CORPORATE CULTURE AND PERFORMANCE OF RETAIL CHAIN STORES IN KENYA: A CASE OF UCHUMI SUPERMARKET (2010-2015).
PAULINE MUTHONI WAMBUI
A RESEARCH PROPOSAL SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF DEGREE OF MASTER OF BUSINESS ADMINISTRATION (STRATEGIC MANAGEMENT OPTION), SCHOOL OF BUSINESS, KENYATTA UNIVERSITY
JUNE, 2018DeclarationThis research proposal is my original work and has not been presented for any academic award in any other university.
Signed ………….…………………… …………………………………….
WAMBUI PAULINE MUTHONIDate
Declaration by the supervisor
This research proposal has been submitted for examination with my permission as the University supervisor.
DR. SAMUEL MAINA Date
DEPARTMENT OF BUSINESS ADMINISTRATION
SCHOOL OF BUSINESS
DedicationThis project is dedicated to my husband Joram Mburu for his love, support and encouragement during the entire duration of the course. Further dedication is to my parents for their sacrifice in educating me and for teaching me the discipline and value of hard work when I least knew the world. I also dedicate to my daughters Abigail and Shanice. This project will be a source of motivation for hard work when they become of age.
AcknowledgementsThe undertaking and completion of this research work was made possible by a number of people, to whom I am profoundly grateful. I’ am particularly indebted to my supervisor Dr. Samuel Maina for his guidance and encouragement in the course of the research. Appreciation goes to the lecturers of the School of Business, Nairobi City campus, who faithfully imparted their knowledge and skills to me throughout the course.
Table of Contents TOC o “1-3” h z u Declaration PAGEREF _Toc516312273 h 2Dedication PAGEREF _Toc516312274 h 3Acknowledgements PAGEREF _Toc516312275 h 4Table of Contents PAGEREF _Toc516312276 h 5Abbreviations and Acronyms PAGEREF _Toc516312277 h 7Abstract PAGEREF _Toc516312278 h 8CHAPTER ONE: PAGEREF _Toc516312279 h 9INTRODUCTION PAGEREF _Toc516312280 h 91.1Background of the study PAGEREF _Toc516312281 h 91.1.1Corporate Culture PAGEREF _Toc516312282 h 101.1.2Corporate Culture and Firm Performance PAGEREF _Toc516312283 h 111.1.3 Kenyan Retail Industry PAGEREF _Toc516312284 h 131.2Problem statement PAGEREF _Toc516312285 h 141.3 Research Objectives PAGEREF _Toc516312286 h 171.3.1 General objective: PAGEREF _Toc516312287 h 171.3.2 Specific objectives PAGEREF _Toc516312288 h 171.4Hypotheses PAGEREF _Toc516312289 h 171.5 Significance of the Study PAGEREF _Toc516312290 h 181.6 Scope of the Study PAGEREF _Toc516312291 h 181.7 Limitation of the study PAGEREF _Toc516312292 h 18CHAPTER TWO: PAGEREF _Toc516312293 h 19LITERATURE REVIEW PAGEREF _Toc516312294 h 192.1 Introduction PAGEREF _Toc516312295 h 192.2 Theoretical Review PAGEREF _Toc516312296 h 192.2.1 Competing Value Framework PAGEREF _Toc516312297 h 192.2.2 Schein’s Theory of Corporate Culture PAGEREF _Toc516312298 h 222.2.3 Firm Performance PAGEREF _Toc516312299 h 222.3 Empirical Review PAGEREF _Toc516312300 h 232.3.1 Clan culture and firm performance PAGEREF _Toc516312301 h 252.3.2 Hierarchical culture and firm performance PAGEREF _Toc516312302 h 262.3.3 Adhocracy culture and firm performance PAGEREF _Toc516312303 h 262.3.4 Market culture and firm performance PAGEREF _Toc516312304 h 272.4 Summary of Research Gaps PAGEREF _Toc516312305 h 292.6 Conceptual Framework PAGEREF _Toc516312306 h 30CHAPTER THREE PAGEREF _Toc516312307 h 31RESEARCH METHODOLOGY PAGEREF _Toc516312308 h 313.1 Introduction PAGEREF _Toc516312309 h 313.2 Research Design PAGEREF _Toc516312310 h 313.3 Empirical model PAGEREF _Toc516312311 h 313.4 Target Population PAGEREF _Toc516312312 h 323.4.1 Sampling Design PAGEREF _Toc516312313 h 333.5 Data Collection Instruments PAGEREF _Toc516312314 h 343.5.1 Validity of the Instrument PAGEREF _Toc516312315 h 353.5.2 Reliability of the Instrument PAGEREF _Toc516312316 h 353.6 Data Analysis PAGEREF _Toc516312317 h 36
Abbreviations and AcronymsCEO Chief Executive Officer
CMA Capital Markets Authority
CVF Competing Value Framework
ERP Enterprise Resource Planning
ICDC Industrial Commercial & Development Corporation
KWAL Kenya Wine Agencies Limited
KNTC Kenya National Trading Corporation
SPMS – Strategic performance measurement system
BSC- Balance Score Card
AbstractThe purpose of this study is to establish the effect of corporate culture on firm performance on retail stores in Kenya using Uchumi supermarket as the case study. Specifically, the study will determine the effect of clan culture, hierarchical culture, adhocracy culture and market culture on Uchumi supermarket performance in Kenya. Hypothesis advanced includes: H1: Clan culture has direct effects on the performance of Uchumi supermarket in Kenya, H2: Hierarchical culture has direct effects on the performance of Uchumi supermarkets in Kenya, H3: Adhocracy culture has direct effects on the performance of Uchumi supermarkets in Kenya and H4: Market culture has direct effect on the performance of Uchumi Supermarket in Kenya. The study will adopt a descriptive survey research design with an aim of obtaining complete and accurate information giving precise precision in achieving the objective of the study. The population of interest will be employees of Uchumi supermarket in Nairobi from various departments, where purposive sampling will be used. The research study will entail the use of primary and secondary data. The primary data will be obtained through the use of open ended questionnaires while secondary data will include: the companies’ publications, journals, periodicals and information obtained from the internet. Quantitative data will be analyzed using the statistical package for social sciences (SPSS) and presented through percentages, means, standard deviations and frequencies. The information will be displayed by use of bar charts, graphs and pie charts and in prose-form. Content analysis will be used to analyze qualitative data collected from the open-ended questions.
