Organizational Culture in a Non-Competitive Environment: A Case Study of the Air Traffic Control Organization

An Applied Research Project Presented in Partial Fulfillment

Of the Requirement for the Degree

Master of Business Administration

by

Charles (Tony) Rushton

Athabasca University

December 2015

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Abstract

Using the Air Traffic Organization (ATO) as a case study, I reviewed the impact of various culture types on organizational performance. The ATO operates the air navigation system in the United States. It is a monopoly organization providing a public service in a non-competitive environment. The cultures of many government departments resemble a Hierarchical or Bureaucratic culture. While I did not survey the ATO culture specifically, I assumed that it resembled a Hierarchy. From a review of relevant literature, I determined that successful organizations require cultures, which are aligned with the deeply help industrial assumptions of all stakeholders. While assumptions can be difficult to identify, the values that develop from these assumptions are less so. Market cultures tend to outperform in competitive environments. And while the literature on public service environment is scarce, the values held within the Public Service would suggest that the internally oriented cultures would be the most aligned and therefore the most effective.

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Table of Contents

List of Tables ...................................................................................................... iii  List of Figures .................................................................................................... iv  Introduction ......................................................................................................... 1  Research Objective ............................................................................................. 2  Research Question ............................................................................................. 2  Research Methodology ....................................................................................... 3  Literature Review ................................................................................................ 4  

History of Organizational Culture as a Field of Study .......................... 4  Competing Values Theory of Organizational Culture ........................... 6  The Development of Culture in an Organization ................................. 18  Effect of Organizational Culture on Business Performance .............. 20  Changing and Aligning Organizational Culture .................................. 32  Summary ................................................................................................. 37  

Findings and Analysis ...................................................................................... 42  Introduction ............................................................................................ 42  Findings regarding Hypothesis 1 ......................................................... 42  Findings regarding Hypothesis 2 ......................................................... 44  Summary ................................................................................................. 46  Further Research .................................................................................... 47  

Conclusion ......................................................................................................... 48  References ......................................................................................................... 49  

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List of Tables Table 1: Names of Organizational Models and Cultural Types.….………. 4 Table 2: Dimensions of the Competing Values Framework………………. 8 Table 3: Variable Groupings in to Organizational Models……………….. 28 Table 4: Example of OCAI Dimensional Descriptions……...…………..… 35

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List of Figures

Figure 1: Spatial Configuration of Values…………………………………… 18 Figure 2: Cultural Typologies of the Competing Values Framework…... 35

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Introduction

The Air Traffic Organization (ATO) is the operational branch of the Federal Aviation Administration (FAA), a department of the United States government. The ATO is responsible for the provision of air navigation services within the continental United States and parts of the Atlantic and Pacific Oceans. Its estimated budget for 2016 is approximately $7.5 billion (USD). It employs 30,000 persons and oversees more than 140 million landing, take-offs and over-flights per year. It provides air traffic control services to eight of the world’s top ten busiest airports. It’s impact on the US and global economy cannot be understated. As a branch of the U.S. government, the FAA receives its funding through Acts of Congress. Each year the FAA must present its budget for approval. In the fall of 2013, political issues delayed this approval. Government employees including air traffic controllers were sequestered. Air traffic services were reduced and resulted in delays to airlines and their passengers. This ongoing funding uncertainty has lead airlines and other stakeholders to call for the privatization of ATO. Funding is not the only challenge facing the ATO. Critics point to a difficult labour / management relationship as well as the timespan and costs of technology initiatives. A major technology modernization program, called NextGen, is expected to cost $40 billion (USD) and may take 20 years to complete. Stakeholders have seen positive results in other jurisdictions where the national Air Navigation Service Provider (ANSP) has been privatized. Support for change has increased to the point where it will be discussed in congress and may be added to the funding bill in the coming year. Many stakeholders have pointed to Nav Canada as one example where privatization of an ANSP has resulted in numerous system benefits, not just for airlines but also for government, employees and other stakeholders. Nav Canada incorporated in 1996, purchasing the air navigation system from Transport Canada. And while the company had its own share of challenges initially, it has since won three awards from the International Air Transport Association for best ANSP.

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Research Objective Organizational culture is a critical determining factor of business success (Denison & Mishra, 1995; Tellis, Prabhu, & Chandy, 2009). Business performance requires that corporate culture align with corporate values and the operating environment (Kotter & Heskett, 1992;). Public Service organizations are no exception. Stakeholders expect effective and efficient services. But identifying and categorizing the culture of an organization can be difficult (Cameron & Quinn, 2005). This paper will consider the organizational culture of the Air Traffic Organization (ATO) and drive to privatize this public service provider. By applying the Competing Values Framework, as well as other literature on culture and performance, this paper will recommend a preferred cultural model for the new entity.

Research Question For privatization to be considered successful, all stakeholders must identify an agreed end state. This end state must not only be achieved but also maintained over the long term. Change initiatives often fail to take hold because the cultural implications are not fully considered (Kotter & Heskett, 1992). The culture of air traffic control is one of safety and stability. This creates resistance to change. The management of culture during the privatization process will therefore be an important component of the change process. The leadership of the ATO will have to ensure that the new culture is aligned with its new values. In this paper, I have asked what that organizational culture should resemble. What are its characteristics, values, and management styles? And what will be the most effect organizational model for the ATO to use in order to develop an effective culture? Proponents of privatization talk about the ATO being run more like a business. Often, this phrase is meant to mean more like a competitive business. In this paper, I proposed that, H 1. An organization cannot develop a market culture (externally focused, competitive values) in a non-competitive environment. H 2. In a legislated monopoly environment, an organization would better serve its stakeholders by becoming culturally more agile, flexible, and open to change.

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Research Methodology In this paper, I have used publically available information from the Internet to develop an understanding of the current ATO and of the rationale behind privatization. I have considered the drivers of privatization so as to propose the new values and objectives for the organization. A literature review has provided the academic theory to determine what an aligned culture would look like and how it can be achieved. The literature review focused on the Competing Values Framework. This is a seminal theory of organizational culture that has been cited by may authors and incorporated in to other papers on the subjects for the past three decades. Cameron and Quinn’s (2005) OCAI tool was utilized to identify the preferred culture of the ATO. Kotter and Heskett’s (1992) work on culture and performance will provide an understanding of the positive and negative implications of the ATO’s culture on performance, given its monopoly environment, customer and societal expectations.

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Literature Review

In the following Literature Review, I have provided an overview of organizational research, the developing theories of organizational culture and specifically the development and application of the Competing Values Framework as described by Quinn and Rohrbaugh (2005). This framework is a model of cultural identification that has been refined and cited by numerous authors over the past three decades. I have then looked at cultural alignment with business goals and values, and the impact of an appropriate, aligned culture on business performance, particularly as it relates to bureaucracies and monopolies. Next, I examined public service culture specifically and conclude the literature review relate to on assessing and making cultural changes. Throughout the development of the Competing Values Framework as the theory of organizational research, it has been related to organizational design, values, culture and leadership. A review of the literature identified that various authors have used different terms when discussing the four quadrants of the model, which are noted in Table 1 For simplicity, I utilized the names of the organizational models when I referred to general theories of design and effectiveness, and the cultural types identified by Cameron and Quinn (2005) when I discussed organizational culture. Table 1: Names of Organizational Models and Cultural Types

Model Culture Type

Dension (1990)

Cameron and Quinn (2005)

Tharp (2009)

Human Relations Involvement Clan Collaborate Open Systems Adaptability Adhocracy Create Internal Process Consistency Hierarchy Control Rational Goal Mission Market Compete

History of Organizational Culture as a Field of Study The consideration of culture as it relates to business performance is relatively recent, championed in the early 1960s by the then-chairman of IBM, Tom Watson, Jr. He suggested that the strength of an organization’s culture – its philosophy, desire and spirit – was more important to its success than other business measures (Cameron & Quinn, 2005). In the late 1970s through the early 80s, American businesses began to explore the Japanese methods of production and manufacturing. One of the

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noticeable differences between the countries was the Japanese emphasis on organizational culture. While previous decades of research looked at group dynamics and individual development, the study of organizational design in the 80s began to take a systemic focus. There was recognition that organizational values are at the root of organizational systems and structures. A cultural perspective on organizational design took form (Denison & Spreitzer, 1991). Denison (as cited by Dension & Mishra, 1995) demonstrated the positive relationship between employee involvement and financial performance. Similarly, Kravetz (as cited by Dension & Mishra, 1995) determined a positive relationship between organizational performance and employee participation, autonomy and creativity. Gordon (as cited by Dension & Mishra, 1995) found low performing companies in the banking and utilities industry had a different cultural profile than their high-performing competitors The problem for scholars was a lack of agreement on how to define organizational culture. Much of the early work, borrow definitions from anthropologists who had proposed more than 164 definitions of culture (Sathe, as cited by Howard, 1998). Often cited work by Schein (as cited by Howard, 1998; Parker & Bradley, 2000) argued that culture consists of three dimensions: assumptions, values and artefacts. Assumptions are widely held views of human nature, social relationships and the environment. They are subconscious and are taken for granted. Values are less abstract. They represent preferences for alternative outcomes as well as standards for determining appropriate methods of achieving those outcomes. Artefacts are the more concrete or physical representation of culture that includes attire, rituals, slogans, and traditions. Later work by Schein (as cited by Howard, 1998) suggested that cultural researchers must be able to identify these hidden assumptions. However, Dennsion (as cited by Howard, 1998) argued that values were easier to access than assumptions and more reliable than artefacts. This last view has dominated later research. Organizational values are seen as being the clearest visible manifestation of culture. Organizational culture came to be defined as “widely shared and strongly held values'' (Chatman & Jehn, 1994, p. 524) and Howard (1998) opined that an organization’s culture can be reliably represented by the values. Beginning in the early 1990s, researchers turned towards the identification of cultural traits, the questions of what created culture, and whether it could be turned in to a competitive advantage. Many of the results were inconclusive (Chatman & Jehn, 1994); however Schein (as cited by Howard, 1998) argued that culture was one of the most powerful and stable forces operating on an

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organization. More recently, research has begun to focus on the alignment of cultural traits with an organization’s structure and values, and with the external operating environment. Various researchers suggested that alignment is more important than any individual trait in predicting organizational success (Cameron & Quinn, 2005; Gordon, 1991; Kotter & Heskett, 1992; Tharp, 2009). Mirriam Webster Online (n.d.) defined culture as “a way of thinking, behaving, or working that exists in a place or organization (such as a business).” Allaire and Firsirotu (as cited by Gordon, 1991) described culture as “a system of knowledge, of standards for perceiving, believing, evaluating and acting…” (p. 397). Building on previous works, Gordon (1991) suggested that culture could be broken down to three distinct levels: behaviours, values, and basic assumptions. He stated that the widely shared assumptions and values within an organization are what cause behaviours. Goodman, Zammuto and Gifford (2001) concurred, and offered that culture was the bedrock of behaviour in organizations. Tharp (2009) expanded on this description by suggesting that culture also included an organization’s attitudes, and that these attitudes encompass all facets of its internal and external relationships. Members of the organization may act in accordance with the culture even when they are not aware of its influence. Competing Values Theory of Organizational Culture Reviewing previous literature, Quinn and Rohrbaugh (1983) found that organizational effectiveness was most often suggested to be the end goal of organizational development and design. But different authors have proposed various criteria to measure organizational effectiveness. Campbell (as cited by Quinn & Rohrbaugh, 1983) identified 30 effectiveness criteria that later authors attempted to integrate. Quinn and Rohrbaugh (1983) asked, “How do individual theorists and researchers actually think about the construct of effectiveness?” (p. 365). Using two separate studies, they then attempted to answer that question. In the first study, they selected seven individuals known for their research in the area of organizational effectiveness. All seven held doctorates representing different academic institutions. Working from Campbell’s list of effectiveness criteria, they asked these experts to validate each of the 30 measurements. The panel eliminated 13 of the 30 criteria as not valid measurements of organizational effectiveness. In the next step, Quinn and Rohrbaugh (1983) asked the panel to evaluate the similarity between every possible paring of the remaining criteria. Using statistical analysis on the result of this evaluation, the authors were able to determine the factors used for assessment of similarity and found that these remaining criteria could be depicted spatially using only three dimensions: Focus, Structure and Means/Ends. They summarized,

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The first dimension (the horizontal or x-axis) was interpreted as reflecting differing organizational focus by representing the contrast between an internal, person-oriented emphasis (toward the left) and an external, organization-oriented emphasis (toward the right). The second dimension (the vertical or y-axis) was interpreted as reflecting differing organizational preferences for structure by representing the contrast between an interest in stability and control (toward the bottom) and flexibility and change (toward the top). The third dimension (a depth or distality axis) was interpreted as reflecting the degree of closeness to desired organizational outcomes or a means-ends continuum, by representing the contrast between a concern for ends (nearer and larger) and a concern for means (farther away and smaller) (Quinn & Rohrbaugh, 1983, pp. 367-368).

