Management and Corporate Economics

Management
Part II

2013 Fall

Contents
Contents___________________________________________________________________2
1

Leadership______________________________________________________________4
1.1

The concept_______________________________________________________________4

1.2

Power____________________________________________________________________4

1.2.1
1.2.2

1.3

Empowerment____________________________________________________________6

1.4

McGregors X-Y Theory____________________________________________________6

1.5

Trait Theories of Leadership_________________________________________________6

1.6

Personal-Behavioral Theories________________________________________________7

1.6.1
1.6.2
1.6.3
1.6.4

1.7
1.7.1
1.7.2
1.7.3
1.7.4
1.7.5

Types of power__________________________________________________________________4
Use of power___________________________________________________________________5

Continuum of Leadership__________________________________________________________7
The Michigan Studies____________________________________________________________8
The Ohio State Studies____________________________________________________________8
The Managerial Grid_____________________________________________________________9

Situational Approaches____________________________________________________10
Fiedlers Contingency Theory_____________________________________________________10
The Path-Goal Theory___________________________________________________________11
The Vroom-Yetton-Jago Model____________________________________________________12
The Hersey-Blanchard Situational Theory____________________________________________14
New Approaches_______________________________________________________________15

1.8

New Perspectives_________________________________________________________15

1.9

Questions to consider______________________________________________________15

1.10

References_______________________________________________________________16

Organizational culture___________________________________________________17
2.1

National culture__________________________________________________________17

2.2

Importance of organizational culture_________________________________________17

2.3

Scheins definition________________________________________________________18

2.3.1
2.3.2
2.3.3
2.3.4
2.3.5
2.3.6
2.3.7
2.3.8

2.4
2.4.1
2.4.2
2.4.3
2.4.4

2.5
2.5.1
2.5.2
2.5.3
2.5.4

2.6

Pattern of basic assumptions______________________________________________________18

A given group__________________________________________________________________19
Invented, discovered or developed__________________________________________________19
Problems of external adaptation and internal integration________________________________20
Assumptions that work well enough to be considered valid______________________________20
Taught to new members__________________________________________________________21
Perceive, think and feel__________________________________________________________21
Summary_____________________________________________________________________21

Handys culture types_____________________________________________________22

Power culture__________________________________________________________________22
Role culture___________________________________________________________________22
Task culture___________________________________________________________________22
Person culture__________________________________________________________________22

Deal & Kennedy__________________________________________________________23

Work-hard, play-hard culture______________________________________________________23
Tough-guy macho culture________________________________________________________23
Process culture_________________________________________________________________24
Bet-your-company culture________________________________________________________24

Hofstedes cultural dimensions______________________________________________24

2.6.1
2.6.2
2.6.3
2.6.4
2.6.5

Power distance_________________________________________________________________24
Individualism__________________________________________________________________25
Masculinity____________________________________________________________________25
Uncertainty avoidance index______________________________________________________25
Long-term orientation___________________________________________________________25

2.7

Questions to consider______________________________________________________26

2.8

References_______________________________________________________________27

Pdr, K.: Management and Business Economics

1 Leadership
1.1 The concept
Leadership can be defined as either a process or a property.
Process: the use of non-coercive influence

to shape the groups or organizations goals,

to motivate behavior toward the achievement of those goals,

to help define group or organizational culture.

Property: the set of characteristics attributed to individuals who are perceived to be leaders.
Please note, that management is about planning, organizing, controlling and leading the
financial-, physical-, informational-, and human resources in an effective and efficient way.
From these definitions it should be clear that leadership and management are related, but it
should be equally clear that they are also different. Thus a person can be a manager, a leader,
both or neither. (Figure 1)

Figure 1: Managers vs. Leaders

1.2 Power
Power is the ability to affect other peoples behavior.

1.2.1 Types of power

Coercive power. Coercive power is based on fear. The subordinate perceives that failure to
comply with the wishes of a superior would lead to punishment. Coercive power is based on
the expectations of individuals that punishment is the consequence for not agreeing with the
actions, attitudes or directives of a superior.
Reward power. Reward power is the opposite of coercive power. A subordinate perceives
that compliance with the wishes of a superior will lead to positive rewards. The rewards could
be monetary or non-monetary.

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Legitimate power. Legitimate power comes from the position of the superior in the
organization hierarchy. For instance, the president of a corporation possesses more legitimate
power than the vice president.
Expert power. An individual with expert power is one with expertise, a special skill, or
knowledge. The possession of one or more of these attributes gains the respect and
compliance of peers and subordinates.
Referent power. Referent power is based on a followers identification with a leader.
Individuals want to identify with the powerful person, therefore, they grant the person power
because of attractiveness or because the leader is perceived to have the desirable resources.

Figure 2: Types of Power, Use of Power

1.2.2 Use of power

Several methods have been identified for ways of using power. (Figure 2) One method is the
legitimate request. It involves the manager requesting that the subordinate comply because
the subordinate recognizes that the organization has given the manager the right to make the
request. Another use of power is instrumental compliance. It is based primarily on reward
power. Suppose that a manager asks a subordinate to do something outside the range of the
subordinates normal duties, such as working extra hours on the weekend. The subordinate
complies and, as a direct result, reaps praise and bonus from the manager. The next time the
subordinate is asked to perform a similar duty, that subordinate will recognize that compliance
will be instrumental in her or his getting more rewards. A further way of using power is
coercion. When a manager suggests or implies that the subordinate will be punished, fired,
etc. if she or he does not do something, coercion is being practiced. Still another way to use
power is through personal identification. A manager who recognizes that s/he has referent
power over a subordinate can shape the behavior of that subordinate by engaging in desired
behavior that is the manager consciously becomes a model for the subordinate and exploits
personal identification. A dubious method of using power is through information distortion.
The manager withholds or distorts information to influence subordinates behavior. For
instance, if a manager has agreed to allow everyone to participate in choosing a new group
member but subsequently finds one individual whom she really prefers, she might withhold
some of the credentials of other qualified applicant so that the desired member is selected.