CHAPTER ONE:INTRODUCTIONBackground of the studyThe effects of globalization, developments in information and communication technologies, and increase in the variety of products/services according to the customer expectations are the most important dynamics in today’s economy. Every firm uses some strategies whether explicit or not while competing to gain competitive advantage in this harsh environment, and in the competitive struggle of each product/service market, some firms are successful with achieving competitive advantage while others fail (Walker, 2009: 1).
Competitive advantage is reflected in superior economic performance compared to rivals. Thus, one of the most fundamental questions in the field of strategic management field is why some firms in the same industry have systematically performed better than others (Crook et al., 2006; Teece, Pisano, and Shuen, 1997). In business world, it is considered that usually a well-planned strategy brings the company success. This idea led many organizations to imitate the strategies of successful businesses. However, time, technology, market and competition rules are changing. So, a firm’s strategy must shift to meet them (Walker, 2009: 15), and this changing must be continuously (Fleisher, and Bensoussan, 2003: 2). Therefore, it has already emerged that, to imitate competitors’ strategies is not the only way to compete and to gain competitive advantage.
According to Porter’s (1996) perspective, the strategy is based on unique activities. To be successful against rivals, a business has to select different set of activities and should provide a unique value. The sustainability of this competitive advantage depends on obtaining the economic value which was created by competitors’ capabilities (Fleisher and Bensoussan, 2003: 2).
In today’s fast and continuous environmental changes and intense competition, the contribution of the employees is key determinant for the success of the organization. For businesses, their employees’ work performance with great effort and combining their own personal goals with organizational purposes are crucial to create most of the valuable, rare, inimitable and non- substitutable capabilities. Beyond the contribution of the employees those rapid changes need to respond automatically. And, according to developments in external environment these strategic situations need adoption of corporate culture with a continuous perception, evaluation, implementation and revision within the balance of internal dynamics rather than a top-down planning. So, this perspective gives general patterns of behaviour to corporate culture to deal with and solve the problems encountered of the employees in the organization within the socialization process. At this point, orders and directives are no need to be too detailed. On this account, the response of organizations to situations which are emerged due to pressures of external environment and internal dynamics will vary according to their corporate culture. In this context, it is expected that, as a result of the methods of response to the external environment as proactive or reactive, the obtained performance vary according to different corporate culture.
Corporate CultureCorporate culture is defined as beliefs, assumptions, and values that members of a group share about rules of conduct, leadership styles, administrative procedures, ritual, and customs (Schein, 1990, 1992, 1995; Mintzberg, 1990; Mehta and Krishnan, 2004). Also it has been mentioned as shared philosophies, ideologies, values, assumptions, beliefs, expectations, attitudes and norms (Kilmann et. al., 1985; Lund, 2003). It has been also stated as a system of shared values and beliefs that interacts with a company’s people, organizational structure, and control systems to produce behavioral norm s(Lund, 2003). Dodek et al. We perceived there is no consensus on comprehensive definition. In accordance with Mary Jo Hatch and TammarZilber (2012), cultures cannot be accurately or completely described at all. Even so, all the definitions are close in the notion they convey and bring us to define organizational culture as beliefs and shared values that unifies members of an organization and consolidates them under the cover of potent behavioral norms and rules.
Corporate cultures can be categorized in a spectrum of weak to strong cultures. Lee (1984) and Mehta and Krishnan (2004) suggest that successful companies apparently have strong cultures. Dauber, Fink and Yolles (2012) considers the key role of external environments as all elements outside the boundary of the organization (Daft, 2009) to which an organization needs to adapt (Aldrich and Pfeffer, 1976). Aten and Howard- Grenville(2011) imply the globalization’s influence on organizational culture referring to Majken Shultz who raised the points that globalization has contributed to the rise of some organizational culture that carry significant weight.
Several dimensions of organizational culture have been identified. According to Cameron and Quinn model (1999), the Competing Values Framework (CVF) there are two dimensions that categorize culture into four types. The two dimensions are stability versus flexibility and internal focus versus external position. The framework is also based on four dominant culture types namely: Clan, Adhocracy, Market, and Hierarchy cultures.
Corporate Culture and Firm PerformanceJames Heskett and John Kotter (2003) stated that “culture” of a corporation powerfully influences its economic performance, for better or for worse. Through painstaking research at such firms as Hewlett-Packard, Xerox, ICI, Nissan, and First Chicago, as well as a quantitative study of the relationship between culture and performance in more than 200 companies, the authors describe how shared values and unwritten rules can profoundly enhance economic success or, conversely, lead to failure to adapt to changing markets and environments.
