Relationship between organizational culture and firm performance: A case study in Vietnam
Hue University Journal of Science: Economics and Development
pISSN 2588-1205; eISSN 2615-9716
Vol. 130, No. 5B, 2021, pp. 5–15; DOI: 10.26459/hueunijed.v129i5A.5961
RELATIONSHIP BETWEEN ORGANIZATIONAL CULTURE
AND FIRM PERFORMANCE: A CASE STUDY IN VIETNAM
1
2
2
3,
Nguyen Thị Thuy Hang , Nguyen Hiep , Nguyen Phuc Nguyen , Hoang Trong Hung *
1 Pham Van Dong University, 509 Phan Dinh Phung St., Quang Ngai City, Quang Ngai, Vietnam
2 The University of Da Nang, 41 Le Duan St., Hai Chau, Da Nang, Vietnam
3 University of Economics, Hue University, 99 Ho Dac Di St., Hue, Vietnam
Abstract. Literature on organizational culture constantly reinforces the notion that organizational culture is
necessary for firm performance. Nevertheless, limited studies have been conducted in Vietnam. This study
aims to examine the relationship between components of organizational culture and firm performance.
Primary data were collected through questionnaires answered by 982 employees in Vietnamese enterprises.
Multiple regression was used to test the proposed model. The results show that consistency and
involvement are the highest influencing factors of firm performance, while adaptability is the lowest. Thus,
managers and leaders are recommended to develop a strong culture in the organization to improve their
firm performance.
Keywords: organizational culture, firm performance, Vietnamese enterprises
1
Introduction
Organizational culture plays a crucial role in an organization’s daily operations as it is considered
one of the key factors for stability and competitive advantage. Further, it can offer numerous
advantages, such as cooperation, control, communication, and commitment [12]. Although
culture is often conceived as intangible, difficult to understand, there has been significant
research in the literature to explore the impact of organizational culture on firm performance [7,
9, 19, 20]. Most of the research has applied Denison’s organizational model, and this model
includes four dimensions, namely mission, involvement, adaptability, and consistency. This is
because each of the four major cultural traits in Denison’s model promotes superior firm
performance [19], its integrative nature, as well as its emphasis on both internal and external
factors [20]. However, the majority of existing studies on organizational culture and performance
have concentrated in developed countries. In Vietnam, there has been little research to explore
this relationship [8, 16]. A few prior studies are carried out in a specific area, e.g., project
management or a specific province, which can lead to the limitation in generalization. Therefore,
this study aims to explore the relationship between organizational culture and firm performance
in the context of Vietnam.
Submitted: August 14, 2020; Revised: September 7, 2020; Accepted: April 17, 2021
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Vol. 130, No. 5B, 2021
2
Literature review
2.1
The concept of culture
According to Schein, organizational culture is defined as “the pattern of basic beliefs and
assumptions that a group has invented, discovered, or developed while it learns to cope with its
problems of external adaptation and internal integration, and that has functioned so well to be
considered valid, and consequently is taught to new members as the correct way of perceiving,
thinking and feeling regarding those problems” [9]. Besides, the culture of an organization could
be defined as the embodiment of its collective systems, beliefs, norms, ideologies, myths, and
rituals [20]. An approach based on work practice defines project organization culture as “the set
of behaviors or attitudes observed in perceptions of practices shared by project participants in
particular ways that help explain or resolve the problems encountered during the course of a
project” [8].
So far, the term ‘organizational culture’ has been proved to be difficult to define, but several
researchers agree that organizational culture includes the norms, perspectives, values,
assumptions, and beliefs, which are shared by organizational members. Even so, there is a
considerable challenge for external researchers who want to assess the organizational culture
because it is even difficult for members of an organization to describe their own culture. An
organizational culture model developed by Denison [4], which includes four traits of
organizational cultures: involvement, consistency, adaptability, and mission, represents
underlying beliefs, values, and assumptions and has been used widely in the literature. Denison
conceptualizes four major cultural traits as second-order, broader factors, and each of them
composes three component indexes. Each of these component indexes is measured with five
items. The four traits of organizational culture include:
• Mission – the degree to which the company knows why it exists and what its direction is;
• Involvement – the degree to which individuals at all levels in the company are engaged
and kept that direction as their own;
• Adaptability – the ability of the company to know what customers want, and the degree
to which it can responded to external forces and demands;
• Consistency – the company’s systems and processes that support efficiency and
effectiveness in reaching goals [4].
