Culture of radical innovation and long-term performance in capital-intensive industries : the cases of Maillefer and Secheron in the Swiss electrical industry, 1960-1982.

Culture of radical innovation and long-term performance in
capital-intensive industries: the cases of Maillefer and
Secheron in the Swiss electrical industry 1960-1982
Yazid Alaoui

Supervisor: Prof. Mary O’Sullivan
Jury: Prof. Juan Flores
2015

2

I. Table of Contents
I.
Introduction
...................................................................................................................
3

II.
Firm performance between economic and culture paradigms
...........................
5

1)
Economic
and
culture
paradigms
in
business
history
..........................................
5

a.
Drivers
of
firm
performance
in
the
economic
paradigm
...............................................
5

b.
Relevance,
origin
and
definition
of
corporate
culture
...................................................
8

c.
Creation,
transmission
and
sustainability
of
corporate
culture
...............................
13

2)
Corporate
culture
and
performance
........................................................................
17

a.
Strong,
mission
driven
and
adaptation
cultures’
influence
on
performance
.....
17

b.
Culture
content
and
performance
.........................................................................................
27

c.
Culture
of
radical
innovation
...................................................................................................
32

3)
Research
question,
methodology
and
sources
.....................................................
34

a.
Research
question
........................................................................................................................
34

b.
Methodology
...................................................................................................................................
35

c.
Sources
..............................................................................................................................................
37

III.
Culture of radical innovation and firm performance
........................................
38

1)
The
culture
of
Maillefer
1960-‐1982
.........................................................................
38

a.
The
origin
of
Maillefer’s
culture
of
radical
innovation
.................................................
38

b.
Establishment
of
culture
of
radical
innovation
...............................................................
42

c.
Radical
innovations,
distribution,
production
and
management
............................
49

2)
The
culture
of
Secheron
1960-‐1969
.........................................................................
62

a.
Culture
of
caution
.........................................................................................................................
62

b.
Culture
of
collaboration
and
independence
.....................................................................
68

c.
Culture
of
caution
and
collaboration
in
times
of
crisis
.................................................
73

3)
Culture
of
radical
innovation
and
performance
..................................................
78

a.
Maillefer
and
Secheron’s
performance
...............................................................................
78

b.
Culture
of
radical
innovation
and
performance,
an
interpretation
........................
81

c.
Limits
.................................................................................................................................................
84

IV.
Conclusion
...................................................................................................................
86

V.
Bibliography:
.............................................................................................................
87

VI.
Appendix
.....................................................................................................................
94

3

I. Introduction

The subject of economic performance of firms has been a constant in the
business history literature. Understanding why a once dominant industry leader
become an obsolete irrelevant enterprise, what explains divergent performance within
an industry or seizing the factors behind organisational failure have been recurrent
questions business historians have studied1
. Furthermore, capturing the performance
of specific influential organisations such as De Beers, Fairchild or Pearson has been a
window of exploration of events or processes of broader historical significance2
.
Controlling or adapting to the environment has been a mainstream view in to
explain organisational performance. The natural tendency of business history to
highlight the importance of the broader economic, social and political environment an
organisation operates into or its use of economic models to understand historical
phenomena have favoured the emergence of a view where the environment plays a
prominent role in accounting for firm performance3
. This latter is perceived as
dependent on a company’s ability to control or adapt to its environment.
Focus on endogenous factors at firm level has been a shift in understanding
firm performance. Chandler’s three ponged investments in production, distribution
and management has brought a new paradigm where internal organisational factors
were no more irrelevant but at the forefront of the discussion on performance4
.
Technological leadership, strategic vision and execution, innovation and financial
management were amongst other key factors highlighted in the literature5
.

1
McDonald,
“Western
Union’s
Failed
Reinvention”;
Sull,
“The
Dynamics
of

Standing
Still”;
Chan,
“Personal
Styles,
Cultural
Values
and
Management”;

Stanger,
“From
Factory
to
Family”;
Rae,
“The
Electric
Vehicle
Company.”

2
Newbury,
“Technology,
Capital,
and
Consolidation”;
Berlin,
“Robert
Noyce
and

Fairchild
Semiconductor,
1957-‐1968”;
Bud-‐Frierman,
Godley,
and
Wale,

“Weetman
Pearson
in
Mexico
and
the
Emergence
of
a
British
Oil
Major,
1901-‐
1919”;
Kornblith,
“The
Craftsman
as
Industrialist.”

