-art technology but do not want to pay for it. This mentality might have underpinnings in the country’s historical experience with innovations. Vietnam has an agricultural culture in which technological innovations traditionally took place in the open and were immediately made communal property. To imitate another’s innovation was the highest compliment, while the selling of proprietaries was unknown (Engholm, 1995). In the actual implementation of technology, this attitude is often reflected in the disinclination of managers to go to any great length as far as the recognition of financial resources required for the project is concerned. This attitude is also found in managers in plastic industry. Therefore, state-of-the-art technology had barely been transferred to Vietnamese plastic manufacturers until 1995. The pioneers in the application of state-of-the-art technology in plastic production were Binhminh Plastics Company (BMPLASCO), a state-owned company, which invested in two sets of extrusion machine – Kraussmaffei from Germany and Cincinnati from Austria in 1998, and Bavico Plastics Company (BAVICO), a private company, which invested in preform manufacturing machines supplied by HUSKY and a blowing machine by SIDEL in 1998. The change in this attitude was probably catalysed by international consumers’ demand for high quality of plastic products. However, merely roughly 30 plastic companies have their products accommodated to standards of ISO, JIS and ASTM (Hanoi Industrial and Trade Portal, 2006). Furthermore, although Vietnam owns crude oil wells and an oil refinery plant in Dung Quat, Quang Ngai province, it has purely two joint ventures producing approximately 250,000 tons PVC resin and 150,000 tons DOP covering less than 10% of the national plastic material demand. Thus the reluctance of managers to go to a great length still lingers.
2.2 Leadership Leadership is viewed as a psychological phenomenon (i.e. the leader is a person who owns certain desirable personality and demographic traits), or a sociological phenomenon (i.e. the leader is the result of convergence of a person, a group and the needs arising from a situation faced by each). Bass’s (1990) review of various conceptualisations of leadership culminates in the subsequent definition of leadership: Leadership is an interaction between two or more members of a group that often involves a structuring or restructuring of the situation and the perceptions and expectations of the members. Leaders are agents of change – persons whose acts affect other people more than other people’s acts affect them. Leadership occurs when one group member modifies the motivation or competencies of others in the group.
Bass (1990), to a certain degree, defines leadership as meaning-making, and highlights how the attributes and actions that would be categorised as agentic impact on meaning (Arrows 2 and 4 in Figure 3), as well as the linkage between meaning and performance (Arrows 9 and 10). Executive attributes, acts and behaviours that influence performance without generating meaning (Arrows 5–8) are wrapped in the term ‘management’.
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Figure 3
Leadership as meaning-making
2.3 Performance measurement 2.3.1 Definitions of performance measurement Neely et al. (1995) defined performance measurement in its strictest semantics as the process of quantifying the efficiency and effectiveness of action, and hence x
a performance measure can be defined as a metric used to quantify the efficiency and/or effectiveness of an action
x
a performance measurement system can be defined as the set of metrics used to quantify both the efficiency and effectiveness of actions.
Although this definition accentuates effectiveness as well as efficiency, it is unlikely to make managers stop and challenge their performance measurement systems and gives little indication as to what they should quantify or why. Therefore, Moullin (2003) defined performance measurement as ‘evaluating how well organisations are managed and the value they deliver for customers and other stakeholders’. This definition gives much more guidance to people involved in performance measurement. It encourages them to contemplate the degree to which organisations measure the value they deliver to their customers and whether it covers the main aspects of how performance is managed. Bocci (2004) preferred Neely’s definition, and specifically preferred ‘quantifying’ to ‘evaluating’ because the latter referred not only to measuring but also to making a judgement. Moullin responded that evaluating was a better term for it implied interpretation and analysis: “… someone somewhere is going to ask ‘how well an organization is doing’ or ‘what appears to be responsible for the drop in sales’. We can’t hide behind the numbers forever” (Moullin, 2005a). Pratt (2005) agreed, pointing out that evaluating was much better than quantifying as it embraces qualitative as well as quantitative measures. Neely himself commented that “in essence I find myself agreeing with Moullin and Pratt – delivering value to stakeholders is clearly essential to an organization’s success” (Neely, 2005, p.14) although later in the paper he says that “the
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concept of stakeholder adds no clarity to the definition, because the question of which stakeholder matters is so context dependent”. Moullin’s reaction was that an organisation needs to know-how it is perceived by all key stakeholders and being explicit about this in the definition will encourage organisations to measure stakeholder perceptions (Moullin, 2005b). Neely’s and Moullin’s definitions on performance measurement appear to complement to each other, rather than conflicting. From the compounded essence of the two definitions, a performance measurement system can be defined as the set of metrics designed to evaluate how efficiently and effectively organisations are managed and the value they deliver for customers and other stakeholders.