With penetrating insight, Kotter and Heskett (2003) traced the roots of both healthy and unhealthy cultures, demonstrating how easily the latter emerge, especially in firms which have experienced much past success. Challenging the widely held belief that “strong” corporate cultures create excellent business performance, Kotter and Heskett (2003) showed that while many shared values and institutionalized practices can promote good performances in some instances, those cultures can also be characterized by arrogance, inward focus and bureaucracy features that undermine an organization’s ability to adapt to change. They also showed that even “contextually or strategically appropriate” cultures ones that fit a firm’s strategy and business context will not promote excellent performance over long periods of time unless they facilitate the adoption of strategies and practices that continuously respond to changing markets and new competitive environments.Fundamental to the process of reversing unhealthy cultures and making them more adaptive, the authors assert, is effective leadership. At the heart of this groundbreaking book, Kotter and Heskett (2003) describe how executives in ten corporations established new visions, aligned and motivated their managers to provide leadership to serve their customers, employees, and stockholders, and thus created more externally focused and responsive cultures.
1.1.3 Kenyan Retail IndustryThe retail business all over the world has gained remarkable growth. With increase in population, the demand for goods and services has increased, customers have become more affluent, technology has changed the way retail business is done, competition from rivals within the industry both local and international firms has led to transformation of the industry.
The major players in this industry in Nairobi are Nakumatt, Tuskys, Uchumi and Naivas as well as new foreign entrants like Game stores with South African origins and Choppies Enterprises from Botswana (Shisia, Sang, Waitindi, & Okibo, 2014). Nairobi County hosts several branches of these supermarkets especially the local ones. Stiff competition between these supermarkets has seen them seek new markets within East African countries. As a result of increased middle income earners, the industry continues to enjoy growth hence most of the supermarkets open new branches within the city and out of the city. However, affluent customers have forced the supermarkets to up their game in terms of elegance and comfort shopping experience (Shisia, Sang, Waitindi, & Okibo, 2014). From parking lots, shopping trolleys, wide paths while shopping, groceries, fast foods, bakery, and dry cleaners all under one roof. The supermarkets strive to win customer loyalty and gain a competitive edge over the rivals.
Of the four major supermarkets in Kenya, only Nakumatt and Uchumi have presence in Tanzania through Foreign Direct Investment (FDI) (Shisia, Sang, Waitindi, & Okibo, 2014). Uchumi had two outlets in Dares Salaam but was forced to close the regional branches because of financial bleeding. Naivas is yet to open a branch outside Kenya. All the supermarkets within Nairobi strive to capture and retain the customers by providing goods and services that ensure to make them loyal to their brands (Shisia, Sang, Waitindi, & Okibo, 2014)
Many business managers struggle to survive in a competitive global market because of challenging characteristics in business (Bolboli & Reiche, 2014). The challenges include increasing global price competition and satisfying demands of different stakeholders (Bolboli & Reiche, 2013). In the corporates, managers have challenges in establishing an effective organizational culture, which is an essential element to improve performance and productivity (Kenny, 2012). Profitability is a critical factor for the existence of any business, and expanding the business scope is also essential for business growth (Erdorf, Hartmann-Wendels, Heinrichs, & Matz, 2013). Idris et al. (2015) indicated that poor cultural integration within diversified business companies affects the economic performance of the firm and the shareholders’ value. Bolboli and Reiche (2014) indicated that more than 90% of business excellence initiatives fail to succeed because of poor cultural integration among company managers in the corporate. The cultural difference that exists within the company is a major barrier to corporate performance (Weber ; Tarba, 2012). The lack of effective organizational culture is a primary cause of poor performance and productivity in the firm (Eaton ; Kilby, 2015). Business managers must understand the importance of effective organizational culture to improve performance and productivity in the firm. (Viegas-Pires, 2013).Uchumi supermarket enjoyed the first mover advantage by being one of the first supermarkets in Kenya. Established in the year 1976 with 3 branches, the supermarket enjoyed the financial support by the government (Uchumi Supermarket Ltd, 2016). In the early 2000s the supermarket started to experience operational and financial constraints brought about by among others; rapid expansion strategies and weak internal control systems. Having operated for more than thirty years, Uchumi supermarket was declared bankrupt in June 2006. The board of directors resolved that the company stops operations and was later placed under receivership. In the same vein, the Capital Markets Authority (CMA) suspended listing of the troubled supermarket on the Nairobi Stock Exchange (NSE) (Uchumi Supermarket Ltd, 2016). Following a framework agreement between the Government of Kenya, suppliers and debenture holders, the company is revived and commenced operations from 15th July, 2006 under Specialized Receiver Manager (SRM) and interim management. Dr Jonathan Ciano, the former Chief Executive officer of Uchumi Supermarket joined the organization in the year 2006 as a specialized receiver manager. At that time the company owed Kshs. 3.2 billion mainly to its financiers, suppliers and staff. To kick start the turnaround process, the government of Kenya advanced Kshs. 675 million to the organization in 2006. Changes in senior management took place in an effort to change the company. Restructuring was done and some managers were fired in an effort to turnaround the retail chain. The management and staff worked tirelessly to redeem the company from a negative bottom line in 2006, the company reported profits in the next three financial years. By 2009 the loans had been reduced to Kshs. 200 million from Kshs. 957 million. The lending banks in turn lifted the company’s receivership in 2010 and the company was successfully re-listed in the Nairobi Securities Exchange on 31st May 2011 – exactly five years after it was suspended (Uchumi Supermarket Ltd, 2016). The company further raised Kshs. 895.8 million through a rights issue in 2014, an offer that was over-subscribed by 83 per cent.
