Organisational climate and corporate performance

You don't have the latest version of Adobe Flash Player.

Please update your flash player.

Please login or register to make a comment!

Organisational climate and corporate performance: an empirical investigation Peter Kangis Surrey European Management School, University of Surrey, Guildford, UK D. Gordon S. Williams Surrey European Management School, University of Surrey, Guildford, UK Introduction Since the start of the Industrial Revolution, researchers have enquired about the contribution of technological innovation and management techniques to the performance of an institution.

It is a paradox of ``high-tech'' discourses that interest in ``other'' explanations of organisational performance and methods of management appears never to have been greater. Sparrow and Gaston (1996) have commented on the continuous change experienced during the 1990s in the nature and structure of organisations and the challenges confronting employees (at all levels) in accommodating and assimilating such changes, e.g. employment relationships, psychological contracts and business processes.

Sparrow and Gaston (1996), who investigated the strategic application of climate survey data, claim that ``Researchers are, once again, seeking broad metaphors and methodologies to capture the phenomenon of change and adaptation at the organisational level F F F organisational climate, an area with a long pedigree, represents a useful avenue in this context'' (Sparrow and Gaston, 1996, pp. 679-80). There is a wide range of both anecdotal and empirical evidence of what leads to business ... more. less.

success, e.g. leadership (Kotter, 1990); mergers and acquisitions (Haspeslagh and Jemison, 1991); re-engineering (Hammer and Champy, 1993); quality (Deming, 1986); general strategy (Peters and Waterman, 1982; Ohmae, 1983; Kanter, 1992; Ansoff, 1990; Porter, 1990; Schwartz, 1992; Mintzberg, 1994). With some notable exceptions, e.g. Litwin and Stringer (1968), Denison (1990), West et al. (1998) and Patterson and West (1998), few have attempted to explore the ``process'' of the suspected link between climate and performance, even though considerable debate has taken place concerning the ``content'' of climate in the form of, for example, its dimensions and the validity of different forms of aggregation. Some of the debate can be found in the works of Jackofsky and Slocum (1988, 1990) and Payne (1990a, 1990b). What is organisational climate? Organisational climate, as suggested by West et al . (1998), refers to the ``perceptions that organisation members share of fundamental elements of their organisation'' (p. 262). It has been claimed by Schneider and Snyder (1975, pp. 474-5) that the molar or holistic nature of climate perceptions is such that perceptions function as a frame of reference for the attainment of some congruity between behaviour and the system's practices and procedures. Further, because satisfaction is a personal evaluation of a system's practices and procedures, people in the system will tend to agree less on their satisfaction than on their description of the system climate. Moran and Volkwein (1992) defined climate as: a relatively enduring characteristic of an organisation which distinguishes it from other organisations and (a) embodies members' collective perceptions about their organisation with respect to such dimensions as autonomy, trust, cohesiveness, support, recognition, innovation and fairness; (b) produced by member interaction; (c) serves as a basis for interpreting the situation; (d) reflects the prevalent norms and attitudes of the organisation's culture; and (e) acts as a source of influence for shaping behaviour (p. 20). This paper focuses on organisational climate rather than the often associated concept of organisation culture ; it is useful to show some of the areas where they differ. Burke The current issue and full text archive of this journal is available at http://www.emerald-library.com [531] Management Decision 38/8 [ 2000 ] 531±540 # MCB University Press [ ISSN 0025-1747 ] Keywords Organizational performance, Knitwear industry, Electronics Abstract Interest in organisational climate and its link with corporate performance is gaining momentum. The aim of this paper is to contribute to this discourse by examining the extent to which ``above'' and ``below'' average performing companies also exhibit different climate measurements. A survey was conducted on a sample of electronic component manufacturers, as a sunrise industry in a growth phase, and hosiery and knitwear manufacturers, as a sunset industry, in decline. In turn, sub- samples of companies that performed above or below average for each of these sectors were selected. Climate dimension measurements collected from staff of the sample companies were analysed against corporate performance measurements. The results showed a consistent association between climate and performance. Independently of sector, companies performing above average showed higher values on climate dimensions than those performing below average. Although a link was shown to exist between climate and performance, it would be premature to conclude that this connection is causal and, if so, in which direction. and Litwin (1992) define climate in terms of perceptions that individuals have of: how their local work unit is managed and how effectively they and their day-to-day colleagues work together on the job. The level of analysis, therefore, is the group, the work unit. Climate is much more in the foreground of organisational members' perceptions, whereas culture is more in the background and defined by beliefs and values. The level of analysis is the organisation. Climate is, of course, affected by culture, and people's perceptions define both, but at different levels (Burke and Litwin, 1992, pp. 526-7). Linkages between organisational climate and organisational performance The character of an organisation's work environment (particularly as perceived by a member) has long been recognised as a potent influence on employee cognitions, attitudes and behaviour (Ostroff, 1993). Such environment influences job satisfaction, organisation, organisation commitment, employee turnover, vocational adjustment and occupational stability (Holland, 1985; O'Reilly et al ., 1991). While much work has been done in the field of understanding organisational performance and the underlying objective determinants (e.g. contextual features such as structure, technology and size), little empirical work is found in the literature identifying discriminating influences that climate may have on performance. Where studies have taken place, they have tended to concentrate on ``growth'' (sunrise) industries. Baker and Hart (1989) and Guest (1992) have highlighted some of the limitations of studies hitherto (e.g. Peters and Waterman, 1982), especially the evidence and the methodology tending to examine only successful companies. Baker and Hart (1989) further suggested that such an approach could often mean that it is difficult to say whether companies are successful because of their climate or in spite of it. The evidence for the impact of climate upon performance is limited (West et al ., 1998); other sources, e.g. Campbell et al . (1970); Payne and Pugh (1976); Schneider and Reichers (1983); Joyce and Slocum (1984); Rousseau (1988); Rentsch (1990) and Schneider (1990) have made some useful contribution through their review of climate and organisations but have not reshaped the discourse for the purposes of this paper. The theoretical link between climate and performance has been examined by several researchers; some of those most relevant to this paper being Denison (1990), West et al . (1998) and Burke and Litwin (1992), where it was claimed that when perception by employees of greater involvement in decision making, information sharing and management support was favourable, then greater corporate effectiveness was also observed; reciprocal influence between climate and performance was also suspected. The theoretical underpinnings to such research can be traced back to the Lewinian theory (Lewin, 1951), which was characterised as a method of analysing causal relationships, rather than as a theory per se . Schneider (1990), building on Lewin's approach, suggested that there was reciprocity to be found, i.e. that the environment could be influenced by performance, of both the person and the group (aggregated). Denison (1990), using behavioural data collected between 1966 and 1981 in the USA, measured aspects of climate and structural variables such as communication flow, decision-making practices, relationships with colleagues, organisation of work, team building and supervisory support. These were correlated with a number of financial performance measures in the five years following the measurement of climate variables. Several dimensions of climate were significantly and positively correlated with subsequent financial performance. Yet, West et al . (1998) investigating possible relationships between research excellence and departmental climates in 14 universities, concluded that `` F F F dimensions of climate did not predict as strongly subsequent research excellence rating. It appears that climate may be an outcome as much as a cause of rated effectiveness, at least in this context F F F '' (pp. 277-9). This paper aims to contribute to the debate on the discriminating influence of certain organisational climate dimensions on the corporate performance between companies performing above and below average in the same industrial sector. In the Denison (1990) analysis, the behavioural data were collected over the period 1966-1982 when, due to the time span, considerable change could have taken place in both perceptions and attitudes of employees towards ``climate'' dimensions. Particular consideration needs to be given to what Sparrow and Gaston (1996, p. 679) described as `` F F F a continuing revolution in the nature and shape of organisations with the emergence of new organisational forms, concepts of business process, and basis for employment and psychological contract''. Such changes can influence how employees might view over time factors such as ``worker co-operation'' and ``manager-subordinate relationships'' (Hirschhorn and Gilmore, 1992). [532] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 The literature suggests that organisational performance is dependent not only on the aims of the organisation, but also on the process for achieving such aims. Content and variables in a dynamic strategy need to be supported by the internal process and cohesion of the organisation. The