2.3.2 Non-financial measurement and agency theory The application of non-financial measures for performance evaluation is in harmony with theoretical work on compensation in agency settings. Financial measures of performance are defective and noisy signals of manager’s endeavour. On the contrary, non-financial performance measures better reflect the causal relationships and therefore impart value by diminishing the noise in drawing inferences about agent’s attempts. Feltham and Xie’s (1994) analysis inspires the use of non-financial measures by identifying conditions under which the use of such measures over and above a short-term financial measure (such as profit) gives rise to enhanced company profitability. The authors suggest that when the agent’s attempt is multidimensional, augmenting the number of performance measures may increase the set of implementable actions, and bring about the implementation of a preferred action. Augmenting the number of performance measures, moreover, may lower the risk imposed on the agent to induce a particular implementable action. Especially, as the principal’s expected gross payoff is a function of both short- and long-term oriented attempts and if the use of the profit measure induces only the short-term oriented attempt, then the loss to the principal from the failure to induce the long-term oriented attempt can be reduced by introducing a second performance measure, say a non-financial indicator, that independently reports on the long-term oriented attempt. Thus, if non-financial measures are indicators of longterm attempt, they are precious. The application of non-financial measures to alleviate the managerial myopia problem is also suggested by Hemmer (1996). Hemmer concentrates on the design and use of endogenous non-financial measures when financial measures fail to capture the long-term implications of an agent’s actions. Predicated on a modified Holmstrom and Milgrom framework, he demonstrates that although numerous non-financial measures may be economically equivalent, measurement problems may render one measure more valuable. In a relevant study, employing a two-period principal-agent model, Hauser et al. (1994) analysed the profit impact due to the use of customer satisfaction measures in incentive compensation and offer recommendations for measuring customer satisfaction. In a word, although several reasons are suggested in the practitioner literature for the use of non-financial measures, the primary reason is based on the argument that nonfinancial measures are drivers and thus lead indicators of future financial performance.
2.3.3 Integratedness of performance measurement Performance measurement integratedness involves diverse dimensions: drivers vs. outcome measures, subjective vs. objective measures, internal vs. external measures and
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financial vs. non-financial measures (Ittner et al., 2003; Kaplan and Norton, 1996). Hoque and James (2000) and Ittner et al. (2003) refer to measurement integratedness as the multiplicity and variety of performance measures that can be clustered into financial performance and non-financial performance. Despite their capability to present results of decisions in a comparable measurement unit, to capture the cost of trade-offs between resources and the cost of spare capacity, and their capabilities to support contractual relationships and the capital markets (Atkinson et al., 1997), financial measures are viewed as backward looking, lacking predictive ability to explain future performance, rewarding short-term or incorrect behaviour, lacking actionability, lacking timely signals, being too aggregated and summarised to guide managerial action, reflecting functions instead of cross-functional processes and providing inadequate guidance to evaluate intangible assets (Ittner and Larcker, 1998). Numerous models have been constructed on a fusion of financial and non-financial information. Dixon et al. (1990) introduce an integrated performance measurement system whereby ‘costs and performance’ knowledge is acquired and used in the strategic management cycle. Lynch and Cross (1991) present a performance pyramid that links strategy and operations by translating strategic objectives from the top-down and measures from the bottom-up, while Atkinson et al. (1997) build a stakeholder model that includes measurement for the primary and secondary objectives of environmental and process stakeholders. Kaplan and Norton (1992, 1996) propose a balanced scorecard – an integrative framework – fusing financial, customer, internal process and learning and growth perspectives steered by organisational vision and strategy.
