Literature Review: Organizational Culture and Firm Performance

This literature review examines the correlation between organizational culture and firm performance. It explores organizational culture, defining its concept, factors, benefits, challenges, and techniques for establishing a healthy culture. The review also investigates firm performance, identifying influencing factors such as leadership, motivation, communication, and knowledge management. Furthermore, it analyzes the impact of organizational culture on firm performance, highlighting how positive culture leads to employee engagement, loyalty, and effective communication, ultimately improving firm outcomes. The review synthesizes past studies, providing a comprehensive overview of the relationship between these two critical organizational elements.

Running head: LITERATURE REVIEW
The Correlation between Organizational Culture and Firm Performance
Name of the Student:
Name of the University:
Author’s Note:

1LITERATURE REVIEW
Table of Contents
Literature review..............................................................................................................................2
Overview......................................................................................................................................2
Conceptual framework.................................................................................................................2
Concept of organizational culture................................................................................................3
Factors affecting organizational culture......................................................................................3
Benefits of positive organizational culture..................................................................................4
Challenges in developing healthy organizational culture............................................................5
Techniques of establishing healthy organizational culture..........................................................6
Firm performance........................................................................................................................7
Factors affecting firm performance.............................................................................................7
Impact of organizational culture on firm performance................................................................8
Summary......................................................................................................................................9
References......................................................................................................................................10

2LITERATURE REVIEW
Organizational culture
Leadership
Employees
Policies and practices
Size of the organization Firm performance
Literature review
Overview
The literature review chapter is structured and developed in such a way that past studies
are considered for developing the current and ongoing study. This helps in developing the study
with quality information and rich contents in respect to the current topic. Additionally, the views
and perspectives of past authors can be compared and contrasting followed by deriving own
findings. For this current research, the literature review is developed based on the two variables
where the independent variable us organizational culture whereas the dependent variable is the
firm performance. Identifying the two variables and developing the literature review on them
helps in understanding the impact on one another by assessing their relationship accordingly.
Conceptual framework
Figure 1: Conceptual framework

3LITERATURE REVIEW
(Source: Created by the Author)
Concept of organizational culture
Organizational culture is a widely researched topic in the past because it is one of the key
aspects in determining the success of the organization. According to Bortolotti, Boscari and
Danese (2015), organizational culture is defined as the behaviors and values that contribute to
the unique psychological and social atmosphere of the specific businesses. Hence, the influence
of organizational culture is highly reflected on the way employees and individuals behave and
interact within the organization. However, as criticized by Naranjo-Valencia, Jiménez-Jiménez
and Sanz-Valle (2016), organizational culture is defined as the mission, vision, systems, norms
and beliefs that is within the organization for achieving the organizational goals successfully.
Thus, it is the expectations, experiences and philosophies of the organizations that hold everyone
together and is reflected in the workings and interaction practiced within the organization.
Factors affecting organizational culture
The different factors affecting organizational culture are leadership and its styles,
employees and their reward system, policies and practices and size of the organization. As
mentioned by Hartnell et al. (2016), leadership and its style influences organizational culture
because leadership helps in developing a healthy working environment by facilitating
communication and coherency. Conflicts are minimized with appropriate leadership that
encourages support and cooperation among the employees thereby, developing a positive ad
stress free environment for employees to contribute in developing positive culture. However, as
argued by Walker and Aritz (2015), identifying the most appropriate leadership style is often
challenging.

4LITERATURE REVIEW
As mentioned by Ashikali and Groeneveld (2015), the employees and the reward system
used for them also influence the culture of the organization largely. Mutual respect, friendship
and trust are the pillars that build positivity within the current workforce that develops positive
and healthy culture. Additionally, if the employees are rewarded accordingly and rewarded as
well for the efforts they put in for achieving the organizational mission and vision, a positive
organizational culture is created. This is because the employees feel that their effort has not gone
in vain and is appreciated by the organization they work for that in turn encourages them to put
in more effort. However, as criticized by Ramdhani, Ramdhani and Ainissyifa (2017), the reward
system for the employees might not be enough for developing a healthy organizational culture.
On the other hand, the policies and practices of the organization also influence organizational
culture. This is because flexible organizational policies encourage the employees to perform
better and work with greater dedication and engagement. For instance, if the organizational
policy and rules indicate frequent penalization and less help when needed, the culture created is
inappropriate that influences employees to work without stress and negativity.
The size of the organization also influences organizational culture because big sized
organizations have several departments. With so many departments within the organization,
communication and coordination difficulties become evident that compromises with the culture
of it. However, in the contrary, running a big organization with one department only also gives
rise to performance issues that on the other hand give severe negative consequences in terms of
profit and business (Iljins, Skvarciany and Gaile-Sarkane 2015).
Benefits of positive organizational culture
The benefits of having a positive organizational and workplace culture are beyond
imagination and business organizations need to focus on developing and maintaining one within

