APPLIED PSYCHOLOGY: AN INTERNATIONAL REVIEW, 1994.43 (1) 89-108 Dimensions of Perceived Organisational Performance: Tests of a Model Nigel Nicholson London Business School, UK Sten Olof Brenner Polishogskolan, Solna, Sweden A partir d’ttudes de cas, on a elabort un modele tttradimensionnel de la performance dans les organisations en rapport avec les processus de manage- ment. Les parametres du modtle ont t t t tprouvts via LISREL A douze reprises grace aux ttmoignages recueillis aupres d’un tchantillon (N = 4000) tirt dans les branches internationales d’un secteur de premiere importance. Les ittrations faisaient appel ?i des tchantillons reprtsentant des activitts et des zones gtographiques difftrentes. Les rtsultats confirment certains des relations prtdites par le modele et traduisent une grande cohtrence entre les iterations. En outre, une analyse hitrarchique portant sur soixante unites de ttmoignages agrtgCs tclaire la signification des relations entre les mesures de performance, soulignant I’importance de l’adaptabilitt et des perceptions globales du climat de l’entreprise pour I’efficience et le dtveloppement futur. On the basis of previous case-study investigations a four-element model of organisational performance is proposed, whose links are identified with management processes. Data from a 4,000 strong sample, drawn from the international businesses of a major corporation, allowed perceptual measures of the model’s parameters to be tested via LISREL across 12 replications; each replication representing samples from differing business and geo- graphical areas of company operations. Results confirm some of the model’s predicted relationships, and reveal a high degree of consistency across replic- ations. Additionally, path analysis on 60 sub-unit aggregated perceptions shed light on the possible significance of relationships among the performance measures, underlining the importance of adaptability and global perceptions of company climate for effectiveness and future growth. Requests for reprints should be sent to Prof. Nigel Nicholson, The London Business School, Centre for Organisational Research, Sussex Place, Regent’s Park, London NWl4SA, UK. An earlier version of this paper was presented to the 5th European Congress on the Psychology of Work and Organisation, Rouen. France, March 1991. The authors gratefully acknowledge the constructive suggestions of anonymous referees on an earlier version of this paper. 0 1994 International Association of Applied Psychology
Transcript
APPLIED PSYCHOLOGY: AN INTERNATIONAL REVIEW, 1994.43 (1) 89-108
Dimensions of Perceived Organisational Performance: Tests of a Model
Nigel Nicholson London Business School, UK
Sten Olof Brenner Polishogskolan, Solna, Sweden
A partir d’ttudes de cas, on a elabort un modele tttradimensionnel de la performance dans les organisations en rapport avec les processus de manage- ment. Les parametres du modtle ont t t t tprouvts via LISREL A douze reprises grace aux ttmoignages recueillis aupres d’un tchantillon (N = 4000) tirt dans les branches internationales d’un secteur de premiere importance. Les ittrations faisaient appel ?i des tchantillons reprtsentant des activitts et des zones gtographiques difftrentes. Les rtsultats confirment certains des relations prtdites par le modele et traduisent une grande cohtrence entre les iterations. En outre, une analyse hitrarchique portant sur soixante unites de ttmoignages agrtgCs tclaire la signification des relations entre les mesures de performance, soulignant I’importance de l’adaptabilitt et des perceptions globales du climat de l’entreprise pour I’efficience et le dtveloppement futur.
On the basis of previous case-study investigations a four-element model of organisational performance is proposed, whose links are identified with management processes. Data from a 4,000 strong sample, drawn from the international businesses of a major corporation, allowed perceptual measures of the model’s parameters to be tested via LISREL across 12 replications; each replication representing samples from differing business and geo- graphical areas of company operations. Results confirm some of the model’s predicted relationships, and reveal a high degree of consistency across replic- ations. Additionally, path analysis on 60 sub-unit aggregated perceptions shed light on the possible significance of relationships among the performance measures, underlining the importance of adaptability and global perceptions of company climate for effectiveness and future growth.
Requests for reprints should be sent to Prof. Nigel Nicholson, The London Business School, Centre for Organisational Research, Sussex Place, Regent’s Park, London NWl4SA, UK.
An earlier version of this paper was presented to the 5th European Congress on the Psychology of Work and Organisation, Rouen. France, March 1991.
The authors gratefully acknowledge the constructive suggestions of anonymous referees on an earlier version of this paper.