2.3.4 Organisational culture, leadership and performance measurement Notwithstanding the limited amount of research published on organisational culture, leadership and performance, there is an astounding degree of consistency among these proposed conclusions. Ogbonna and Harris (2000) have conducted a study providing some empirical evidence that the relationship between leadership style and performance is mediated by the form of organisational culture that is present. Xenikou and Simosi’s (2006) findings support the proposition that when leadership is viewed as a social process that involves leaders, followers and social situations, organisational culture is found to be a filter through which leadership influences performance. Inspired by Fang and Wang’s (2006) study, Asree et al. (2010) have investigated the impact of ‘soft issues’ such as leadership competency and organisational culture on operations practices and organisational performance in service companies. Viewing operations practices in terms of cumulative capability (responsiveness) as suggested by Flynn and Flynn (2004), Asree et al. (2010) found the impact of leadership practices and organisational culture on performance through responsiveness. Overall, current models of organisational performance and change suggest that organisational culture and leadership are central explanatory constructs (Schein, 1992). In a global marketplace characterised by increasing technological complexity, geopolitical instability and social diversity, organisations are finding their competitive edge in the development of more flexible, higher involvement work cultures and in the creation of a new type of leadership that can provide continuity in the midst of ongoing innovation and adaptation (Schein, 1985; Vandenberg et al., 1999), such as an adaptation towards a new balance sheet integrating financial and non-financial performance measures. In the little
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body of empirical research on the relationship amongst organisational culture, leadership and performance, performance measurement, especially performance measurement integratedness has hardly been studied in the context of this relationship. In such meagre research, Pors (2008) found that the organisational culture in which leadership plays an important role has an influence on the introduction and diffusion of management tools, whether performance measurement instruments or technological devices. Denison et al. (2004) identified four cultural traits that are positively related to organisational performance, namely, involvement and participation, consistency and normative integration, adaptability and mission, so culture can influence the integration of performance measures.
3
Conceptual framework and methodology
3.1 Conceptual framework and research hypotheses The deeds of top-level managers are to dispatch robust messages to employees on a regular basis about the indispensable character of an organisation’s culture. These behaviours are alluded to as primary cultural embedding mechanisms (Schein, 1992). In this study, it was postulated that specific types of leadership behaviours amongst toplevel managers would be inclined to evoke specific types of employee perceptions towards organisational culture types. The subsequent hypotheses thus ensued: H1a: A greater degree of adhocracy culture corresponds to a greater level of transformational leadership. H1b: A greater degree of market culture corresponds to a greater level of transformational leadership. H1c: A greater degree of clan culture corresponds to a greater level of transactional leadership. H1d: A greater degree of hierarchy culture corresponds to a greater level of transactional leadership. It is foreseen that a top-level manager who exhibits transactional leadership behaviours, such as goal orientations through role clarification and task request (Robbins, 2003), contingent reward and management-by-exception (Bass, 1985) would tend to employ primary cultural embedding mechanisms that underpin the magnitude of sustaining an organisation whose internal operations are well-integrated. On the contrary, a top-level manager who exhibits transformational leadership behaviours such as individualised consideration, intellectual stimulation, inspirational motivation and idealised influence (Bass, 1985) would be more likely to employ primary cultural embedding mechanisms that underpin the magnitude of acclimatising briskly to the demands of peripheral environment. As non-financial performance measures can cultivate curiosity and experimentation, inspire organisational reform and bolster the emergence of new strategies and learning (Dent, 1990), transformational leadership behaviours would be more likely to buttress the integration of financial measures and non-financial measures in performance measurement system. Thus, the subsequent hypotheses emerged:
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H2a: A greater level of transformational leadership corresponds to greater integratedness of performance measurement. H2b: A greater level of transactional leadership corresponds to less integratedness of performance measurement. Pursuing Bhimani’s (2003) work, this research seeks to investigate the degree to which organisational culture types becomes embedded in the use of control systems. These linkages are investigated for culture influences, virtually all aspects of organisational interactions as well as activities at the top management level (Chatterjee et al., 1992). As part of control practices and organisational activities, thus, the use of performance measurement system and the integratedness of performance measurement are impacted by organisational culture types. Additionally, positing that performance assessment is an exercise principally established on values (Quinn and Rohrbaugh, 1983), the attributes of performance measurement system should reflect aspects of organisational values. Culture and values, referring to elements of an organisation that are most stable and least malleable (Schein, 1985), are deemed as informal controls which act as a starting point for the design and use of formal control systems (Flamholtz, 1983). In Rousseau’s (1990) view, control systems are material artefacts or pattern behaviour that are impacted by the underlying value structure that generates meaning in the organisation. Traditional performance measures predicated on financial metrics are linked with a planning-and-control cycle (Nanni et al., 1992) and vertical functions (Ittner and Larcker, 1998). Financial data, which may be consistent with the focus placed on internal maintenance, encourage conservatism and a ‘playing safe’ attitude (Otley, 1994). This sentiment is echoed by Dent (1990) and Langfield-Smith (1997) who indicate that accounting measures inhibit innovation and creativity. Conversely, portrayed as actionable, traceable to strategic priorities and timely signals, non-financial measures guide managerial deed rather than controlling it, and reflect cross-functional processes (Ittner and Larcker, 1998; Nanni et al., 1992). Non-financial measures can also foster curiosity and experimentation, stimulate organisational reform and advocate the emergence of new strategies and learning (Dent, 1990). This is consistent with the accent on external positioning. The following hypotheses were hence formulated: H3a: A greater degree of adhocracy culture corresponds to greater integratedness of performance measurement. H3b: A greater degree of market culture corresponds to greater integratedness of performance measurement. H3c: A greater degree of clan culture corresponds to less integratedness of performance measurement. H3d: A greater degree of hierarchy culture corresponds to less integratedness of performance measurement. Figure 4 illustrates the hypothesised linkages among organisational culture types, leadership styles and integratedness of performance measurement.
Organisational culture, leadership and performance measurement integratedness263 Figure 4
Hypothesised model
3.2 Methodology 3.2.1 Sample and procedure The sample for this study was drawn from a population of 1,127 manufacturing companies in plastics industry listed in the 2008 Vietnam Trade Directory. As companies should be sufficiently large to ensure that organisational and strategy variables apply (Miller, 1987), and to ensure that a formal performance measurement system is primed (Bouwens and Abernethy, 2000), merely 126 companies reached the two criteria: Sales are at least Vietnam Dong 25 billion yearly (equivalent to $1,300 thousand US) at least 100 employees are hired. Data on such constructs as organisational culture, leadership and the degree of integratedness of performance measurement were collected through self-administered structured questionnaires sent to 630 middle-level managers in these 126 companies, an average of 5 middle managers in each company. Using middlemanagement employees to depict top-management behaviour is apposite as they would have more opportunities to observe top-management deeds than would lower-level employees. Table 1 displays the demographic profile of the sample, which represented a comparatively wide range of company ownership types. The fact that time is scanty among middle and top managers accounted for the 15– 25% response rate range reported in recent studies (e.g. Baines and Langfield-Smith, 2003; Lee et al., 2001; Spanos and Lioukas, 2001). In this research, nonetheless, of 630 questionnaires delivered to middle-level managers, 416 were returned in completed form for a response rate of 66.03%. This high response rate resulted from the voluntary cooperation from these 416 managers with most of whom the connections were forged through the researcher’s close business partners in the snowball sampling process (Robson, 1993).