relationship between internal drivers and organisational performance highlights the importance of climate as an internal variable. It is recognised (West et al ., 1998) that the relationship might be interactional and could depend on contextuality in either direction. On the basis of the literature reviewed, it is hypothesised that a strong statistical association will be observed between performance measures and climate dimensions. Method Given that the investigation was based on post hoc corporate performance observations, it was deemed prudent to compare climate in firms performing well as against those that did not do so. This approach would address some of the criticisms of previous work (e.g. Peters and Waterman, 1982). Since there could be significant differences between firms in different sectors of the economy, it was decided to focus the ``high-to-low'' performance and climate analysis to firms from one industrial sector and to replicate the analysis on another sector; in this way there would be scope for broadening the applicability of the findings. In turn, given that performance of companies in a growth sector (sunrise industries) could be different from that of companies in a declining sector (sunset industries), it was decided to include firms representing both these phases in the sample. The sampling frame was the publication by ICC Business Publications Ltd, UK Industrial Performance Analysis , 1997/98, which reported sales and financial performance for the whole of the UK industry by sector. Taking the average performance as being the mid-point, one sector was identified from the top quartile of the range, which was the electronic components manufacturing sector, and one other sector from the bottom quartile of the performance range; this was the knitwear and hosiery manufacturing sector. Performance measures The literature considers several approaches to measuring performance; some relate to financial dimensions, others to market positioning or to change (e.g. Cron and Sobol, 1983; Weill, 1992; Teo and King, 1996; Byrd and Marshall, 1997). The selection of corporate performance proxies for this paper was based on ease of access and simplicity, even though some limitations may ensue: . average profit margin (percentage); . average return on capital employed (percentage); . sales growth (percentage). The investigation was cross-sectional, comparing data between companies for the same time period. To avoid some of the fluctuations in measured performance that could result from contingencies attached to a single reporting cycle, it was decided to average corporate performance over a period of three consecutive years, in this case 1993-1996. Table I shows the performance of the two industrial sectors chosen against that of British industry as a whole; all performance data were taken from ICC UK Industrial Performance Analysis (1997/98) and ICC Business Ratio Plus (1997a, 1997b); these sources also provided the sampling frame. It will be noted that the sample ( N = 40) performed very closely to the whole of UK industry. The sample from the electronic components sector also performed closely to that sector as a whole. The performance of the sample from the hosiery and knitwear sector was not as good as that of the whole sector, and this might have some implications on the other data. Table I Industrial performance comparisons British industry as a whole Whole sample ( N = 40) Electronic components sector Electronic components sample Hosiery and knitwear sector Hosiery and knitwear sample ( N = 20) Profit margin 5.9 6.6 11.7 11.3 2.2 1.9 Return on capital employed 12.9 15.6 30.3 33.4 7.8 ±2.3 Sales growth 9.1 7.7 23.6 19.4 5.0 ±4.0 Notes: all figures are percentage averages Source : UK Industrial Performance analysis, 1997/98 [533] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 Climate measures Consideration was given to using either the perceived work environment (PWE) instrument (Newman, 1977) or one of the other popular instruments (i.e. the Business and Organizational Climate Index ± BOCI). The original BOCI instrument was developed by Payne and Pheysey (1971) from Stern's Organizational Climate Index (Stern, 1970). In its modified version (Payne and Mansfield, 1978) the BOCI has 17 scales, each with eight items, requiring 136 items to be responded to. This was considered a rather cumbersome imposition on busy executives, with the additional concern that, because of its length, some respondents might not address all the issues raised, or even rush its completion. The version of the PWE instrument developed by Newman (1977, pp. 523-4), as used in this study, consists of only 31 items grouped into six climate dimensions. Each item was measured on a 5-point Likert type scale (anchored on ``strongly agree/strongly disagree''). The PWE is based on the assumption that the behaviour of an individual is a function of both the person and the environment. Such emphasis on the perceptual nature of behaviour is Lewinian, on which the theoretical frame for this study is based (Lewin, 1951). Five replication studies of the PWE were undertaken by Newman (1977), concluding that the instrument was stable and also displayed satisfactory psychometric characteristics. Further support for the validity of PWE come from Jackofsky and Slocum (1990) and Ashforth (1985). Direct