Corporate Culture is an Important Source of Sustainable Competitive Advantage

Corporate Culture is an Important Source of Sustainable Competitive
Advantage
LI Qun
School of Economics and Management, Beijing Jiaotong University, P.R.China, 100044
Abstract
At present, research on relationship between corporate culture and sustainable competitive
advantage is just at preliminary stage inside and outside the country. We think there will be three
characters to form the corporation’s sustainable competitive advantage as: values, heterogeneity and the
attribute that difficult to imitate. Based on this, we analyze the three characters obtained from excellent
corporate culture and a new viewpoint of us will be followed An excellent corporate culture is the
important source for sustainable competitive advantage.
key words corporate culture, sustainable competitive advantage, source, characters, values
：
1 Introduction
Where sustainable competitive advantage means a superior status compared to the competitors, it is
related to a long term competitive advantage during the corporation’s development as to help the
corporation maintain a higher profit than the average level of the industry in a long period. So, if a
corporation wants to obtain a higher profit than the average level of the industry and makes a sustainable
development, it should have a sustainable competitive advantage. Therefore, the research on this field
has become a hot topic.
Many researchers have examined corporate culture as a source of competitive advantage. Edgar
H.Schein pointed out in his book “The Corporate Culture Survival Guide: Sense and Nonsense About
Culture Change” that organizational culture is very important as it can decide the strategic target and the
operation pattern of a corporation. Professor Kotter and professor Heskett from Harvard University have
studied the correlativity between corporate culture and the long term profit of the corporation. They
explained in their book “Corporate Culture and Performance” that corporate culture means a lot to a
corporation’s long term profit. M.Lemon and P.S.Sahota studied organizational culture’s effect on the
innovation ability of corporations. Liu guang-ming presented in his paper “Core value is the primary
productivity” that corporate culture is the primary core competence. According to the previous research
on this field, we present that excellent corporate culture is the important source of corporation’s
sustainable competitive advantage. Research on the relationships between corporate culture and
competence has been popular inside and outside the country at present, but explicit and deep going
theories are few. Based on the research in this field, we put forward that excellent corporate culture is
the important source of sustainable competitive advantage.
2 Characters for the source of sustainable competitive advantage
The sustainable competitive advantage is regarded as sustainable optimizing and updating advantage
of the corporation during the course in which the corporate exchanges its substance and power with the
dynamic external environment rather than keeping some specific competitive advantage in a static state.
In this case, the “sustainable” is related to the imitation of the competitors. However, the competitors
mentioned above are not only the unambiguous competitors in the industry, but also including the
potential competitors who will enter the industry in the future. Only when the creative strategy
implemented in the corporation can not be imitated by competitors, can the corporation have sustainable
competitive advantage.
In this way, the source of sustainable competitive advantage should have three characters as
following: 1 Values: As the source of sustainable competitive advantage, it should have strategic values
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with a low running cost. At the same time, it may provide customers with unique values and benefits and
finally help the corporation to obtain a higher profit than the average level of the industry. 2
Heterogeneity: As the source of sustainable competitive advantage, it should be cultivated and
accumulated in a long term along with the corporation’s development. The characters from different
corporations will be different as the corporations are different and so be the approaches by which the
characters are cultivated. In other words, they are unique. 3 the attribute that difficult to imitate The
source of sustainable competitive advantage is cultivated step by step in a long period as specifically
related to the development process of the corporation. In this way, this source is hard to be imitated as it
is greatly dependent on the forming route.
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3 Excellent corporate culture has the three characters belonging to the source of
sustainable competitive advantage
The author suggests that corporate culture is the patterns and norms that govern the behaviors of
employees, particularly, the company's mission, vision, values, standard of conduct, ethics, customs,
traditions and so on. And it is usually formed by for layers as: idea culture, Institutionary culture,
behavior culture and material culture.