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Table 1
The demographic profile of the sample
State-owned companies SD Characteristics Mean Company size (number of employees) Company age (years) Respondent average age (years) Respondent average tenure (years) Respondent education (years after high school)
Private domestic companies Mean SD
100% foreigninvested companies Mean SD
Joint-venture companies Mean SD
F test Sig.
631
1,599.2
147
431.2
469
1,182.4
508
1,205.1
43.20 0.00
26.4
19.8
16.7
15.5
12.4
17.6
14.9
15.2
10.80 0.00
36
5.1
32
4.9
29
4.7
31
4.9
1.08 0.29
11
7.6
9
5.4
5
6.6
6
3.7
27.99 0.00
6
4.9
4
1.9
6
2.1
5
2.4
1.87 0.12
%
Number
%
Number
%
Number
%
F2
Number
Sig.
Respondent position Chief accountant
21
14.09
16
12.60
8
11.76
7
9.72
HR manager
38
25.50
31
24.41
16
23.53
17
23.61
Production manager
24
16.11
21
16.54
11
16.18
12
16.67
Marketing manager
34
22.82
32
25.20
18
26.47
17
23.61
Sales manager
28
18.79
25
19.69
15
22.06
18
25.00
4
2.68
2
1.57
0
0.00
1
1.39
105
70.47
78
61.42
48
70.59
49
68.06
44
29.53
49
38.58
20
29.41
23
31.94
Others
18.30 0.00
Respondent gender Male Female
1.70 0.28
3.2.2 Quantitative measures Although the quantitative approach utilised in this study does not allow for an analysis of the deepest level of the constructs, it permits the researcher to investigate respondents’ perceptual realities (Ashkanasy et al., 2000).
3.2.2.1 Organisational culture Cameron and Freeman’s (1991) operationalisation of the culture construct was further adapted by Deshpande et al. (1993), who built brief scenarios to portray the dominant characteristics of each of the four culture types, predicated on the framework displayed in Figure 1. The validity of this instrument has been substantiated (e.g. Zammuto and Krakower, 1991), and it has been recently
Organisational culture, leadership and performance measurement integratedness265
employed in an accounting setting (Bhimani, 2003). In the research instrument, all four culture types are presented as alternatives in each question. To give respondents the opportunity to designate both culture type and culture strength, respondents were invited to dispense 100 points among the four scenarios in the questions, depending on how analogous respondents thought each scenario was to their own organisation. The scenarios, where organisation A refers to clan culture, organisation B refers to adhocracy culture, organisation C refers to hierarchy culture and organisation D refers to market culture, are consistently arranged in the questions, assessing the organisational characteristics, organisational leadership, organisational bonding and organisational strategic emphases.
3.2.2.2 Leadership style This construct was measured using Bass and Avolio’s (1995) multifactor leadership questionnaire MLQ 5X (MLQ – leader form – form 5X), which comprises 45 behavioural statements and employs a five-point Likert rating system (1 = not at all; 2 = once in a while; 3 = sometimes; 4 = fairly often; 5 = frequently, if not always). Middle-management employees were asked to indicate how frequently each statement describes the leadership style of their top-level managers. Scores were then generated for nine separate scales, five of which represent aspects of transformational leadership and three of which represent aspects of transactional leadership (see Table 2). Scores for each leadership scale on the MLQ 5X were computed using the completed surveys of direct reports, which are consistent with the work of Bass (1985) who indicates these scales reflect distinct, but related components of transformational and transactional leadership. The original MLQ has been examined in myriad research studies and on a broad range of sample populations (Lowe et al., 1996). Form 5X was launched in 1991 and has assimilated a variety of refinements (Avolio et al., 1999). Reliability coefficients for the MLQ 5X leadership scales range from 0.74 to 0.91 (Bass and Avolio, 1995). Although the depth of research conducted on the MLQ 5X is not as extensive as that conducted on the original questionnaire, there is sufficient validation data to suggest that it is likely to replicate or improve upon the research record of its predecessor (Lowe et al., 1996).