Pdr, K.: Management and Business Economics

This use of power is dangerous. If the subordinates find out that the manager misled them,
they will lose their confidence and trust in that managers leadership.

1.3 Empowerment
To influence, one must be influenced to some degree. That is, a leader must be influenced by
followers. A leader can exert more influence if viewed as being open to influence in some
situations. The mutual-sharing view has an important message: Influence can be shared or
divided and both parties can gain. The greater the total influence leaders and followers have in
the organization, the better seems to be the performance of the total system.
Empowering subordinates is growing in popularity. The logic is that by sharing more power
with followers, the leaders power capabilities actually increase. Empowerment is defined as
providing employees at all levels the authority and responsibility to make decisions on their
own. Empowerment occurs when power goes to employees who then experience a sense of
ownership and control over their job. Asking leaders to permit others to share in decision
making, problem solving, and job design is difficult. Empowerment requires a mutual sharing
and even a handing over of some authority and responsibility to followers.

1.4 McGregors X-Y Theory

Douglas McGregor introduced the concept that the attitudes managers hold about the nature
of people, greatly influence their behavior. McGregors views about manager attitudes were
presented in terms of assumptions. He distinguished between what he called Theory X and
Theory Y. Figure 3 describes these two types.
Theory X manager

Theory Y manager

thinks that employees:

dislike work & avoid it
have lack of ambition
avoid responsibility

want self-direction & self-control

in their work
want to be creative & assume
responsibility

prefer job security the most

are interested in displaying

must be coerced & closely imagination and creativity to
solve organizational problems
supervised to work adequately
Figure 3: Differences between McGregors X-Y Managers

According to the theory, what a manager expects of his subordinates and the way he treats
them largely determine their performance and career progress. A unique characteristic of
superior managers is their ability to create high performance expectations that subordinates
fulfill.

1.5 Trait Theories of Leadership

The first systematic attempt to understand leadership was a research to identify those
particular characteristics of leaders that predict success. The theme of this research originally
was that leaders are born, not made. Reviews of the literature and research on traits suggest a
number of desirable characteristics of leaders such as the following:

Drive: Willingness to take initiative, high energy, and seeking achievement.

Motivation: A strong desire to lead and influence others.

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Self-confidence: Being decisive, assertive, and confident.

Intelligence: verbal and quantitative competence and the ability to process and use
complex information.

Knowledge: a solid understanding of the job, organization, and industry.

During the first several decades of the last century literally hundreds of studies were carried
out in an attempt to identify the most important leadership traits. The results of the studies
became disappointing: the list of suggested traits soon became so long that it had little
practical value.

1.6 Personal-Behavioral Theories

1.6.1 Continuum of Leadership
Because a trait explanation could not be substantiated, other theorists and researchers emerged
offering various explanations about leadership. Researchers attempted to identify specific
behavior characteristics of effective leaders. Personal-Behavior theories contend that leaders
may be best classified by personal qualities or behavioral patterns (styles).
Robert Tannenbaum and Warren Schmidt propose that managers often have difficulty in
deciding which action is the most appropriate for handling a particular problem. They are not
sure whether to make the decision or delegate authority to the subordinates. Tannenbaum and
Schmidt suggested the continuum which is visible on Figure 4.

Figure 4: Continuum of Leadership

Leadership actions are related to the degree of authority used by managers and to the amount
of freedom available to subordinates in reaching decisions. The managerial actions depicted at
the left characterize managers who maintain a high degree of control, while those actions on
the right indicate managers who delegate decision-making authority. Along the continuum

Pdr, K.: Management and Business Economics

there are a number of leadership styles. According to this theory, effective leaders are those
who are adaptable who can delegate authority effectively because they consider their
capabilities, subordinates capabilities, and the objectives to be accomplished. They suggest
that leaders should not choose either a strictly autocratic or democratic style but should be
flexible enough to cope with different situations.

1.6.2 The Michigan Studies

Rensis Likert and a group of social scientists began studying leadership in the late 1940s.
Based on interviews with both leaders and followers, the Michigan studies identified two
basic forms of leader behavior. The first one was called job-centered behavior. When using
this behavior, the leader pays close attention to the subordinates work, explains work
procedures and is keenly interested in performance. The second behavior identified in this
research was employee-centered behavior. In this case the leader is interested in developing a
cohesive work group and ensuring that employees are satisfied with their jobs. (Figure 5)
The two styles were presumed to be at the ends of a single continuum. Likert only studied the
two end-styles for contrast. He found that employee-centered behavior generally tended to be
more effective.

Figure 5: Leadership behaviors based ont he Michigan Studies.

1.6.3 The Ohio State Studies

At about the same time that Likert was beginning his leadership studies work at Michigan, a
group of researchers at Ohio State also began studying leadership.
The extensive questionnaire surveys suggested that there are two basic leader behaviors or
styles. The first one was called initiating-structure behavior. When using this behavior, the
leader clearly defines the leader-subordinate role so that everyone knows what is expected,
establishes formal lines of communication, and determines how tasks will be performed. The
second leadership style identified is consideration behavior. In this instance, the leader
shows concern for subordinates and attempts to establish a friendly and supportive climate.

