Organisational Behaviour and Corporate Culture

The corporate culture of a firm influences its organizational behaviour. This has led researchers, academics and business professionals try to explain organizational behaviour through an examination of culture. One view of organizational culture is that it comprises of two levels. The first level includes the observable symbols, stories, practices, dress, physical setting and norms, while the second level includes the underlying values, assumptions, beliefs, attitudes and feelings.

Another perspective on culture is the Goffee and Jones culture typology. According to Goffee and Jones (1996), the culture of an organization depends on its level of sociability and cohesiveness. Low sociability and low cohesiveness support a fragmented organizational culture. On the other hand, organizations with low sociability and high cohesiveness have a mercenary culture. However, high sociability and low cohesiveness support a networked organizational culture. Lastly, high sociability and high cohesiveness encourage a communal organizational culture.

Figure 3: Goffee and Jones Culture Typology

Networked

Communal

Fragmented

Mercenary

High

Sociability

Low

Low Cohesiveness High

According to Handy’s typology, organizational culture comprises of power, role, task and person culture. Power culture refers to a central concentration of authority in the organization, where power is derived from the control of resources. Thus, the success of power culture organizations depends on a few individuals, which can lead to succession problems. Role culture refers to an emphasis on the roles of various areas in the department. Therefore, individuals in a role culture derive their power from their position. Task culture refers to a project-oriented approach in an organization. In other words, the task culture emphasizes the accomplishment of specific jobs (Knights and Willmott, 2007, p. 353). Person's culture refers to a focus on the individuals in an organization, with no common organizational objective, but this type of culture is uncommon.

Organizational culture may be viewed as a variable or a metaphor. These two perspectives contrast each other in their approaches to organizational culture. For example, the variable perspective considers an organization to have a culture while the metaphor, perspective considers an organization as a culture. Furthermore, the variable perspective supports integration while the metaphor, perspective supports fragmentation in an organization. Another difference is that the variable perspective encourages a consensus about the organizational culture, whereas under the metaphor, perspective, everyone in the organization tolerates its culture.

Hofstede is one of the most notable contributors to the studies of organizational culture. He used International Business Machines’ (IBM) employee data from 40 countries to explain culture, according to five dimensions, which include individualism - collectivism, power distance, uncertainty avoidance, masculinity - femininity and short-term – long-term orientation (Treven, et al., 2008, p. 29). Although Hofstede used the dimensions to explain differences in national cultures, they can also be applied to organizations.

The individualism – collectivism dimension refers to whether the organizational culture encourages an individual or a collective approach to issues. Individualistic cultures subordinate the interests of the organization, whereas collective cultures subordinate the interests of the individual. The power distance dimension refers to the accepted power and status differences in an organization. Firms may have a low or high power distance culture. Low power distance is characterized by high employee power while high power distance is characterized by low employee power. The uncertainty avoidance dimension refers to how an organization deals with an uncertain future. An organization may have a low or high uncertainty avoidance culture. Low uncertainty avoidance encourages risk-taking while high uncertainty avoidance encourages stability. The masculinity – femininity dimension refers to the extent to which an organization emphasizes the stereotypical values of masculinity and femininity. High masculinity cultures employ a sex-differentiated occupational structure that emphasizes job performance, with little regard for the quality of the working conditions. In contrast, high femininity cultures emphasize good working conditions, employee participation and job satisfaction. The short-term – long-term orientation dimension refers to the organizational perspective with regard to the future (Treven, et al., 2008, p. 30). As the names suggest, a short-term orientation focuses on the present or on a short time horizon as compared to the long-term orientation.

The corporate culture of an organization determines its risk culture. For instance, an organization that is characterized as having a mercenary culture in the Goffee and Jones culture typology will encourage high risk taking. Similarly, it has been mentioned earlier that an organization with a culture of low uncertainty avoidance will have a high-risk culture. In addition, risk taking is likely to be encouraged in an organization with an individualistic culture. On the other hand, a collective organizational culture is likely to discourage risk taking out of fear of harming the group. This is also the case for a communal organizational culture under the Goffee and Jones culture typology.