The retail chain enjoyed profits until the year 2015 when it fell sick and was bed ridden again. The retailer’s financial statement for the full year 2015 showed that the retailer reported an after-tax loss of Kshs. 3.4 billion compared to a profit of Kshs. 364.3 million in 2014. Its share price at Nairobi stocks Exchange (NSE) dropped to around Kshs. 10 and Kshs. 11 from a high of Kshs. 24 in 2013. This raised questions about management of the country’s oldest retail chain. The retailer faced difficulties with some suppliers, it owed suppliers money, gross misconduct and conflict of interest, and failure to pay creditors among other issues. Companies would come from nowhere and were allowed to supply goods to the retail chain without going through the due process hence ending up with uncompetitive prices (IPSOS Kenya, 2016).
The cash crunch is among other internal and external factors at Uchumi supermarket that has seen the retail chain lag behind in competition since it fails to get high-traffic locations like upcoming malls compared to Nakumatt, Tuskys and Naivas. In the twist of events, Dr Jonathan Ciano was fired by the board in mid-June 2015 for alleged “gross misconduct and negligence” (Gachiri, 2016). Dr Julius Kipng’etich was hired as the new Chief Executive Officer from Equity Bank in August 2015 in a second phase of turnaround management of the ailing retail chain having revived Kenya Wildlife Service (KWS) a government agency.
Previous studies have been conducted on corporate culture effects on performance but none has been done specifically on Uchumi Supermarket after its receivership lift in 2010, hence the need to undertake a research study in Uchumi supermarket on corporate cultures affect its performances.
1.3 Research Objectives Objectives of this study shall be:-
1.3.1 General objective:To establish the effects of corporate culture on the performance of Uchumi supermarket in Kenya
1.3.2 Specific objectivesTo examine the effect of clan culture on the performance of Uchumi supermarket in Kenya.
To determine the effect of hierarchical culture and performance of Uchumi supermarkets in Kenya.
To establish the extent to which adhocracy culture affects performance of Uchumi supermarkets in Kenya.
To determine the effect of market culture on the performance of Uchumi Supermarket in Kenya
HypothesesThis study will be based on the following null hypotheses:
H1: Clan culture has direct effects on the performance of Uchumi supermarket in Kenya
H2: Hierarchical culture has direct effects on the performance of Uchumi supermarkets
H3: Adhocracy culture has direct effects on the performance of Uchumi supermarkets in
H4: Market culture has direct effect on the performance of Uchumi Supermarket in Kenya.
1.5 Significance of the StudyThe study will enable the management of retail chain stores and other firms appreciate the influence of corporate culture on firm performance. It will provide details of the specific techniques and actions to undertake against each dimension of culture identified. Researchers and academicians will be able to access this study from public repository domains and add value on the gaps that will be identified by this study. It will further contribute to the existing literature on strategic management being a new area with little case studies. The recommendations of the study will enable policy makers to design more broad-minded and operational policies aimed at strengthening corporate cultures which will enhance good performance.
1.6 Scope of the Study
The study will establish the effects of corporate culture on the performance of Uchumi Supermarket in Kenya. It will focus specifically on the corporate culture and firm performances from 2011 to 2015. The researcher targets employees of Uchumi Supermarket in Kenya from various departments only.
1.7 Limitation of the studyThe study is only limited to the variables stated in the objectives and it won’t cover other subjects beyond the stated objectives. Currently Uchumi supermarket in Kenya is under new board of management who may not be well conversant with the organization culture hence difficult to interview them. In addition, there has been high staff turnover therefore making it hard to get information from new staff about firm culture. The company has been in limelight of the media thereby information given might have some elements of distortion. Some of these limitations will be mitigated by relying on validated data such as company financial reports, journals and customer survey reports.
CHAPTER TWO:LITERATURE REVIEW2.1 IntroductionThis chapter reviews literature on corporate culture and firm performance. It discusses the key theories underlying corporate culture and firm performance, empirical review, develops a conceptual framework and expounds on the research gaps on corporate culture and firm performance.
2.2 Theoretical ReviewA theory is a reasoned statement or group of statements, which are supported by evidence meant to explain some phenomena. A theory is a systematic explanation of the relationship among phenomena. Theories provide a generalized explanation to an occurrence. Therefore a researcher should be conversant with those theories applicable to his area of research (Kombo and Tromp, 2009, Smyth, 2004). According to Trochim (2006) Aguilar (2009), and Tormo (2006), a theoretical framework guides research, determining what variables to measure, and what statistical relationships to look for in the context of the problems under study. Thus, the theoretical literature helps the researcher see clearly the variables of the study; provides a general framework for data analysis; and helps in the selection of applicable research design.
2.2.1 Competing Value FrameworkThe competing Values Framework (CVF) was developed by Quinn and Rohrbaugh (1983), and Quinn and McGrath (1985). Quinn and colleagues were originally looking for a criteria to evaluate organizational effectiveness ( Kalliath, Bluedorn, and Gillespie, 1999). Quinn and Rohrbaugh (1983) interpreted organizational change as a developmental process moving from entrepreneurial stage through a collectivity stage, then to a formalization and control stage and finally elaboration of structure.
According to Cameron and Quinn (1999) typology, culture in an organization can be seen between two dimensions: a focus on internal maintenance (smoothing and integration) versus external relationships (competition and differentiation), and a focus on organic processes (flexibility and dynamism) versus mechanistic processes (stability and control). In Competitive Values Framework (CVF) model, the four dominant organizational culture types are: hierarchy, market, clan and adhocracy.