3.1 Values of excellent corporate culture
The special functions of excellent corporate culture’s values extremely show up as following:
3.1.1
Dual incentive functions
Since the theory “economic man” from Adam Smith was well known, most economists assumes
that human beings are motivated solely by self-interest. On the one hand, this theory will be favorable
for economists to make advanced research on economy problems taking this theory as a premise; on the
other hand, in reality, human beings are motivated by many uncertain factors, and many of them are
unrelated to self-interest.
The 1998 Nobel Prize winner professor Amartya Sen from University of Cambridge declared that
self-interest is the most important motivation out of all motivations. However, other motivations like
humanity, equity, charity and public morality are also important motivations. At this point, if we take
self-interest as the only motivation and exclude all the other motivations, it will be hard for us to
understand rational behaviors of human beings. Coase pointed out that research on institutional
economics of today should be based on the reality of human beings. Actually, according to New
Institutional Economics, human beings are doubly motivated by self-interest and no-self-interest.
Excellent corporate culture is a sub-specialization of social culture. It has a notable peculiarity for
taking substance as a carrier. The corporate material culture shows up not only in the fields like product
service and technology innovation but also for the improvement in working environment, working
conditions, reasonable salary system, establishment of cultural facilities and so on. The corporation
fulfills employees’ requirement of self–interest through improvement in the material culture construction,
especially the institution of “performance of evaluation” and “payment for labor”. Then, the corporation
will have the incentive function related to employees’ job motivation.
Idea culture is the core of corporate culture. As a value system with the center of corporate core
value, idea culture can guide corporate operation in terms of values and mutual consciousness. In this
way, it can represent the mutual pursuit of all employees for the corporation’s good and will finally
evoke employees’ job motivation.
3.1.2
Good guiding functions of excellent corporate culture
The second premise of New Institutional Economics about human behaviors is referred to the
relationship between human beings and environment. In other words, it is just the so called “bounded
ration”. “Bounded ration” is a theory introduced by K Arrow. According to this theory, human
behaviors are conscious rational with the bounded ration. From Nuosi's point of view, the bounded
ration includes two parts: 1, Environment is complex; 2, Human’s cognitive and calculating capabilities
are bounded. The uncertainty of the environment and incompleteness of information together with the
bounded capabilities can make everyone’s subjective models as a response to the environment different
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to each other. Finally, this will lead difference to everyone’s choice.
Good guiding functions of excellent corporate culture can have an indicating and inducing effect on
the direction of enterprise behavior: (1) it can show the direction of the corporation’s development.
Corporate culture can make the target and direction clear to us in forms of recapitulative, pithy and
philosophic words. Actually, these words are formed through a long term education and have exerted a
subtle influence on employees in the corporation. Finally, these words will become a part of their spirit;
(2) Excellent corporate culture can induce the direction of enterprise behavior. The value target set up by
corporate culture is the target of all employees. It’s a great inducement for the joint act of all employees
and it will help all employees to unify voluntarily to the direction expected by managers. Furthermore,
Peters and Waterman concluded that common employees in outstanding corporations are clear about
what they are doing under most circumstances as guided by the shared value. So we can say, excellent
corporate culture can supply the gap of bounded ration and make all employees’ behaviors in accordance
with the direction and common target of the corporation.
3.1.3 Overall restricting function
The third premise of New Institutional Economics about human behaviors is referred to the
opportunism of act tendency. This premise begins with the assumption that human beings are inclined to
be opportunistic and self-interest. Based on this premise, we can see people will do some kind of harm
to others as they usually take shady means to fulfill their self-interest, such as: changing their cost or fee
into others.
Institutionary culture can form effective formal restrictions with respect to opportunistic behaviors.
Usually, it takes the form of explicit culture which is composed by legal formation, organizational
formation and managing formation. At the same time, these three component parts are respectively
related to enterprise laws and regulations, corporate operation system and managerial system.
Reasonable system will accelerate the forming of perfect corporate values and help employees fall into
the habit of favorable behaviors. Consequently, as the formal restrictions of corporations, the
institutionary culture can reduce employees’ opportunistic actions to a great extent.