They then repeated the pairing evaluation with a much larger and more diverse group of 45 organizational experts in an attempt to repeat the initial results. The findings of this second study closely replicated the first, concluding with the same three dimensions and only very slight changes to the spatial position of each criteria, providing strong support for their conclusions. Using the two axes, Quinn and Rohrbaugh (1983) were able to place each of the 17 criteria within one of the four resulting quadrants. They found that each quadrant closely related to a previously identified model of organizational behavior. In the top left corner, characterized by internal focus and flexibility was the Human Relations model (Keeley; Wagner & Schneider, as cited by Ostroff & Schmitt, 1993). In the top right was the Open Systems model, characterized by Flexibility and an external focus (Yuchtman & Seashore, 1967 as cited by Ostroff & Schmitt, 1993). Below, in the bottom right was the Rational Goal model (Etzioni, as cited by Ostroff & Schmitt, 1993). And finally, in the bottom left was the Internal Process model (Likert, as cited by Ostroff & Schmitt, 1993) emphasizing internal focus and control. Within each of the models, the criteria identified the overarching values of the organization; those criteria that the organization focused on and against which it measured its effectiveness. In Rational Goal model, planning and goal setting are the means; productivity and efficiency are ends. The Open Systems model emphasizes readiness and flexibility as the means; growth, resource acquisition, and external support are the ends. The Internal Process model stresses communication processes as means; and stability, control, and a psychological sense of continuity for participants as the ends. The Human Resource model values cohesion and morale as means; and human resource development and participant satisfaction as the ends (Ostroff & Schmitt, 1993).

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Table 2: Dimensions of the Competing Values Framework

Source: Quinn & Rohrbaugh, 1983, p. 369 The resulting diagram implied that some organizational values sat in opposition to others and the authors noted that opposing viewpoints on stability versus flexibility are central to debates not just in organizational theory but also in the fields of sociology and political science. A study by Lawrence and Lorsch (as cited by Quinn & Rohrbaugh, 1983) recognized that effective organizations to be those that could balance the opposing values of integration and differentiation. Their new model added two new dimensions to this balance and the authors asserted that, although there may be trade-offs at any given time, effective organizations needed to perform well in all four quadrants. They asserted,

…although certain pairs of concepts are at opposite locations in value space and, therefore, are paradoxical in nature, this does not require that they are empirical opposites, mutually exclusive in actual organizational environments. Indeed, an organization might be cohesive and productive or stable and flexible. (p. 374)

While secondary to the initial purpose of their study, this idea of balancing competing values was an important inference that would continue to be debated in to the future. Thus the Competing Values Framework was born. Quinn and Rohrbaugh (1983) concluded that the spatial model resulting from this study was an important step in the development of an explicit statement

A SPATIAL MODEL OF EFFECTIVENESS CRITERIA 369

ResultsThe results of testing two-, three-, four-, and five-dimensional solutions to the group

judgment space again suggested a model with three axes. As in the initial analysis, theoverall correlation (0.63) of the distances in the three-dimensional space with theoriginal similarity judgments was high, the weights of all of the participants withregard to each dimension were positive, and individual correlations of the distanceswith the original similarities judgments were generally quite high (an average of 0.62).The addition of a fourth dimension to the judgment space was shown to increase byless than 5 percent the proportion of variance accounted for.

Figure 2 depicts the three dimensions that emerged from the second analysis and thelocation of the 17 criteria in the multidimensional space. Most significantly, the samethree dimensions appear as before, and the criteria show only the slightest alteration intheir spatial position.

3. Discussion

An Overview of the Competing Values ApproachThe findings suggest that organizational researchers share an implicit theoretical

framework and, consequently, that the criteria of organizational effectiveness can besorted according to three axes or value dimensions. The first value dimension is relatedto organizational focus, from an internal, micro emphasis on the well-being anddevelopment of people in the organization to an external, macro emphasis on thewell-being and development of the organization itself. The second value dimension isrelated to organizational structure, from an emphasis on stability to an emphasis onflexibility. The third value dimension is related to organizational means and ends, froman emphasis on important processes (e.g., planning and goal setting) to an emphasis onfinal outcomes (e.g., productivity). A simplified presentation of the relationship be-tween the three value sets and the effectiveness criteria is shown in Figure 3.

HUMAN RELATIONS MODEL

Means:Cohesion; morale

Flexibility

Ends:Human resource development

Internal

Means:Information management;

communication

Ends-Stability; control

INTERNAL PROCESS MODEL

Control

OPEN SYSTEM MODEL

Means:Flexibility ; readiness

Ends:Growth; resource acquisition

External

Means:Planning'goal setting

Ends:Productivity;effioiency

R'ATIONAL GOAL MODEL

FIGURE 3

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of organizational effectiveness. They identified four models or approaches to effectiveness and identified the values of each and how each differentiated itself from the other. In 1984, Quinn and Kimberly extended the framework to the examination of organizational culture, suggesting that the values orientation of the Framework could be applied to different dimensions of culture such as leadership, motivation and decision-making. Using these same axes of structure and focus, Denison (1990) overlaid organizational culture on to the four models and titled the quadrants: Mission, Adaptability, Involvement and Consistency. Each of these four cultural types was broken down in to three sub-dimensions that exemplified their related values:

• Mission: Strategic Direction and Intent, Goals and Objectives and Vision • Adaptability: Creating Change, Customer Focus and Organizational

Learning • Involvement: Empowerment, Team Orientation and Capability

Development • Consistency: Core Values, Agreement, Coordination/Integration

Denison and Spreitzer (1991) reviewed a number of previous works on the subject and further refined the Competing Values approach to organizational culture and development, again recognizing the opposing corporate values of internal and external focus, and adaptability versus stability. Denison and Mishra (1995) hypothesized that each of the four dimensions of culture previously identified related positively to organizational performance. Using survey data and case studies, the authors demonstrated that each of the four dimensions independently did show a positive relationship to certain performance indicators. But, the authors theorized that if an organization was to emphasize only one trait, it could lead to negative performance. For instance, Involvement could create a sense of entitlement. Consistency could lead to inflexibility. Their work stressed that successful companies must have well-rounded cultures and be able to balance the competing values. Kotter and Heskett (1992) also looked at the relationship between culture and performance. Using data from hundreds of firms as well as case studies, the authors critiqued various classical theories on the subject. While they did not refer directly to the Competing Values Framework, their work was exhaustive and was an important step in understanding how culture affects performance. And, their conclusions tied directly in to the two dimensions of the Framework model. This will be discussed in greater detail later on in this paper. In their book, Diagnosing and changing organizational culture: Based on the competing values framework, Cameron and Quinn (2005) utilized a their own version of the Competing Values Framework. They renamed the four cultural quadrants Hierarchy, Market, Clan, and Adhocracy. Using more catchy

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alliteration, Tharp (2009) referred to the quadrants as Control, Compete, Collaborate, and Create to express their underlying values. Whatever the titles, these theories recognised that cultural types could be organized in to four categories depending on whether the organization’s values tend toward internal or external focus, adaptability or control. Each of these categories came with its own set of preferred values, leadership and management styles. They are summarized as follows: Hierarchical Culture. Internally focused and structured for control, this culture is sometimes referred to as Bureaucracy or Control. It values stability, standardization and a well-defined structure for authority and decision-making (Tharp, 2009). It is motivated by security, order and rules. Its leaders tend to be conservative and cautious (Denison & Spreitzer, 1991). Effectiveness is measured by stability and efficiency. While it creates efficient, reliable operations, it offers employees very little discretion in their tasks (Cameron & Quinn, 2005). Market Culture. Also structured for control, this culture is externally focused on relationships and bottom-line results. It values competitiveness and productivity; differentiation over integration. It is motivated by competition and its leaders are direct and goal-oriented (Denison & Spreitzer, 1991). Success is measured by market share (Cameron & Quinn, 2005; Tharp, 2009). This quadrant is also referred to as Mission or Compete. Clan Culture. Inwardly focused but structured for flexibility and discretion rather than stability and control, this culture values cohesion, commitment and the working environment (Tharp, 2009). Customers are thought of as partners (Cameron & Quinn, 2005). It is motivated by cohesiveness and membership. Its leaders are participative and supportive. Effectiveness is measured by the development of its human capital and its members’ commitment (Denison & Spreitzer, 1991). This quadrant is also referred to as Involvement or Collaborate. Adhocracy Culture. Denison (1990) called this culture type Adaptability. Tharp (2009) referred to it as Create. Cameron & Quinn (2005) found this to be the least frequent cultural type. It is externally focused and flexible. It values innovation, creativity and a future-forward posture (Tharp, 2009). It exists to develop new products, services and opportunities, valuing innovation and risk (Cameron & Quinn, 2005; Tharp, 2009) and is motivated by creativity and variety. Its leaders are idealistic and visionary. Its effectiveness criteria include growth and resource acquisition (Denison & Spreitzer, 1991). Daft and Armstrong (2012) added to the understanding of theses cultural types and their purpose. They explained that the Adhocracy culture supported the ability of the organization to detect and interpret signals from the external environment translating them in to new behaviours. It does not just respond to

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change. It creates change. The Mission culture, they argued was suited to organizations that served specific customers in the eternal environment but without concern for rapid change. At first glance, this would seem to be well suited to a privatized ATO and the push in this direction is easy to grasp. Daft and Armstrong (2012) described the Clan culture as one suited to rapidly changing expectations from the external environment; while the Bureaucratic culture was suited to an environment that necessitated consistency and collaboration. Howard (1998) claimed that the value of the CVF model was in its ability “to address three critical issues involved with the analysis of organizational culture:

• it specifies a descriptive content of organizational culture; • it identifies dimensions whereby similarities and differences across

cultures might be evaluated; and • it suggests tools and techniques for organizational analysis that enable

measurement and representation of culture” (p.232) Howard (1998) added to the literature by offering insight in to the coexistence of the apparently mutually exclusive values within single organizations. He demonstrated that these competing values do not necessarily oppose each other. He found, for instance, that while team orientation and outcome orientation plotted on the opposite ends of the internal/external axis, their raw scores were not significantly negatively correlated. Using work from Kerliner, (as cited by Howard, 1998) he gave the example of conservative and liberals, often thought to be at opposite political poles. Liberals value social progress while conservatives value tradition. But, he argued, these values are not opposite; they are simply ideas that each is more compelling to one group than the other. Denison and Spreitzer (1991) noted that this is at the heart of the theory. These four cultural models are ideals, “broad categories based on general characteristics shared by all social systems” (p. 6). But, organizations are likely to show more than one culture type. Work by Ostroff and Schmitt (1993) seems to have depicted a different viewpoint on the equality of each culture’s impact on performance. In a 1993 study of efficiency and effectiveness of organizations, Ostroff and Schmitt (1993) reviewed the data of outcomes from 173 secondary schools across the United States and Canada. Referring to previous literature, the authors defined efficiency as an input-out ratio and effectiveness as an absolute level of input acquisition or outcome attainment. Their supposition was that the pursuit of one may require trade-offs of the other and so an organization could be efficient, effective, both, or neither. They hypothesized that an efficient organization would be based on the Rational Goal Model, while effective organizations would be based on the Human Resource Model. Organizations scoring high in both areas would show a balance of these competing values while ineffective, inefficient