5LITERATURE REVIEW
the organization. As mentioned by Stahl and Tung (2015), positive and healthy organizational
culture results in improved health of the ones present in the culture. This helps in minimizing the
negativity and stress that pertains that eventually give rise to poor health conditions in terms of
emotional and physical conditions. Hence, the employees become more engaged and productive
that contributes positively towards organizational performance and effectiveness.
However, as criticized by Hu and Kaplan (2015), when positive organizational culture is
fostered, the existing employees are happier and show greater commitment to the organization.
Hence, the loyalty of the employees can be achieved that helps in reducing the rate of employee
turnover. The rate of absence for the employees is decreased largely that ensures that the
organizational mission and goals are achieved successfully thereby, indicating improving the
overall performance of the organization. On the other hand, positive organizational culture
facilitates open communication and strong team spirit whose combined effect provides
opportunities to take the performance level of the organization to the next level. However, on the
contrary, conflicts in organization are common that compromises with the organizational culture
that imposes severe consequences (Miller, Ngunjiri and LoRusso 2017).
Challenges in developing healthy organizational culture
Developing and maintaining something positive is challenging because different
individuals form an organization. Hence, difference opinions make healthy organizational culture
often an issue. As mentioned by McCormack and McCance (2016), lack of transparency and
ineffective communication gives rise to difficulties in developing positive organizational culture.
This is because individuals have different perspectives and way of perceiving things that makes
it challenging to agree on a common point. Once communication issue begins, conflicts arise
because employees feel that they are not included in the decision making process that gives rise

6LITERATURE REVIEW
of grudges and unhealthy relationships. Hence, with time a negative organizational culture is
developed because the employees feel lack trust, respect and understanding towards each other.
Moreover, once the negativity is ignited, overcoming it takes severe effort and hard work
(Osland, Devine and Turner 2015).
As opined by Di Fabio (2017), shifting the focus of the employees from personal agenda
to the core mission and vision of the organization challenging that affects the organizational
culture negatively. The employees are more concerned about individual needs and desires and
tend to work towards fulfilling them rather than giving effort for achieving mission and vision of
the organization. As a result, developing positive organizational culture is challenging because
the coherency is compromised largely.
Techniques of establishing healthy organizational culture
Having inappropriate and unhealthy organizational culture for long is harmful for the
organization in terms of their performance because their chances of surviving the market are
questioned largely. Hence, continuous effort needs to be made for establishing healthy
organizational culture. As mentioned by Cameron and Green (2015), effective communication at
individual levels is necessary for establishing healthy organizational culture. This helps in
developing transparency, trust and mutual respect among the individual employees. As a result,
positive and healthy interaction and sharing is encouraged that helps in establishing friendly and
positive organizational culture that is reflected through the organizational performance.
However, as criticized by Epstein, Santo and Guillemin (2015), communication and transparency
is often questioned because personal agenda and attitude keeps on coming up that is difficult to
keep aside and move forward. Another technique for establishing positive organizational culture
is continuous motivation. This helps in ensuring that negative thoughts does not grip the

7LITERATURE REVIEW
employees and give rise to conflicts. As a result, the employees are able to work stress free that
is reflected in their performance and organizational output.
Firm performance
A well performing firm or organization is necessary to survive in the market competitive
market. According to Wamba et al. (2017), the concept of organizational or firm performance
highlights the combined results of the actual output that is further compared and measured
against the outputs those were intended. However, as criticized by Barrick et al. (2015),
organizational or firm performance is defined as the way an organization performs that is
measured against how much of the organizational mission and vision is achieved. Hence, it can
be said that the better performance of a firm indicates that the firm is able to fulfill and achieve
the mission and vision of the organization successfully.
Factors affecting firm performance
The performance of a firm is influenced by different factors such as leadership,
motivation, communication and knowledge management. As mentioned by Shin et al. (2015),
leadership is the prime factor that affects the failure and success of the business organizations.
Appropriate leadership style helps in ensuring clarity towards organizational goals and objectives
that influences better and efficient focus by the employees. Leadership pushes the employees out
of their comfort zone and yet brings the best out of them. However, as criticized by Eisenbeiss,
Van Knippenberg and Fahrbach (2015), a single leadership style is not appropriate for business
organizations across all sectors and industries. Hence, the most suited leadership style needs to
be selected for ensuring the best firm performance.

8LITERATURE REVIEW
On the other hand, motivation is the key to improved firm performance. As commented
by Masa’deh, Obeidat and Tarhini (2016), motivation acts as catalyst to move individuals
towards the ultimate goals and mission of the firms. Continuous and consistent motivation
develops better employee engagement and dedication. As the employees show active
participation and commitment towards their roles and responsibilities, their outcomes are
excellent. The quality and integrity of the work highlights the commitment and engagement that
employees have put in thereby, ensuring effective and improved firm performance. However, as
criticized by Boehm et al. (2015), motivation is not a constant thing and keeps regular work so
that the performance of the firm is not compromised.
According to Wiengarten, Lo and Lam (2017), effective communication ensures
improved firm performance because it minimizes the chances of repetitive work. As each
employee communicates uninterruptedly, smooth flow of work is ensured that enables the
employees to achieve their goals and objectives more effectively. The employees are highly
productive and participative that contributes toward improved firm performance. However, as
argued by Barrick et al. (2015), communication might also lead to conflicts because difference of
opinions might occur thereby, compromising the performance of the firm.
Impact of organizational culture on firm performance
From the past studies, it can be revealed that organizational culture influences the
performance of the firm is several ways. As mentioned by Ahammad et al. (2016), positive and
healthy organizational culture indicates positive employee engagement and loyalty. As the
employees are free of any stress and pressure they are able to have a free mind to use and work.
Hence, improved engagement and participation from the employees gives better results. The
employees are able to deliver work on time and with quality thereby, up lifting the image of the