3
Newbury,
“Technology,
Capital,
and
Consolidation”;
Reich,
“Lighting
the
Path
to

Profit”;
McFadden,
“Monopoly
in
Barbed
Wire”;
Porter,
“Origins
of
the
American

Tobacco
Company.”

4
CHANDLER,
Scale
and
Scope;
Chandler,
“The
Emergence
of
Managerial

Capitalism.”

5
Berlin,
“Robert
Noyce
and
Fairchild
Semiconductor,
1957-‐1968”;
Porter,

“Origins
of
the
American
Tobacco
Company”;
Burhop,
“Pharmaceutical
Research

in
Wilhelmine
Germany”;
Mass,
“Mechanical
and
Organizational
Innovation”;

French,
“Structure,
Personality,
and
Business
Strategy
in
the
U.S.
Tire
Industry”;

4

The emergence of corporate culture as a novel but performance defining
insight in organisational theory triggered an interest in business history literature. Its
potential to go beyond the dominant structural functional approach marked by
technology, markets, firm structure and self-interested competition in explaining
organisational behaviour and performance has brought a fresh air to a maturing
literature6
. A limited number of studies link organisational performance to cultures
with a specific content. Strong, mission driven and adaptation cultures are the main
types relating to performance in the literature. They account for short to medium term
performance. However, they stop short of explaining long-term performance. Their
inability to deal with technological revolutions is their common limit.
Culture of radical innovation has the potential to overcome this limit. It is
defined as a culture fostering relentless innovation. It aims to ensure a firm is
constantly at the leading edge of innovation. It consists of three attitudes and three
practices. The attitudes are the willingness to cannibalize assets, future orientation and
tolerance of risk. The practices that engender and sustain these attitudes are the
empowerment of product champions, the establishment of incentives for enterprise as
well as the creation and maintenance of internal markets7. The commercialization of
radical innovations translates into companies’ financial performance8. A culture of
radical innovation is not only a set of attitudes but also requires the concrete
allocation of tangible resources within the organisation9. No studies on the link
between culture of radical innovation and long-term performance exist. This research
aims to fill this gap.
We use a comparative methodology based on the cases of Secheron and
Maillefer in the Swiss electrical industry to address our research question. Current
studies on corporate culture and performance rely mostly on a single case study to the

Petrik,
“The
House
That
Parcheesi
Built”;
Newbury,
“Technology,
Capital,
and

Consolidation.”

6
Lipartito,
“Culture
and
the
Practice
of
Business
History”;
Dellheim,
“Business
in

Time”;
Dellheim,
“The
Creation
of
a
Company
Culture.”

7
Tellis,
Prabhu,
and
Chandy,
“Radical
Innovation
across
Nations.”

8
Ibid.

9
Eberhart,
Maxwell,
and
Siddique,
“An
Examination
of
Long-‐Term
Abnormal

Stock
Returns
and
Operating
Performance
Following
R&D
Increases”;
Tellis,

Prabhu,
and
Chandy,
“Radical
Innovation
across
Nations”;
Leonard,
“Research

and
Development
in
Industrial
Growth.”

5

exception of Churella’s locomotive industry. The similarities between Secheron and
Maillefer in terms of environment, industry, history, international orientation and their
marked divergent performance from 1960 to 1982 offers an excellent opportunity to
conduct this exercise and to control for the culture of radical innovation factor
Archival sources available enable us to answer our questions. Maillefer and
Secheron’s minutes of the board of directors and annual reports are the two prime
sources used to capture culture and performance. Complementary documents
designed for third parties such as company journals, memoires of critical actors,
internal history, prospectus for public listings can additionally provide us with an idea
of their culture at a more symbolic level.
II. Firm performance
1) Economic and culture paradigms in business history
performance
a. Drivers of firm performance in the economic paradigm

The question of performance has been one of the major areas of inquiry in
business history literature10. It has been treated either directly or indirectly. Both are
similarly important in understanding the phenomena. In the direct perspective, we can
find studies on Western Union, Electrical Vehicle Company, GE, Firestone, De Beers,
Sincere and Wing on, Draper and Philips11. In the cases of Western Union, Firestone,
Draper and Philips, the authors’ central concern is to explore the dynamics that led
once an industry leader to lose its dominant position and fade into obscurity12. Rae
John studies the blatant business failure of the Electrical Vehicle Company, a

10
Dellheim,
“The
Creation
of
a
Company
Culture”;
Lipartito,
“Culture
and
the

Practice
of
Business
History”;
Hansen,
“Business
History.”

