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HOW CORPORATE CULTURE AFFECTS

THE PERFORMANCE OF ORGANIZATIONS

By Napoleon G. Almonte

In the 1970s, the giant US automobile-maker Chrysler was on the brink of bankruptcy due to

mismanagement, thriving competition, and the US economic downturn during that decade. The global

car industry was following the tragic saga of the once mighty car company. It was only a matter of time

before Chrysler collapses and buries itself under tons of its unsold cars and debt amounting to millions

of dollars, or so they thought.

Just when everything seemed lost for Chrysler, Lee Iacocca walked in the company as the new

president and CEO. Iacocca was the former president of Ford Motors and he left the company after a

fallout with Henry Ford. Iacocca was largely responsible for introducing and marketing the Ford

Mustang, the muscle car that has become synonymous with the so called American dream. Among his

numerous accomplishments in Ford, Iacocca has sold more than 400,000 units of the Ford Mustang

within a year of its launch. He could have opted to work for other companies which competed for his

services as top management executive but Iacocca decided to work for Chrysler and accepted the

challenge of redeeming it from collapse.

In Iacocca: An Autobiography, Lee Iacocca gives this unflattering observation during his first days

as Chrysler president:

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This deteriorating Chrysler corporate culture translated not only into massive revenue loss but

eventually to near bankruptcy and the impending demise of the whole organization. Low morale among

the employees, corporate security leaks, and workers poor performance were reflected in the balance

sheet. GM and Ford were reporting record sales and profits in 1978. GM alone sold close to 5.4 million

cars, while Ford sold 2.6 million. Chrysler, as usual, was a distant third, with less than 1.2 million. More

important, their [our] share of the American market had dropped just as badly, from 12.2 percent to

11.1 percent within a single year a tremendous decline. Even worse, Chrysler had lost 7 percent in

owner loyalty during the past two years. When [I] Iacocca arrived on the scene, [our] Chryslers loyalty

rate was down to 36 percent. (Iacocca, 1984).

Despite of these seeming insurmountable odds, Iacocca was able to turn the fate of Chrysler

around from a poor performing corporation into a profitable high performing company that posted

record revenue sales less than ten years after he took over the helm.

How did Iacocca do it?

He transformed Chryslers corporate culture.

By his own example, Iacocca slashed his salary to $1/month to show that sacrifices had to be

made in order to resurrect the flagging corporation. He bared that the people in Chrysler must own the

company and by doing so, Iacocca infused a new blood in its corporate culture. Their boat was sinking

and everybody in it must do ones part to keep it afloat until they all reached the shore. This meantvalues must be practiced, everyone giving much more than what was expected, and expecting

everybody to give it the best shot. Iacocca made the revitalized vision of the company clear to

everybody.

With his sound work ethic, passion, enthusiasm, and optimism, Iacocca invigorated the morale

and set new standards. While he did internal restructuring, he sought external help. Almost

miraculously, Iacocca was able to convince the US Government to grant Chrysler a bail-out plan,

reorganized a lean and mean corporate hierarchy, improved processes and system, hired new

competent people, and authored a long-term recovery map. At the end, Chrysler was able to pay its $ 1

billion debt to the US Government and other financial institutions even ahead of deadline. Chrysler sold

better cars, increased sales, and raised the revenue of the company.

Clearly, Chryslers rebirth was due to its transformed corporate culture that resulted into highperformance. Lee Iacocca is one of the best evidences of how leadership is intrinsically connected with

corporate culture and organizational performance. This iconic example of Chrysler is just one of the

many corporate success stories attributed to high-performance due to an excellent organizational

culture.

Other companies like Google, Microsoft, Exxon Mobile, Samsung, and Toyota are also prime

examples of companies with compelling corporate cultures that lead to high-performance. It is almost

impossible for companies to be high-performing without excellent corporate culture.

But what exactly is corporate culture? Corporate culture is the collective character, values,

habits, perspectives, and lifestyle of an organization that influences the behavior, effectiveness and

efficiency of the employers. The structure and framework of corporate culture are highly influenced and

infused by the leaders of the organization. Excellent corporate leaders extend themselves in the

lifeblood of the organization and the employees adapt high performance standards based on the

performance of their leaders.