Alternately, idea culture can form effective informal restrictions which are created after a long
period of intercourse among human beings. In this way, they will have an enduring vitality and become
a part of culture passed by generations. The informal restrictions are composed of: values, ethics,
morality, custom, ideology and so on while the ideology is the core. Actually, the ideology is usually can
be defined as a set of faith as it tends to judge division of labor, allocation of revenue and existing social
institution by moral standards. Consequently, idea culture represents a mutual primary ideology of all
employees in the corporation.
Managers can’t run corporations only by institution management and they usually take some
unwritten cultural contracts as an effective supplement added to the management because it’s hard to
take everything into account by the institution management and an overall institution usually leads to a
high cost. Thanks to these cultural contracts, once some unpredictable events happen, the invisible rules
of wide scope will guide employees’ actions. So we can present that if the existing institutionary rules
can not cover all ongoing unpredictable events, cultural rules can be taken as a good substitute to make
appropriate actions.
Generally speaking, we take corporate idea culture as some kind of ideology including a set of
values and cognitive acquirement. Ideology can abate people’s pursuit of opportunism by strengthening
their recognition and reliance on the validity of arrangements from some institutions. According to this,
it can induce collective action other than self-interest of employees by helping people restricting their
behaviors. In conclusion, corporate idea culture represents the main informal restriction for corporations
in accordance of the values and moral standards. It will help employees building internal standards of
conduct with self-restraint as it can assimilate personal values and moral standards with the values and
standards shared in corporations. Anyone who violates corporation’s values will feel guilty for himself
and the pressure from general consciousness and public opinion will push him to correct his misfeasance.
So we can say, excellent corporate culture can cut down the cost for corporations’ operating and achieve
great overall restrictive functions.
3.1.4 Excellent corporate culture leading to sustainable innovation
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The innovational culture is an important driving force for corporations’ sustainable innovation. In
dynamic environment, if the corporation needs a sustainable competitive advantage, it should surpass
the environment and market competition based on its resources and competences rather than adapt to the
changes passively. This requires managers to foresee the changes in environment and make quick
response. Guided by innovational culture, the corporation can obtain sustainable competitive advantage
based on the holistic development as the existing competitive advantage is conversed to some new
competitive advantage through sustainable innovation.
Culture can effect the innovation a lot. Ang and Hong presented that the diversity of culture can
exert an influence on the cultivation of creative mind and bearing capability for the risk of innovation.
Based on a research over 71corporation from 7 different countries, Hoffman argued that culture can
have an impact on corporations’ innovation by two means: the first impacts the administrative practice
directly while different administrative practices refers to different innovation; the second means is
related to the neutralization effect which can mitigate the conflict brought by innovation. Based on a
research on the relationship between corporation, innovation and techno-conduct, Enrique Claver argued
that technology innovation should take materials, funds and human resource as a base. However, if the
values and shared action guidance are not clarified, there won’t be any achievement in technology
innovation. In other words, the “hardware” of innovation should be supported by the “software”
corporate culture.
Innovative corporate culture has already become the core value of corporations as the creative mind
has been accepted by most employees. Thanks to the corporate culture, managerial personnel now pay
great attention to innovation and encourage the innovation; employees have faith in innovation for the
corporation’s surviving and are willing to take risk for innovation. In these situations, innovative culture
will make a boost for the corporation’ development as the creative mind has become a part of people’s
soul.
Innovative culture can help corporations obtain and maintain competitive advantage. Any kind of
corporations’ innovation is a continuous process in which the innovative ideas of individuals are
implemented in corporations. Corporate culture will exert an influence on the overall process of
corporations’ innovation: on the one hand, it will transmit the innovative ideas to the outside while
dealing with customers; on the other hand, customers’ demand for innovation can be apperceived.
Actually, corporations will get development in this positive feedback. Corporations’ learning and
innovation are important parts advocated by this culture. Managers now are awake that only sustainable
innovation can make the competitive advantage dynamic and sustainable which is hard for competitors
to imitate.
3.2 The heterogeneity of corporate culture
Generally speaking, corporate culture is formed step by step through a relatively long period of
transmitting and normative administration. Firstly, it is advocated and carried out by a few people under
a certain condition of business. The process is shown in figure 1.