Pdr, K.: Management and Business Economics

The most important difference between the Michigan and the Ohio State studies is that the
forms of leader behaviors are not seen by the Ohio State researchers as opposite ends of a
single continuum. Rather, they assumed to be independent variables (Figure 6).

Figure 6: Leadership Behaviors Defined by the Ohio State Studies

1.6.4 The Managerial Grid

The Managerial Grid (Figure7) can also be seen as a model of leadership based on the two
forms of leader behavior: concern for people (similar to employee-centered and consideration
behavior) and concern for production (similar to job-centered and initiating-structure
behavior). Note that the Managerial Grid implies that there is one generally appropriate
combination of leadership behaviors the (9,9) coordinates, or the maximum concern for
both people and production.

Figure 7: The Managerial Grid

Though they played an important role in better understanding and describing leadership,
personal-behavioral theories eventually turned out not to be useful for predicting or

Pdr, K.: Management and Business Economics

prescribing behavior of leaders. The next step in the evolution of leadership theories was the
creation of situational models.

1.7 Situational Approaches

The basic assumption of the model is that appropriate leader behavior varies from one
situation to another. Although the Tannenbaum and Schmidt framework had pointed out the
importance of situational factors, it was only speculative. It remained for others to develop
more comprehensive and integrated theories.

1.7.1 Fiedlers Contingency Theory

Fiedlers contingency theory of leadership was the first true situational theory of leadership.
According to Fiedler, leader effectiveness depends upon:

leader style (task vs. relationship oriented); measured by the LPC (Least-PreferredCo-worker) questionnaire

favorableness of a situation, as a result of three dimensions:

1) Leader-member relations: Degree of confidence subordinates have in the
leader, subordinates loyalty, and leaders attractiveness. If the leader and the
group have a high degree of mutual trust, respect and confidence, and if they
like one another, relations are assumed to be good.
2) Task structure: The degree to which subordinate tasks are routine. When the
task is routine, easily understood and clear, when the group has standard
procedures to rely on, the task is structured.
3) Position power: Power inherent in the leadership position. If the leader has the
power to assign work, reward and punish employees, and recommend
employees for promotion or demotion, position power is assumed to be strong.

Beginning with a combined trait and behavior approach, Fiedler identifies two styles of
leadership task-oriented (analogous to job-centered and initiating-structure behavior) and
relationship-oriented (analogous to job-centered and consideration behavior). However,
Fiedler goes further, arguing that the style of a leader behavior is a reflection of the leaders
personality and is basically constant for any person that is the leader is presumed to be taskoriented or relationship-oriented all the time.
Fiedler measures leader style by a controversial questionnaire, called the Least Preferred
Co-worker (LPC) measure. (The manager or leader is asked to describe (by marking the
scale somewhere between 1 and 8) the person with whom s/he is able to work least well by
filling a set of sixteen scales anchored at each end by a positive or negative adjective. The
LPC score is calculated by adding up the numbers that were previously marked on the scales.)
Note that good or poor leader-member relations, structured or unstructured task, and strong or
weak leader position power can be combined into eight unique situations. (Figure 8)

Pdr, K.: Management and Business Economics

Figure 8: Fiedlers contingency Theory

As Figure 8 suggests, in favorable situations (1, 2, 3) and in unfavorable situations (7, 8) taskoriented leadership is more effective, while under stressful circumstances (4, 5, 6)
relationship-oriented leadership is more effective.
Fiedler is on the opinion that a leader cannot change his/her behavior to fit a particular
situation. If there is a poor match, the situation has to be changed (i.e. by structuring the task,
increasing the power).

1.7.2 The Path-Goal Theory

The path-goal theory suggests that the primary functions of a leader are to make valued or
desired rewards available in the workplace and to clarify for the subordinate the kinds of
behavior that will lead to goal accomplishment and valued rewards. In other words, the leader
should clarify the paths to goal attainment.
The path-goal theory defines four kinds of leader behavior:

Directive: Letting subordinates know what is expected of them, giving guidance and
direction, and scheduling work. There is no subordinate participation in decisionmaking.

Supportive: The leader is friendly and approachable, shows concern for subordinate
welfare, and treats members as equals.

Participative: The leader consults subordinates, solicits suggestions, and allows

participation in decision making.

Achievement-oriented: The leader sets challenging goals for subordinates, expects

subordinates to perform at high levels, encourages subordinates and shows confidence
in the subordinates abilities.

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Like other situational approaches, the path-goal theory suggests that the appropriate leader
style depends on situational factors. Two general categories of situational factors are the
following.

Personal characteristics of subordinates.

Two important personal characteristics are the subordinates perception of their own
ability and their locus of control. If subordinates perceive that they are lacking in
ability, they may prefer directive leadership to help them understand path-goal
relationships better. If they perceive themselves to have a lot of ability, however,
employees may resent directive leadership. Locus of control is a personal trait. People
who have an internal locus of control believe that what happens to them is a function
of their own efforts and behavior. Those who have an external locus of control assume
that fate or luck or the system determines what happens to them. A person with
internal locus of control may prefer participative leadership, whereas a person with an
external locus of control may prefer directive leadership.

Environmental characteristics of the workplace. Environmental characteristics

include factors outside the subordinates control. Task structure is one such factor.
When the structure is high, directive leadership is less effective than when the
structure is low. The formal authority system is another environmental characteristic.
The higher the degree of formality, the less directive is leader behavior that will be
accepted by subordinates. The nature of the work group also effects the appropriate
leader behavior. When the work group provides the individual with social support and
satisfaction, supportive leader behavior is less critical.