0 1994 International Association of Applied Psychology
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I NTRODU CTl ON The objective of this paper is to examine the relationships between em- ployees’ perceptions of four facets of organisational performance, at indi- vidual and sub-unit levels of analysis. A tentative model of the linkages between facets is proposed, each link representing aspects of management process. The model is tested and related to expectations of future company growth. A central issue underlying this approach is the question of how employee perceptions may relate to the fate of organisations. This will be framed, later in the paper, in terms of the possible instrumental force of employees’ faith, hope, and confidence in their organisation concerning its prospects for future success.
The study of organisational performance has a long and chequered history, highlighting numerous conceptual and methodological problems (Lewin & Minton, 1986; Quinn & Rohrbaugh, 1983). So-called ‘objective’ measures, such as those relating to profits, return on assets, market share and the like, are often, on closer examination, non-commensurate for a variety of reasons (Eccles, 1991), designed more for market-signalling than for research.
We encountered these difficulties in a study of strategy and performance in the UK wool textiles industry (Nicholson, Rees, & Brooks-Rooney, 1990). The study compared eight companies within a single sector and geographical region, using a multi-method case approach. The analytic framework used was adapted from Miles and Snow’s (1978) strategic typol- ogy. This included experimentation with perceptual measures of company effectiveness by two means. The first was interview rating by the respond- ents in the eight companies (all the supervisory and managerial staff) of how successful they considered their companies to be. Second, on the basis of prior qualitative investigation, four dimensions of company performance were defined, on which companies were rated by the three researchers, based on all the available data (excluding the success ratings, which were unanalysed and kept ‘blind’ from the researchers at that stage):
1. Wealth. The munificence of a firm in terms of its resources, profits, assets, investments, and skilled staff.
2. Markets. The strength of a firm in its sources of supply, customer base, and market position.
3. Adaptability. The flexibility and versatility of a firm’s management, administration, technology, and workforce.
4. Climate. The ambience of a firm in terms of its morale, conviviality, satisfaction, and shared commitment. (Note that this global concept differs from conventional facet climate models, as will be explained shortly .)
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Our reasoning in developing these criteria proceeded through the following steps: First, there is agreement in the literature on the multi- dimensionality of performance and effectiveness (Cameron, 1986; Cameron & Whetten, 1983; Lewin & Minton, 1986; Quinn & Rohrbaugh, 1983; Steers, 1976). No single criterion would be adequate.
Second, our application and adaptation of the Miles and Snow model suggested the need to distinguish between internal strength (wealth), external capability (markets), and ability to manage change (adaptability). These can be loosely recast into a temporal metaphor: Wealth represents the past of organisational success; markets represent the present strength of a company in relation to its primary output goals, and adaptability represents the future potential of a company to control its destiny. The temporal metaphor illustrated for us the need to invoke criteria that span the business cycle, and which recognise their possible causal inter- dependence.
Third, our case analysis led us to the conclusion that, in addition to these criteria, climate, as a global perception of the psychological environ- ment, was an essential dimension, as a prerequisite to integrated func- tioning among employees. Conventionally, in the literature, climate has been dimensionalised and inferred from employee reports of the conduct, style, and values of other people at work (Payne & Pugh, 1976). A chief difficulty with this approach which has been noted is the virtual impossi- bility of disentangling the descriptive and evaluative components of measures (Payne, Fineman, & Wall, 1976), and their implicit self-refer- ential content, e.g. satisfaction; personal benefit (James & James, 1989). Our measurement of climate asks the respondent to take a more detached stance, and give their global assessment of the career fulfilment, job satis- faction, and team spirit of company employees in general, in comparison with those of other companies. The method therefore asks the question: is this seen as an organisation, in which, more or less than in others, people feel fulfilled and able to cooperate?