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organizations would show neither. They almost grudgingly recognise that organizations may show some of the characteristics of the abutting models. Otherwise, the Open Systems and Internal Process models are all but dismissed in their theory. Quinn and Cameron (1983) examined the Competing Values Framework as it related to organizational life cycles. They argued that, historically, organizational research had a tendency to focus on mature organizations and, as a result, little had been learned about the development of organizations through their life cycle. But, they found that more recent interest in the design and behaviour of organizations had led to models of organizational development characterized by predictable patterns and stages. Research focused on identifying the types and characteristics of each stage but had yet to validate the models themselves. The purpose of their paper was to look for commonality in the current life cycle models, and identify the criteria of organization effectiveness an each stage. They found that the stages of organizational life cycle occurred sequentially in a hierarchical progression that was not easily reversed. The life cycle from birth to maturity included four stages:

1. Entrepreneurial stage 2. Collectivity stage 3. Formalization and control stage 4. Structure elaboration adaptation stage

The Entrepreneurial stage focuses on innovation, creativity, and niche creation; while the Collectivity stage turns to cohesion and commitment as more staff are brought on and support is sought from strategic constituents. Organizational identity is developed in this stage and there is a high level of emotional investment by organizational members. In the Formalization and Control stage, stability and institutionalism are valued. Policies and rules become rigid and structure more formalized (Kimberly, as cited by Quinn & Cameron, 1983). Finally in the Structure elaboration adaptation stage, the mature organization looks outward with a desire to expand and decentralize. Quinn and Cameron (1983) noted that only one of the nine models they reviewed considered the death of an organization, and theorized that this stage was too unpredictable to fit neatly in to a model. But, they suggested, the consistent pattern of activities and structures throughout the stages from birth to maturity implied that the criteria used to evaluate success in one stage of development might be different than in another. Organizations at each stage emphasize different values and therefore, measures of effectiveness will change. If the life cycles are predictable, then so too will be the measures of effectiveness. This is critically important, they argued, because organizations will be tempted to use strategies that were successful in the past. But as an

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organization ages, these strategies become inappropriate and may even be harmful. Using the wrong measures of effectiveness will only serve to validate the wrong strategies. In their review of literature, they found that the characteristics and attributes of each stage could be best described using the four organizational models found in the Competing Values Framework. The entrepreneurial stage emphasizes the Open Systems model of effectiveness. Success in this stage is defined by growth and resource acquisition. In the collectivity stage, organizations emphasize the Human Relations model, with its informal structure, cooperation and commitment. Development of moral cohesion and satisfaction is important. Torbert (as cited by Quinn & Cameron, 1983) stated, “Group unity and psychological contracts are typical of effectives organization at this stage” (p. 44). In the formalization stage, the organization emphasizes stability, efficient production, rules and procedures implying the Internal Process and Rational Goal models. Effectiveness is judged by goal setting and attainment; efficiency and communication. In final stage, elaboration of structure, the organization looks outward in order to renew or expand itself. Decentralization of structure occurs. Balance between flexibility and control is necessary but the open system model becomes most emphasized as the company focuses externally. While certain models of organizational effectiveness dominate each stage, Quinn and Cameron (1983) recognized that each stage showed characteristics of all models and that the company was better able to balance the competing values as it matured. Quinn and Cameron (1983) then reviewed the organizational life cycle of the New York state Department of Mental Hygiene. Observations and interviews were made over a three-year period, and previous known history of the organization was collected for analysis. What they found closely resembled their hypothetical model. The organization moved from entrepreneurial to collectivity to the formalization stage. Coincidentally, the criteria necessary to judge effectiveness changed as well. This resulted, primarily, from a change in the power of various constituents and led the authors to the conclusion that, in order to survive, an organization must adhere to the primary criteria of effectiveness as determined by the dominant constituency. A change of the dominant constituent would necessitate a change in emphasis. Quinn and Cameron (1983) suggested that the level of adaptability and direction of focus should be determined by the stage of the organization in their life cycle. But the authors concluded their paper by mentioning a contrary opinion. Organizational contingency theory holds that an organization’s level of adaptability should be based on their external environment rather than the stage of organizational life cycle; effective organizations become more adaptable as

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their external environment becomes more turbulent. The authors respond by repeating their suggestion that this and other work in organizational theory are based largely on maturing organizations. Therefore, they argued, contingency theory is being observed in organizations that are moving from the formalization stage to the elaboration stage. These companies are moving in to new markets; their environment is turbulent and they are becoming more adaptable in response. In this view, contingency theory may support Quinn and Cameron’s (1983) belief that companies emphasized different quadrants of the Competing Values Framework as they age. Academic Work Validating the Competing Values Framework In this section, I considered literature that focused on validating the Competing Vales Framework theory and those works where findings indirectly contribute to the validation of the theory. The primary findings of these latter works as to the impact of culture on performance are considered in a later section of this paper. Ostroff and Schmitt (1993) wrote that the Competing Values Framework implied that efficient organizations would utilize the Rational Goal model and would be characterized by structure, control and an external focus, while effective organizations would focus on the Human Relations model, and be characterized by an internal, people-oriented and flexible focus. They hypothesized that,

…efficient schools should have a structural contextual emphasis: high student-teacher ratios, high principal turnover, high rule adherence, low district regulation, strong cost effectiveness goals, and little emphasis on person-oriented processes. Effective schools should be person-oriented, with a positive internal environment, a high degree of participation, strong goals for student achievement and parental involvement, and little emphasis on structural context. For a school to be both effective and efficient, it would need a balance of these characteristics. (Ostroff & Schmitt, 1993, p. 1348)

As noted previously, this statement does not seem to accept the view put forth by other authors that high-performing organizations may need to balance all the models of the Framework as it all but ignores the Open Systems and Internal Process models. Using previous work in the area of school performance, Ostroff and Schmitt (1993) chose a number of performance metrics to review. The study relied on data collected by another agency on 364 secondary schools across Canada and the United States. Principals, teachers and students were randomly surveyed resulting in an average of 41 responses from teachers and 69 from students per school. This was a very large sample but it could be criticized that

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the school principals were used to distribute the surveys. Responses were anonymous and there was no assurance that selection of teacher and student was random. Also, the authors admitted that the sole use of schools in their study might have led to an investigation of organizations that naturally favoured effectiveness over efficiency. By analysing the various measurement areas, the study found two significant functions defined by ten significant variables. The first function described schools that were both effective and efficient. These were characterized by “low principal turnover and district regulation, low ratings of the importance of basic skills and college preparation, and high ratings on favourable attitudes toward change” (Ostroff & Schmitt, 1993, p. 1354). The second function described schools that were either effective or efficient. Effective schools were characterized “high participation, a positive climate, low student-teacher ratios, low parent involvement goals, and high cost effectiveness goals” (Ostroff & Schmitt, 1993, p. 1354). Efficient schools showed the opposite characterizations.

Ostroff and Schmitt (1993) concluded that their findings, although not as hypothesized, were consistent with the expectations of the Competing Values Framework. Internal focus tended to define the effective organizations, while structure and control tended to separate the effective organizations from the efficient ones. Greater structure and control led to greater efficiency but less effectiveness – and vice versa. However, contrary to the hypothesis, the characteristic of goal setting found in the rational goal model was not strongly related to efficiency. Thus organizations that were both effective and efficient most closely resembled the internal process model.

For the purposes of this paper, I recognized a trade-off between effectiveness and efficiency. A person-oriented, internal focus is necessary for effectiveness but comes at a cost to efficiency. Thus, organizations that were both effective and efficient were able to balance these competing values. But some level of trade-off was required and this trade off seemed to be minimized by a more internal focus.

Also, high climate scores characterized effective and efficient organizations. The authors noted that previous research had found a link between a positive work environment and positive attitudes that may increase effectiveness. But this connection was not directly supported by this study and the authors suggested that further research was necessary to determine the connection between a people-oriented focus and organizational effectiveness.

Also written in 1993, Deshpandé, Farley, and Webster (1993) applied the concepts of the Competing Values Framework to the study of 50 Japanese firms. The goal of their study was to test which organizational cultures performed best in business and, of less relevance to this paper, to measure the impact of customer-focus and innovation on market performance.

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Deshpandé et al. (1993) offered their explanation of the Competing Values Framework in terms of contrast. They described the Market Culture as one focused on competitiveness and goal achievement, governed by market transactions, where effectiveness is measured by productivity. This culture, they suggested, was in direct contrast to the Clan Culture, which they described as emphasizing cohesiveness, participation and teamwork, more concerned with personal satisfaction than market share or other financial objectives. The Adhocracy Culture was described as valuing creativity, adaptability and entrepreneurship, where performance is measured by market growth. In contrast was the Hierarchy Culture that stresses order and rules; and where effectiveness is measured by consistency. They agreed with other authors that all these cultural types tend to be dominant rather than mutually exclusive. They hypothesized that the Market Culture with its focus on competitive advantage was likely to result in the best performance for business organizations and, at the other end, the Hierarchy Culture would result in the worst. The authors stated, “At the other extreme, we would expect a hierarchical culture, with its emphasis on predictability and smooth operations within a bureaucratic organization, to contribute to relatively unsatisfactory business performance” (Deshpandé et al., 1993, p. 26). Continuing, the authors suggested that Adhocracy’s value of innovation would outperform the Clan Culture. Thus listing the four cultural models from best performer to worst. In general terms, they implied that a culture focused externally would outperform one that focuses internally. And, interestingly, that control was an advantage to an externally focused organization but a disadvantage to an internally focused one. Having previously described the Clan Culture in contrast to the Market Culture, the rationale for this ordering is lacking in explanation. Deshpandé et al. (1993) mention, almost in passing, that their hypothesis would according to contingency theory of organizational behaviour only hold true under turbulent and rapidly changing market conditions – which they described as commonplace in the current market, a statement which is also debateable, but which holds some importance to this paper. Regardless of the rationale for their hypothesis, the methodology of their study was sound and therefore their results offered value. Deshpandé et al. (1993) sampled 50 Japanese firms from across industry types. They interviewed two managers from each firm as well as two managers from a customer of each firm. Using a standardized questionnaire, firm managers were asked to self-report on their firm’s culture, customer orientation and innovation. Deshpandé et al. (1993) then compared these answers to their chosen measures of business performance; Market share, growth rate, profitability and size. All firms reported aspects of more than one culture. And all four cultures well represented in the responses, with Clan being the most commonly reported

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(Deshpandé et al., 1993). This, they offered, was consistent with the general understanding of Japanese culture. Rather than attempting to order them, Deshpandé et al. (1993) divided the responding firms in to two groups: high and low performers based on a median score. They did this for each of the performance metric and then compared the culture types of the two groups. As they hypothesized, the Market Culture was most strongly associated with the high performers, followed by Adhocracy, Clan and Hierarchical. They noted that the scores for the middle two cultures fell just short of statistical significance, owing to the small sample size, while the scores for Market and Hierarchical were considered significant. These results lend strength to the cultural types of the Competing Values Framework as individual and identifiable models, each with its own effect on business performance. The question for this paper is whether the results are relevant in a non-competitive, monopoly environment. While not the focus of their paper, it is relevant to note that both innovation and customer-orientation as individual traits associated strongly with high performing firms (Deshpandé et al., 1993). Howard (1998) set out to validate the underlying assumptions of the Competing Values Framework model, and therefore the model itself. Howard (1998) listed these assumptions as,

(1) organizational cultures must be described in terms of (apparently) bipolar dimensions of shared values; (2) two of those dimensions must reflect values for control vs. flexibility and values for internal vs. external constituents; and (3) these two dimensions must bisect to form a 2 x 2 framework, overlaying a third dimension” (p. 237).