Clan (cooperative) culture is shaped between the dimensions of organization focus and flexibility/dynamism. The clan culture possesses high affiliation and concern with teamwork and participation (Quinn and Spreitzer, 1991). Organizational commitment is a culture type which has been seen in organizations acting as a family and has social features as trust, solidarity and unity. Successful Japanese firms with effective team structure are typical examples of this culture (Berrio, 2003, Cameron and Quinn, 1999; Erdem, 2007).
Hierarchy (control) culture is located between internal organization focus and stability/control dimensions. The hierarchical culture reflects values and norms associated with bureaucracy (Quinn and Spreitzer, 1991). This is an organizational culture type which the leadership is effective because it is in mechanical and bureaucratic organizations that give importance to order and rules. This culture can be seen in global companies like McDonald’s and Ford Motor Co. which leads to worker alienation, purposelessness and decrease in the sense of autonomous (Berrio, 2003, Cameron and Quinn, 1999; Erdem, 2007).
Although there is an external focus/orientation, Market (competitive) culture occurs at the time of stability and control. This is a rational culture which emphasizes efficiency and achievement (Quinn and Spreitzer, 1991). Employees in these culture types are success-oriented. They give importance to personal interests rather than organizational goals and emphasis on the concepts of planning, performance and efficiency. Global businesses which have effective relationship between suppliers, customers and external stakeholders are examples of this organizational culture (Berrio, 2003, Cameron and Quinn, 1999; Erdem, 2007).
Adhocracy (creative) is a developmental organizational culture which is based on risk taking, innovation and change (Quinn and Spreitzer, 1991). It refers to the culture of an organization in entrepreneurial, flexible, innovative and creative areas with its external oriented and dynamic structure. Employees can take the initiative, supported with new discoveries and freedoms so they feel satisfied, happy and successful in this environment (Berrio, 2003, Cameron and Quinn, 1999; Erdem, 2007). Organizations, doing business over the internet which is defined as ‘new economy’, using advanced technology are examples of this culture.
DiPadova and Faerman (1993) used CVF to facilitate managerial effectiveness and concluded that “the common language offered by the CVF ameliorates the separateness of organizational members because it is essentially and organizational language that identifies performance criteria which are common in the hierarchy.”
Giek Lees (1993) used it in United States, government human resource department.
2.2.2 Schein’s Theory of Corporate CultureAccording to Schein (2004), there are three main levels to consider when analyzing corporate culture. The levels are: Artifacts, espoused beliefs and values and basic underlying assumptions. Level 1: Artifacts- It’s the most visible level of the culture that constructed physical and social environment. This includes: physical space and layout, technological output, written and spoken language and averted behavior of the group members
Level 2: Espoused beliefs and values. Cultural learning reflects someone’s original values. Level 3: Basic underlying assumptions –These are the base level of organizational culture which is deeply-embedded, unconscious taken for granted assumptions that are shared with others. Any challenge of these assumptions will result in anxiety and defensiveness.
Schein therefore comes up with a format which he feels should be used to interpret the most visible symbols of a culture. The most visible symbols should be the only aspects used to interpret culture, due to the ease with which they can be misinterpreted. Focusing only on the symbols will result in a failure to grasp the underlying basic assumptions that are fundamental to understanding the culture. Similarly, it is important to recognize that even espoused beliefs and values may only reflect the aspirations of a culture, and not the actuality. He therefore concludes that corporate culture is the atmosphere that pervades the interior of a firm or association.
2.2.3 Firm PerformanceAccording to Barney (1991) performance is a continuous process to controversial issue between organizational researchers. Firm performance does not mean to define problem only but also problem solving (Hefferman and Flood 2000). Daft (2000), argued that firm performance is the firm’s capability to accomplish its goals effectively and efficiently using resources. Richardo (2001) suggested that firm success shows high return on equity and this become possible due to establishment of good performance management system.
Strategic Performance Measurement System
Strategic performance measurement system (SPMS) is a modern approach to measure performance. According to Chenhall (2005), SPMS provides a way to translate and measure both financial and non-financial performance. He also suggested that it is the incorporative nature of this technique that provides the potential to increase strategic competitiveness of the organization. Vein, Burns and McKinnon(1993), was in agreement with Chenkall(2005) that use of multiple performance measures on both financial and non-financials is generally good for investors and management since it helps them to enhance protection towards the uncontrollable events outside the firm.
Kaplan Norton (1992) suggested that Balance Score Card (BSC) is the one of most important SPMS tool. BSC provides framework to ensure that the strategy is interpreted into rational set of performance measurement. BSC has four main viewpoints: financial performance, internal business processes, customer and learning and growth. The model ‘Balance Score Card’ is a cooperative tool to focus on the firm performance, improvement of communication, setting organizational goal and giving feedback on strategy. Anthony and Govingarajan (2003).2.3 Empirical ReviewCorporate culture and firm performance
The relationship between organizational culture and firm financial performance is explored in this study and empirical studies seem to support this argument.
Kim et al., (2004) reported that culture was found to impact a variety of organizational processes and performance. The strength of cultural values was found to be correlated with the organizational performance of firms in a few cases. For example, it was correlated with return on assets in manufacturing firms, growth in annual premiums and sum assured in insurance firms. There were no significant correlations with hospital performance. Marcoulides ; Heck (1993) found that organizational culture has a strong direct effect on organizational performance. Oparanma (2010) found that organizational culture is an important variable to be considered when organizational performance in consideration. According to the results of Duke II ; Edet (2012), there is positive association between organizational culture and performance. Zheng et al., (2010) reported that the is a
positive effect of organizational culture on organizational effectiveness. However, this effect is negligible when a mediator (in this case, knowledge management) is involved.