These four criteria-Wealth, Markets, Adaptability, and Climate- represent major strands in the effectiveness literature. Following the ana- lysis of Cameron and Whetten (1981) we can equate our construct of Wealth with effectiveness in acquiring inputs, and Markets as effectiveness in producing outputs. Adaptability, as conceived here, has parallels with Cummings’ (1977) proposal that freedom of action be counted as an effect- iveness criterion, offered in an attempt to move organisation theorists away from purely materialistic and functional criteria. Climate, as a fourth criter- ion, has close affinities with Schneider’s (1983) construction of effectiveness as the ability of an organisation to attract, motivate, and retain people. Following James and Jones (1974), Schneider and Reichers (1983) identify this as ‘organisational’ as distinct from ‘psychological’ climate. As
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operationalised here, our global climate measure contains elements associ- ated with ‘excellence’ in popular writing on the subject (Hickman & Silva, 1984; Kanter, 1984, 1989; Peters & Waterman, 1982). These four dimen- sions also have parallels with the four models of effectiveness that Quinn and Rohrbaugh (1983) derived from content analysis with a panel of experts.
The model we examine in this paper is based on the assumption that organisational members’ assessments of company performance on these four factors can be measured and aggregated, to provide a subjective method for evaluating the perceived strength of business units. They are not advocated as alternatives to objective measures, but as a useful source of insights in their own right, especially where objective data for a unit may not be meaningfully or feasibly gathered, as is so often the case. Some support for this approach is becoming available in current research using the same measures (Hodgkinson, 1993), which for the Wealth and Markets measures have yielded validity coefficients of between 0.45 and 0.59 with expert judges’ ratings of market share and sales performance across 56 business units. Lower coefficients for Climate and Adaptability were obtained; attributable to experts’ lack of the insider perspective which would be necessary to judge these qualities. Figure 1 shows how relation- ships among the four parameters are modelled.
ability to attract motivate & retain 1111111) & proactive strategies high quality staff
.I FIG. 1 . The basic model of management and organisational performance. A = the management of affect; B = the management of potential; C = the management of strategy; D = the management of resources.
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The model conceives management process as supplying the linkage between elements, forming a cycle of action and outcomes. The cycle may be virtuous or vicious, leading organisations towards excellence or failure. The linkages are identified on the following reasoning.
1. The management of affect. The conversion of wealth into climate is achieved by the expenditure of resources on systems and practices that fulfil the needs and aspirations of staff. These are the methods that minimise person-job misfit and maximise cooperative endeavour. Recmit- ment, placement, and team building are among the strategic tools com- monly deployed to create this linkage (Schuler & Jackson, 1987).
2. The management of human potential. A favourable climate only con- notes conviviality and harmony. There is no guarantee that affect will be converted into behaviour, as has long been established in the psychological literature, where weak and unstable connections have been observed between general attitudes and behaviour (Wicker, 1969) and, more specifically, between job satisfaction and performance or absence (Brayfield & Crockett, 1955; Nicholson, Chadwick-Jones, & Brown, 1976). But the unreliability of the relationship between affect and action does not mean there is no relationship, only that it depends on facilitating circum- stances to trigger, focus, or direct it. Propitious action and supportive environments art5 needed to turn this into a causal connection. The linkage between climate and adaptability requires management skill at all levels to enable workers to exploit their potential. The design of work environ- ments, technology, jobs, training, incentive, and control systems, are among the methods used in organisations to mediate the linkage.
3 . The management of strategic behaviour. Adaptability, or the demon- strable capacity to adapt and innovate, is of limited use without the environmental awareness and strategic purpose to exploit it. Management planning, decision-making, intelligence about the outside world, and cohe- rent action are needed for the adaptive organisation to optimise risk, develop exportable products, and exploit environmental niches (Chandler, 1962; Foulkes, 1986).
4. The management of resources. The conversion of market advantage into wealth invokes a wide range of management systems and processes. Primarily, it involves financial strategy, accounting practice, and invest- ment decisions. These determine available or visible wealth by disposing among the stakeholders and interests, and among the intraorganisational demands for technology, staffing, administrative expertise and various service and maintenance functions.
There is also a possible fifth path between Wealth and Adaptability. This might be termed the management of structure, denoting that it is also
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possible for management to enhance Adaptability by investing Wealth directly in structural and technological change. However, the literature repeatedly emphasises the need for administrative and technical innovation to be mediated by a favourable climate (Kanter, 1989; Tichy, 1983), so for the moment we will omit this link from the model.
The four constellations of effectiveness-linking process illustrated in the model can be loosely identified with the conventional division of labour of managerial functions in the modern enterprise. The management of affect and of human potential fall within the province of personnel and line management; the management of strategic behaviour with boundary-span- ners and functional heads; and the management of resources with divisional and corporate executives, aided by key service functions. However, it is as well not to over-identify the processes with positions, in theory or in practice, for whether they are performed, and by whom, will depend on the particular characteristics of an organisation’s design and culture. What is more practically important is that the model points up the need for any organisation to be aware that all these functional linkages should be present, by whatever assignment of roles and responsibilities, for the organisation to be mobilised on a virtuous cycle of effectiveness.