For his study, Howard (1998) recruited volunteers from senior positions in different business organizations to create an expert panel. He gathered 68 individuals representing ten firms across seven industries. He asked these experts to rate various value statements from “most characteristic” to “most uncharacteristic” of their own organization. Using statistical analysis, Howard then plotted the responses. Howard’s (1998) results gave qualified support to the Competing Values Model. He found strong validation for the vertical axis that represented control versus flexibility with the value of Innovation at one extreme and Control at the other. The value Stability also plotted near the value of Control. Howard also found support, although not as strong, for the horizontal axis of the model, representing internal versus external orientation. The value Team Orientation, plotted on the opposite side of the axis from Outcome Orientation.

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Figure 1: Spatial Configuration of Values

Source: Howard, 1998, p. 242 Since the value statements used in the study compose both means and ends, Howard (1998) was unable to interpret his results along that dimension of the Competing Values Model. He therefore interpreted this dimension as public versus private ownership, with External Legitimacy at one end of the dimension and Aggressiveness at the other. This interpretation will be explored further in my review of literature on Public Service culture. While Howard (1998) recognized the limitations of his small sample size on the subsequent analysis, he found enough evidence in his study to support the Competing Value Model, stating that members of organizations shared a common cognitive map of cultural values that closely aligned with the model. He concluded that the model provided “a valid metric for understanding organizational cultures, comparing organizational cultures, and evaluating organizational cultures relative to other variables” (p. 245). The Development of Culture in an Organization Many of the readings touch on the subject of alignment; that is to say, the fit of the organizational culture within its operating environment and the values and strategies of the organization. Indeed, Kaplan and Norton (2004) argued that all aspects of corporate activity must align. So the question arises as to how organizational culture develops and whether it can be changed by the actions of

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management. In this section, I will review theories on how culture develops. In the next section, I will focus on what cultural alignment means and how it can be accomplished. Much of the work reviewed looked at the effects of various industries’ characteristics on an organization’s culture. Referring to previous works and case studies, Gordon (1991) considered the work of Schein who believed that behaviours that resulted in success within an industry created culture. Gordon (1991) turned this around suggesting that industry assumptions develop culture and, when correct, create success. He focused on three elements of the industry environment that create these assumptions: the competitive environment, customer requirements and societal expectations. Gordon (1991) determined that dynamic, complex competitive environments - those with a large number of competitors and high rates of change - led to more adaptable cultures. But Gordon (1991) admitted that while a number of previous works concur, others have argued the opposite; that uncertainty in the competitive environment can lead to greater centralization and coordination. Customer requirements, Gordon (1991) argued, fell in to two categories, novelty or reliability, which he noted bore a strong resemblance to the organizational structure of control or flexibility. Discussing his work from 1985, he claimed that companies in the high technology industry would develop innovative cultures, while the environment of a public utility would create a culture that valued tenure and stability. He argued that by sacrificing speed and flexibility for consistency, these utilities could best position themselves to achieve their primary mission, the reliability of their services. Finally, Gordon (1991) proposed that social values can impact industry assumptions and noted the shift over the past two decades from the pre-eminence of property rights to a greater value of human rights. This caused, as an example, increasing demand for business strategies to consider the health and safety of individuals and the environment.

From his review of previous research, Gordon (1991) argued that management is limited to operating strategies that align with those assumptions. To do otherwise would not only challenge the successful practices of the company but also would undermine morale and meet with employee resistance. While later readings in my paper found that culture is indeed malleable, Gordon (1991) made an interesting point. If the basic assumptions of public service culture do not align with low-cost, competitive operations, it may be very difficult to cause a change in that direction. He commented,

…(if) the new forms required by the environment are antagonistic to the original industry-driven assumptions, the organization actually faces a

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danger of extinction through maladaptiveness. In such a case, employees at all levels most likely will have developed a repertoire of values and behaviors that will be inconsistent with the new environment and the new forms it calls for. In the terminology of Wilkins and Dyer (1988), no alternative frames will exist within the company (p. 401).

Gordon (1991) concluded by stating that culture formed as a result of the basic assumptions common to the industry suggesting that alignment was a natural effect in successful companies.

Similarly, Chatman and Jehn (1994) proposed that culture could not be used to create competitive advantage. Companies would do best to simply model the culture of successful companies within their industry. These views recognize that the correctly aligned culture is necessary for survival but suggest that the correct culture is created solely by the environment in which it operates. They do not seem to allow for a culture that can be altered so as to outperform an organization’s or industry’s current standard.

Chatman and Jehn (1994) believed that organizations within an industry would share common technologies and rates of growth and would therefore share more cultural similarities than with those organizations in other industries. While the ATO is an industry unto itself, it can be considered to be a service provider. Hofstede (as cited by Chatman & Jehn, 1994) found that service industries would generally have cultures that were more focused on people than results. This becomes relevant when the Competing Values Framework is applied to the ATO’s organizational culture as it suggests an internal orientation. Chatman and Jehn (1994) built on Hofstede’s research by comparing various industries within the service sector. Specifically, they compared technology and growth rates between accounting, consulting, government and cartage firms. They hypothesized that firms in industries characterized by intensive technology and high growth would be more people oriented and less outcome oriented than firms with less intensive technology and lower growth. Their research did find that industry differences generally explained more cultural variance than organizational difference; however, it did not find the positive relationship between technology/growth and cultural orientation. Unfortunately, their research suffered from a small response rate of 15 firms of which eight fell within the accounting industry. So while their argument has merit, their results offer little insight. Effect of Organizational Culture on Business Performance Kotter and Heskett (1992) provided a detailed exploration of the connection between organizational culture and corporate performance using data from hundreds of firms. The authors analyzed various theories on the subject, first looking at the theory that the strength of a culture – its range of acceptance

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among employees – drove performance. Their data found a positive but weak correlation. They found that strong cultures could become arrogant and inflexible or move in the wrong direction; thus undermining the organization’s ability to survive. Kotter and Heskett (1992) then considered the theory of alignment or cultural fit with the environment. The authors again determined a positive correlation but one that was stronger in the short to medium term than in the longer term. They described through case studies where aligned cultures could be blind to the need for change. They found that lack of competition created unadaptive cultures in successful companies. These companies’ promoted managers to manage systems, budgets, and resource growth rather than to lead. Companies began to lose vision and long-term strategies. Managers tended to become arrogant and did not value their constituents. They were hostile to change, valuing stability and order. Performance was acceptable so risk was not worth taking. Decisions were centralized, experimentation discouraged and error not tolerated. As environments changed, these companies fell behind. Lastly, Kotter and Heskett (1992) considered what they termed adaptive cultures – those that could anticipate and adapt to environmental change. They found these cultures to have longer-term success. By integrating all three theories, Kotter and Heskett (1992) were better able to explain the differences between the high and low performing companies in their surveys. They summarized by stating that successful corporations must have strong adaptive cultures that place value equally on their customers, shareholders and employees. If these values are developed by the leadership, supported by managers and widely adopted by the employees, strategies will be implemented that satisfy ever-changing needs. The support for adaptive cultures was found throughout the readings (Gordon, 1991; Tharp, 2009). This is important to the understanding of organizational culture and performance and to this paper, as most business organizations naturally tend to stress control and stability over flexibility and adaptability (Cameron & Quinn, 2005). As a government entity, the ATO is likely to have a bureaucratic, and therefore somewhat inflexible culture. Corporate culture was also found to be a strong driver of innovation that in turn was a strong predictor of financial performance. Tellis, Prabhu and Chandy (2009) found three cultural attitudes that encouraged innovations:

• Willingness to cannibalize assets • Future orientation • Tolerance for risk

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Here again, the authors described a culture that valued adaptability over control. In an article on global competitiveness in the 21st century, Zahra (1999) described the economy of the future as entrepreneurially based and human development oriented. Globalization, he suggested, will continue to cause change of increasing magnitude. Successful companies will have the ability to identify change, and the willingness to take risks on innovation. They will be agile and creative. Global networks will become a necessity for the design and manufacturing of products and the development of distribution channels. In contrast, Zahra (1999) believed that bureaucracies stifle innovation and therefore cannot survive in this new landscape. He pointed to the wave of privatization across the globe as governments learned that markets work best when they stay out of the economy. Competition, he stated, fuels innovation, risk and growth. In fact, Zahra (1999) noted that the wave of privatization would have a profound effect on the markets as newly privatized companies begin to make alliances and partnerships in order to gain access to capital, technology and skilled labour. Companies would begin to define their core competencies and rebuild their capabilities. But, he warned, that managing and fostering process innovation would be important to success and a challenge for management. Key to these agile, innovative companies and to the larger economies in which they operate would be their human capital. Zahra (1999) observed, “…economic development can neither be achieved nor sustained if it does not promote or encourage human development …intellect and knowledge are the fuel of global competitiveness and growth” (p. 38). Creating and exploiting this knowledge would require companies to capitalize on the creativity and knowledge of their employees. He concluded that organizational culture would require significant changes and he called for greater investment in the human capital. While he did not specifically define these changes, his descriptions reflected a culture that is not only externally focused on the markets, but internally focused on its employees and values their development. Further, this company is agile, innovative and willing to take risks. In the Competing Values Framework, Zahra (1999) is describing a blend of the Clan and Adhocracy cultures. Taking a more utilitarian point of view, Wilking and Ouchi (1983), looked at the effectiveness of various organizational culture types using the concept of transactional costs. They maintained that, in many organizations, local organizational culture is the dominant form of control and therefore organizational performance could not be accessed without an understanding of that organization’s culture. Citing previous work by Ouchi, the authors argued that from a transactional cost perspective, there were three systems for the governing of transactions: markets, bureaucracies, and clans. It is interesting that this argument uses cultural terminology found in the Competing Values Framework. And while it does not address Adhocracies, the points it makes about efficient

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cultures are relevant to this paper. Organizations necessitate interactions between members. Each member must be compensated in some way that they believe offers an appropriate value (Wilking & Ouchi, 1983). Because of a difficulty determining value, or because of a lack of trust between members, third parties may be brought in to determine equity. It follows, the authors argued, that the demand for equity in these exchanges often incurred a transaction cost. One way to reduce these costs, is to allow market forces to set prices. But, the authors noted, that under rapidly changing conditions, market assessment of value becomes more difficult and may fail. Bureaucratic forces can be applied to exchanges in the form of contracts where members receive compensation in exchange for a specified level of performance. While this reduces day-to-day uncertainty, it may also fail in times of turbulence (Wilking & Ouchi, 1983). Conversely, the clan system governs exchanges by creating an understanding that, although each member is self-interested, their objectives in the exchange coincide. Wilking and Ouchi (1983) argued that the clan mechanism was the most efficient method of control in times of high uncertainty or turbulence, as members were inclined to “do what is best for the firm”, without concern for short-term equity. The congruency of goals led to the belief that, in the longer term, members would be dealt with equitably (Wilking & Ouchi, 1983). This, the authors believed, permitted cooperative action in times when equity could be quickly determined, without incurring transaction costs. But, Wilking and Ouchi (1983) noted, that the clan culture took the greatest amount of time and effort to develop since it was necessary for members to have a greater degree of understanding of the organization’s methods, objectives and values. They referred to Schein who found that this requirement for a more complex social understanding necessitated organizations with a long history and reasonably stable membership. This led Wilking and Ouchi (1983) to three interesting implications: Organizations that are able to develop strong and efficient clan cultures usually start with a significant technical advantage, adopt existing professional cultures and/or receive their funding from sources committed to their long term success. This allows the organization the time to engage in the inefficient activity of developing an efficient clan culture. Once created, the clan culture provides members with the values and other information necessary to operate successfully within the clan as all members share a similar orientation to what is best for the organization and therefore best for themselves. And, it provides a shared language that reduces miscommunication between members. Decisions are made quickly and with a high level of agreement. This makes for a more efficient organization and improves operation in turbulent environments (Wilking & Ouchi, 1983). But, the authors noted two critical assumptions. First, members must believe that join action is in their long-term self-interest and that both honest and dishonest