Research that has been done suggest that the path-goal theory is a reasonably good description
of the leadership process and that future investigations along these lines should enable us to
discover more about the link between leadership and motivation.

1.7.3 The Vroom-Yetton-Jago Model

Attempts to identify the effective leadership style for a given set of circumstances or
situations. This model focuses only on one part of the leadership process how much
decision-making participation to allow subordinates. The model predicts what kinds of
situations call for what degrees of group participation.
To maximize decision effectiveness, the model suggests that managers adopt one of five
decision-making styles. These styles rage from AI (leaders solve the problem using available
information) to GII (where subordinates generate ideas and reach a consensus solution with
the leader acting as a chairperson). The five types are listed below.
A = Autocratic, C = Consultative, G = Group

AI: Autocratic style without involving subordinates

AII: Autocratic style involving subordinates (collecting information from them,

informing them)

CI: Consultative style (consulting with individuals)

CII: Consultative style (consulting with group)

G: Group decision

The situation that is presumed to dictate an appropriate decision making style is defined by a
series of questions (Figure 9) about the characteristics or attributes of the problem under
consideration. To address the questions the managers use one of four decision trees. Two of

Pdr, K.: Management and Business Economics

the trees are for use when the problem affects the entire group, and the other two are
appropriate when the problem relates to an individual. One of each is to be used when the
time necessary to reach a decision is important, and the others should be used when time is
less important but the manager wants to develop subordinates decision-making abilities.
QR
CR
LI
ST
CP
GC
CO
SI

Quality
requirement
Commitment
requirement
Leaders
information
Problem
structure
Commitment
probability
Goal
congruence
Subordinate
conflict
Subordinate
information

How important is the technical quality of this decision?

How important is subordinate commitment to this
decision?
Do you have sufficient information to make a high-quality
decision?
Is the problem well-structured?
If you were to make the decision by yourself, is it
reasonably certain that your subordinates would be
committed to the decision?
Do subordinates share the organizations goals to be
attained in solving this problem?
Is conflict among subordinates over preferred solutions
likely?
Do subordinates have sufficient information to make a
high-quality decision?

Figure 9: Series of Questions for the Decision Tree

Figure 10 shows the decision tree used for time driven group problems. By giving answers to
the questions, the manager is lead to the appropriate decision-making style for the given
situation.

Figure 10: Decision Tree for Time Driven Group Problems Used in the Vroom-Yetton-Jago Model

The Vroom-Yetton-Jago model has been widely tested and it had received more scientific
support than any other leadership theory.

Pdr, K.: Management and Business Economics

1.7.4 The Hersey-Blanchard Situational Theory

Of the various contingency approaches to leadership, the Hersey-Blanchard situational theory
has been the least researched. Yet it is widely used in management training programs. The
theory is closely based on the leadership styles generated by the Ohio State model. The
unique contribution of the model lies in its emphasis on matching a particular leadership style
to the maturity of the followers.
Subordinate maturity is defined as the capacity to set high but attainable goals, the
willingness to take responsibility, and the possession of relevant education and/or experience.
Maturity is judged in relation to
a given task. Therefore, a
particular subordinate may be
quite mature in relation to one
task and immature in reaction to
another. Subordinate maturity
contains two components: job
maturity,
or
technical
knowledge and task-relevant
skills,
and
psychological
maturity, or feelings of selfconfidence and the willingness
and
ability
to
accept
responsibility. A subordinate
who is highly mature possesses
both technical competence and
self-confidence for a given task.
A subordinate who is low on
maturity for a task lacks both
ability
and
confidence.
Although Hersey and Blanchard
acknowledge other variables as
potentially
important
(for
example, time pressures), they
focus primarily on follower
maturity
as
the
critical
situational attribute.
Figure 11: The Hersey-Blanchard Situational Model

The central thesis of their model is that as follower maturity increases, a leader should rely
more on relationship-oriented behavior and less on task-oriented behavior. Beyond a certain
point on this maturity dimension, however, the leader should rely less on both task-oriented
and relationship-oriented behaviors. This pattern is depicted in Figure 11. With subordinates
who are highly immature (situation M1), the leader should emphasize task-oriented behavior
and be very directive and autocratic. In essence, this is a style of leadership that involves
telling the subordinates what to do. For situation M2, subordinates who are still on the
somewhat low side of maturity, a leader should focus on being more relationship-oriented.
Such a leader works on selling his or her ideas to the subordinates. Subordinates who are
somewhat high in maturity (M3) will also need a fair degree of support and considerate
treatment. The appropriate leadership style in this case is one of participating with
subordinates. Lastly, subordinates who are highly mature (M4) are self-motivated and can be
trusted to rely on their own self-direction. In fact, highly mature employees may actually

Pdr, K.: Management and Business Economics

expect to be given a great deal of autonomy. The preferred style of leadership with such
subordinates is one of delegating.

1.7.5 New Approaches

VDL: Vertical-dyad linkage model (promising)

The model suggests that leaders have different kinds of relationships with different kinds of
subordinates (in-group vs. out-group).

Life cycle theory (little scientific support)

According to this theory, the appropriate leader behavior depends on the maturity (motivation,
competence, experience) of the followers. The theory suggests that as followers become more
mature, the leader needs to gradually move from a high level of task orientation to a low level.
Simultaneously, employee-oriented behavior should start low, increase at a moderate rate, and
then decline again.

1.8 New Perspectives

Substitutes for Leadership

The substitute concepts identify situations in which leader behaviors are neutralized or
replaced by characteristics of the subordinate, the task and the organization. For example,
when a patient is delivered to a hospital emergency room, the professionals on duty there do
not wait to be told what to do by a leader. Nurses, doctors, and attendants all go into action
without waiting for directive or supportive leader behavior from the emergency room
supervisor.