9LITERATURE REVIEW
organization in the industry sector. However, as argued by Lonial and Carter (2015), in spite of
having a positive organizational culture, some employees do not fulfill their roles and
responsibilities that impose consequences on the organizational performance. Healthy
organizational culture is encouraged because mutual respect and trust among the employees is
developed that influences effective and uninterrupted communication. This ensures a clear flow
of work that minimizes repetitive actions and saves time that can be used more resourcefully and
improving the performance of the firm (Cao et al. 2015). As a result, the firms are able to
maximize their profits, generate higher revenues and gain competitive advantage thereby,
strengthening their position in the business sector. Additionally positive organizational culture
facilitates support and cooperation among the employees that is reflected through the firm
performance suitably.
Summary
Thus, in this chapter it can be summarized that the culture followed and established
within the organization contributes largely towards the overall performance of the organization.
Positive organizational culture is reflected on the way the employees behave and interact and is
also reflected in the organizational output appropriately. Taking into account the tough
competition in the business sector, a firm or an organization need to deliver its best performance
consistently and constantly and cannot think of compromising it under any instances. This
ensures several positive influences on them in respect to business growth, customer growth and
gaining competitive advantage. However, achieving it is not easy and comes with own set of
challenges that needs adequate and suitable techniques to overcome.

10LITERATURE REVIEW
References
Ahammad, M.F., Tarba, S.Y., Liu, Y. and Glaister, K.W., 2016. Knowledge transfer and cross-
border acquisition performance: The impact of cultural distance and employee
retention. International business review, 25(1), pp.66-75.
Ashikali, T. and Groeneveld, S., 2015. Diversity management in public organizations and its
effect on employees’ affective commitment: The role of transformational leadership and the
inclusiveness of the organizational culture. Review of Public Personnel Administration, 35(2),
pp.146-168.
Barrick, M.R., Thurgood, G.R., Smith, T.A. and Courtright, S.H., 2015. Collective
organizational engagement: Linking motivational antecedents, strategic implementation, and
firm performance. Academy of Management journal, 58(1), pp.111-135.
Barrick, M.R., Thurgood, G.R., Smith, T.A. and Courtright, S.H., 2015. Collective
organizational engagement: Linking motivational antecedents, strategic implementation, and
firm performance. Academy of Management journal, 58(1), pp.111-135.
Boehm, S.A., Dwertmann, D.J., Bruch, H. and Shamir, B., 2015. The missing link? Investigating
organizational identity strength and transformational leadership climate as mechanisms that
connect CEO charisma with firm performance. The Leadership Quarterly, 26(2), pp.156-171.
Bortolotti, T., Boscari, S. and Danese, P., 2015. Successful lean implementation: Organizational
culture and soft lean practices. International Journal of Production Economics, 160, pp.182-201.

11LITERATURE REVIEW
Cameron, E. and Green, M., 2015. Making sense of change management: A complete guide to
the models, tools and techniques of organizational change. Kogan Page Publishers.
Cao, Z., Huo, B., Li, Y. and Zhao, X., 2015. The impact of organizational culture on supply
chain integration: a contingency and configuration approach. Supply Chain Management: An
International Journal, 20(1), pp.24-41.
Di Fabio, A., 2017. The psychology of sustainability and sustainable development for well-being
in organizations. Frontiers in psychology, 8, p.1534.
Eisenbeiss, S.A., Van Knippenberg, D. and Fahrbach, C.M., 2015. Doing well by doing good?
Analyzing the relationship between CEO ethical leadership and firm performance. Journal of
Business Ethics, 128(3), pp.635-651.
Epstein, J., Santo, R.M. and Guillemin, F., 2015. A review of guidelines for cross-cultural
adaptation of questionnaires could not bring out a consensus. Journal of clinical
epidemiology, 68(4), pp.435-441.
Hartnell, C.A., Kinicki, A.J., Lambert, L.S., Fugate, M. and Doyle Corner, P., 2016. Do
similarities or differences between CEO leadership and organizational culture have a more
positive effect on firm performance? A test of competing predictions. Journal of Applied
Psychology, 101(6), p.846.
Hu, X. and Kaplan, S., 2015. Is “feeling good” good enough? Differentiating discrete positive
emotions at work. Journal of Organizational Behavior, 36(1), pp.39-58.