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members will be discovered and dealt with appropriately. Second, these start-up costs suggest that a clan culture may be less efficient than a market of bureaucracy in a more stable environment. Panayotopoulou, Bourantas and Papalexandris (2003) applied the Competing Values Framework to study of the impact of various Human Resource Management (HRM) models on organizational performance. The authors sent out questionnaires to 229 random Greek business firms and collected data on their competitive strategy typology, performance and size. They compared this data to the firm’s HRM orientation. Their response rate was 45% or 104 firms, which they suggested was a reasonable sample size for the type of statistical analysis they undertook. Based on the four models of the CVF, Panayotopoulou et al. (2003) made a number of hypotheses linking high performance to the correct alignment of HRM orientation with other internal and external factors. Of importance to my paper, they hypothesized that firms operating in a dynamic environment – those undergoing rapid change - would perform better with a flexible HRM orientation. Conversely, firms operating and a complex environment – one with a diverse set of external elements and demands – would perform better with an internal orientation, as this would allow them to focus on recruiting and training managers to manage complex relationships. Further, they hypothesized that a firm engaged in a differentiation strategy would perform better with a flexible HRM orientation, while one engaged in cost leadership would perform better with a control HRM orientation. Those pursuing a niche or focus strategy, they hypothesized, would perform best with a balance of control and flexibility but with an internal focus, the Human Relations and Internal Process Models. The only factor that they believed aligned best with an external HRM orientation, specifically the Rational Goal model, was environmental munificence. Where resources were abundant, the authors hypothesized that a focus on growth would out-perform. In their analysis, Panayotopoulou et al. (2003) compared the impact of the environmental factors and HRM alignment with four performance measurements: Growth, Market Share, Financial (profitability), and Organizational – which they describe as product quality and industrial relations. They believed that these measures offered a more holistic view of a firm’s performance. Their grouping of variables is as relevant to this paper as the results of their study. Using multivariate analysis, the authors assigned those study variables found to be statistically significant to the four CFV models. Their groupings coincided well with what I have come to expect of the Framework, which once again validates the model (See Table 3). The authors found that the Internal Process model was most common and the Open System model least common.

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Table 3: Variable Groupings in to Organizational Models

Source: Panayotopoulou et al., 2003, p. 690 With regard to choice of strategies, the authors found that companies employing Differentiation strategy related strongly with marketing, sales and innovation; a Cost Leadership strategy with low cost of material, economies of scale and price advantage. Niche strategies related to defined focus on specific target groups and geographic locations more than to specific products. Looking at how variables in the study related to environmental characteristics also proved to be informative. Differences in competition, distribution and production methods characterized a complex environment. Changes in costs, consumer preferences and technology characterized a dynamic environment. In discussing their findings, Panayotopoulou et al. (2003) did not refer back to each of their hypotheses in turn. Rather, they offered a general overview of the results. They noted that under environmental complexity, there was a positive relationship between performance and an HRM orientation towards internal focus and control. But this positive relationship affected market share and growth, not financial or organizational performance. Also of interest, in a dynamic environment, an orientation toward control had a positive relationship to growth but a negative relationship to financial performance. With regard to the Niche strategy, the results of their study were inconclusive. Citing previous works, the authors believed that this strategy necessitated many of the characteristics of the human relations model, in particular selection and training, since the delivery of exceptional services depended upon personal characteristics of employees, empowerment and communication. But their findings found only one slightly negative correlation between a control focus, a Niche strategy and market share. Deshpandé et al. (1993) summarized their results of their studies on Japanese business culture and performance as follows, “Firms with cultures that

690 The Intemational Journal of Human Resource Management

The second questionnaire contained an exploratory scale for measuring HRMorientation, that is, its contribution to various aspects of the organizational function, asdiscussed above. This was filled in by the company's HR specialist. This questionnaireincluded around sixty items, but not all of them were finally used for the scale. Theprocess of purification of the exploratory scale measuring HRM orientation consisted ofthree stages: (1) use of a panel of experts, according to Dess and Davis' (1984) method,'(2) use of multi-dimensional scaling (MDS), as is suggested by scholars using thecompeting values framework (e.g. Denison et al, 1995; Quinn and Rohrbaugh, 1983)and (3) vafidation of the MDS using a multi-sample comparison (Hair et al, 1995). Thefinal scale that was developed is presented in Table 4. A reliability analysis wasperformed for all scales and the Cronbach alpha indices were within the range proposedby Van de Ven and FeiTy (1980).

The sample frame used for this survey was a random sample of 229 Greek andmultinational industrial companies of different sectors, which are listed in the ICAPDirectory and employ more than forty employees. Personal contact was made with allfirms, as is the common practice in Greece, and the mles set by Roth and BeVier (1998)were followed. This resulted in the collection of 104 usable questionnaires and aresponse rate of 45.4 per cent.

For the data analysis the statistical method employed was multivariate analysis ofvariance with use of covariates (MANCOVA). The four indices of firm performance(growth, market, organizational and financial) were used as dependent variables, sincethere is a specific relationship between them (Hair et al, 1995). Groups were formedaccording to the HRM combinations present in the sample, since the CVF scholars claimthat it is rare to find a company with emphasis on only one of the four models (Quinnand Spreitzer, 1991). We tested the moderating effects of the extemal factors on the linkbetween HRM orientation and firm performance. Therefore, we examined theinteractions of the various factors with different HRM models using dummy variables(that is 1 for the firms belonging to the specific group and 0 for the others).

Results

Table 5 shows the statistically significant relationships that occurred from themultivariate analysis of variance.

Table 4 Reliability analysis for 'HRM model' variables

Model Variables Cronbach's a

Human relations • Enhancement of employee commitment 0.7406• Development of team spirit and co-operation• Equal opportunities for all employees• Line management support in people management issues

Open system • Development of an entrepreneurial climate 0.7673• Benchmarking• Introduction of modem methods of management

Internal process • Maintenance of employee discipline 0.7825• Respect of hierarchical status• Reduction of employees' absences

Rational goal • Formulation of strategy and long-range goals 0.7920• Development of the company's annual plan• Productivity measurement• Ensuring company profitability

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are relatively responsive (market) and flexible (adhocracy) outperform more consensual (clan) and internally oriented, bureaucratic (hierarchical) culture” (p. 31). They suggested that the dogged perseverance in the face of strong competition separated high achievers from the rest of the pack and gave as example Sony’s push of its 8mm technology in the face of competition from VHS. Of course, hindsight tells us that Sony’s strategy of perseverance was mistake. This highlights the fact that while Market culture can provide business performance through a focus on competition and competitors, it is not particularly innovative. Deshpandé and Farley (2004) expanded on the previous work with a larger study across numerous national cultures. They also reviewed similar studies of the past decade looking for congruence of results. They then offered a number of generalizations. A competitive orientation and entrepreneurial culture were positively related to performance, while bureaucratic and consensual cultures were negatively related to performance. Organizational innovativeness had the strongest single effect on performance. Innovativeness was found to be more important in the industrialized world and market orientation in the developing world. They suggested that the notion of marketing was less developed in the developing world and therefore provided greater competitive advantage. Public Sector Culture The past two decades has seen increased interest from academics with regard to public sector organizations. Research papers have questioned whether there is a significant difference between public and private organizations. If so, what is that difference and how does it affect culture and the measurement of effectiveness? Recent academic literature has attempted to understand the appropriate roles of the public and private sectors, and the effects of imposing public purposes on private corporations. In fact, Perry and Rainey (1988) suggested that the determination of the proper roles of public and private sector organizations was a critical debate, central issue to contemporary life in advanced societies. Studies have also investigated the transferability of management techniques, such as management by objective and merit pay systems, between business and government (Perry & Rainey, 1988). Whorton and Worthley (as cited by Perry & Rainey, 1988) argued that, “distinctions between the two sectors involve important differences in organizational environments, constraints, incentives, and culture” (p. 180). In their paper, Perry and Rainey (1988) attempted to identify the defining characteristics of public and private sector organizations. While in previous times, the public sector was equated with departments of government, Perry and Rainey (1988) noted that these lines were blurring. Many authors referred to the

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distinctions as defined by Benn and Gaus (as cited by Perry & Rainey, 1988) that found public and private sector organizations varying along three dimensions:

(a) interest, distinguishing whether benefits or losses are communal or restricted to individuals; (b) access, referring to the openness of facilities, resources, or information; and (c) agency, which refers to whether a person or an organization is acting as an individual or as an agent for the community as a whole (p. 183).

Perry and Rainey (1998) commented that the idea of Interest did not provide the needed definition, as there were conflicting viewpoints of “public interest”. Many private organizations could be considered to be operating in the public interest in some way. Perry and Rainey (1998) also discussed the concept of Ownership stating that ownership of government organizations cannot be transferred. They found this to be a useful distinction, but one that assumed that government ownership subjected the organization to greater political control and intervention where as the private organization follows market forces. Again, they note those lines had blurred; private organizations may take government contracts; government departments may be reorganized as government corporations focusing on private sector efficiencies, customer needs and market forces. Regardless ownership and funding do affect control of the organization and impact goals, processes and structure (Wamsley & Zald, as cited by Perry & Rainey, 1988) Perry and Rainey (1988) then summarize a number of other important theories on public organizations:

Dahl and Lindblom (as cited by Perry & Rainey, 1998) found that "’Agencies’ under governmental control have more intangible goals, less incentive for cost reduction, more dysfunctions of bureaucracy (red tape, rigidity) than do ‘enterprises’ controlled by markets” (p. 186). Downs (as cited by Perry & Rainey, 1998) concluded, “Due to the absence of the economic market, public bureaucracies tend toward more elaborate hierarchies. The political environment is more important and influences internal decisions. Agencies become rigid over time” (p. 186). Research by Paine, Carroll and Leete (as cited by Perry & Rainey, 1998) agreed that, “Federal managers were lower on all 13 items of Porter’s needs-satisfaction scale, with greatest difference on job security, autonomy, and self-actualization” (p. 188).

Perry and Rainey (1988) found considerable agreement among researchers of the distinctions between public and private organizations. They

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summarized that the information and incentives of the economic market are absent for public organizations. Public organizations are subject to greater influence by external political institutions and more external scrutiny; their goals are more numerous and conflicting. Public organizations have more elaborate formal rules and more rigid hierarchical arrangements. Further, public service managers have less autonomy due to constraints such as civil service rules. Finally, Perry and Rainey (1998) looked at the issue of organizational control and the blurring distinction between government and market control, which they suggest are the two ends of the spectrum. They recognized that governmental authority involved social control through rules and directives issued by government. Market organizations, on the other hand, needed to find a way to entice individuals to engage in market exchanges with them. Of importance to this paper, Perry and Rainey (1998) concluded that the public/private sector mix is a spectrum that contains eight distinct organization types based on the mix of ownership, funding and control mechanisms. An organization such as a privatized ATO would be what Perry and Rainey (1998) refer to as a State-Owned Enterprise; defined by public ownership, private funding and market controls. Their research suggested that this type of organization would be different than a purely private or purely public organizations with different decision processes, cultures and goals. And they commented that academic research must recognize these differences. As the purpose of their paper was simply to identify the distinguishing characteristics of these various organizations, they did not elaborate further. Many papers have explored the rationale behind public sector reform. Christensen (2012) suggested that as the forces of globalization reduced the effectiveness of public policy on managing domestic economies, politicians turned their sights on improving public sector services. A number of authors focused on the bureaucratic nature of government departments. For example, Parker and Bradley (2000) described the public sector as systems of rules and procedures, structured hierarchies, formalized decision making processes and advancement based on administrative expertise. Further, public organizations are subject to political controls rather than market controls. Their objectives defined by other bureaucracies and limited by legislation. They are often subject to conflicting demands of public interest groups. In a review of previous research, Parker and Bradley (2000) suggested that public service organizations underemphasized the developmental aspects of organizational culture and lacked the values of adaptability, change and risk taking, productivity and efficiency. In other words, they were heavily weighted towards to Bureaucratic Culture of the Competing Values Framework.