contact of one of the present authors with both Newman (1977) and with Jackofsky, who with Slocum undertook the longitudinal study of climate (Jackofsky and Slocum, 1988), using the PWE instrument, contributed to increasing confidence on the ``fitness for purpose'' of the PWE. The PWE uses five-point (agree- disagree) scales. Respondents were asked to show how they perceived their firm as a place in which to work. Newman (1977, pp. 521-2) stated: These perceptions are, theoretically, non- evaluative. This is extremely important. We are asking organisational members to tell us what they see in their work environment F F F we are not asking the employees to evaluate (good or bad). Ashforth (1985, p. 837) emphasised the importance of these dimensions in representing key aspects of climate with further endorsement that: (a) climate is a perceptually-based abstraction; (b) climate perceptions reflect what is psychologically meaningful to the individuals concerned; and (c) climate perceptions tend to be both shared and resistant to change. The dimensions and description given by Newman (1977) are: . Supervisory style : the extent to which company management is open, supportive, considerate. . Co-workers : the extent to which co- workers are described as trusting, friendly, co-operative. . Work motivation : the extent to which employees show concern for the quality of their work, try to get ahead, are involved in their work, etc. . Employee competence : the extent to which the employees have the proper background training and ``know-how'' to do what is expected of them. . Decision making : the extent to which employees take part in decisions that affect their work situation. . Performance rewards : the extent to which rewards such as promotions and salary increases are based on performance rather than other considerations such as favouritism. The original PWE instrument included seven dimensions for climate measurement; however, following the argument by Payne (1990b) that the dimension ``task characteristics'' was a subjective measure of a structural variable rather than a climate variable, it was decided by the present authors to remove this dimension and to use only six of the seven original dimensions for this study. Sample selection Data were collected from four non- overlapping samples of employees in 40 companies. Ten companies with above and ten with below average performance from the mean for each industrial sector, one set from a ``sunrise'' (growth sector) and one from a ``sunset'' (declining sector). Questionnaires were sent out to 35 electronic component manufacturers and 42 hosiery and knitwear manufacturers. Telephone follow-ups were undertaken until ten firms agreed to participate from each of the four sections. The response rates are shown in Table II. Interestingly, companies with performance below the average for their sector showed a lower response rate ( p < 0.05) and needed reminders by telephone before responding. Similarly, the response rate of individuals within [534] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 companies performing above average for their sector was higher than that of respondents within companies performing below average. This relationship held in both sunrise and sunset sectors. Survey: procedure A battery of 25 questionnaires was distributed among employees of each company by the senior executive responsible for human resources. Before the questionnaires were sent out, the chief executive of each company gave support to the survey and emphasised voluntary involvement. It was also agreed that the human resources executive would distribute questionnaires as randomly as possible across the main functional departments and among different levels of the hierarchy. It was not possible to follow up the questionnaire distribution by strata within each company. Along with each questionnaire was a separate letter from one of the authors, with instructions for completion and guaranteeing anonymity. With each questionnaire a stamped addressed envelope was provided for direct return to one of the authors, so as to ensure anonymity. The PWE instrument was pretested in two ways: first, ten copies of the questionnaire were issued to staff in three companies; then a group discussion took place with a small number of executives (between three and five) from the same companies with a view to ascertaining understanding and ease of completion. Both of these methods gave acceptable results. Analysis The data were analysed on SPSS. Table III shows the reliability measures on different levels of aggregation of the sample. It will be noted that the Cronbach alphas were high for climate measures, suggesting an acceptable level of consistency in the responses. The low alpha scores and probabilities on performance measures reflect the deliberate inclusion of high and low performing companies in the sample. The data in Table IV show the matrix of correlation coefficients between the variables for the whole sample of 40 companies from the two industrial sectors. A strong and statistically significant relationship is observed between climate variables and between performance variables, thus confirming the consistency of the analysis shown in Table III. Interestingly, high levels of correlation are also shown between most of the climate variables and