TESTING THE MODEL A full empirical examination of these linking processes would need detailed multi-method case studies. There is also a Leed for longitudinal measure- ment, as many of these relationships will be time-lagged. This is an ob- jective for future research. Our aim here is more modest: to evaluate the consistency, strength, and direction of relationships among these elements, via cross-sectional survey measurement.
Operationally, analysis is conducted in two ways. First, we apply LISREL analyses to individual responses, testing for consistencies across 12 subsamples. Second, we test for structurally distributed perceptions by applying path analysis to sub-unit aggregations corresponding to geo- graphical business units. The purpose here is check for the strength and consistency of relationships, across sample replications and across levels of analysis. The latter point-what is an appropriate level of analysis for climate research-is controversial (Glick, 1985). We argue that as our model is primarily perceptual, individual level tests are appropriate, while sub-unit aggregate tests establish the degree to which these are shared and similarly structured at the organisational level. The wider question here, of course, is whether these assessments reflect actual differences in the performance of units. This is not directly testable in the present study, but will be discussed in the light of the results.
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For the moment this assumption is necessary for the framing of hypo- theses, which can be undertaken on the basis of what we know about the priorities and expertise of management practice. From this, one can attempt to predict the consistency across organisational units of the relationships in the model, as follows:
H1. Linkage A , from Wealth to Climate, will be variable across cases. Our reasoning here is that it is rare in most organisations for greater wealth to be used consciously to enhance the quality of working lives and satisfy needs. There are often prior claims on the attention of managers with budgets.
H2. Linkage B, from Climate to Adaptability, will be consistent across samples. This is predicted on the basis of the consensus of OB theory and research that expressed satisfaction with the quality of work life usually connotes more than just passive contentment. People’s higher order needs are most satisfied by adaptive and innovative organisations. On this reason- ing, we can expect this linkage to be replicated across units.
H3. Linkage C, from Adaptability to Markets, is expected to be vari- able. This is based on the assumption that a high degree of adaptability only needs a moderate degree of strategic direction to result in market effectiveness. However, there are other forces acting on this outcome, as we suggested at the start of this paper, which limit the scope of this relation- ship, so it is likely to be inconsistent across units.
H4. Linkage D, from Markets to Wealth, is expected to be consistent. We expect this because this is the area of management practice where effort and expertise tend to be most concentrated. The conversion of inputs into resources is given great prominence in business education and com- mercial administration through a predominant emphasis on finance and accounting functions. We expect this to be equally visible and strong across business units, because it is a near cultural universal to stress the conserva- tion and efficient use of resources in organisations.
The absence of other linkages between elements in the model, e.g. reversal of the direction of the proposed linkages, or possible diagonal paths between the four elements, does not mean that they are proposed not to exist, only that there is less logical justification for predicting them at this stage (e.g. the possible path between Wealth and Adaptability discussed earlier). Their salience is a matter for empirical test.
Finally, we have developed an additional parameter, expected Future Growth, as an overall index of future expected performance, against which to assess the four elements of the model. The four elements are measured as comparative assessments: via questioning in the form: how well is your company doing relative to competitors? Future Growth is more absolute
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and time-specific, by asking the question: how much do you expect your organisation to grow or decline in the next five years? In relation to this criterion we can hypothesise as follows:
H5. Future Growth will be predicted consistently by Adaptability, and inconsistently by the other three elements. In keeping with the foregoing reasoning, Adaptability is the only element that implicitly denotes future potential. But because people will not always trust their organisation’s capacity to capitalise on adaptability, exceptions to this may occur. There is no comparable reason for expecting Wealth, Market effectiveness, and a positive Climate to impact directly on Growth.
METHOD Background and Sampling The wool textile study described earlier supplied the framework of con- cepts and predictions outlined. From the interview and questionnaire data of that study, we developed new self-report measures to capture the con- structs, and conducted a pilot investigation in mid-1989 within one geo- graphical division of a major UK bank. Data from a sample of 250 staff were subjected to factor analysis and scaling, and the measures revised in the light of results for the main study.