Transformational Leadership

Transformational leadership means that leadership that goes beyond ordinary expectations by
transmitting a sense of mission, stimulation learning experience and inspiring new ways of
thinking. Transformational leaders are able to stimulate, shift and use the values, beliefs and
needs of their followers to accomplish tasks.

1.9 Questions to consider

Define leadership and describe its relation to management!

Define types of power and give at least two examples for the use of these types of
power!

Why is the mutual-sharing view important?

What is the main idea behind McGregors theory?

Name and explain the biggest difference between the Michigan Studies and the Ohio
State Studies models!

What does the Managerial Grid implies in terms of appropriate leadership?

Describe those situations when task-oriented leadership behavior is favorable

according to Fiedlers theory!

What is favorableness of a situation?

List all the situational factors described by the path-goal theory! Point out the
difference between the two major categories!

Pdr, K.: Management and Business Economics

What types of decision-making styles are there according to the Vroom-Yetton-Jago

model? How can a manager decide which one is the appropriate?

Delineate the Hersey-Blanchard situational Theory model, briefly describe its

suggested leadership styles!

Why is maturity an important concept in the Hershey-Blanchard situational theory?

How suggested leadership styles reflect this?

1.10 References

Donnelly, J.H. Gibson, J. L. Ivancevich, J. M. (1995): Fundamentals of

Management 9th edition, Irwin Inc., pp. 376-411

Fincham, R. Rhodes, P. S. (2005): Principles of Organizational Behaviour 4th

edition, Oxford University Press, pp. 310-364

Griffin, R. W. (1990): Management 3rd edition, Houghton Mifflin Co., pp. 474-503

Vecchio, R. P. (1991): Organizational behaviour, 2nd edition, The Dryden Press, USA,
pp. 269-338

Pdr, K.: Management and Business Economics

2 Organizational culture
Organizational culture has become a pivotal concept in management theories of
organizational redesign and employee relations over the last two decades. Culture has shifted
from the periphery to something that attracted people to an organization to the core, where
it has become something that sustains them.
But before going deeper into understanding organizational culture, let us take a step backward
and have a look at the concept of national culture first as it has great influence on
organizational culture.

2.1 National culture

A national culture is learned, it is shared, and it defines the boundaries of different groups and
various aspects of national culture (e.g. aesthetics, religion, attitudes, legal factors, language,
and education) that are interrelated. Thus, a national culture is the sum of the total beliefs,
rituals, rules, customs, artifacts, and institutions that characterize the population of the nation.
Those nation states that are created politically usually contain several cultures. For instance,
Canada has, at least, three major cultures Anglo, Quebecer (French-speaking) and Native.
The values, norms, customs and rituals of cultures do not simply appear. They take an
evolutionary course and are influenced by politics, religion, language, and other cultural
aspects.
A nations culture and subcultures affect how organizational transactions are conducted (e.g.
marketing, hiring practices, reward programs, supervisor-employee interactions, use of
technology). Knowledge, respect and flexibility for coping with national cultural differences
have become important factors for managers to consider in their plans. Learning to operate in
a world influenced by national culture differences is becoming a mandatory requirement for
effective management.
When a person moves from one firm to another or even from one department to another in the
same firm, he or she senses and experiences differences between the environments. Although
adaptation to new environments is difficult, it can be better understood by learning about
organizational culture.

2.2 Importance of organizational culture

As it is visible from the previous paragraphs, it is of high importance to study organizational
culture. As Geert Hofstede (Emeritus Professor, Maastricht University) says:
Culture is more often a source of conflict than of synergy. Cultural differences are a
nuisance at best and often a disaster.
In accordance with this, Isadore Shard, Chairman and CEO of the Four Seasons Hotels,
thinks:
If you dont understand the culture of the company, even your most brilliant strategies will
fail. Your vision will be resisted, plans wont get executed properly, and all kinds of things will
start going wrong.
Despite being an important concept, organizational culture as a perspective to understand the
behavior of individuals and groups within organizations has its own limitations. First, this is
not the only way to view organizations. Second, like so many concepts, organizational culture
is not defined the same way by any two popular theorists or researchers.

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2.3 Scheins definition

Edgar H. Schein defined organizational culture as:
the pattern of basic assumptions that a given group has invented, discovered or developed in
learning to cope with its problems of external adaptation and internal integration, and that
have worked well enough to be considered valid, and, therefore, to be taught to new members
as the correct way to perceive, think, and feel in relation to those problems.
As this definition is quite complex, it is worth going through its elements one by one with
the help of Scheins comments.

2.3.1 Pattern of basic assumptions

Organizational culture can be analyzed at several different levels, starting with the visible
artifacts the constructed environment of the organization, its architecture, technology,
office layout, manner of dress, visible or audible behavior patterns, and public documents
such as charters, employee orientation materials, stories (see Figure 17). As Schein points out
this level of analysis is tricky because the data are easy to obtain but hard to interpret. We can
describe how a group constructs its environment and what behavior patterns are
discernible among the members, but we often cannot understand the underlying logic why
a group behaves the way it does.
To analyze why, we often look for the values that govern behavior, which is the second level
in Figure 17. But as values are hard to observe directly, it is often necessary to infer them by
interviewing key members of the organization or to content analyze artifacts such as
documents and charters. However, in identifying such values, we usually note that they
represent accurately only the manifest or espoused values of a culture. That is, they focus on
what people say is the reason for their behavior, what they ideally would like those reasons to
be, and what are often their realizations for their behavior. Yet, the underlying reasons for
their behavior remain concealed or unconscious.