performance, but the weakness of the relationship between ``performance rewards'' and several of the other variables will need further investigation. Thus, if a conclusion were required at this stage, it could be stated that there is a statistical association between most measures of climate and the performance proxies, meeting conventional levels of significance. Table V shows that statistically significant associations are observed within the six climate variables and also within the three performance variables of the electronic components sector. A strong and positive association is also observed between climate and performance. The limited relationship between ``performance rewards'' and some of the other variables will require further investigation. It can be concluded that there is a statistically supportable association between most of the dimensions of climate and performance for the sample of 20 companies from the electronic components manufacturing sector. As in the case of the electronic components sector, the sample responses from the hosiery and knitwear sector, displayed in Table VI, show statistically significant associations within the climate dimensions, but these are rather inconsistent in the case of associations within performance dimensions. Similarly, the statistical associations between climate and performance were not consistently significant across the matrix. Differences between high and low performing companies Table VII shows a comparison of the scores between above average and below average performing companies in the sample, from both the electronic components and the hosiery and knitwear sectors. As would be expected from the deliberate selection of the sample to include both high and low performance, the differences in corporate Table II Response rates for companies and for individuals within companies Companies Individuals AA BA AA BA Electronic components 67 50 90 81 Hosiery and knitwear 62 38 87 82 Notes : AA = above average performance for sector; BA = below average performance for sector; numbers represent response rate as a percentage [535] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 performance observed in companies from both sectors are statistically significant. In support of the central issue in this paper, it is noted that companies with above average corporate performance also reported higher scores on most of the six climate dimensions. In the case of the electronic components sector the differences in climate were consistently in the same direction and highly significant on five out of the six dimensions. In the case of the hosiery and knitwear sector, although the differences were in the same direction for five of the dimensions, these were statistically significant in only three out of the six climate dimensions. It is worth noting that the levels of significance for the hosiery and knitwear sector (sunset) were consistently lower than those of the electronic components sector (sunrise) on all the dimensions measured. Table III Reliability of data collected Climate measures Performance measures Cases F p alpha F p alpha Whole sample 40 53.07 0.000 0.88 0.98 0.38 0.55 Electronics sector: whole sample 20 35.49 0.000 0.88 2.33 0.11 0.51 Electronics sector: above average 10 19.54 0.000 0.63 3.89 0.04 0.13 Electronics sector: below average 10 19.19 0.000 0.82 0.43 0.66 0.45 Hosiery sector: whole sample 20 20.13 0.000 0.89 0.22 0.81 0.43 Hosiery sector: above average 10 27.32 0.000 0.87 6.14 0.01 0.20 Hosiery sector: below average 10 3.92 0.005 0.89 0.91 0.42 0.19 Note : reliability measures from Cronbach's alpha Table IV Whole sample: relationships between variables Mean SD 1 2 3 4 5 6 7 8 9 Climate variable 1. Supervisory style 3.09 0.44 1.00 2. Co-workers 3.55 0.46 0.57 ** 1.00 3. Work motivation 2.91 0.35 0.81 ** 0.61 ** 1.00 4. Employee competence 3.18 0.63 0.76 ** 0.61 ** 0.74 ** 1.00 5. Decision making 2.80 0.52 0.77 ** 0.52 ** 0.73 ** 0.77 ** 1.00 6. Performance rewards 2.41 0.54 0.42 ** 0.33 * 0.39 * 0.34 * 0.31 1.00 Performance variable 7. Percentage profit margin 6.62 12.05 0.48 ** 0.53 ** 0.47 ** 0.54 ** 0.41 ** 0.29 1.00 8. Percentage return on capital 15.55 59.30 0.41 ** 0.41 ** 0.39 * 0.47 ** 0.27 0.20 0.78 ** 1.00 9. Percentage sales growth 7.72 21.23 0.46 ** 0.67 ** 0.36 * 0.39 ** 0.42 ** 0.09 0.60 ** 0.39 * 1.00 Notes : mean, standard deviation and Pearson correlation coefficients; * p < 0.05; ** p < 0.01; N = 40 Table V Electronic component manufacturers: relationships between variables Mean SD 1 2 3 4 5 6 7 8 9 Climate variable 1. Supervisory style 3.08 0.43 1.00 2. Co-workers 3.65 0.33 0.64 ** 1.00 3. Work motivation 2.9 0.35 0.82 ** 0.69 ** 1.00 4. Employee competence 3.28 0.66 0.75 ** 0.54 * 0.69 ** 1.00 5. Decision making 2.85 0.55 0.74 ** 0.49 * 0.79 ** 0.78 ** 1.00 6. Performance rewards 2.33 0.54 0.42 0.50 * 0.38 0.37 0.26 1.00 Performance variable 7. Percentage profit margin 11.31 13.87 0.69 ** 0.58 ** 0.63 ** 0.67 ** 0.59 ** 0.49 * 1.00 8. Percentage return on capital 33.35 61.58 0.65 ** 0.27 0.49 * 0.63 ** 0.45 * 0.19 0.70 ** 1.00 9. Percentage sales growth 19.39 17.85 0.69 ** 0.70 ** 0.62 ** 0.41 0.36 0.32 0.59 ** 0.33 1.00 Notes : mean, standard deviation and Pearson correlation coefficients; * p < 0.05; ** p < 0.01; N =20 [536] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 Discussion The