There are also some studies revealing the evidence regarding what types of organizational cultures affect performance outcomes. Ogbonna ; Haris (2000) reported that competitive and innovative cultures are positively related to organizational performance. They also found no relationship between organizational performance and bureaucratic and community cultures. Fekete ; Borcskei (2011) found that hierarchical culture is negatively to various performance outcomes including finance related outcomes. They also confirmed the positive impact of market, clan and adhocracy culture on various performance outcomes.
Some studies compared the performance outcomes across the various organizational cultures. Results from the study of Tseng (2010) reveal that adhocracy culture is better performer than clan and hierarchy cultures. Eccles et al., (2012) found that high sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market and accounting performance. Elaborating on both theoretical and empirical studies,
Kim et al., (2004) concluded that culture can affect firm performance if it is strong (wide consensus deeply internalized and socialized) and appropriate to its environment (relevant to its industry and business conditions).
In a different study, Ye et al., (2008) showed organizational culture differences between eBay China and Taobao in term of professionalism vs. enthusiasm, formality vs. flexibility, and steadfast vs. innovative. They argued that each culture with its own characteristics can thrive in its specific context of time and environment.
The following sections briefly give explanations of each organizational culture type and their association with performance in the firms. There are four organizational cultural dimensions used in this study; clan, adhocracy, market and hierarchy.
2.3.1 Clan culture and firm performanceCameron (2004) views clan culture as a friendly place with an extended family working together. The clan culture is characterized with loyalty, morale, commitment, tradition, collaboration, teamwork, participation, consensus, and individual development (Cameron, 2004; Cameron ; Quinn, 2006; Tseng, 2010). Tseng (2010) argued that clan culture emphasizes the long-term benefit of human resources development with high cohesion and morale, but it is also prudent and conservative. It is related to corporate performance yet its impact on corporate performance is not the best, compared to the other dimensions. Tseng (2010) further argued that firm performance comes from interdependent behavior like cooperation, knowledge sharing, and mutual assistance. Ogbonna ; Haris (2000) found no relationship between organizational performance and community cultures. Fekete ; Borcskei (2011) reported that clan culture is positively related to financial performance of the firms. Fekete ; skei ; Borcskei (2011) claim that devotedness to the organization, loyalty and tradition are the underlying factors behind this positive relationship. Clan culture displays several characteristics in the workplace that are likely to have positive impact on performance outcomes. Based on the information provided above, the following hypothesis is suggested;
H1: Clan culture positively influences financial performance of the firms
2.3.2 Hierarchical culture and firm performanceFormalized and structured places along with procedures, well-defined processes and a smooth-running organization are often regarded as the main characteristics of hierarchy culture (Cameron, 2004). The long-term concern of this type of culture is the stability, predictability, and efficiency (Cameron, 2004; Tseng, 2010). Although the studies show hierarchy culture is not the best performer compared to other cultural dimensions (e.g, Tseng, 2010), Tseng (2010) argued that more formalized companies usually possess formalized controls and processes, thus, they have better developed corporate performance because of its effective management. Ogbonna and Haris (2000) found no relationship between organizational performance and bureaucratic cultures. Empirical findings from
the study Fekete ; Borcskei (2011) found out that hierarchy culture has negative impact on financial performance. . Fekete ; Borcskei (2011) argued that hierarchical culture characteristics all have negative implications for financial and other types of performance outcomes. Therefore, a logical and reasonable hypothesis derived from these theoretical and empirical studies would be as follow;
H2: Hierarchy culture negatively affects financial performance of the firms
2.3.3 Adhocracy culture and firm performanceAdhocracy culture is characterized as a dynamic, entrepreneurial, innovative and creative workplace (Cameron, 2004; Cameron ; Quinn, 2006; Tseng, 2010). It emphasizes new product and service development, adaptability, growth, change, productivity, efficiency and experimentation (Cameron, 2004; Cameron ; Quinn, 2006; Tseng, 2010). These characteristics reflect external orientation and have better developed knowledge conversion and corporate performance (Tseng, 2010). Organizational culture that is characterized with adaptability to its external environment has the potential to positively affect performance outcomes (Kim et al., 2004). Ogbonna ; Harris
(2000) reported that competitive and innovative cultures are positively related to organizational performance. Fekete ; Borcskei (2011) found out that adhocracy culture affect financial performance of the firms. .) Adhocracy culture related Characteristics seem to have the great potential to affect performance outcomes. Based on these arguments, the following hypothesis is developed;
H3: Adhocracy culture is positively related to financial performance of the firms
2.3.4 Market culture and firm performanceA market culture is regarded as a results-oriented workplace with emphasis on winning, outpacing the competition, escalating share price, and market leadership (Cameron, 2004; Cameron ; Quinn, 2006). Staying close to one’s customer can result in timely market information, joint product development activities, and intense brand loyalties, leading to better financial performance (Peters & Waterman, 1982). Organisational culture can also affect performance provided that they are able to adapt to its environment (relevant to its industry and business conditions) (Kim et al., 2004; Kotter & Heskett, 1992; Saffold, 1988). Han et al., (1998) argued that market-oriented corporate culture has been increasingly considered a key element of superior corporate performance. In their study, they found that market-oriented corporate culture facilitate organizational innovativeness, which in turn affect firm performance. In an empirical study, Fekete & Borcskei (2011) found out that market culture has a positive effect on financial performance. These researchers argued that market culture emphasize outer surroundings and focuses on effectiveness, efficiency and competitiveness, which in turn improve the performance outcomes. Characteristic specific to market culture seem to be external oriented and play an important role in adapting companies to their external environment. Based on these argument, it is suggested that;
H4: Market culture is positively associated with financial performance of the firms
2.4 Summary of Research GapsAuthors Focus of the study Findings Research gaps Focus of the current study
Emma Claire Auma (2013) Effect of elements of organizational culture on employee performance in private sector Norms greatly influence employee performance. Culture was only affecting the employee performance Effects of culture on firm performance as a whole.