Figure 12: The Levels of Culture and Their Interaction (Schein, 1981)

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To really understand a culture it is imperative to delve into the underlying assumptions, which
are typically unconscious but which actually determine how group members perceive, think
and feel. Such assumptions are themselves learned responses that originated as espoused
values. But, as a value leads to a behavior, and as that behavior begins to solve the problem
which prompted it in the first place, the value gradually is transformed into an underlying
assumption about how things really are. As the assumption is increasingly taken for granted, it
drops out of awareness.

2.3.2 A given group

There cannot be a culture unless theres a group that owns it. Culture is embedded in
groups, hence the creating groups must be always clearly identified. If we want to define a
cultural unit, therefore, we must be able to locate a group that is independently defined as the
creator, host, or owner of that culture. (We must be careful not to define the group in terms of
the existence of a culture however tempting that may be, because we then would be creating a
completely circular definition.)
According to Schein, a given group is a set of people
1) who have been together long enough to have shared significant problems,
2) who have had opportunities to solve those problems and to observe the effects of their
solutions, and
3) who have taken in new members.
A groups culture cannot be determined unless there is such a definable set of people with
shared history.
If a total corporation consists of stable, functional, divisional, geographic or rank-based
subgroups, then that corporation will have multiple cultures within. It is perfectly possible for
those multiple cultures to be in conflict with each other, such that one could not speak of a
single corporate culture. On the other hand, if there has been common corporate experience as
well, then one could have a strong corporate culture on top of various subcultures that are
based in subunits.
It has also been pointed out that some of the cultural assumptions in an organization can come
from the occupational background of the members of an organization. This makes it possible
to have a managerial culture, an engineering culture, a science culture, a labor union culture,
etc., all of which coexist in a given organization.

2.3.3 Invented, discovered or developed

Cultural elements are defined as learned solutions to problems. Structurally, there are two
types of learning situations:
1) Positive problem-solving situations: that produce positive or negative reinforcement in
terms of whether the attempted solution works or not;
2) Anxiety-avoidance situations: that produce positive or negative reinforcement in terms
of whether the attempted solution does or does not avoid anxiety.
In the positive problem-solving situation, the group tries out various responses until
something works. The group then will continue to use this response until ceases to work. The
information that it no longer works is visible and clear. By contrast, in the anxiety avoidancesituation, once a response is learned because it successfully avoids anxiety, it is likely to be
repeated indefinitely. The reason is that the learner will not willing to test the situation to
determine whether the cause of the anxiety is still operating. Thus all rituals, patterns of

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thinking or feeling, and behaviors that may originally have been motivated by a need to avoid
a painful, anxiety-provoking situation are going to be repeated, even if the causes of the
original pain are no longer acting, because the avoidance of anxiety is, itself, positively
reinforcing.
Where do solutions initially come from? Most cultural solutions in new groups and
organizations originate from the founders and early leaders of that organization. Initially, the
founders have the most influence, but as the group ages and acquires its own experiences, its
members will find their own solutions. Ultimately, the process of discovering new solutions
will be more a result of interactive, shared experiences. But leadership will always play a key
role during these times when the group faces a new problem and must develop new responses
to the situation. In fact, one of the crucial functions of leadership is to provide guidance at
precisely those times when habitual ways of doing things no longer work, or when a dramatic
change in the environment requires new responses.

2.3.4 Problems of external adaptation and internal integration

If culture is the solution to the problems a group faces, what can we say about the nature of
those problems? Most group theorists agree it is useful to distinguish between two kinds of
problems
1) those that deal with the groups basic survival, which has been labeled the primary
task, basic function or ultimate mission of the group,
2) those that deal with the groups ability to function as a group.
Homans further distinguishes between the external system and the internal system and notes
that the two are interdependent. Even though one can distinguish between the external and
internal problems, in practice both systems are highly interrelated.
External adaptation problems are those that ultimately determine the groups survival in the
environment. While a part of the groups environment is enacted, in the sense that prior
cultural experience predisposes members to perceive the environment in a certain way and
even to control that environment to a degree, there will always be elements of the
environment (weather, natural circumstances, availability of economic and other resources,
political upheavals) that are clearly beyond the control of the group that will, to a degree,
determine the fate of the group.
Internal integration problems. A group or organization cannot survive if it cannot manage
itself as a group. External survival and internal integration problems are, therefore, two sides
of the same coin. While the nature of solutions to the major issues of internal integration
around which cultural solutions must be found (e.g., common language and conceptual
categories, consensus on criteria for the allocation of power and status) will vary from one
organization to another, by definition, every organization will have to face each of these
issues and develop some kind of solution. However, because the nature of the solution will
reflect the biases of the founders and current leaders, the prior experiences of group members,
and the actual events experienced, it is likely that each organizational culture will be unique,
even though the underlying issues around which the culture is formed will be common.

2.3.5 Assumptions that work well enough to be considered valid

Culture goes beyond the norms or values of a group in that it is more of an ultimate outcome,
based on repeated success and a gradual process of taking things for granted. In other words,
what makes something cultural is this taken-for-granted quality, which makes the
underlying assumptions virtually indiscussable.

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Since the basic assumptions that make up an organizations culture serve as the secondary
function of stabilizing much of the internal and external environment for the group, and since
that stability is sought as a defense against the anxiety which comes with uncertainty and
confusion, these deeper parts of the culture either do not change or change only very slowly.