Enron is a classic case of a former high-performing company that fell out of grace due to the

corrosion of its culture. Enron was an American energy company that went bankrupt because of

unethical investment practices, non-transparent accounting, greed, and deceptive culture that misled

board members and shareholders. The company shareholders lost nearly $11 billion when its shares

plummeted to less than $1 per share in November 2001 from a high of $90 per share in the 2000. Over

all, Enron lost $63.4 billion in assets, the second largest corporate bankruptcy in US history.

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The root of Enrons fall could be traced also to its culture of greed and deception that has

developed through the years while the company was gaining more success. According to McLean and

Elkind in their book The Smartest Guys in the Room, "The Enron scandal grew out of a steady

accumulation of habits and values and actions that began years before and finally spiraled out of

control." (Wikipedia, 2012). Enron is another case where corporate performance directly impacted

corporate culture.

However, corporate culture is intangible. It could not be adequately measured by quantitative

data. Corporate culture is primarily influenced or created by leadership, organizational behavior,

collective values, belief systems, and the mission-vision. As soon as performance dips, it is imperative for

corporate leaders to evaluate and monitor their organizational culture. Tangibles such as strategy,

revenue projection, marketing plans, manufacturing processes, systems, and work processes are not

stand alone imperatives in organizations. These tangibles must be founded on sound intangibles a

corporate culture built on integrity, values, talent, and character.

Does Corporate Culture Matter? An Empirical Study on Japanese Firms by Shinichi Hirota,

Katsuyuki Kubo and Hideaki Miyajima offers this conclusion on the link between culture and

performance of organizations:

In What Great Companies Know About Culture, Deidre Campbell further develops the concept of

the relationship between corporate culture and corporate performance:

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Olu Ojo in another study entitled Impact Assessment Of Corporate Culture On Employee Job

Performance concludes that corporate culture has an impact on employee performance. The

researcher looked at the impact of corporate culture in employee performance with evidence from the

Nigerian banking industry. Ojo administered questionnaires to respondents who were randomly

selected from selected banks. The respondents were asked to give their opinion and views on whether

corporate culture has an impact on employee performance. Later on, Ojo deduced from the the study

that corporate culture is very important in every organization and that it has a positive impact on

employee performance. He also asserts that culture affects the level of organizational productivity in a

positive way.

At the end of the paper, Ojo offers these recommendations:

The successful turn around of Chrysler under the leadership of Lee Iacocca, the downfall of

Enron due to its corrupt corporate culture, and the various papers cited in this article give solid evidence

of the impact of organizational culture to organizational performance. Profitability of the company is not

the sole gauge of performance. It is the same with not-for-profit organizations. They base theiraccomplishments on quality of service rendered and number of stakeholders served. International

humanitarian organizations like the United Nations, Red Cross and Red Crescent are high performing

organizations whose performances are not qualified in terms of profit but by the fulfillment of

objectives set in a given timetable.

In the end, we are led to the bottom line of corporate culture leadership. Viewed from any

perspective, corporate culture is foremost created by leaders. Culture is created by the values, vision,

and character of leaders and the leadership philosophies that guide them. Take either a Hitlerian or a

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Stalinist leadership mindset and you create a totalitarian culture. Take a Mandela or Gandhinist

leadership mindset and you create a servant-leadership culture. It always works both ways. The

leaders of Enron and similar companies were led by leaders who imbibed a character of greed that

germinated a culture of greed in the company.

To end, these words of Lee Iacocca explain how his character of leadership created a corporate

culture that resulted into the outstanding performance of Chrysler:

References:

Campbell, D. (2011). What Great Companies Know About Culture, accessed from

http://blogs.hbr.org/cs/2011/12/what_great_companies_know_abou.html

Hirota,S., Kubo, K. and Miyajima, H., (2007). Does Corporate Culture Matter? An Empirical Study on

Japanese Firms, accessed from http://www.rieti.go.jp/jp/publications/dp/07e030.pdf

Iacocca L., with Novak (1984) Iacocca: An Autobiography W. Bantam Books, USA, 1984

Ojo, O. (2009) Impact Assessment Of Corporate Culture On Employee Job Performance, accessed from

http://www.saycocorporativo.com/saycoUK/BIJ/journal/Vol2No2/article9.pdf

http://www.rieti.go.jp/jp/publications/dp/07e030.pdfhttp://www.rieti.go.jp/jp/publications/dp/07e030.pdf