3.2.2.3 Integratedness of performance measurement The instrument to measure the integratedness of performance measurement was adapted from that utilised by Hoque and James (2000) and Hoque et al. (2001), and predicated on the frameworks of Keegan et al. (1989), Fitzgerald et al. (1991), Azzone et al. (1991), Lynch and Cross (1991), Kaplan and Norton (1996), Brown (1996) and Neely et al. (2002). This instrument explores the frequency of use of 20 performance measures, encompassing both financial and non-financial measures, procedural and structural measures and objective and subjective measures (see Table 3), ranging on a seven-point Likert-type scale. A higher mean score denotes that the company employs all of the measures to a greater extent, or reach a greater integratedness of performance measurement. Descriptive statistics of the constructs are presented in Table 4. The reliability of each construct and its specific dimensions were appraised with Cronbach Alpha coefficients. All constructs exceeded the recommended cut-off point of 0.70 (Nunnally, 1967) with the exception of clan culture (0.68), which was however on the verge of acceptability as displayed in fifth column of Table 4.
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Table 2
MLQ 5X leadership scales
Transformational leadership
Transactional leadership
Idealised influence (attributed)
Contingent reward
Idealised influence (behaviour)
Management by exception – active
Inspirational motivation
Management by exception – passive
Intellectual stimulation Individualised consideration Table 3
Types of measures/dimensions of performance Types of measures/dimensions of performance Product/ process related
Learning and Competitor Resource/inf Agility- growth/- Employee Strategy/ Frameworks Financial Customer Time Quality aspect rastructure /flexibility innovation /people vision Keegan et al. (1989)
9
9
9
Fitzgerald et al. (1991)
9 9
Azzone et al. (1991)
9
Lynch and Cross (1991)
9
Kaplan and Norton (1996)
9
9
9
9
9
9
9
9
9
Brown (1996)
9
9
9
Neely et al. (2002)
9
9
9
Table 4
9
9 9
9
9
9
9
9 9
9
9 9
9
9
9
9
9
9 9
9
9
9
Descriptive statistics of the constructs
No. of Constructs/dimensions items Mean
SD
Cronbach First-order alpha loadings range* Ȥ2
DF
NNFI
CFI RMSEA
Adhocracy culture
4
24.54 13.04
0.76
[0.41–0.74]
3.7
2
0.987
0.995
Clan culture
4
20.75 12.04
0.68
[0.27–0.55]
4.3
2
0.969
0.989
0.04
Market culture
4
24.52 12.58
0.70
[0.47–0.70]
7.8
2
0.945
0.981
0.08
Hierarchy culture
4
27.81 14.52
0.75
[0.51–0.80]
2.1
2
0.998
0.998
0.00
0.902
0.906
0.07
Transactional leadership
45
5.52
0.87
0.78
[0.79–0.98]
Transformational leadership
45
4.68
0.88
0.85
[0.77–1.00]
Integratedness of measurement
20
4.54
0.72
0.83
[0.13–1.15] 562.7 161
*All factor loadings are statistically significant (p < 0.05).
0.04
Organisational culture, leadership and performance measurement integratedness267
Construct validity was established via confirmatory factor analyses conducted with a first-order model. Two main elements were investigated, i.e. the significance of the factor loadings for each item and the overall acceptability of the measurement model employing chi-square statistics and three fit indices. The indices employed to appraise the model were among the most frequently reported, i.e. non-normed fit index (NNFI), comparative-fit index (CFI) and root mean square error of approximation (RMSEA). Every construct displays acceptable model fit, and all factor loadings are statistically significant (see Table 4).