2.3.6 Taught to new members

Because culture serves the function of stabilizing the external and internal environment for an
organization, it must be taught to new members. It would not serve its function if every
generation of new members could introduce new perceptions, language, thinking patterns, and
rules of interaction. For culture to serve its function, it must be perceived as correct and valid,
and if it is perceived that way, it automatically follows that it must be taught to newcomers.
It cannot be overlooked that new members do bring new ideas and do produce cultural
change, especially if they are brought in at high levels of the organization. It remains to be
settled empirically whether and how this happens. Much of the work on innovation in
organizations is confusing because often it is not clear whether the elements that are
considered new are actually new assumptions, or simply new artifacts built on old cultural
assumptions.
In sum, if culture provides the group members with a paradigm of how the world is, it goes
without saying that the very process of passing on the culture provides an opportunity for
testing, ratifying and reaffirming it. For both of these reasons, the process of socialization
(i.e., the passing on of the groups culture) is strategically an important process to study if one
wants to decipher what the culture is and how it might change.

2.3.7 Perceive, think and feel

The final element in the definition reminds us that culture is pervasive and ubiquitous. The
basic assumptions about nature, humanity, relationships, truth, activity, time, and space cover
virtually all human functions. This is not to say that a given organizations culture will
develop to the point of totally controlling all of its members perceptions, thoughts, and
feelings. But the process of learning to manage the external and internal environment does
involve all of ones cognitive and emotional elements. As cultural learning progresses, more
and more of the persons responses will become involved. Therefore, the longer we live in a
given culture, and the older the culture is, the more it will influence our perceptions, thoughts,
and feelings.
Behavior is, to a large extent, a joint function of what the individual brings to the situation and
the operating situational forces, which to some degree are unpredictable. To understand the
cultural portion of what the individual brings to the situation, we must examine the
individuals pattern of perceptions, thoughts, and feelings. Only after we have reached a
consensus at this inner level have we uncovered what is potentially cultural.

2.3.8 Summary
After having a look at Scheins definition in detail, it should be clear that organizational
culture:
1) is always in the process of formation and change,
2) tends to cover all aspects of human functioning,
3) is learned around the major issues of external adaptation and internal integration,

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4) is ultimately embodied as an interrelated, patterned set of basic assumptions that deal

with the ultimate issues, such as the nature of humanity, human relationships, time,
space, and the nature of reality and truth itself.

2.4 Handys culture types

Charles Handy, (1932 ) is an Irish author/philosopher specializing in organizational
behavior and management. He popularized (1985) the 1972 work of Roger Harrison of
looking at culture, which some scholars have used to link organizational structure to
organizational culture.
Handy described four culture types: power, role, task and person culture.

2.4.1 Power culture

The main features of power culture are the following:

It concentrates power among a few.

Control radiates from the center like a web.

Power and influence spread out from a central figure or group.

Power derives from the top person and personal relationships with that individual
matters more than any formal title of position.

Has few rules and little bureaucracy; swift decisions can ensue.

2.4.2 Role culture

The main features of role culture are the following:

People have clearly delegated authorities within a highly defined structure.

Typically, these organizations form hierarchical bureaucracies.

Power derives from a persons position and little scope exists for expert power.

It is controlled by procedures, role descriptions and authority definitions.

Predictable and consistent systems and procedures are highly valued.

2.4.3 Task culture

The main features of task culture are the following:

Teams are formed to solve particular problems.

Power derives from expertise as long as a team requires expertise.

These cultures often feature the multiple reporting lines of a matrix structure.

It is all a small team approach, who are highly skilled and specialist in their own
markets of experience.

2.4.4 Person culture

The main features of person culture are the following:

In a person culture all individuals believe themselves superior to the organization.

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Survival can become difficult for such organizations, since the concept of an
organization suggests that a group of like-minded individuals pursue the
organizational goals.

Some professional partnerships can operate as person cultures, because each partner
brings a particular expertise and clientele to the firm.

2.5 Deal & Kennedy

Terrence Deal and Allen Kennedy are also determining figures if one talks about
organizational culture. Their book (Corporate Cultures: The Rites and rituals of Corporate
Life, 1982) had a great influence on several other theorists.
According to Deal and Kennedy, the components of corporate culture are:

values,

heroes,

rites, and

rituals.

Based on feedback speed and the degree of risk, they defined four culture types (Figure 18).

Figure 13: Culture types by Deal and Kennedy (1982)

2.5.1 Work-hard, play-hard culture

This culture has rapid feedback and low risk, leading to:

Stress coming from quantity of work rather than uncertainty.

High-speed action leading to high-speed recreation.

E.g. restaurants, software companies.

2.5.2 Tough-guy macho culture

This has rapid feedback and high risk, which leads to:

Stress coming from high risk and potential loss/gain of reward.

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Focus on the present rather than the longer-term future.

E.g. police, surgeons, sports.

2.5.3 Process culture

Process culture has slow feedback and low risk, leading to:

Low stress, plodding work, comfort and security. Stress may come from internal
politics and stupidity of the system.

Development of bureaucracies and other ways of maintaining the status quo.

Focus on security of the past and of the future.

E.g. banks, insurance companies.

2.5.4 Bet-your-company culture

Bet-your-company culture occurs when feedback is slow and the degree of risk is high,
leading to:

Stress coming from high risk and delay before knowing if actions have paid off.

The long view is taken, but then much work is put into making sure things happen as
planned.

E.g. aircraft manufacturers, oil companies.

2.6 Hofstedes cultural dimensions

Geert Hofstede was born in 1928, and as he states on his website he is a Dutch social
psychologist who did a pioneering study of cultures across modern nations.
One useful framework for understanding the importance of values in organizational behavior
is provided by Hofstede. The result of his research on 116,000 people working for IBM in
more than 50 countries has been a four-value dimension framework.
He proposes four dimensions:

Power distance (PDI)

Individualism (IDV)

Masculinity (MAS)

Uncertainty Avoidance Index (UAI).