3.2.1 Corporate culture is created for the demand of corporation’s development under a certain
environment.
Consciousness is always behind existence as the core values are formed step by step in the process
in which corporations are in pursuit of surviving and development. As a social organism, the corporation
will have its own values and behavioral model in order to adapt to the environment. At the same time,
only when the culture fits the corporation’s development and is accepted by most employees can the
corporation have great vitality.
3.2.2 Corporate culture is initiated by a few people
Culture reflects intention of people’s consciousness rather than a passive response to the
environment. Generally speaking, the demand for culture arises from the conflict of diversified interests
attached with ineradicable traditional customs. After this, a few people are firstly roused and they claim
for new culture adapted to the new situation to change the old concepts and modes of conduct. Finally,
these people will become pioneers of corporate culture. However, as advocated and demonstrated by
these leaders and precursors, this new culture enlightens other people in the corporation and finally it
turns into the corporation’s new modes of culture.
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3.2.3 Corporate culture is a result of continuous publicity, practice and normative administration
The change of corporate culture is a process in which new concepts and modes of conduct take
place of the old ones. Based on this, the new culture should be widely propagandized so that it can be
accepted by all employees step by step.
Generally speaking, corporate culture will go through a period with amelioration, confirmation and
aggrandizement as a new concept need an incessant practice process in which it can be amended and
improved to be widely spread.
Usually, the corporate culture is the result of normative administration as the outgrowth of the
culture is quite slow. Once the new culture are confirmed to be reasonable and necessary, business
operators will set down relevant managerial system and criterion of conduct to strengthen it through
practice in order to change employees’ thinking and behavioral model and build new corporate culture.
Demand for
development
of
the
corporation
External factors
Specific
management
environment
Advocated by some
leaders
and
precursors
Certain
theories and
environment
are formed
A trend of
shared views
and behaviors
among
all
employees
Publicity—Communication
Controversy — Gradually
strengthen
Practice
—
Constant
Amendment
Figure 1 The forming process of corporate culture
In a word, the forming process of corporate culture leads to the heterogeneity of corporate culture as
the differentiation in management environment, industry, managers, corporate history, strategy, business
objectives and so on makes the corporate culture different to each other.
3.3 The attribute belonging to corporate culture that difficult to imitate
Victor Newman and Kazem Chaharbaghi presented that: 1. culture is only the byproduct related to
the realization process of technology rather than the technology itself; 2. new culture won’t arise if no
demand of implement for a new technology is required; 3. it won’t make sense for managers to migrate
corporate culture from other corporations directly to their own corporations. The new culture will turn
into the corporate culture for your corporation only when you can expertly carry out a new technology.
Barney takes the corporate culture as the most effective and solid barriers against the competitors’
imitation. He put forward two reasons: on the one hand, culture can make the corporation different to
each other; on the other hand, some parts of corporate culture are too hard for competitors to understand
as they can’t be easily expressed in words. In other words, if competitors can’t even understand and
copy the corporate culture, the culture may be turned into the best protect for the corporate strategy
advantages outclassing to any laws and systems.
Chinese professor Liu guang-ming also pointed out that it will be harder for competitors to imitate
the corporate culture rather than technology and systems.
The forming process of corporate culture also shows that corporate culture is hard to be imitated as
the process is greatly dependent on the forming route. Furthermore, the forming route is determined by
many factors which are just related to certain corporation so that it can’t be suitable for all corporations.
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4 Conclusion
In conclusion, excellent corporate culture involves these three characters mentioned above which are
needed to form the source of sustainable competitive advantage. Therefore, the author presents that
excellent corporate culture is the importance source of sustainable competitive advantage and managers
should pay attention to cultural management from strategic level. According to the “heterogeneity”,
managers should cultivate characteristic corporate culture on a basis of reality in their own corporation.
Finally managers should insist on building corporate culture and take it as a long-term behavior as
determined by the forming process of corporate culture.
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The author can be contacted from e-mail : [email protected]
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