present study examined the relationship between organisational climate and organisational performance. Although there is limited evidence to support the influence of climate on corporate performance, based on the work of Denison (1990) it was expected that companies with higher corporate performance would show a different organisational climate from those with a lower performance. Denison's evidence supported, to some extent, the suggestion by Payne and Pugh (1976) that climate may be viewed as a predictor of organisational performance. Two levels of analysis were undertaken. First, the general relationship between climate dimensions and corporate performance dimensions was examined at the level of the whole sample and at the level of each of the two industrial sectors. The correlation coefficients between these two sets of variables at the whole sample level ( N = 40) were all positive and were also statistically significant ( p < 0.05) in 14 out of the 18 cells of the matrix. In the absence of other qualifying factors it may be concluded that the evidence, at this level, gave support to the proposition that there is a relationship between climate and performance. The correlations at the level of the industrial sector were generally in the same direction but with some notable differences. In the case of the electronic components sector (a sunrise industry), the relationship between the two sets of variables held generally, all the correlation values being positive; they were also statistically significant ( p < 0.05) in 12 out of the 18 cells of the matrix. The correlation coefficients were also higher than those of the whole sample in 15 out of the 18 cells. In the case of the hosiery and knitwear sector (a sunset industry), although the general relationship between performance and climate was positive, it was noted that the correlation coefficients were weaker than those for the whole sample in 12 out of the 18 Table VII Differences in climate scores Electronic component manufacturing Hosiery and knitwear manufacturing Above average Below average t p Above average Below average t p Climate dimensions Supervisory style 3.46 2.71 8.31 0.001 3.29 2.89 2.08 0.05 Co-workers 3.86 3.45 3.48 0.003 3.74 3.16 2.71 0.01 Work motivation 3.16 2.64 4.82 0.001 3.09 2.75 2.40 0.03 Employee competence 3.65 2.92 2.90 0.01 3.29 2.88 1.63 0.12 Decision making 3.20 2.50 3.60 0.002 2.89 2.62 1.27 0.22 Performance rewards 2.47 2.20 1.13 0.27 2.47 2.51 ±0.16 0.87 Performance dimensions Profit margin 20.23 2.2 3.72 0.002 6.86 ±3.03 3.71 0.002 Return on capital 67.09 ±0.39 2.90 0.01 21.45 ±25.95 2.22 0.04 Sales growth 31.89 6.9 4.40 0.001 7.10 ±15.00 3.50 0.003 N 10 10 10 10 Note : except for N , t and p , the values shown are the means Table VI Hosiery and knitwear manufacturers: relationship between variables Mean SD 1 2 3 4 5 6 7 8 9 Climate variable 1. Supervisory style 3.09 0.46 1.00 2. Co-workers 3.45 0.55 0.58 ** 1.00 3. Work motivation 2.92 0.36 0.80 ** 0.62 ** 1.00 4. Employee competence 3.08 0.59 0.81 ** 0.69 ** 0.83 ** 1.00 5. Decision making 2.75 0.48 0.82 ** 0.58 ** 0.67 ** 0.75 ** 1.00 6. Performance rewards 2.49 0.54 0.43 0.31 0.39 0.37 0.41 1.00 Performance variable 7. Percentage profit margin 1.92 7.72 0.33 0.56 * 0.40 0.27 0.05 0.25 1.00 8. Percentage return on capital ±2.25 52.52 0.20 0.47 * 0.33 0.19 ±0.01 0.34 0.91 ** 1.00 9. Percentage sales growth ±3.95 17.89 0.43 0.69 ** 0.29 0.31 0.54 * 0.10 0.41 0.22 1.00 Notes : mean, standard deviation and Pearson correlation coefficients; * p < 0.05; ** p < 0.01; N =20 [537] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 cells of the matrix, and also weaker than those of the electronic components sector in 15 out of the 18 cells. The results were statistically significant ( p < 0.05) in only four out of the 18 cells. It may thus be concluded that, although the link between corporate performance and climate dimensions held at the level of the industrial sector, this link was clearer (in the statistical sense) in the sunrise than in the sunset sector. The second level of analysis consisted of comparing the climate responses of companies performing above average for their sector with those performing below average. This was done for each of the six climate dimensions. The electronic components sector (sunrise) showed higher mean values for all six of the climate dimensions; five of these being statistically significant (at least p < 0.01). In the case of the hosiery and knitwear sector, companies with above average performance also showed higher climate values on five out of the six climate dimensions. The differences were statistically significant (at least p < 0.05) in only three out of these six dimensions. The persistent inconsistency of the values for the climate dimension of ``performance rewards'' would need further enquiry on both the validity and reliability of this variable within the instrument used. Taking the two industrial sectors together, it may be concluded that companies with higher than average performance for their sector also returned higher values on their climate dimensions than did companies performing below average for their sector. Thus, within the methodological limitations that are embedded in a small investigation like the present one, the evidence collected lent support to the proposition that there