4
Findings and discussion
4.1 Findings from ANOVAs As the findings from ANOVAs (see Table 5) show, transformational leadership is more inclined to shape adhocracy culture (p < 0.01) and market culture (p < 0.05) than transactional leadership, and transactional leadership is more inclined to mould clan culture and hierarchy culture than transformational leadership (p < 0.05). The data, moreover, demonstrate a greater integratedness of performance measurement for transformational leadership than for transactional leadership (p < 0.01). Table 5
Findings from ANOVAs
Dominant culture types/integratedness of performance measurement Adhocracy culture Clan culture Market culture Hierarchy culture Integratedness of performance measurement
Transformational leadership 4.91 (0.94) 4.64 (0.92) 5.14 (0.97) 5.58 (0.96) 4.84 (0.85)
Transactional leadership 4.55 (1.02) 4.83 (0.97) 4.89 (1.06) 5.96 (1.05) 4.44 (0.82)
F 10.17 4.149 5.04 0.142 17.489
Significance 0.00 0.04 0.04 0.01 0.00
Note: The mean scores are displayed for organisational culture types and integratedness of performance measurement. Standard deviations are indicated in brackets.
5
Findings from the structural equation model
The findings displayed in Table 6 demonstrate positive and significant path coefficients between 1
transformational leadership and two culture types (adhocracy culture and market culture; p < 0.01)
2
transactional leadership and two culture types (clan culture and hierarchy culture; p < 0.05)
3
transformational leadership and integratedness of performance measurement (p < 0.01)
4
integratedness of performance measurement and two culture types (adhocracy culture and market culture; p < 0.05).
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Table 6
Findings from the structural equation model
Hypothesis Description of path
Path coefficient Z-statistics Conclusion
H1a
Transactional/transformational ĺ Adhocracy culture
0.177
3.60***
Supported
H1b
Transactional/transformational ĺ Market culture
0.129
2.57***
Supported
H1c
Transactional/transformational ĺ Clan culture
0.196
2.49**
Supported
H1d
Transactional/transformational ĺ Hierarchy culture
0.133
2.37**
Supported
H2
Transactional/transformational ĺ Integratedness of performance measurement
0.132
3.78***
Supported
H3a
Adhocracy culture ĺ Integratedness of performance measurement
0.182
2.01**
Supported
H3b
Market culture ĺ Integratedness of performance measurement
0.246
2.52**
Supported
H3c
Clan culture ĺ Integratedness of performance measurement
H3d
Hierarchy culture ĺ Integratedness of performance measurement
í0.036
í0.29
Not supported
0.162
1.47
Not supported
*p < 0.10. **p < 0.05. ***p < 0.01.