The Institute of Risk Management (IRM) (2012) defines risk culture as the knowledge, beliefs and values about risk that are common among a group of people. According to the IRM, a successful risk culture is characterized by consistency in the board and management’s tone with regard to risk. In addition, a successful risk culture requires an organizational commitment to ethics, transparency, risk event reporting and the continuous management of risk. Furthermore, the reward of appropriate risk behaviours and the sanction of unwanted risk behaviours facilitates the development of a successful risk culture. In this regard, the provision of risk management skills is necessary to ensure that individuals can identify the appropriate risk behaviours. Lastly, a successful risk culture should be comprised of diverse perspectives.

According to the Institute of Risk Management (2012), risk culture is important because it affects the ability of an organization to make strategic risk decisions to achieve its objectives. The lack of an appropriate risk culture in an organization can lead to the wastage resources on activities that are not pertinent to the organizational goals. Furthermore, the problem can be compounded by the passiveness of other individuals in the company as it wastes resources on unnecessary activities. Consequently, the tactical, strategic and operational goals will suffer, which may lead to financial losses. In addition, an inappropriate risk culture can cause serious damage to the reputation of an organization. This is evident in the fact that most organizational scandals are rooted in deficient risk cultures.

It is worth noting that risk culture does not only involve taking too much risk. The case may be that an organization takes too little risk because of highly efficient, formal frameworks and processes, which prevent individuals from taking the necessary risk to spur innovation. In other cases, the existing organizational culture may be so stifling on risk taking that it forces individuals to take uncontrolled risks.

The Institute of Risk Management (2012) developed a Risk Culture Framework (RCF) to help organizations in the analysis, planning and execution of risk culture procedures. The RCF identifies risk culture as a sub-set of several factors such as individual predisposition to risk, personal ethics, behaviours and the organizational culture. Organizations can improve their risk management practices through a careful examination of all the factors identified in the RCF.

Figure 4: IRM Risk Culture Framework

In addition to the RCF, the Institute of Risk Management (2012) developed the Risk Culture Aspects Model (RCAM) to help organizations to identify tangible actions to solve problems pertaining to risk management. The model identifies eight characteristics of risk culture, which are divided into four themes. The first theme is the tone at the top, which comprises of the aspects of risk leadership and the organization’s response to bad news. The second theme is governance, whose characteristics include accountability and transparency. The third theme is competency, is composed of risk resources and risk skills as its characterostics. The final theme is decision-making, which comprises of the aspects of informed risk decisions and rewards. Organizations that use the FCF in conjunction with the RCAM will develop robust governance structures that are characterised by the effective management of risk.

In his interview, Power (2016) is of the opinion that the tools in place to influence the risk culture of an organization are limited. Thus, most organizations use variants of a survey instrument that evaluates the attitudes and behaviours of the people in the organization towards risk. Such instruments act as diagnostic tools but they do not provide the organization with a plan on how to manage its risk culture. In addition, a negative risk culture does not develop in an organization abruptly. Instead, it develops over time as series of minor actions by various individuals in the organization. Therefore, Power (2016) proposes that risk specialists should interact with all individuals in the organization regularly. According to him, one measure of the organization is the number of times that the business seeks the advice of the risk function. Consequently, the organization adopts an interactive view of risk culture, in addition to a networked view of the organization.

When interviewed, Anderson (2016) identified three types of risk. The first type of risk is invisible and is inherent in the daily operations of the organizations. The second type of risk is visible through signs. In other words, professionals in the different fields in which the risk exists can discern it. The third type of risk is the virtual risk, which is characterized by a lack of understanding of the cause and effect of the risk. Therefore, discussions concerning virtual risk are usually based on individual preconceptions. This is common where organizations wish to embark on undertakings in which they have no prior experience, and it forms part of the strategic risk that faces organizations.

Anderson (2016) argues that an appropriate risk culture is key to the success of an organization. Despite this, some organizations are unable to define or measure their risk culture and its impact on their performance. This inability stems from the difficulty in identifying the difference between organizational culture and risk culture. Consequently, the organizations focus on organizational culture at the expense of risk culture. According to Anderson (2016), organizational culture is concerned with day to day activities whereas risk culture is concerned with dealing with the future. Given the differences between the two, he calls for organizations to strike a balance to ensure their long-term survival.