is a statistical association between organisational climate and corporate performance. What this study did not seek to establish is the extent to which these two concepts are sequential in nature, interactive or jointly dependent on some other variable; different methodologies would need to be considered to address such issues. Further, the performance data were gathered for the period 1993-1996, which preceded the fieldwork for data collection on climate in 1999; it may thus not be claimed that the ``subsequent'' variable of climate had an effect on the ``precedent'' variable of performance as measured within this project. If a statistical association is observed between these two variables and if that relationship is sequential, further work would need to be undertaken to establish the length of the lag period (the time lapse between stimulus and response), the enduring effect of the independent variable (confirming the claim by Moran and Volkwein, 1992) and if regression to the mean effects is observed over a time series. On the assumption that the link established holds true in other situations, what could be the implications and potential for managers? If they wished to improve organisational climate, would they aim for performance improvement first? If they wished to improve corporate performance, should they attend to factors that improve organisation climate first? It is worth noting two studies reported by Neill and Borell (1999). It was claimed that management which was ``holistic'' and accommodated climate dimensions had a ``profound impact on overall organisational success F F F '' (Neill and Borell, 1999, p. 30). In one of the cases cited, it was claimed, ``one standard deviation increase in such practices could be traced to a 7.05 per cent decrease in turnover and, on a per employee basis, $27,044 more in sales and $18,641 and $3,814 more in market value and profits respectively'' (Neill and Borell, 1999, p. 30). In a second case `` F F F one standard deviation in high performance work practices resulted in an increase in shareholder wealth of more than $40,000 per employee'' (Neill and Borell, 1999, p. 31). The link established between the variables under the conditions of the present study is statistically supportable but it is not yet prudent to conclude either on causality or on a single direction of influence, if any. Simulations, controlled experiments, case studies and longitudinal tracking would be among alternative and complementary methodologies to be considered in further investigations. If there is some causal connection between climate and performance, then, intuitively, higher scores on organisational climate might represent a working environment which could nurture, foster, or possibly lead to higher corporate performance. In conclusion, it is perhaps pertinent to paraphrase Auden (1940): ``to its members an organisation is not so much a place of work, but a whole climate of perceptions and opinions''. Such an interactionist approach would be compatible with the findings of this study. References Ansoff, H.I. (1990), Implanting Strategic Management , Prentice-Hall, Englewood Cliffs, NJ. Ashforth, B. (1985), ``Climate formation: issues and extensions'', Academy of Management Review , Vol. 10, pp. 837-47. [538] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 Auden, W.H. (1940), ``In memory of Sigmund Freud'', Another Time , Faber & Faber, London. Baker, M.J. and Hart, S.J. (1989), Marketing and Competitive Success , Philip Allan, London. Burke, W.W. and Litwin, G.H. (1992), ``A causal model of organizational performance and change'', Journal of Management , Vol. 18 No. 3, pp. 523-45. Business Ratio Plus (1997a), Electronic Component Manufacturers , ICC Business Publications Ltd, Hampton. Business Ratio Plus (1997b), The Hosiery and Knitwear Industry , ICC Business Publications Ltd, Hampton. Byrd, T.A. and Marshall, T.E. (1997), ``Relating information technology investment to organisational performance: a causal model analysis'', Omega , Vol. 25 No. 1, pp. 43-56. Campbell, J.P., Dunnette, M.D., Lawler, E.E. and Weick, K.E. (1970), Managerial Behavior, Performance, and Effectiveness , McGraw-Hill, New York, NY, pp. 389-94. Cron, W. and Sobol, M. (1983), ``The relationship between computerisation and performance'', Information and Management , Vol. 6, pp. 171-81. Deming, W.E. (1986), Out of the Crisis , Cambridge University Press, Cambridge. Denison, D.R. (1990), Corporate Culture and Organizational Effectiveness , John Wiley & Sons, New York, NY. Guest, D. (1992), ``Right enough to be dangerously wrong: an analysis of the `In search of excellence' phenomenon'', in Salaman, G. (Ed.), Human Resource Strategies , Open University/ Sage Publications, London, pp. 5-19. Hammer, M. and Champny, J. (1993), Re-engineering the Corporation , Nicholas Brealey, London. Haspeslagh, P.C. and Jemison, D.B. (1991), Managing Acquisitions: Creating Value through Corporate Renewal , The Free Press, London. Hirschhorn, L. and Gilmore, T. (1992), ``The new boundaries of the `boundaryless' company'', Harvard Business Review , Vol. 70 No. 3, pp. 104-15. Holland, J.L. (1985), Making Vocational Choices: A Theory of Vocational Personalities and Work Environments , Prentice-Hall, Englewood Cliffs, NJ. Jackofsky, E.F. and Slocum, J.W. Jr (1988), ``A longitudinal study of