6
Discussion
The positive and significant relationship between adhocracy culture and integratedness of performance measurement (0.182; p < 0.05) corroborates H3a. A significant relationship encountered in Table 6 between transformational leadership and adhocracy culture (0.177; p < 0.01) confirms H1a. In McShane and Von Glinow’s (2008) words, “transformational leaders are change agents who energize and direct employees to a new set of corporate values and behaviors;” thus, transformational leadership involves the orientation towards such dominant components of adhocracy culture as entrepreneurship, creativity and adaptability (Deshpande et al., 1993). These components may act as catalysts for creating the balance in the organisation’s performance measurement system between non-financial measures and financial measures which are perceived as lacking predictive ability to explicate future performance and lacking actionability (Ittner and Larcker, 1998). Besides the bridge of adhocracy culture through which transformational leadership is associated with greater integratedness of performance measurement, transformational leadership was found to directly and significantly go hand in hand with greater integratedness of performance measurement from the results of the structural equation model (0.132; p < 0.01). The findings shown in Tables 5 and 6 contribute to the substantiation of hypothesis H1b by indicating that transformational leadership is significantly correlated to market culture type. H3b which presumed that market culture would be associated with greater integratedness of performance measurement is attested as denoted by the positive and
Organisational culture, leadership and performance measurement integratedness269
significant coefficient between market culture and integratedness of measurement (0.246; p < 0.05). Transformational leaders are cognitive of the requirements for organisational improvement, and further generate the changed vision (Tichy and Devanna, 1986), on the path towards market superiority associated with market culture (Deshpande et al., 1993). Non-financial measures that appraise employees’ learning and absorptive capacity complement financial measures in inspiring employee contributions towards the organisation’s competitive edge and market superiority. H3c was verified due to no lucid relationship encountered between clan culture and integratedness of performance measurement. The data from the ANOVA and the structural equation model indicate that transactional leadership is more associated with clan culture than transformational leadership is, which corroborates H1c. Transactional leadership enhances employee performance and satisfaction by linking job performance to valued rewards (McShane and Von Glinow, 2008), contributing to the development of human resources and employee commitment as strategically highlighted in clan culture type. H1d that posits the correspondence between transactional leadership and hierarchy culture type is supported by the findings (see Table 6). The divergence between transactional leadership and transformational leadership in relation to hierarchy culture is significant. Hierarchy culture with the bonding among organisational members built on rules, policies and procedures strategically underscores smooth operations (Deshpande et al., 1993), which can be attained via role elaboration and task request transactional leadership generates (Robbins, 2003). Likewise, a positive but insignificant disparity between hierarchy culture and integratedness of performance measurement as displayed in Table 6 corroborates hypothesis H3d which assumed that hierarchy culture would be linked with less integratedness of performance measurement. However, in light of the magnitude dedicated to non-financial measures in recent years and the new development in budgeting (e.g. Hansen et al., 2003), financial measures used to assess policies and procedures in hierarchy culture appear to have been blended with non-financial measures so as to implement stability strategy.
7
Concluding remarks
The hypothesised model displayed in Figure 4 was passably supported by the findings. Transactional leadership, within expectation, is correlated with clan culture and hierarchy culture. On the other hand, transformational leadership cultivates adhocracy culture and market culture, which in turn positively impact the integratedness of performance measurement. A direct linkage between transformational leadership and the integratedness of performance measurement is discerned as well. Transformational leadership is also found to integrate performance indicators of diverse dimensions. These findings suggest that leaders should be change agents who change values, beliefs and behaviour patterns to adapt to organisational culture as well as to generate new needs of the performance measurement system towards enhanced stakeholder satisfaction and commitment, rather than merely meeting the needs of the performance measurement system as contended by Claver et al. (2001).
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Nonetheless, the findings from empirical questionnaire survey must be further tested due to such limitations of the current study as its cross-sectional nature and the use of perceptual measures. Another limitation is that the causal direction of the linkages amongst the variables has been partially established. By controlling the effect of past performance on the perceptions of organisational culture and leadership style, the study can argue that culture and leadership have an impact on performance measurement integratedness. One though has to acknowledge that the question of causality can be more thoroughly addressed by longitudinal research designs in which all the variables are measured at different points in time (Wilderom et al., 2000). Finally, this study ignored followers’ characteristics, which may interact with leadership’s impact on organisational culture in the integrated performance measurement adoption. The research conducted by Leonard-Barton and Deschamps (1988) found that followers whose characteristics incline them to adopt an innovation will do so without leadership influence. An avenue for further research is the exploration of the mediating role of such constructs as organisational learning as suggested in Vera and Crossan’s (2004) study on the relationship between organisational learning and leadership. Customer orientation also can play such mediating role. Dursun and Kilic (2010) found that market culture has a positive and significant impact on customer orientation, and higher levels of customer orientation lead to higher levels of relationship development and individual performance. Ethics is observed to have certain influence on performance measurement (von Drongelen and Fisscher, 2003; Winstanley and Stuart-Smith, 1996), so its mediating role should be researched as well.
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