Later on, based on the work of Chinese scholars a fifth dimension was added to the
framework:

Long-term orientation (LTO)

2.6.1 Power distance

Power distance is the extent to which the less powerful members of organizations and
institutions (like the family) accept and expect that power is distributed unequally. This
represents inequality (more versus less), but defined from below, not from above. It suggests
that a societys level of inequality is endorsed by the followers as much as by the leaders.
Power and inequality, of course, are extremely fundamental facts of any society and anybody

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with some international experience will be aware that all societies are unequal, but some are
more unequal than others.

2.6.2 Individualism
On the one side versus its opposite, collectivism, that is the degree to which individuals are
integrated into groups. On the individualist side we find societies in which the ties between
individuals are loose: everyone is expected to look after him/herself and his/her immediate
family. On the collectivist side, we find societies in which people from birth onwards are
integrated into strong, cohesive in-groups, often extended families (with uncles, aunts and
grandparents) which continue protecting them in exchange for unquestioning loyalty. The
word collectivism in this sense has no political meaning: it refers to the group, not to the
state.

2.6.3 Masculinity
Masculinity versus its opposite, femininity, refers to the distribution of roles between the
genders (...) The IBM studies revealed:
a) womens values differ less among societies than mens values;
b) mens values from one country to another contain a dimension from very assertive and
competitive and maximally different from womens values on the one side, to modest
and caring and similar to womens values on the other.
The assertive pole has been called masculine and the modest, caring pole feminine. The
women in feminine countries have the same modest, caring values as the men; in the
masculine countries they are somewhat assertive and competitive, but not as much as the men,
so that these countries show a gap between men's values and womens values.

2.6.4 Uncertainty avoidance index

Uncertainty avoidance index deals with a societys tolerance for uncertainty and ambiguity.
(...) It indicates to what extent a culture programs its members to feel either uncomfortable or
comfortable in unstructured situations. Unstructured situations are novel, unknown,
surprising, different from usual. Uncertainty avoiding cultures try to minimize the possibility
of such situations by strict laws and rules, safety and security measures, and on the
philosophical and religious level by a belief in absolute Truth. (...) People in uncertainty
avoiding countries are also more emotional, and motivated by inner nervous energy. The
opposite type, uncertainty accepting cultures, are more tolerant of opinions different from
what they are used to; they try to have as few rules as possible, and on the philosophical and
religious level they are relativist and allow many currents to flow side by side. People within
these cultures are more phlegmatic and contemplative, and not expected by their environment
to express emotions.

2.6.5 Long-term orientation

Long-term orientation versus short-term orientation: this fifth dimension was found in a
study among students in 23 countries around the world, using a questionnaire designed by
Chinese scholars.
It can be said to deal with Virtue regardless of Truth.
Values associated with Long Term Orientation are thrift and perseverance; values associated
with Short Term Orientation are respect for tradition, fulfilling social obligations, and
protecting ones face.

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Both the positively and the negatively rated values of this dimension are found in the
teachings of Confucius, the most influential Chinese philosopher who lived around 500 B.C.;
however, the dimension also applies to countries without a Confucian heritage.

Figure 14: Examples of Hofstedes 5 Dimensions (Japan vs. US, France vs. Hungary)
Source: http://www.geert-hofstede.com/

The results of Hofstedes research can be shown in what he calls maps of the world. The maps
show at a glance the similarities and differences in work values across nations. It requires
little explanation that these cultural value dimensions are interdependent and complex.
Consequently, the effects of values on workplace productivity, attitudes and effectiveness are
difficult to determine. Managers must be cautious about grossly overgeneralizing. For
instance, not all Americans value individualism, low power distance, moderate uncertainty,
and masculinity. Figure 19 shows some examples of the framework in practice.

2.7 Questions to consider

Explain why it is important (e.g. for a manager in an organization) to pay attention to

organizational culture!

Name the levels of culture defined by Schein and brief describe them and their
relation to each other!

What is Scheins definition of organizational culture?

Why are groups important if one talks about organizational culture?

Explain the difference between external adaptation and internal integration!

List the culture types defined by Handy!

Briefly describe one of the culture types defined by Handy!

Describe (draw) the matrix about culture type which was suggested by Deal and
Kennedy!

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What is the Bet-your-company culture like?

List the 4+1 cultural dimensions of Hofstede! Why are these important?

What is uncertainty avoidance index? Which theorist can you relate it to?

2.8 References

Deal, T. E. Kennedy, A. A. (1988): Corporate Cultures: The Rites and Rituals of

Corporate Life, Peguin Group, England

Donnelly, J.H. Gibson, J. L. Ivancevich, J. M. (1995): Fundamentals of

Management 9th edition Irwin Inc., pp. 403-411

Fincham, R. Rhodes, P. S. (2005): Principles of Organizational Behaviour 4th

edition, Oxford University Press, pp. 527-547

Ivanchevic, J. M. Konopaske, R. Matteson, M. T. (2008): Organizational behavior

and Management, 8th edition, MC-Graw Hill/Irwin, New York, NY, pp. 33-57

Schein, E. H. (1981): Coming to a New Awareness of Organizational Culture, Sloan

Management Review, Winter 1981, pp.3-16

Vecchio, R. P. (1991): Organizational behaviour, 2nd edition, The Dryden Press, USA,
pp. 549-575

http://www.geert-hofstede.com