The Denison’s Organizational Culture Survey is chosen for the current study because of its
instrumental capacity to generate a systemic description and direct, comprehensive analysis of
the organizational culture by means of the assessment of behavior the patterns associated with
performance [9], its integrative nature, as well as its emphasis on both internal and external
factors [20]. Denison's measure of organizational culture can be used as diagnostic tools that can
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help managers identify the strengths and weaknesses in their culture [5]. In Viet Nam, Cuong et
al. [1] used Denison's model in Joint Stock Commercial Bank Import-export Vietnam – Can Tho
Branch, and Xuan et al. [18] used Denison’s model in enterprises in Thua Thien Hue. Based on
these assumptions, Denison's model would work well in the local context of Vietnam.
2.2
Concept of performance
Flapper et al. state that the performance could be defined as “the way the organization carries its
objectives into effect”, quoted by [11]. Firm performance is the outcome achieved in satisfying the
internal and external goals of a firm [15]. On the other hand, performance refers to be the ability
(both physical & psychological) to execute a specific task in a specific manner that could be
measured as high, medium, or low in the scale. The word ‘performance’ could be used to describe
different aspects, such as societal performance, organization performance, employee
performance, and individual performance [12]. Overall, researchers tend to identify three
dimensions of performance: mixed trends as sales growth, market share growth, ROA, quality
improvements, new product development, employee satisfaction, and overall performance [18];
performance measurement methods such as financial performance, business performance, and
organization effectiveness [15], sales growth, market share, profitability, quality of products and
services, employee satisfaction, and overall performance [9]; nonfinancial trends as customer
satisfaction, increased market share, competing effectively at the marketplace, employee
satisfaction, increased quality of service, and improved innovation [19]; company’s brand name,
the trust of employees, the loyalty of employees, the trust of customers, the loyalty of customers
[15] and financial trends as (1) ROA and (2) ROE [3]. In summary, there are numerous
measurements for firm performance, as mentioned above. Indeed, the accounting-based
measurement can reflect the past performance of a company, while the market-based indicators
help to anticipate the future performance [2]. Moreover, some prior studies state that it is
somehow challenging to find financial records in the public domain [11]. As such, nonfinancial
trends are claimed to be a fruitful choice to measure firm performance.
2.3
Organizational culture and firm performance
As discussed earlier, previous studies have identified the importance of organizational culture in
terms of firm performance. In Turkey, a growing research stream in organizational culture has
focused on the roles of cultural traits. The results indicate that each cultural trait exerts positive
effects on overall firm performance and the mission trait is the most prominent factor of the four
traits in terms of fostering overall firm performance, sales growth, market share growth, and ROA
[19]. Zakari et al. review the similarities and differences present among organizations of higher
and lower performance profiles as they have a relation to specific characteristics in cultural
profiles [20]. The results of this study clearly signal how the robustness of cultural profiles is
associated with better perceptions of performance among the organization members. Uddin et al.
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examine the impact of the organizational culture on employee performance and productivity
from the perspectives of multinational companies operating especially under the
telecommunication sector of Bangladesh [13]. The paper provides that organizational culture
significantly affects employee performance and productivity in the dynamic emerging context
[13]. Based on 296 respondents from various departments with varied positions from nine banks
in Ghana, Zakari et al. reveal that although significant differences exist among the banks in terms
of the organizational cultural traits, no significant differences are present with regards to
performance [20]. Overall, there is a positive relationship between organizational culture and
performance. At the same time, contributing to the debate about Denison’s Organizational
culture model, Fey and Denison argue that the effect of culture traits on firm performance may
be contingent upon the national culture context [6]. To address these issues, we examine the
relationship between culture traits and organizational performance in the context of Vietnam. We
suggest the following set of hypotheses:
H1: Involvement exerts a significantly positive effect on firm performance.
H2: Consistency exerts a significantly positive effect on firm performance.
H3: Adaptability exerts a significantly positive effect on firm performance.
H4: Mission exerts a significantly positive effect on firm performance.
3
Research methods
3.1
Sampling and data collection
Data were collected via a direct survey with questionnaires. The questionnaires were first
prepared in English and then translated into Vietnamese, which necessitated certain changes to
the survey due to the classical and modern forms of the Vietnamese language. Data were collected
from the employees of 400 enterprises working in different sectors, such as automotive, textiles,
leather shoes, packaged consumer goods, ships and boats building, furniture, public and private
services, and carriage. In each enterprise, three employees were invited to fill in the questionnaire.
All firms within the sampled area have 50 employees or more. A total of 1,200 questionnaires
were given out, and 982 usable questionnaires were obtained. Of which, 246 questionnaires were
from Hanoi, 303 from Ho Chi Minh, and 433 from Da Nang and Quang Ngai. Table 1 shows the
profile of the participants’ characteristics.
