Corporate culture and corporate strategy: some economic aspects of the modern organisation

Corporate culture involves the value system, traditions, customs of the organisation, the way things are done in the organisation, etc. The mission and the vision are set by strategic management in the organisation with the purpose of giving it a direction and ensuring its survival in a dynamic environment. However standard economic theory (without frictions) ignores the role that transaction costs play in the modern organisation and its attempts to overcome those costs by modern means such as corporate culture and corporate strategy. This paper studies how corporate culture helps economise on the transaction costs of internal organisation. We investigate all dimensions of corporate culture which bring down managerial transaction costs including the increase of trust and the reduction of intrafirm opportunism. More specifically, we demonstrate that by setting common goals and giving a common direction to all members of the organisation corporate culture and corporate strategy, in effect, save on the sizeable costs of internal organisation.