The main investigation was conducted as a Climate Survey in a UK- based international corporation. The company wanted baseline measure- ment of various employee perceptions of company performance, manage- ment style, and career development, prior to a major programme of organ- isation development. In late 1989 The Climate Survey was mailed to 6,500 managerial and professional staff worldwide. This sample was a 1 in 6 randomly selected quota of all employees from junior managerial grades to the highest executive levels in the corporation. Completed survey forms were returned by 4,017 people, a response rate of 67%. These were fairly evenly distributed across regions, businesses, and job functions.
At the time of the survey the corporation was divided into five main businesses, each of which had high operational autonomy, but with staff located across global regions. Each business also contained product and specific service divisions with local regional management structures. In the analyses that follow, the replicated LISREL samples (twelve) were formed by a business x region frame. Not all the five business divisions had worldwide representation, so blocks were formed to reach target sample sizes of no less than 100 and no more than 400 per replication, by contin- ental groupings where numbers were sufficient (e.g. North America, Europe, Asia). The path analysis aggregations were formed by sub-
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divisional product, process, or administrative entities within specific geo- graphical regions, i.e. managed operational entities (such as Division X, France). Units with less than 30 respondents were omitted and the maximum size was 100, giving a final total of 60 units for path analysis.
Measures For the four dimensions of effectiveness, respondents were asked a series of questions of the form: “How strong is the area of the X Group [company name] you are employed in compared to your main external competitors?”. Item response scales were: “much weakedweakedno differendstronged much stronger” and “don’t know”. The inclusion of the last category was important to ensure that only respondents who had clear perceptions of the parameters, and definite opinions about their external comparitors, would be included. This was evidently successful as the number of “don’t knows” varied widely across the scales and items, %21% across items, indicating discriminatory response patterns in judgements. To ensure that the data were restricted to respondents who were confident in their judge- ments of performance, “don’t knows” were treated as missing values and excluded from further analysis.
The fifth construct, Future Growth, was measured by a scale prefaced by the instruction: “Now please tell us how you rate the prospects for growth in the next 5 years of your area of the X Group”. Item response scales were: “major decline/some declineho changelsome growtldmajor growth”.
Table 1 shows the item content, means, standard deviations, and reliabilities (Alphas) of the scales.
RESULTS The first stage of analysis was a general assessment of the model as a cognitive framework for individual perceptions. In order to look at this across the total sample, while optimising degrees of freedom, a 10% sample was randomly selected for a preliminary test of the predicted relationships in the model by means of a maximum likelihood LISREL based on a two-stage least squares analysis (Joreskog & Sorbom, 1988). The four predicted paths were specified and others set initially at zero, with all five variables treated as endogenous. The paths from the four Effectiveness measures to the Future Growth criterion were not specified in the initial run, nor in the subsequent replications, because our prediction was that these linkages would be likely to vary across samples. For this reason, following initial testing of the model, iterative analyses were performed, in which paths were set free successively where modification indices showed
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TABLE 1 Scales, Item Content, and Descriptive Statistics
Scale Alpha Item X SD
Wealth 0.78 1. Resources and assets 2. Profitability 3. Investment 4. Access to needed staff 5 . Sources of materials supply
2. Competitiveness in markets 3. Diversity of markets
Markets 0.73 1. Marketshare
Adaptability 0.77 1. Ability to develop new products/ processes
2. Flexibility & adaptability of operations 3. Versatility & skills of current staff 4. Versatility of current technology 5 . Versatility of administrative &
1. Warmth & friendliness of working
2. Harmony, integration, & teamwork 3. Staff career satisfaction 4. Employee commitment to the company
significant gains in Chi Square could be achieved, until goodness of fit was optimised. This involved no more than two iterations for any of the replic- ations. The analysis also yielded a confirmatory factor analysis of the measures, providing clear support for their integrity and reliability. It yielded t-values for Wealth items in the range 8.52 to 10.56; for Markets, 10.99 to 11.60; Adaptability, 10.27 to 11.16; Climate, 12.94 to 17.83; and Future Growth, 9.31 to 12.08. Ongoing unpublished research in two separate studies (Cockerill, 1993; Hodgkinson, 1992) has also recently confirmed the factorial integrity of the measures.