Susan Nguhi Kiiru(2012) Influence of organizational culture on performance of hospitals Organizational culture has a positive effect on the hospital performance The researcher used only quantitative method to analyze data The researcher will employ both qualitative and quantitative methods
2.6 Conceptual FrameworkThe conceptual framework below illustrates the relationship between the independent variables on one hand and the dependent variables on the other. Independent variables include; family culture, hierarchy culture, adhocracy culture and market culture while dependent variables include; Profitability, market performance, employee turnover and customer retention and loyalty.
Mentoring and nurturing skills and talents
Participation in decision marking
Mentoring and nurturing skills and talents
Participation in decision marking
Independent variablesDependent variable
Coordination and control
Coordination and control
Customer retention and loyalty
Customer retention and loyalty
Figure 2.6.CHAPTER THREERESEARCH METHODOLOGY3.1 Introduction
This chapter presents the methodology to be employed in this study. Areas covered include: research design, target population, sampling and sampling techniques, data collection and analysis methods.
3.2 Research Design
For the purposes of this study, the researcher will employ descriptive research design. A descriptive study is concerned with determining the frequency with which something occurs or the relationship between variables (Mugenda, & Mugenda, 2003). This design will be appropriate for this study since the researcher intends to establish whether the variables; clan culture, hierarchical culture, adhocracy and market culture affects the performance of the firm. The dependent variable for this study will be firm performance while the independent variables will be clan culture, hierarchical culture, adhocracy and market culture.
3.3 Empirical model
The study also will use inferential statistics to measure the quantitative data which will use multiple regressions using the SPSS. The regression model is as follows:
Y = ?0 + ?1X1 + ?2X2 + ?3X3 + ?4X4 + ?
Where: Y = Firm performance; ?0 = Constant Term; ?1, ?2, ?3 and ?4 = Beta coefficients; X1= Clan culture; X2= adhocracy culture; X3= hierarchical culture; X4= Market culture;
? = Error term
3.4 Target PopulationA population is the collection of whole gathering to which a researcher wishes to sum up discoveries and findings. It is further characterized as the total number of objects about which the researcher makes a few deductions (Cooper & Schindler, 2006). The same authors Cooper and Schindler (2014), describe population as the aggregate accumulation of components about which the references is made. Gall, Gall and Borg (2010) contended that a target population gives a solid establishment in which to construct a population rationality of the study. The population comprised of staff members of Uchumi Supermarkets from twelve branches within Nairobi County (Sarit center, City square, Westlands, Adams, Buru Buru, Jogoo Road, Lan’gata, Ngong Hyper market, Uchumi Thika Road, Capital Centre and Koinange Street outlets) which totals 570 employees as at March 2016 (Karanja, 2016).
Table 1: Target population
Branch employees Population
Capital Centre 52
City Square 57
JipangeJogoo Road 40
Ngong Hyper 58
Sarit Hyper 64
Nairobi West 38
3.4.1 Sampling DesignThe sample size is a portion selected from the target population for analysis (Dattalo, 2008). 54 employees from 12 different branches of Uchumi Supermarkets within Nairobi County will form the sample size. The researcher will use 10% of the population as the samples since less than half of the population are in top and middle level management. The table below shows the sample size distribution.
Table 2: Sampling Frame
Department Population Sample of employees Percentage
Adams 37 4 7
Buruburu40 4 7
Capital Centre 52 5 10
City Square 57 6 10
Jipange36 4 7
Jogoo Road 40 4 7
Koinange36 4 7
Langata41 4 8
Ngog Hyper 58 6 11
Sarit Hyper 64 6 12
Westlands44 4 8
Nairobi west 38 4 7
Total 54 100
Sample size distribution table
3.5 Data Collection InstrumentsFor the researcher to achieve the objective of this study the researcher will employ both primary and secondary data. Primary data will be collected using self-administered questionnaire while secondary data will be collected by use of desk search techniques from published reports and other documents. Secondary data will include the companies’ publications, journals, periodicals and information obtained from the internet.
The questionnaires will contain both structured and semi-structured questions. For structured questions, a 5-point Likert-scale (1 – “strongly agree” to 5 – “strongly disagree”) will be used to measure respondents’ agreement with the concepts under investigation (Likert, 2003). The semi structured questions will enable the researcher to collect qualitative data. According to Cooper and Schindler (2003) the questionnaire is preferred over other methods of collecting data because of its capability to extract information from the respondents as well as giving the researcher a better understanding and a more insightful interpretation of the results from the study. Questionnaire is also preferred because they enable the researcher obtain more up to date information as well as eliciting information which might not be captured in the other data collection techniques (Cooper and Schindler, 2003)
3.5.1 Validity of the Instrument
Validity of the research instrument will be established by peers and a panel of experts from the school of business of Kenyatta University. The research instrument will be availed to the experts and peers, who will establish its content and construct validity to ensure that there is adequate representation of the area under the study (Kothari, 2004).