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Table 1. Profile of respondents
Rate, % Type of business
13.7 State enterprises
Gender Rate, % Education Level
Rate, %
Male
Female
Age
59 Under university
41 University
After university
30.8 Number of years of work
46.6 <5
14.4
56.8 Non-state enterprises
75.2
9.7
29.4 Enterprises with foreign capital
<30
Rate, % Other
0.8
31–40
41–50
>51
48
39.7
12.3
20.5 5–10
2.1 >10
Source: Data collected by authors
3.2
Measures
The measures of cultural traits are adopted from DOCS of Denison. According to [19], this
instrument includes 60 items. Denison conceptualizes the four major cultural traits as second-
order and broader factors, each of which composes three component indexes. Each of these 12
component indexes is measured with five items. However, later studies [5, 9] use only 12
important items of organizational culture because there is a robust statistical relationship between
the components of organizational culture and overall organization performance. Therefore, our
study adopts these 12 items, all of which follow the five-point Likert scales with anchors 1 for
‘strongly disagree’ to 5 for ‘strongly agree’.
The measures of the performance are adopted from [14]. The scale can be used fully or
partially (selected dimensions), depending on the nature of each investigation [10]. In fact, the
accounting-based measures can reflect the past performance of the company, while the market-
based indicators help to anticipate future performance [2]. Moreover, non-financial
measurements are worth to be incorporated [7, 11]. Therefore, in this study, from the suggestion
by [9], business performance and the organization’s effectiveness are used to measure
performance. Each question uses the five-point Likert scale to score from “very disagreeable” to
“very agreeable”.
Each questionnaire response is captured onto a computer software program for analysis
and control. Descriptive analysis, factor analysis, and regression analysis were used to determine
the causal relationship between organizational culture and firm performance.
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4
Results
Reliability analysis
Table 2 shows Cronbach’s alpha coefficients for all constructs. Overall, the constructs achieve
high reliability because the coefficients are above 0.7.
EFA analysis
The results of the factor analysis are depicted in Table 3. The factor loadings of culture, calculated
by using the Kaiser–Meyer–Olkin (KMO) measure of sampling adequacy and Bartlett’s test, show
that the data are suitable for factor analysis. The KMO value is 0.905, which is above the suggested
threshold of 0.6. The low significance of Bartlett’s test also satisfies the requirements (Chi-square
= 5286.911). The factor loadings with the threshold greater than 0.5 are considered. The final factor
loading matrix shows that the four culture components, which are initially extracted, account for
73.135% of the total variance in the 12 cultural artifacts, with the eigenvalues greater than 1.0,
which indicates that those extracted artifacts can help to explain the organizational culture.
The factor analysis for firm performance indicates two factors solution with the
eigenvalues greater than 1.0, and the two factor component explains 73.763% of the total variance.
The KMO measure of sampling adequacy is 0.833, which is considered as sufficient inter-
correlation while the Bartlett’s test of sphericity is significant with Chi-square at 2454.519. After
factor analysis, all items remain. The items are grouped together in the intended theoretical
manner. Table 4 illustrates the details of the factors.
Table 2. Constructs Cronbach's alpha coefficients
Construct
Number of items
Cronbach's alpha
Organizational culture (12 items)
Involvement
3
3
3
3
0.826
0.804
0.804
0.801
Consistency
Adaptability
Mission
Firm performance (6 items)
Business performance
Organization effectiveness
3
3
0.827
0.797
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Table 3. Factor loading of culture
Factor 1 Factor 2 Factor 3 Factor 4
Variables
Invol
0.792
0.765
0.789
Consi
Miss
Adap
1. Decisions made where the best information.
2. Relationship between job and the goals.
3. Investment in the skills of employees.
4. The leaders and managers “practice what they preach
0.738
0.813
0.777
5. Agreement about the right way and the wrong way to do
things.
6. Alignment of goals across levels.
7. Different parts cooperate to create change.
8. Customer influences our decisions.
0.756
0.823
0.760
9. The “right hand knows what the left hand is doing.”
10. Strategy leads organizations to change the way compete
11. Understand what needs to be done.
0.755
0.769
0.811
12. Vision creates excitement and motivation.
Approx. Chi-Square
KMO
5286.911
0.905
66
Bartlett's Test of Sphericity df
Total Variance Explained
73.135%,
Table 4. Factor loading of performance
Variables
Factor1
Factor2
Business
performance
Organization
effectiveness
1. Image is better than that of the competitors.
0.842
2. Attraction to professionals was
higher than competitors.
3. Employee morale is higher than competitors.
0.867
0.755
4. Innovative degree is higher than competitors
5. Market share is higher than competitors.
6. Staff turnover was lower than competitors
Approx. Chi-Square
0.778
0.736
0.885
2454.519
KMO
0.833
15
Bartlett's Test of Sphericity df
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Regression analysis
Regression analysis between organizational culture and business performance
2
The adjusted R is 0.424, which means that the predictor variables account for 42.4% of the
variance in business performance. Further, F statistic is significant at 0.000, which shows the
fitness of the model. The result of regression analysis is presented in Table 5.