climates'', Journal of Organizational Behavior , Vol. 9, pp. 319-34. Jackofsky, E.F. and Slocum, J.W. Jr (1990), ``Rejoinder to Payne's comment on `A longitudinal study of climates''', Journal of Organizational Behavior , Vol. 11, pp. 81-3. Joyce, W.F. and Slocum, J.W. Jr (1984), ``Collective climate: agreement as a basis for defining aggregate climates in organisations'', Academy of Management Journal , Vol. 27, pp. 721-42. Kanter, R.M. (1992), The Change Masters , Routledge, London. Kotter, J.P. (1990), A Force for Change: How Leadership Differs from Management , Collier Macmillan, London. Lewin, K. (1951), Field Theory in Social Science , Harper and Row, New York, NY. Litwin, G.H. and Stringer, R.A. (1968), Motivation and Organizational Climate , Harvard Business School Press, Boston, MA. Mintzberg, H. (1994), The Rise and Fall of Strategic Planning , Prentice-Hall, Hemel Hempstead. Moran, E.T. and Volkwein, J.F. (1992), ``The cultural approach to the formation of organisational climate'', Human Relations , Vol. 45 No. 1, pp. 19-47. Neill, T.V. and Borell, M.H. (1999), ``Maximising your return on investment in human performance'', Outlook , Vol. XI No. 2, Anderson Consulting, pp. 25-31. Newman, J. (1977), ``Development of a measure of perceived work environment'', Academy of Management Journal , Vol. 20, pp. 520-34. Ohmae, K. (1983), The Mind of the Strategist , Penguin, Harmondsworth. O'Reilly, C.A. III, Chatman, J. and Caldwell, D.F. (1991), ``People and organisational culture: a profile comparison approach to assessing person-organization fit'', Academy of Management Journal , Vol. 34, pp. 487-516. Ostroff, C. (1993), ``The effects of climate and personal influences on individual behavior and attitudes in organizations'', Organizational Behaviorand Human Decision Processes , Vol. 56, pp. 56-90. Patterson, M. and West, M. (1998), ``People power: the link between job satisfaction and productivity'', Centre Piece , Vol. 3 No. 3, Autumn 1998 (Centre for Economic Performance, The London School of Economics), pp. 2-5. Payne, R.L. (1990a), ``The concepts of culture and climate'', Working Paper , No. 202, Manchester University, Manchester. Payne, R.L. (1990b), ``Madness in our method: a comment on Jackofsky and Slocum's paper, `A longitudinal study of climates''', Journal of Organizational Behavior , Vol. 11, pp. 77-80. Payne, R.L. and Mansfield, R. (1978), ``Correlates of individuals' perceptions of organizational climate'', Journal of Occupational Psychology , Vol. 51, pp. 209-18. Payne, R.L. and Pheysey, D. (1971), ``G.C. Stern's organizational climate index: or reconceptualization and application to business organizations'', Organizational Behavior and Human Performance , Vol. 6, pp. 77-98. Payne, R.L. and Pugh, D.S. (1976), ``Organizational structure and climate'', in Dunnette, M.D. (Ed.), Handbook of Industrial and Organizational Psychology , Rand McNally, Chicago, IL, pp. 1125-74. [539] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540 Peters, P.J. and Waterman, R.H. Jr (1982), In Search of Excellence: Lessons from America's Best Run Companies , Harper & Row, London. Porter, M.E. (1990), The Competitive Advantage of Nations , Macmillan, London. Rentsch, J. (1990), ``Climate and culture: interaction and qualitative differences in organizational meanings'', Journal of Applied Psychology , Vol. 75, pp. 668-81. Rousseau, D.M. (1988), ``The construction of climate in organizational research'', in Cooper, C.L. and Robertson, I.T. (Eds), International Review of Industrial and Organisational Psychology , Vol. 3, John Wiley & Sons, Chichester, pp. 139-59. Schneider, B. (Ed.) (1990), Organizational Climate and Culture , Jossey-Bass, Oxford, 1987, p. 6. Schneider, B. and Reichers, A. (1983), ``On the etiology of climates'', Personnel Psychology , Vol. 36, pp. 19-40. Schneider, B. and Snyder, R.A. (1975), ``Some relationships between job satisfaction and organizational climate'', Journal of Applied Psychology , Vol. 60, pp. 318-28. Schwartz, P. (1992), The Art of the Long View , Century Business, London. Sparrow, P.R. and Gaston, K. (1996), ``Generic climate maps: a strategic application of climate survey data?'', Journal of Organizational Behavior , Vol. 17, pp. 679-98. Stern, C.G. (1970), People in Context , John Wiley & Sons, New York, NY. Teo, T.S.H. and King, W.R. (1996), ``Assessing the impact of integrating business planning and IS planning'', Information and Management , Vol. 30 No. 6, pp. 309-21. UK Industrial Performance Analysis (1997/98), ICC Business Publications Ltd. Weill, P. (1992), ``The relationship between investment in information technology and firm performance: a study of the valve manufacturing sector'', Information Systems Research , Vol. 3 No. 4, pp. 307-33. West, M.A., Smith, H., Lu Feng, W. and Lawthom, R. (1998), ``Research excellence and departmental climatein Britishuniversities'', Journal of Occupational and Organizational Psychology , Vol. 71, pp. 261-81. Application questions 1 Which do you think comes first ± organizational culture or performance improvement? 2 Are there optimal cultures for different types of organization and different stages of an organization's life cycle? [540] Peter Kangis and D. Gordon S. Williams Organisational climate and corporate performance: an empirical investigation Management Decision 38/8 [2000] 531±540

less