Figure 2 shows the final disposition of paths on the 10% sample (direct effects of eta on eta) after iterations, as well as summary statistics for goodness of fit. The relationships are close to the original model, in terms of connections between elements, ignoring their direction, i.e. strong links along paths B, C, & D; a weaker path A (connecting Wealth and Climate);
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WEALTH - MARKETS
/ P84 FUTURE GROWTH
\
.620
.132 .724
CLIMATE ADAP TAB1 L I T Y .5 19
FIG. 2. Direct effects and Goodness of Fit Indices for the 10% sample (N = 370). df = 203; Chi Square = 552.34; adjusted Goodness of Fit Index = 0.846; Root Mean Square Residual = 0.058.
and no additional paths on the diagonals (connecting Wealth and Adapt- ability, and Markets and Climate). However, two of the paths are in the reverse of the predicted direction: Climate impacts weakly on Wealth; but more significantly, Adaptability impacts strongly on Climate, not vice versa as predicted. We shall discuss these path reversals later.
Chi Square values are all significant at the 1% level. However, signific- ance levels are usually high in LISREL due to the method’s stringent estimates of measurement error, and it is customary to consider values within three times the degrees of freedom to be at acceptable levels if other goodness of fit indices are favourable. This is the case here. Root Mean Square Residuals and Adjusted Goodness of Fit also yield generally favour- able assessments of the final model’s fit.
The second stage of analysis was to take this model (i.e. as the original, but with paths A and C reversed) and repeat the LISREL analytical pro- cedure on 12 independent samples. These 12 were formed by cross- tabulating the major business areas with main geographical regions in which they were represented, to form independent samples of approxi- mately equal size. Earlier two-way ANOVA analyses had revealed strong independent regional and business effects across the measures. This meant that the 12 samples would meet the desirable precondition of hetero- geneity, sufficient to test whether predicted relationships would emerge consistently under differing conditions. Results are summarised in Table 2, which shows goodness of fit and direct path coefficients for each of the models arrived at by the iterative LISREL analysis.
2
0 0
TABLE 2 Twelve Replications of Revised ModeLStandardised Path Estimates and Summary Statistics (df = 203-205)
Sample Standardised Path Estimates'
Paths in Revised Model Other Significant A B C D Paths Significant Paths Involving Future Growth
Clim Clim Adpt Mkts Wlth Wlth Adpt Clim Wlth Mkts Grow Grow on on on on on on on on on on on on Goodness Root Sq
*Only coefficients with t-values significant at the 0.05 level are shown; paths containing no significant coefficients are omitted.
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These results show a high degree of similarity across replications. The revised model achieves a similar degree of fit with the data from each of the 12 replications, with no more than two paths added in any case, as shown by the standardised path estimates. LISREL estimates three kinds of path coefficients: indirect, direct, and total. The table shows only direct paths. An empty cell denotes either a zero relationship, or that the only connection between the constructs is indirect, i.e. mediated by other vari- ables.
Several features are visible. First, we can see a high degree of con- sistency across samples for the first three of the paths, A, B, & C. The fourth, D, proves to be highly inconsistent. The remaining paths show little consistency-several only occur in a few individual cases. There are two exceptions worthy of note. One is the path for Adaptability on Future Growth, which emerges strongly in seven of the twelve cases. The second is the path from Climate to Growth, which is clearly evident in three of the twelve, and reversed in direction in one of the replications (Growth on Climate).
Before we proceed to the final stage of analysis, let us now summarise the findings so far in terms of the five study hypotheses. This summary is shown in schematic form in Fig. 3.
H1. The prediction that there would be an inconsistent linkage from Wealth to Climate is only supported if one ignores the direction of the path. In the predicted direction there is only one significant path. In the opposite direction, from Climate to Wealth, there is an inconsistent relationship: five out of twelve significant path coefficients.
H2. The expected path from Climate to Adaptability is reversed, though highly consistent across samples.
H3. The predicted path between Adaptability and Markets is strong and consistent, against the expectation that it would be variable.
H4. As predicted, the link from Markets to Wealth is highly consistent. H5. The expectation that the path from Adaptability to Future Growth
would be consistent is not supported; i.e. it emerges for seven of the twelve replications. There is also an unpredicted and inconsistent path from Climate to Growth.