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Parker and Bradley (2000) relied heavily on the Competing Values Framework throughout their paper. They argued that although there were many differences in the theories of cultural researchers, there was considerable agreement over the influence of internal/external values and an organizational orientation towards control or flexibility. They wrote that the Competing Values Framework captured these trends in cultural research. The summarized the model as follows:

Organisations with an internal focus emphasise integration, information management and communication whereas organisations with an external focus emphasise growth, resource acquisition and interaction with the external environment. On the second dimension of conflicting demands, organisations with a focus on control emphasise stability and cohesion while organisations with a focus on flexibility emphasise adaptability and spontaneity (Zammuto et al., as cited by Parker & Bradley, 2000, p. 128).

Parker and Bradley (2000) found that reform efforts were aimed at overcoming the deficiencies of the Bureaucratic Culture so that government departments could operate successfully in increasingly competitive markets. These new frameworks embraced private sector management techniques. They emphasized the goal orientation and values of productivity and efficiency of the Rational Culture as well as the flexibility and empowerment associated with the Human Relations Culture. As with other researchers, Parker and Bradley (2000) noted that while the four culture types appeared incompatible, a balance of the four was desired. Specifically, Parker and Bradley (2000) suggested three common goals of public sector reform:

• Cost efficiency, • Budget accountability • Improved Customer Focus

But their findings indicated that reform was implemented with little understanding of the culture within the public sector (Parker and Bradley, 2000). The authors reviewed reform in the Australian Public Sector and found that in many cases little had changed. Contrary to their expectations, the authors found that in four of the six departments surveyed, post-reform, the traits of the Bureaucratic Culture remained. These departments continued to be characterized by conformity and the use of formal rules and procedures as control mechanisms. Because this study had not conducted a sample prior to reform, the authors were unable to compare the values of the other two departments, pre and post reform. They were therefore unable to determine whether the other two departments had made significant changes or had always had a less Bureaucratic Culture. Indeed, the department that showed the strongest external focus was the one responsible for intra-departmental

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coordination, suggesting that it always had an external focus. Parker and Bradley (2000) concluded that management support for change was not enough. Culture is central to the change process and attainment of strategic objectives. Lack of understanding of organizational culture, they stated, led to change strategies that were incompatible with public sector culture. Managers reported decreased accountability and job satisfaction and increased stress. Although there were significant costs involved, organizational performance was not enhanced in all cases (Massey, as cited by Parker & Bradley, 2000). Reform efforts needed to recognize that public sector organizations would continue to be a part of the larger government strategy and would therefore always be affected by prevailing political ideologies of the day. Further, Parker and Bradley (2000) noted that from the limited research available at the time, public sector employees held values and motives that were different from those of the private sector. Successful reform efforts needed to recognize and work within these limitations. Lapsley (2009) reviewed the global movement called of New Public Management (NPM). He described NPM as an influential set of management techniques that drew on private sector performance criteria and practices. His paper attempted to determine the impact and effectiveness of this movement. He listed seven key elements of NPM:

1. Unbundling public sector into corporatized units organized by product. 2. More contract-based competitive provision, with internal markets and term contracts. 3. Stress on private sector management styles. 4. More stress on discipline and frugality in resource use. 5. Visible hands-on top management. 6. Explicit formal measurable standards and measurement of performance and success. 7. Greater emphasis on output controls. (Hood, as cited by Lapsley, 2009, p. 3)

But, Lapsley (2009) noted, research suggested that the outcomes of NPM were not always intended and suggested that the change agents of reform did not always follow the ideals of those who enacted reform. Further, reform tended to lead to further reform expanding the unintended ends. Referring to previous work by Peters (as cited by Lapsley, 2009) and Ferlie et al (as cited by Lapsley, 2009), Lapsley found “scepticism over the efficacy of the market in public services” (p. 4) and noted these authors focused instead on emphasizing the potential of strategic alliances and partnerships. Other works reviewed by Lapsley (2009) also demonstrated

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disappointment with the results of NPM. He suggested that the tendency to apply new measurement tools to the public service tended to result in a tick-box mentality where civil servants spent more time following procedures than delivering quality service. Lapsley (2009) discussed the implementation of NPM within local governments in the United Kingdom. New standards of efficiency were implemented that were to focus on improved customer service. Auditing practices were used to enforce compliance. Arnaboldi and Lapsley (as cited by Lapsley, 2009) found limited culture change in their case study sites. They did, however, find evidence of dysfunctional outcomes; such as the supplanting of core activities and the implementation of bureaucracies built around best value models.

Laegreid and Cameron (2012) interviewed participants prior-to and during reforms in the Norwegian public sector. As with other research, they also found that the reform process of public service agencies tended to result in complex organizations other that what the politicians had originally intended. Different bureaucrats and stakeholders rose and fell in prominence throughout the reform process causing negotiations and new interpretations of the goals. And, like Lapsley (2009), they found that as organization continued to adjust to competing goals the reform process did not end but tended to be ongoing. In an elaboration of the current theories on Public Sector Reform, Christensen (2012) discussed a second wave of public service reform that he referred to as Post-NPM. He suggested that Post-NPM was a direct response to the effects of NPM reform; politicians, and society in general, attempted to regain a greater measure of control over their public service institutions. Christensen (2012) noted,

Political executives regard losing information on policies and cases further down the public apparatus and hence control of administrative and public economic units as problematic as long as the main formal political responsibility at the top remains unchanged (p. 647)

Christensen (2012) stated that this was as much a cultural shift as an administrative reform and made two important points. First, the Post-NPM movement had a more collective culture, placed greater emphasis on value-based management such as the use of ethical guidelines and strove for greater employee commitment to the public cause. Second, the Post-NPM movement was defined by a change cultural sentiments and attitudes that focused less on economic arguments and suggested greater support for standards of political control and coordination. Howard (1998) asserted that the public organizations gain legitimacy from serving external constituents where as private organizations value aggressiveness in the domination of external markets. Of particular interest to this paper, Howard (1998) concluded that, “excepting logical distinctions in their respective sectors regarding demands for external legitimacy as opposed to

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competitiveness, managers of public and private firms share similar cognitive structures of cultural values” (p. 244). In this statement, he recognized both the similarities and the critical differences between public and private organizational cultures. In a discussion on reform of the Irish Public Service, Talbot (2009) noted that while the rhetoric of public sector reform has focused on the right hand side of the Competing Values Framework, practical reform efforts have opted for a mix of reforms covering several or all of the quadrants. He concluded that this was a result of the different and sometimes incompatible expectations that various stakeholders place upon the public service. Talbot (2009) stated that current reform efforts flowed form two distinct schools of thought, the first of market values, and users and customers; and the second, exemplified by the In Search of Excellence movement of the early 1980s proposing culture, norms and ethics as the route to high-performance. These two schools of thought clearly embrace the competing values of the Market and Clan culture. But, Talbot (2009) argued, while many of these values compete, the tensions must be accepted and embraced. He believed that to ignore or suppress the contradictions of the Framework was to risk dysfunctional reform and labels of hypocrisy. Talbot’s (2009) review of previous work confirmed that public service agencies in the Western-world, most often embraced a Bureaucratic culture with some aspects of both the Clan and Market cultures. And he highlighted that current reform efforts offered very few initiatives targets at improving creativity and innovation – the Adhocracy quadrant of the Framework. This leaves a lack of gap in the ability of the public service to adapt and change to meet the needs and expectations of the 21st century. Finally, of relevance to this paper, Molina and McKeown (2012) interviewed 52 public administrators in the United States and attempted to identify Public Service values. Participants were asked to rate a number of different values from unimportant to very important in their work place. The results were totaled and a list of values organized by score. Those values that scored highest included: Honesty, Integrity and Lawfulness. The next group included Accountability, Reliability, and Effectiveness. Public Interest, and Transparency scored in the middle of the group; Efficiency towards the lower end of the list and Profitability last. Changing and Aligning Organizational Culture

Kaplan and Norton (2004) suggested that an organization’s intangible assets might represent more than 75% of its value. These assets include people, technology and organizational climate (culture). But this value, they asserted, is contextual. To capture the full value of these assets the

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organizational strategy has to address their alignment with each other and with the strategy itself. As an example, they suggested that lean training for employees offered greater value to a firm pursuing a low cost strategy that to a firm pursuing a differentiation strategy. But Kaplan and Norton (2004) cautioned that value creation in intangible assets is indirect. Investment in intangible assets impacts organizational performance through chains of cause and effect relationships. Therefore, it is a long-term strategy that can be at odds with short-term financial performance. They argued that successful strategy must balance these conflicting forces and not sacrifice one for the other. Referring to the Competing Values Framework, Tharp (2009) also suggested that although there was no one best quadrant, some cultures would be more appropriate in certain contexts. He stated that culture must be aligned with organizational goals. Donaldson and Lorsch (as cited by Kotter & Heskett, 1992) studied a dozen large US companies through changing environments. They found that strong cultures correctly aligned with the environment and strategy of the company help managers deal with complex decision by making the decision process easier and more consistent. Wilkins and Ouchi (1983) offered similar findings: strong cultures create efficiency in operation and communication. Kotter and Heskett (1992) also believed that there was not a single best cultural type but they argued that culture must allow for companies to adapt to changes in the environment. Strong cultures could actually be a disadvantage to an organization as they were harder to change when conditions required.

In a stable environment, the strong culture – one prevalent and embraced throughout the organization - added to the organization’s economic performance in the short to medium term. But Donaldson and Lorsch (as cited by Kotter & Heskett, 1992) found that when an industry changed significantly, these strong cultures were slow to adapt and performance deteriorated. They implied that no single culture could be associated with long-term success. Kotter and Heskett (1992) refuted this implication, arguing that an adaptive culture can provide long-term success. They summarized the finding of their research as follows,

In the firms with more adaptive cultures, the cultural idea is that managers through out the hierarchy should provide leadership to initiate change in strategies and tactics whenever necessary to satisfy the legitimate interests of not just stockholders or customers or employees, but all three (p. 54).

Kotter and Heskett (1992) made two important points. First, culture must be adaptive in order to respond quickly to changing conditions. Second, culture must be aligned not only to the external environment (its customers), but also to the internal environment (it’s stockholders and employees).

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Various researchers noted that cultural misalignment could occur when the operating environment changes (Cameron & Quinn, 2005; Denison & Mishra, 1995; Gordon, 1991; Kotter & Heskett, 1992; Tharp, 2009). Continued success requires that the organization adapt as its environment changes. But organizational change is difficult and is a field of management studies in its own right. While not the focus of this paper, and understanding of cultural change is required in order to offer recommendations. Kotter and Heskett (1992) stated,

In an increasingly competitive world, the capacity to introduce new strategies is a necessity. In many firms, the anchor on such change is cultural. Executives successfully alter formal structures, announce new strategies, hire new executives, buy new information technology, and build new plants or headquarters, but still don’t produce needed behavioral changes because of the resistant culture. (p. 83)

This is key to this paper’s research question. If the goal of privatization of the ATO is to foster change, cultural adaptability will determine success. Cameron and Quinn (2005) discussed the alignment of culture with various other attributes of the organization. Their research showed that most quality initiatives failed because culture was neglected in the change process. Over time, the culture of the organization will drive behaviours back to their previous norms. They summarized their research to say that matches between culture, leadership style, management roles, HR, quality measurements led to higher performance than did a mismatch. Using the Competing Values Framework as a basis, Cameron and Quinn (2005) developed a tool to profile organizational culture and identify misalignment between culture, values, leadership style, and management practices; as well as a process to implement change. They suggested that organizations use an Organizational Culture Assessment Instrument (OCAI) to assess six dimensions of current and preferred organizational culture using subjective numerical scoring. Incongruous scores between the current and preferred culture highlighted areas of misalignment. The authors claimed that their tool had been used with more than a thousand organizations and was found to be a good predictor of performance. Under each of the six dimensions (dominant characteristic, organizational leadership, management of employees, organizational glue, strategic emphasis, and criteria of success), the authors offered four descriptive sentences, each one corresponding to a quadrant of the Competing Values Framework (Table 4).