3.5.2 Reliability of the Instrument
Reliability is a measure of the degree to which a research instrument yields consistent results after repeated trials (Ngechu, 2004). This research study will use test-re-test method which involves administering the same scale or measure to the same group of respondents at two separate times. This will be after a time lapse of one week.
The researcher will select a pilot group of respondents from the target population to test the reliability of the research instrument including the wording, structure and sequence of the questions. The respondents will be conveniently selected since statistical conditions are not necessary in the pilot study (Cooper and Schindler, 2003). The purpose will be to refine the questionnaire so that respondents in the major study will have no problem in answering the questions.
The pilot study will allow for pre-testing of the research instrument. This reliability estimate will be measured using Cronbach Alpha coefficient (?). Nunnally ; Bernstein (1994) recommends that instruments used in research should have reliability of about 0.70 and above. The reliability of about 0.70 will be computed using SPSS.
3.6 Data Analysis
Before processing the responses, the questionnaires to be completed will be edited for completeness and consistency. Quantitative data to be collected will be analyzed by the use of descriptive statistics using SPSS and presented through percentages, means, standard deviations and frequencies. The information will be displayed by use of bar charts, graphs and pie charts and in prose-form. This will be done by tallying up responses, computing percentages of variations in response as well as describing and interpreting the data in line with the study objectives and assumptions through use of statistical package for social sciences .Content analysis will be used to analyze qualitative data collected from the open-ended questions.
The researcher further will employ a multivariate regression model to study the relationship between clan culture, adhocracy culture, hierarchical culture, market culture and firm performance. The researcher considers regression method to be useful for its ability to test the nature of influence of independent variables on a dependent variable. Therefore, the researcher will use the regression analysis to analyze the data.
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APPENDIX I: COVER LETTER
P.O Box 103559 – 00101,
RE: REQUEST FOR YOUR PARTICIPATION IN MY ACADEMIC RESEARCH PROJECT
I am the above named student currently pursuing a course of Master of Business Administration (MBA) at Kenyatta University. I am conducting a research project on Corporate culture on Performance. You have been randomly selected to participate in this study. Participation is voluntary and I request that you spare a few minutes of your time to fill the questionnaire (attached overleaf). Kindly answer all questions as per the instructions given.
Please note that the information you provide will be treated as confidential, and will only be used for purpose of this research. The final report will be shared with all stakeholders, with priority given to you as a participant. Do not hesitate to seek clarification should have the need to at any point. Your participation in this study will be highly appreciated.
APPENDIX 11: QUESTIONNAIRRE
Part A: Demographic and Respondents Profile
1) Name of the Supermarket Branch…………………………………………………………………………………………
2) Position held in the Supermarket…………………………………………………………….
3) What is your Gender?
Male ( ) Female ( )
4) What is your age bracket? (Tick where appropriate)
a) 20 and below years ( )
b) 21 – 30 years ( )
c) 31 – 40 years ( )
d) 41 – 50 years ( )
e) Over 50 years ( )
5) What is your highest level of education qualification?
a) Primary School ( )
b) High School ( )
c) Tertiary College
d) University ( )
e) Post graduate level ( )
6) Length of continuous service with the Supermarket?
a) Ten and below years ( )
b) 11-20 years ( )
c) 21-30 years ( )
d) 31-40 years ( )
e) 41-50 years ( )
7) How long has your supermarket branch been in operation in Nairobi?
a) 5 and below years ( )
b) 6 – 10 years ( )
c) 11 – 15 years ( )
d) 16 – 20 years ( )
e) Over 25 years ( )
8) How many employees are there in your Supermarket Branch?
a) 100 and less ( )
b) 101 – 200 ( )
c) 201 – 300 ( )
d) 301 – 400 ( )
e) Above 400 ( )
FOR EACH OF THE FOLLOWING STATEMENTS‚ PLEASE THE LEVEL OF YOUR AGREEMENT INDICATE (USING A NUMBER BETWEEN 1 AND 5)
1 2 3 4 5
Strongly agree Agree Neutral Disagree Strongly disagree
SECTION 1: MOTIVATION
Career path in the company Management acknowledges good work Job utilizes multiple skills Opportunity for employee training and skills development Job security 6 Recognition for work done Management effort to enable employees understand what is required of them at work Fair disciplinary measures taken Employee involvement in setting goals Safe and healthy working conditions provided
Effective performance appraisal system Opportunities to make decision Opportunities to develop close relationships with colleagues Fair promotion opportunities Job has room for being creative Leadership program exists Good working environment Current salary is competitive Private working space or office Good health benefits exist SECTION 4: LEADERSHIP
There are many levels of hierarchy your firm Formal communication works across the board Responsibilities are easily delegated Decision making are centralized within a department Top management always share vision of your company Company mission is always driven by everyone within the department You always supervise people in your department SECTION 3: INNOVATION
Change in Business model for the last two year Business processes have undergone through changes in the last two years Employees try to introduce innovative ideas while performing given tasks Company has long term focus There is a policy for talent retention and attrition control SECTION 4: COMPETITIVE ADVANTAGE
Differentiation strategy on product Differentiation strategy on price Differentiation strategy on innovation Differentiation strategy on market Focus strategy on buyers characteristics Focus strategy on product range Focus strategy on geographical location Focus strategy on service line APPENDIX 111: WORK PLAN
Activity JUNE JULY AUGUST SEPTEMBER OCTOBER
Proposal Writing Study Approval Data Collection Data Analysis Report Writing Presentation APPENDIX 1V: BUDGET
Items COST (Kshs)