The final stage of the analysis is by sub-unit. If these linkages reflect actual variations in performance, then one would expect them to hold across aggregated sub-unit perceptions. Because we know performance perceptions are subject to variation by locality, we constructed a frame of 60 site-specific sub-samples, corresponding to regional business and pro- duct sub-units of each of the main businesses used in the replications reported earlier. One-way ANOVAs with least-squared-difference tests were initially performed to pretest the variability of these as units of ana- lysis, which yielded significant effects on the study parameters. Each of these sub-units was then assigned the mean score for its members. Path analysis was non-recursive to avoid overidentification, and produced results as shown in Fig. 4.
There are some striking similarities and dissimilarities with the previous results. Strong connections are confirmed between Wealth and Markets, and between Adaptability and Climate. The link between Adaptability and Markets disappears, and in its place we find a new path, between Wealth and Adaptability. The link between Adaptability and Future Growth is also absent, leaving Climate to be the single main predictor of Growth. Before discussing these results we should note that the path analytic pro- cedure is not denying the existence of the missing paths; only showing that their variance is absorbed by those that are present; i.e. if they do exist, they are mediated by their association with the main relationships.
DISCUSSION
Let us consider the results in two stages: first evaluating the replicated samples of individual difference data, and second the sub-unit aggregated data.
Path analysis of aggregated data from 60 business x location sub-units. Co-
Between five variables there are 18 possible bi-directional paths. In the first set of tests, replicating LISREL analyses across discrete samples, only three of these paths emerged consistently, all of which were specified in the original four-path model, with two of these paths reversed, plus the additional predicted path between Adaptability and Growth occurring irregularly. The reversed path, Climate to Wealth, was not predicted, although the original Wealth to Climate path was predicted to be incon- sistent. This reversal accords global perceptions of Climate a more pivotal role than was hypothesised, whereas the second reversal, from Adapt- ability to Climate, shows Adaptability to be equally central, and on a causal interpretation, to be a precondition for favourable climate. The cross- sectional nature of the data does not allow scope for more than speculation on this point, and it is likely, as the path analyses suggest, that causal influence may flow in both directions.
The results constitute fairly striking confirmation of the revised version of the original model. Chi Squared values are higher than one might wish. This is due to either measurement error in the scales or misspecification in the model. Misspecification can be considered an unlikely explanation,
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as this would be inconsistent with the replicated patterns of findings across independent samples, whereas measurement error would be constant across tests. Moreover, pretests with non-theory-based arrangements of variables, allowing for computer-generated iterations, offered no altern- atives, and converged on the present solution. The question then is whether achieved goodness of fit assessments are acceptable. Chi Square values are mostly significant, but within an acceptable range allowing for measure- ment error, and other indices are mostly satisfactory to good (goodness of fit above 0.7 in all cases and root square residuals below 0.1).
But what does the model mean? Can it be interpreted as reflecting causal relationships in organisational behaviour, or only the way employees’ cog- nitions about company effectiveness are structured? Can the latter be true and the former false; i.e. if people in different international regions and in different businesses have the same cognitive model of organisational performance, where does the model come from and what sustains it? Let us consider some alternative explanations, starting with the most par- simonious cognitive argument. The most basic case is for diffusion of affect and simple logic to explain linkages. The argument would run as follows:
Satisfaction with Climate predisposes people to feel positive about the Adaptability of operations and, in some cases, the likelihood of Future Growth. We might call this a general ‘hope’ factor.
Belief in the Adaptability of one’s organisation creates faith in Future Growth, and stimulates the naive inference that the organisation must be strong in its Markets. This we can call a ‘faith’ factor.
The linkage from Markets to Wealth would follow from the similar logic that a commanding company would be storing up riches; what we may call a ‘confidence’ factor.
Is that all there is to these data: faith, hope, and confidence? It leaves a number of questions unanswered. These are three very similar concepts; all subsumable as elements in a general model of diffusion of affect. If this diffusion can produce spillovers such as we have observed, why did others not appear which would be equally plausible under the diffusion theory; say, for example, a linkage between Markets and Climate? Why are some linkages consistent across samples, and others inconsistent? Faith, hope, and confidence should not discriminate on the basis of business unit and region when linking Adaptability and Growth, for example.