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Table 4: Example of OCAI Dimensional Descriptions

Source: Cameron & Quinn, 2005, p. 38 Users were asked to score each sentence as it applied to their company. Totalling the scores for each quadrant gave a cultural profile of the organization, presently and preferred (Figure 2). Figure 2: Cultural Typologies of the Competing Values Framework

Source: Cameron & Quinn, 2005, p. 98

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Cameron and Quinn (2005) asserted that a successful change process required that the change agents agree on what the preferred culture look like, what change in each quadrant mean to the company and what activities could be implemented to enhance or deemphasize each quadrant.

Wilking and Ouchi (1983) turned to the subject of organizational change and attempted to refute the idea that cultures are immalleable. Organizational culture is normally learned in adulthood and therefore is not as ingrained as the studies of anthropological culture might suggest. Further, the authors found clan cultures to be remarkably adaptive; loyalty providing the willingness to adapt. Focusing on principles rather than practices during the change process maintained the core values and mutual goals. Indeed, the authors noted that problems are often encountered only when the organizational conditions are altered so radically that members must violate their basic assumptions.

While it may be the case that developing new or very different social understandings is more difficult than influencing contracts (in a market) or establishing new rules (in a bureaucracy), culture in organizations may be more adaptive and more easily developed than we assume (p. 480).

Howard (1998) referred to the importance of management in guiding the

development of organizational culture. He opined that the dominant values of top management might be both the genesis of an organization’s culture and the means to maintain and reinforce it. The values and artefacts put forth by leadership - what they say, do and value - will shape the culture of the organization. Denison and Spreitzer (1991) commented that one of the advantages of the Competing Values Framework was that it used the same axes to describe leadership traits as it did organizational traits. This allowed the change agents to consider individual and organizational change in the same light, ensuring that values align.

Hallett (2003) proposed that organizational culture came not only from the formal channels but also from informal ones as well – the water-cooler conversations, for example. He argued that certain individuals within an organization gained legitimacy through their actions and were imbued with symbolic power. These people had as much impact on the shaping of the organization’s culture as did the formal leaders.

On cultural change, Howard (1998) cited Yeung, Brockbank, and Ulrich

stating, “Cultural transformation takes time and persistence. Erratic managerial intervention and periodic restructuring merely block the development and strengthening of culture” (p. 236). Cultural change is not a short-term project. It requires patience and consistency.

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Kotter and Heskett (1992) also reviewed cultural change. From their case studies, they highlighted 11 companies that went through successful changes requiring a level of cultural transformation. In each case, the change was lead by new leaders who came from outside the company, outside the core business or who were unconventional in some other way. These leaders recognized the need for drastic change and went against the established order. Emphasizing the need for change to be lead rather than management, they reminded their readers that management is by its nature conservative and methodical and is not conducive to implement change. Leadership embrace boldness, risk, innovation and the vision required to implement large cultural changes. Summary From the literature review, I have determined there are many traits that make up organizational culture, such as assumptions, values, and artefacts (Schein, as cited by Howard, 1998). But it is values that are most easily identified (Dennison, as cited by Howard, 1998). Organizational values can be plotted spatially based on axes of orientation (internal/external) and structure (control/flexibility). The resulting four quadrants typify organizational models, leadership styles, and cultural types. Whether a company is internally or externally focused, and whether it values adaptability or stability decide its dominant cultural type. Cameron and Quinn (2005) found that all organizations had a dominant culture, but many had a lesser, secondary culture. A third dimension that of: means versus ends, was also recognised by the initial literature but is less often referred to. Different authors use various names for these cultural types but the works agree that the defining variables are focus and structure. Early work on categorizing cultural values led to the development of a Competing Values Framework, based on the idea that values competed for dominance and companies made value choices and trade-offs in their strategic decisions. Generally speaking, an organization with an internal focus and a flexible structure would develop a Clan culture valuing human resource development. An organization with an internal focus and a structure of control would develop a Hierarchy, valuing stability and process. One with an external focus and a control orientation would develop a Market Culture valuing productivity. Finally, an organization with an external focus and a flexible orientation would develop an Adhocracy Culture and growth would be the dominant value. Research with Asian companies found that the Clan culture was most often reported; while American and European studies found the Hierarchical culture to be most common. The Adhocracy culture was the least frequently reported (Cameron & Quinn, 2005; Deshpandé et al., Farley & Webster, 1993; Panayotopoulou et al., 2003). Cameron and Quinn (2005) argued that as companies age, their organizational culture must change in order to remain

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correctly aligned with strategic goals. But they also found that over time most companies tended towards cultures of control, whether Hierarchical or Market, and struggled to recapture a more agile structure. A number of researchers tried to validate the Competing Values Framework. For example, Howard (1998) put together an expert panel of businesspersons and asked them to describe their organization from a list of traits. Using statistical analysis, he found strong support for the vertical axis of the Competing Values Framework representing the values of flexibility versus control. His research also supported the horizontal axis but the results were not as strong. Toward the end of that reading, Howard made an interesting inference. In place of means/ends, he suggested another competing dimension, that of external legitimacy versus external domination. He suggested that this might be the difference in outlook between public and private organizations. The literature suggested that the goal of organizational design was to improve organizational efficiency and many readings attempted to define which of the four cultures most strongly related to performance. Specifically, research by Panayotopoulou et al. (2003) would suggest that the ATO operates in a dynamic but non-complex environment. In this type of environment, they reported that an orientation toward control had a positive impact on growth but a negative relationship to financial performance. And more generally, their research concluded that a structure of control improved the performance of externally focused companies but was a detriment to companies focused internally. In a competitive market place, they found a Market Culture to correlate with the highest performance. Work by Deshpandé et al. (1993) also concluded that the Market Culture provided the greatest performance, while the Hierarchical culture provided the worst. Repeated in 2004, Deshpandé and Farley found similar results with a larger study. Again they found that external orientation positively correlated to overall organizational performance. But, of interest to this paper, the single factor with the highest correlation to overall performance was not orientation but innovativeness – a trait mentioned in many of the readings and one that requires a more flexible structure. In contrast to the above findings, Ostroff and Schmitt (1993) argued that the Hierarchical culture to offer the best performance. In a study of effectiveness and efficiency in high schools they found effective schools tended to be internally focused, while efficient schools tended towards greater control and structure. And while there was a trade off between the two, schools that were both effective and efficient, resembled the Internal Process model with its Hierarchical culture. Like the ATO, the public school system can be thought of as operating in a less-competitive environment, focused on providing a public service

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In completing the literature review, I determined that no single culture was conclusively better than another. In fact, it was suggested that too much dominance by one cultural type could be detrimental. Successful companies must maintain some level of balance in the competing values of the four quadrants. The research demonstrated that the best culture for an organization was the one that aligned with the environment. The readings debated whether culture was the cause or the effect of a successful company. Gordon (1991) believed that culture was largely a result of industry specific conditions: the competitive environment, customer requirements and social expectations. Industry-aligned cultures were the natural result of a successful company. He argued that when environments changed drastically, cultural change would be difficult if the new industry values were antagonistic to the old ones. Chatman and Jehn (1994) also concluded that industry characteristics created organizational culture and that successful companies aligned themselves with these characteristics. While their research backed up this supposition, it did not support or disprove the hypothesis that high-growth, technology-intensive companies would have more internally focused orientation. There was conflicting opinion on whether highly competitive environments caused a company to value greater flexibility or greater control (Gordon, 1991). But much of the literature agreed that because most environments were unstable over the long term, an adaptive culture that was more able to change with its environment would correlate with long-term success (Kotter & Heskett, 1992; Quinn & Cameron, 1983; Zahra, 1999). Flexibility and innovation were key drivers of performance (Gordon, 1991; Tellis et al., 2009; Tharp, 2009). And Zahra wrote, that in the highly evolving markets of the future, successful companies must have the ability to recognize and adapt to change. The key to their success will be the management of their human resources and the ability to capitalize on their knowledge and creativity. A number of readings discussed the efficiency of strong cultures to assist in the decision making process and the transmission of consistent decisions that are best for the over-all organization. Wilking and Ouchi (1983) concluded that the clan culture was most efficient in a turbulent environment. Kotter and Heskett (1992) also considered the concept of cultural strength. By reviewing their consulting work with over 1000 businesses, they attempted to find common traits that would help to amalgamate the various theories on organizational culture and performance. They compared the cultural traits of high and low performing companies and determined that a strong culture was an asset but was not of itself sufficient for long-term success. They found that the culture had to be correctly aligned with the environmental conditions; and adaptable enough to change quickly when required. And they warned that a lack of competition in the environment tended to create unadaptive cultures that were too slow to recognize or respond to change. They emphasized that strong adaptive cultures must place value equally on their customers, shareholders and employees.

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From the literature, I recognized that the organizational culture of the public service was different than that of the private sector. While public service managers went about the management of competing values in the same way, their focus tended to be more internal. Any external focus was aimed at legitimacy rather than domination (Howard, 1998). But the literature also noted that the lines of public and private organizations were blurring with hybrids becoming more common. Various readings acknowledged the rationale for increased use of market performance strategies in the public sector but Christensen (2012) argued that the public service would always be subjected to some level of political interference and never truly drive by market forces. I further confirmed what other researchers identified, that most government agencies tend to be bureaucracies. This was particularly true of the western hemisphere. Parker and Bradley (2000) discovered that, even after market-driven reforms, the public service cultures of their sample agencies had changed little. Parker and Bradley (2000) concluded that change strategies employed were incompatible with the public sector culture. Job satisfaction dropped and in many cases a hierarchical culture had been replaced by a tick-box culture. A number of readings offered scepticism over the efficacy of market forces in public services and suggested that new value was to be found in new partnerships and alliances (Lapsley, 2009). Christensen (2012) also found that the reforms of the movement were not as expected and that a follow-on movement placed greater value on collective culture and recognized employee commitment to the public cause. Howard (1998) asserted that the public organizations gained legitimacy from serving external constituents where as private organizations valued aggressiveness in the domination of external markets. But in all other aspects of cultural structure, Howard (1998) suggested that public and private sector managers shared similar understandings. Kotter and Heskett (1992) believed that cultural adaptability would determine the long-term success of an organizational change program. Similarly, Wilkins and Ouchi (1983) argued that loyalty and trust developed in the Clan culture provided a willingness to adapt as environmental conditions required. But, Wilkins and Ouchi (1983) also recognized that developing a clan culture took time and organizations that were able to develop this culture usually started with a competitive advantage, whether it is a technological advantage or a source of committed long-term funding. This advantage allowed these organizations the time to develop an effective culture. From the readings I concluded that cultural change takes time, persistence. Leaders must demonstrate the values that they which to create and must be willing to go against the established order. Wilkins and Ouchi (1983) suggested that clan cultures were remarkably adaptive so long as organizational conditions did not change so radically that

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members were forced to violate their basic assumptions. A similar warning was issued throughout the work on public culture. Parker & Bradley (2000) stated that public sector employees appeared to hold different values and motives than those of the private sector. Successful reform efforts needed to recognize and work within these limitations.

