Organizational Culture and Performance: Proposing and Testing a Model

The purpose of this article is twofold: first, to propose and test a model concerning how an organization's culture affects organizational performance; and second, to demonstrate the application of LISREL modeling methodology to estimate and test this model. Organizational culture is hypothesized to consist of three interrelated dimensions: a sociocultural system of the perceived functioning of the organization's strategies and practices, an organizational value system, and the collective beliefs of the individuals working within the organization. Organizational culture is operationalized by several latent variables: organizational structure and purpose, organizational values, task organization, climate, and individual values and beliefs. These variables, in turn, are hypothesized to affect organizational performance. Analysis of data from 392 respondents who participated in the study confirms the fit of the proposed model to the data. The model presented in the study represents an initial attempt to describe and evaluate the effects of various dimensions of organizational culture. It appears that the comparison of visible aspects of culture across and within organizations can provide useful information for guiding the directions of organizations. By investigating the variables defined in this study further, it may eventually be possible to explain why some organizations are not performing at desired levels of productivity. A methodological tool has also been presented in this article. It is clear that the application of structural equation modeling techniques can provide organizational scientists with powerful analytic tools for furthering theory testing and development. Structural modeling can be used to construct, estimate, and test a variety of models in organization science.