There is sufficient differentiation between samples to suggest that it would be more parsimonious to assume these groups are seeing the world differently. This is confirmed by the second test of the model; the path analysis of sub-unit aggregated data. The fact that there is systematic vari- ation and covariance at the sub-unit level of analysis lends support to the
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conclusion that perceptions are not just free-floating affect, but reflect ambient events and processes in the local environment. This, after all, is an assumption that underlies most behavioural science research in organ- isations, even when we acknowledge that shared method variance and diffusion of affect can exert a general influence. The form of our ques- tioning also supports this assumption. It is reasonable to assume that people really were trying to make dispassionate judgements about how their part of the company stacks up against the opposition, and were trying, on the basis of their experience, to foresee where growth and decline might occur.
On this assumption we can begin to elevate faith, hope, and confidence from the realm of passive reflection to a more central and active role in the dynamics of effectiveness. They can be central processes in actual organisational performance by undertaking the vital role of mediating out- comes. In much the same way as stockmarket confidence acts as a self-
, fulfilling force, we can imagine how belief in Adaptability could stimulate Growth. We can also see how a favourable Climate might underpin this confidence, and how Market effectiveness and consequent Wealth might be its products. Moreover, we can also see how being part of an ostensibly wealthy organisational unit implies no consequent perceptions of other favourable attributes. But it would be premature to conclude that Wealth is fundamentally peripheral. The sub-unit aggregate analysis speaks to this issue.
The most challenging feature to emerge from this analysis is the appear- ance of a new path, between Wealth and Adaptability. It does seem as if what we called earlier ‘the management of structure’ may mediate a link between sub-unit differences in performance that have no cognitive counterpart in individual perceptions. The disappearance of the Adapt- ability-Markets linkage conversely suggests that this is more a connection at the level of individual cognition than it is in sub-unit performance. The other feature of interest is the added emphasis of the importance of Climate in relation to Future Growth. This is apparently a more general relationship than the connection between Adaptability and Growth which it quite over- shadows here.
So far, we have been discussing relationships in terms of their interpret- ability within the framework of the causal model on which this study is based. However, one should not assume that the directional strength of relationships as yielded by LISREL and path analysis are conclusive when data are cross-sectional, though they may be indicative. Ignoring the direc- tion of the arrows representing path coefficients, we are still drawn to some clear conclusions from these data.
First, it is apparent that Adaptability emerges centre-stage as the lynch- pin of effectiveness, either as directly associated with other outcomes or as mediating them. This is consistent with our understanding of the
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demands facing the modern corporation, where mastery of uncertainty is a survival and success requirement (Morgan, 1989; Peters, 1987). Second, is the central role of global Climate, as an intervening variable and as a predictor of perceived future success. Recent work by Denison (1990) confirms that these relationships are common, time-lagged, and indis- pensable to understanding organisational performance. A favourable global attitudinal climate is not just a desirable add-on to the profitable and market-effective company, but a precondition for its continued effect- iveness. However, because market share and profits are quantifiable and principal criteria for the assessment of managerial performance, and climate is not, it is econometric and market indicators that tend to receive prior attention in company self-evaluations, not climate.
This we anticipated in our framing of hypotheses, by expecting there to be at best a weak and inconsistent path from Wealth to Climate. Our pessimism was justified: this linkage was largely absent. This is consistent with our initial expectation that there is no linear tendency for units with greater resources to reinvest in the well-being of staff. Or to put it another way, variations in global perceptions of climate are more often the product of local conditions, rather than, as one might wish, the fruits of success. The possible exception is where improved climate is mediated by Adapt- ability, secured through ‘the management of structure’, as suggested by the sub-unit path analysis.
The availability of a large scale managerial sample for these cross- sectional analyses has enabled us to develop multi-dimensional measures of perceived organisational effectiveness, and explore some possible mean- ings of their interrelations. However, our original conceptualisation of these suggested that they have differing temporal reference-in terms of employee perceptions of past, present, and future effectiveness. We might likewise expect these perceptions to change at different rates over time. Longitudinal analysis is needed to establish the true nature of time-lagged causal influence between these factors. The observations we have been able to make on the basis of the present data set, must remain qualified and tentative until future research is able to measure how perceptions change over time.
However, on the basis of these findings, we can broadly conclude that organisations which give priority to the enhancement of flexible operations are addressing a key link in the effectiveness cycle. This is widely recog- nised in the management literature. However, the results also imply the need for management action to give priority to climate enhancement. This is not just intrinsically desirable, but a building block for future effective- ness.
Manuscript received June 1992 Revised manuscript received February 1993
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