The standardized coefficients are positive and statistically significant at different levels
(Invol (t (977) = 7.858, p = 0.000); Consi (t (977) = 7.058, p = 0.000); Adap (t (977) = 5.673, p = 0.000);
and Miss (t (977) = 6.179, p = 0.000)). These four dimensions of organizational culture affect
business performance. Of which involvement has the highest impact, and adaptability has the
lowest impact on business performance. Further, the variance inflation factor (VIF) and the
tolerance coefficient of the independent variables are less than 3 and greater than 0.1. This shows
that the model does not contain multicollinearity.
Regression analysis between organizational culture and organizational effectiveness
2
The adjusted R is 0.34, which indicates that the predictor variables account for 34% of the
variance in organizational effectiveness. Further, the model fits well since F statistic is significant
(p < 0.001). Table 6 presents result of regression analysis.
Table 5. Influence of organizational culture traits on business performance
Unstandardized Standardized
Collinearity statistics
coefficients
coefficients
Beta
Model
(Constant)
Invol
Consi
Adap
Miss
t
Sig.
B Std. Error
Tolerance
VIF
0.977
0.353
0.028
0.035
0.035
0.034
2.770
7.858
7.058
5.673
6.179
0.006
0.000
0.000
0.000
0.000
0.223
0.247
0.196
0.213
0.242
0.218
0.173
0.191
0.618
0.617
0.634
0.612
1.617
1.620
1.577
1.634
Table 6. Influence of organizational culture traits on organization effectiveness
Unstandardized Standardized
Collinearity statistics
coefficients
coefficients
Model
t
Sig.
B Std. Error
Beta
Tolerance
VIF
(Constant)
Invol
2.885
0.323
0.026
0.032
0.032
0.032
80.938
5.622
6.620
4.291
5.674
0.000
0.000
0.000
0.000
0.000
0.146
0.212
0.136
0.179
0.186
0.219
0.140
0.189
0.618
0.617
0.634
0.612
1.617
1.620
1.577
1.634
Consi
Adap
Miss
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The standardized coefficients are positive and statistically significant at different levels.
The four dimensions of organizational culture affect organization effectiveness. Of which
consistency has the highest impact, and adaptability has the lowest impact on organizational
effectiveness. Further, the variance inflation factor and the tolerance coefficient of the
independent variables are less than 3 and greater than 0.1. This shows that the model does not
contain multicollinearity.
In summary, the results in both Table 5 and Table 6 show that all relationships are
statistically significant, and all the hypotheses are accepted. These results mean that
organizational cultural dimensions have a significant influence on firm performance.
5
Discussion and conclusion
This study aims to identify the relationship between organizational culture and firm performance
in the context of Vietnam. The paper demonstrates that all the four cultural traits adopted in the
study have a significant positive influence on firm performance. Consistency and involvement
are the most prominent of the four traits in terms of fostering firm performance. This result is
consistent with that of the study of [8] that an effective organization should include the four
organizational culture traits: involvement, consistency, adaptability, and mission. The analysis of
these traits and their sub-dimensions can direct managers towards the appropriate actions
necessary to create, develop, and change the culture [5]. This study further confirms the
usefulness of Denison's model in measuring organizational culture. DOCS is a systemic
description and a direct, comprehensive analysis of the organizational culture by means of the
assessment of the behavior patterns associated with performance [9].
Based on the results, we recommend that managers should consider developing a
conducive organizational culture that requires a culture of consistency, involvement, mission,
and adaptability. Firstly, consistency can provide everyone with a clear direction for their work.
In particular, in the context of the 4.0 industrial revolution, businesses need to apply technology
to build operational processes to ensure that work is coordinated and integrated to serve the
organization as a whole and to achieve common goals. This issue helps to engender internal
consistency. In addition, the organizations with clear missions emphasizing internal consistency
are stable. Moreover, the involvement – the degree to which individuals at all levels in the
company are engaged and committed to their organizational goals, has important implications
in relation to day-to-day operations in enterprises. Employee involvement helps to serve the
clients and continually seeks to meet the clients’ future needs and improve ways to satisfy clients’
expectations. Regarding this factor, the study recommends that the organizational culture in
today's context cannot be created unconsciously, based on the values of leaders and managers.
The organizational culture needs to be managed by leaders and managers according to its
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Vol. 130, No. 5B, 2021
relationship with employees and firm performance. To this end, the adaptability–ability of the
company to know what customers want and the degree to which the company can respond to
external forces and demands are also important. Managers should build an adaptability culture
to improve satisfaction and firm performance [16].
Although this research has successfully explored the relationship between the traits of
organizational culture and firm performance, some limitations still exist. First, the sampling
technique used is convenience sampling, so the generalization of research results is limited.
Second, the scope of the study is limited to the employees. Future studies may also include all
employees and management to avoid bias in the perceptions of each subject.
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