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Findings and Analysis Introduction At the outset of this paper, I noted that there was an increasingly loud push by a number of stakeholders in the United States to privatized the Air Traffic Organization, an agency of the federal government. Recent news articles suggested that this was driven by a desire to see a more stable funding model; however, many stakeholders also expressed a desire to see the agency run in a more business like fashion. For instance, Calvin Scovel, III, the Department of Transportation’s inspector general, stated, “In general, FAA is not using businesslike practices to improve its operational efficiency and cost-effectiveness (as cited by Johnson, 2014, para. 2). This ideal is consistent with privatization efforts around the globe that focus on the application of market-driven business practices in government departments. In terms of organizational culture, I surmised that culture of the current ATO resembled a Hierarchy (Bureaucracy). The literature agreed that most government agencies model a bureaucratic culture where control and consistency is valued and hierarchical structures are commonplace. To align with market-driven values championed by the proponents of privatization, the new ATO would require a Market culture. Scovel, III suggested that the ATO focus on cost management and employee productivity. Clayton Foushee (as cited by Johnson, 2014), the director of the FAA’s Office of Audit and Evaluation, commented that the ATO had not focused on expenses and measures of employee productivity. These statements reflect common values of the Market culture as described by the Competing Values Framework. I generated two hypotheses that this paper set out to validate: First, that a Market culture could not be developed in a non-competitive environment; and second, that a privatized ATO would better serve its stakeholders by developing a culture of agility, flexibility, and one that was open to change. Findings regarding Hypothesis 1 H 1. An organization cannot develop a market culture (externally focused, competitive values) in a non-competitive environment. One of the traits of a successful company is a culture that is aligned with its external environment. Whether successful companies create aligned cultures of aligned cultures create successful companies is open to debate. But it is clear that alignment correlates with success. Three elements, complexity, stability and the potential for growth determine the competitive environment in which the organization operates. These elements along with customer needs and social expectations are the basis

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for the industry-specific assumptions under which the organization operates. While these assumptions can be difficult to identify, they create the culture of the organization and this culture can be identified by what the organization values, focuses on and how it measures effectiveness. While the ATO can be considered to be a part of the aviation industry, it is not an airline. It is a public service provider. Lack of competition is an underlying feature of the environment in which in operates and will have a significant impact on its culture. Privatization of this public utility will not change this important fact. Privatization at its most basic level changes the names of the organization’s leaders and its funders. It may also offer the organization new freedoms in the market but it does not fundamentally affect the elements of the competitive environment, the customer requirements or the social expectations of the industry. Therefore the industry-specific assumptions remain unchanged. As do the culture and the values that will align correctly with the environment. This is not to say that the current ATO has a culture correctly aligned with its environment, but rather that the ideal culture, what ever it may be, will not change because of privatization. Customer requirements, in terms of novelty or reliability do not change because of privatization. Social exceptions, in my opinion, are lead by safety and reliability first, with effectiveness and efficiency second. This is summarized my the editor of The Fiscal Time, Eric Pianin (2015) who stated,

With so much waste and duplication in the federal bureaucracy, almost any idea to improve efficiency and performance should get a close look, provided it doesn’t pose a serious risk to the public’s safety or well-being (para. 4).

These are not altogether different from the most important values identified by the Public Service: Accountability, Reliability, and Effectiveness. These values cover various cultural quadrants of the Competing Values Framework, but they are primarily internally oriented. Those external values, such as transparency, tend to fall within the Adhocracy quadrant. Market values such as efficiency and profitability fall to the bottom of the Public Service values list. A Market culture can only be created if it aligns with the industry assumptions. Market cultures develop when an organization attempts to anticipate the market’s needs and outperform its competition. This does not describe a public service organization. There is no competition to out perform and customers will come freely to the organization with their needs.

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It is also worth considering the stage in the lifecycle of the ATO. The Market culture is correctly aligned with the necessary effectiveness criteria of the Formalization stage. But it is clear to me that the ATO is a mature organization that has moved beyond the Formalization stage in to the Elaboration and Adaptation stage. Success in this phase requires a balance of control and flexibility. While the literature review is not conclusive, it is my opinion that the values of a Market culture do not align with the environment assumptions that will be prevalent in the employees of the ATO. An attempt to implement Market culture values may be met with resistance and may result in a dysfunctional organization. Findings regarding Hypothesis 2 H 2. In a legislated monopoly environment, an organization would better serve its stakeholders by becoming culturally more agile, flexible, and open to change. To determine the validity of this hypothesis, it is necessary to first define the performance metrics or criteria of effectiveness against which the organizational culture will be measured. While the motivations for privatizing the ATO are complex, comments to media from some of the ATO’s stakeholders suggest common concerns. Robert Poole, the director of transportation policy at the Reason Foundation, summed them up as: funding, governance and culture (Johnson, 2014). But also cited frequently in news articles were cost overruns, productivity and delays to the implementation of new technologies (Johnson, 2014) Stakeholders note that numerous organizational reform initiatives have been implemented since 1995 with little improvement. John Mica (as cited by Laing, 2015), former chairman of the House Transportation Committee stated, “We’ve tried reform and reorganization, and we’ve created positions like the Chief Operating Officer within the Air Traffic Organization, but unfortunately our ATC technology and working conditions for air traffic controllers continue to fall further behind the rest of the world” (para. 4). Scovel noted that since 1995, the FAA had completed several personnel and organizational reforms, undergone multiple reorganizations (Johnson, 2014). While academic literature can provide any number of reasons why reform efforts fail; I found that a lack of understanding of or accounting for culture can be one common reason. If the culture is ignored, old habits will return. If an organization attempts to develop a culture that goes against basic assumptions, morale will suffer. And as noted in previous section, if a new culture is not correctly aligned with its environment the organization may fail. This may be

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even more pertinent with the public service as its culture is considered by many to be more engrained and strongly established. It is clear that the culture of the current ATO resembles a bureaucracy with a strong internal focus and structure for control. It values rules, procedures and consistency. And while the literature review demonstrated the strengths of each culture it is clear that’s a Market culture placed first in studies on the relationship between organizational culture and performance. However; these studies focused primarily on firms operating in competitive marketplaces. Research into the impact of culture on the performance of non-competitive organizations was scarce. A study of high schools showed that the Hierarchy culture offered the greatest performance, the structure of control correlating to efficiency and the internal orientation correlating to effectiveness. But it also recognized an interesting trade-off between the two non-opposing poles of the Framework. This is not the result that I expected when I began the literature review. However there are findings that offer support to the hypothesis that adopting the more flexible structure of the Clan or Adhocracy cultures can benefit the ATO. While a structure based on control had a positive impact on performance when the organization adopted an external orientation, it had a negative impact when applied to an internal orientation. Further, the control structure of the Hierarchical and Rational Culture associated negatively with job satisfaction and positively to conflict, scapegoating and resistance to change. A highly effective organization was shown to have an internal orientation and a more flexible structure. While this combination reduced efficiency, it was strongly correlated to both quality and employee satisfaction. And while the Market culture is most strongly related to performance in the competitive environment, even that comes with a caveat. Long-term success requires the ability to adapt and innovate. In a monopoly environment, the highest levels of efficient service will come from the timely implementation of the latest technologies. I find therefore that while a Market culture may outperform in the short term, the internal orientation and flexible structure of the Clan culture will ensure the ATO excels over the long-term. Although the readings on the NPM and Post-NPM movement do not confirm this finding directly, they do confirm that a purely market driven approach to bureaucratic reform will fail. Talbot (2009) concluded that, “to reduce the public domain to some sort of narrow calculus of cost-benefit ratios for individuals is to fundamentally misunderstand the role that collective action plays in modern, democratic and pluralist societies. This is just as perilous as not understanding the very real benefits of the market domain” (p. 60). Scovel (as cited by Johnson, 2014) noted that despite ongoing organizational reform efforts in the ATO, “…the agency’s total budget, operations budget and compensation costs

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have nearly doubled, while productivity at its network of air traffic facilities has decreased substantially” (para. 6). The Bureaucratic culture values the consistent application of rules and procedure inline with a focus on safety. This culture must continue to have a role in the new ATO. The Adhocracy culture supports the ability of an organization to detect and interpret signals from the external environment and translate them in to new behaviours. In a monopoly environment, this is not an essential value. The ATO will not lead change in the environment but will work with its partners and customers to develop cooperative change strategies. The Mission culture performs well financially but is not prepared for environmental change and does not align with the industry assumptions of the public service. It is he Clan culture that builds on its human resources and is most suited to adapt to the changing needs of its customers in the 21st century. In short, all four cultures add value to the ATO but a combination of Hierarchy and Clan cultures would appear to provide the stakeholders of this high-technology monopoly the greatest benefit. Summary To succeed, organizations must balance the often-opposing values of the Competing Values Framework and embrace the inherent conflict. For the newly privatized ATO, there will be no single best cultural type. But a culture whose primary orientation is internal, with a structure that balances both control and flexibility will serve it and its stakeholders well. The ATO operates in the domestic market as a monopoly. Value to its customers will be created not by looking outward to compare its performance to Air Navigation Service Providers in other countries but by looking inward to develop its human resources as partners in providing a better more effective and reliable service. Nor, in a non-competitive environment, does it need the external focus required to anticipate market trends. By treating its customers as partners, it will receive this information freely. The external orientation, while still necessary, will be one of service rather than domination. This strategic orientation recognises the public service values currently held by its employees and society at large, and allows the ATO to improve itself without opposing these deeply engrained assumptions. If the current organizational culture of the ATO is to be modified successfully, it can only be to increase alignment with these assumptions. By maintaining the principles of public service but developing practices that make it more effective, it will add value to the system. Indeed this could be done without the need for privatization but it is questionable whether an organization can move away from a bureaucratic culture while a government agency. The literature would suggest not. If the culture of the ATO can be changed, it will be towards greater agility, better service, and increased transparency.

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Yet it is also clear that the effectiveness criteria used by the organization must agree with industry assumptions of the dominant stakeholders. Those criteria used by the organization to measure its operational effectiveness must represent its cultural values. It is necessary therefore that the values of the organization – its culture - align with the assumptions of the dominant stakeholders. In my opinion, the dominant stakeholders of the ATO are made up of three groups: its employees, its customers and the federal government as a proxy for the general public. All will play a role in the creation of the private entity but once the company is operating it is likely that the customers who fund the system will demand a more dominant role. While the public and the public service employee’s assumptions and values may align, it is likely that the customers of the ATO will see things differently. Although there needs will not change as a result of privatization, it is likely that their assumptions are already different then those of the other stakeholders. These customers operate in a highly competitive environment. If they perceive privatization as bringing the ATO out of the public service and into the airline industry, they will expect performance measurements based on a highly competitive environment. Their assumptions of the industry will be one of cost reduction and high productivity. For the reasons discussed previously, I believe this would be a mistake for the ATO. As Bertorelli (2015) says,

Any government-induced monopoly "corporation" is not operating in the same business environment as private-sector companies do. We should drop the artifice that a government-sponsored service provider is a "business" (para. 15).

A privatized ATO, free of government hierarchy, has much to offer its stakeholders. But this benefit will come from harnessing the creativity of its Human Resources and increasing its ability to react to changing technology, not from cutting costs and chasing efficiencies Further Research Although there has been considerable research in to the effectiveness of various organizational cultures in the competitive environment, I found very little literature that considered cultural effectiveness in a non-profit or monopoly situation. The literature on New Public Management and Post-NPM discussed culture but only as one aspect of the larger reform initiatives. Culture it viewed as an effect of reform, rather than a driver. A deeper understanding of the

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difference between public and private sector culture would help guide the privatization efforts of public utilities.

Conclusion This applied project has considered the privatization of the Air Traffic Organization from the perspective of organizational culture. The term bureaucratic culture often comes with a negative connotation and certainly many of the proponents of privatization hope that the culture of the ATO will become more business like. In this there is an expectation that a privatized ATO will shift it values toward those of a market-drive enterprise and will adopt similar measure of effectiveness. This paper set out to determine whether a market culture could be created in a non-competitive environment and whether a more flexible culture would offer greater organizational effectiveness. My review the literature on the Competing Values Framework and its application to the diagnosis of organizational performance offered inconclusive results. Studies of organizations engaged in competitive fields clearly identified that the market culture correlated with the most effective organizations. But other literature found that over the long term, culture needed to be adaptable. This is not a trait of the market culture. Flexible structure is found in the clan and adhocracy cultures. Further I determined that organizational culture must align with the assumptions of their environment. A review of public service values would suggest that public service culture more correctly aligns with the internal orientation of the hierarchical or clan culture. I concluded by suggesting that the hierarchical culture of the public service would have greater success in moving its culture upwards along the axis of structure to become more flexible and more effective rather than by moving right along the axis of orientation to become more market-responsive.

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