11
McDonald,
“Western
Union’s
Failed
Reinvention”;
Rae,
“The
Electric
Vehicle

Company”;
Reich,
“Lighting
the
Path
to
Profit”;
Sull,
“The
Dynamics
of
Standing

Still”;
Mass,
“Mechanical
and
Organizational
Innovation”;
Newbury,
“Technology,

Capital,
and
Consolidation”;
Chan,
“Personal
Styles,
Cultural
Values
and

Management”;
Davids
and
Verbong,
“Intraorganizational
Alignment
and

Innovation
Processes.”

12
McDonald,
“Western
Union’s
Failed
Reinvention”;
Mass,
“Mechanical
and

Organizational
Innovation”;
Davids
and
Verbong,
“Intraorganizational
Alignment

and
Innovation
Processes.”

6

monopoly hopeful in an industry that never materialised13. As for GE and De Beers,
the focus is on understanding the reverse process, which is how these companies rose
to industry leadership14. Finally, Wellington Chan tries to explain the divergent
performance over time of two pioneering Chinese department stores15. In the indirect
perspective, companies’ performance has been treated with equal rigor, except that
the authors’ central question is rooted in a broader historical cultural context. As such,
Pearson’s performance study is inscribed within the British entrepreneurship decline
in the late Victorian and Edwardian periods debate16. Chickering’s performance is
explored within the questioning of the role of artisan entrepreneurship and craftsmen
in the origins and early progress of the American industrial revolution17. Fairchild is
treated within the framework of Silicon Valley and semiconductor industry growth18.
Several studies with a similar logic engage in the exercise19. Last, another strand in
the literature deals with how companies reacted to change in their environment or
investigates the role of specific organisational features such as family ownership20.

Control of the environment, a firm’s ability to adapt to it and internal
organisational factors are the three main drivers of performance identified in business
history literature.
A first view on performance relies on companies controlling their environment to
ensure optimal results. These latter tried to build a dominant market position through
consolidation of their industry. American Steel and Wire as well as American

13
Rae,
“The
Electric
Vehicle
Company.”

14
Reich,
“Lighting
the
Path
to
Profit”;
Newbury,
“Technology,
Capital,
and

Consolidation.”

15
Chan,
“Personal
Styles,
Cultural
Values
and
Management.”

16
Bud-‐Frierman,
Godley,
and
Wale,
“Weetman
Pearson
in
Mexico
and
the

Emergence
of
a
British
Oil
Major,
1901-‐1919.”

17
Kornblith,
“The
Craftsman
as
Industrialist.”

18
Berlin,
“Robert
Noyce
and
Fairchild
Semiconductor,
1957-‐1968.”

19
Fauri,
“The
Role
of
Fiat
in
the
Development
of
the
Italian
Car
Industry
in
the

1950’s”;
Mabry,
“The
Rise
and
Fall
of
Ace
Records”;
Klassen,
“T.
C.
Power
&
Bro.”;

McFadden,
“Monopoly
in
Barbed
Wire.”

20
Bakker,
“The
Making
of
a
Music
Multinational”;
Petrik,
“The
House
That

Parcheesi
Built”;
French,
“The
Emergence
of
a
US
Multinational
Enterprise”;

Boyce,
“The
Development
of
the
Cargo
Fleet
Iron
Company,
1900-‐1914”;
French,

“Structure,
Personality,
and
Business
Strategy
in
the
U.S.
Tire
Industry”;
Burhop,

“Pharmaceutical
Research
in
Wilhelmine
Germany.”

7

Tobacco are prime examples of this approach21. Access to capital and privileged
relationships with financiers have proven to be crucial in that effort as in the cases of
Pearson and De Beers22. This competitive advantage was important enough as to
determine which company emerged as the major winner in the industry. Finally,
building a monopoly position and leveraging market power to establish and
consolidate a firm’s dominance has also been identified. GE engaged in
discriminatory agreements with suppliers, cartel arrangements to control prices and
legal formalisms to build an undisputed place in the electrical industry23.
A second view privileges the interaction between the organisation and its
environment. It states that adaptation is the key to performance. Finding the right fit
between the organisation and its environment is said to be the sure formula for
success or else, business failure is inevitable. Adaptation can go as deep as building,
changing and designing a company’s organisational structure in order to reflect the
nature of the company’s environment as well as embody the major factors identified
behind success in the marketplace. Polygram and Cargo Fleet Iron Company
consciously built a structure that fits their environment24. Adaptation also means
flexibility. It is this flexibility that De Beers and Pearson were well known for. Their
management effectively operated in their political, economic and social environment.
They understood the needs of all the chains of their business and manoeuvred to find
the right balance between their interests25.
Last but not least, a segment of the literature focuses on internal driven organisational
factors to explain organisational success or failure. Chandler suggests proactive first
movers that invested in production, distribution and management built a significant
competitive advantage and enduring industry leadership 26 . Chickering Pianos

21
McFadden,
“Monopoly
in
Barbed
Wire”;
Porter,
“Origins
of
the
American

Tobacco
Company.”

22
Bud-‐Frierman,
Godley,
and
Wale,
“Weetman
Pearson
in
Mexico
and
the

Emergence
of
a
British
Oil
Major,
1901-‐1919”;
Newbury,
“Technology,
Capital,

and
Consolidation.”

23
Reich,
“Lighting
the
Path
to
Profit.”

24
Bakker,
“The
Making
of
a
Music
Multinational”;
Boyce,
“The
Development
of

the
Cargo
Fleet
Iron
Company,
1900-‐1914.”

25
Newbury,
“Technology,
Capital,
and
Consolidation”;
Bud-‐Frierman,
Godley,
and

Wale,
“Weetman
Pearson
in
Mexico
and
the
Emergence
of
a
British
Oil
Major,

1901-‐1919.”

26
CHANDLER,
Scale
and
Scope.
p.
604-‐605
”

8

followed this approach to turn from a craft business into a large modern industrial
enterprise27. Some authors see building a technological edge through innovation is
crucial for performance. Fairchild Semiconductor, Draper, American Tobacco, Fiat
and GE are captured from this perspective28. This technological edge can only be
achieved through envisioning and making the right strategic choices. The Electric
Vehicle Company failed in this point. It ended in bankruptcy whilst E.Merck
succeeded29. This latter maintained the relevance of an overpowered and under
resourced family company in the increasingly competitive environment of the
pharmaceutical industry during a period of major scientific discoveries that
transformed the business30. Without the right strategic vision, a company can engage
in Donald Sull’s ‘active inertia’31. Firestone Rubber and Seiberling responded to
major technological change and shift in their competitive environment by scaling up
the same investments that allowed it to succeed in the past. In doing so, they
accelerated their demise32. Anticipating the right strategic moves is not enough
though. Strategic vision requires the company’s ability to execute it. The
foresightedness of Western Union’s leadership did not save the once major US
telecommunications company from a brutal decline. Rather, the company’s inability
to put its strategy in place and its constraining ‘momentum’ sealed the company’s
fate33. Finally, financial decisions have also been highlighted as an important factor.
De Beers’s superior finance technique and Selchow&Righter’s prudent approach
enabled the first to reach global leadership. It ensured the enduring survival of the
second in its volatile market34.
b. Relevance, origin and definition of corporate culture

27
Kornblith,
“The
Craftsman
as
Industrialist.”

28
Berlin,
“Robert
Noyce
and
Fairchild
Semiconductor,
1957-‐1968”;
Mass,

“Mechanical
and
Organizational
Innovation”;
Porter,
“Origins
of
the
American

Tobacco
Company”;
Fauri,
“The
Role
of
Fiat
in
the
Development
of
the
Italian
Car

Industry
in
the
1950’s”;
Reich,
“Lighting
the
Path
to
Profit.”

29
Rae,
“The
Electric
Vehicle
Company.”

30
Burhop,
“Pharmaceutical
Research
in
Wilhelmine
Germany.”

31
Sull,
“The
Dynamics
of
Standing
Still.”

32
Ibid.;
French,
“Structure,
Personality,
and
Business
Strategy
in
the
U.S.
Tire

Industry.”

33
McDonald,
“Western
Union’s
Failed
Reinvention.”

34
Newbury,
“Technology,
Capital,
and
Consolidation”;
Petrik,
“The
House
That

Parcheesi
Built.”

9

Corporate culture entered the debate on organisational performance in
business history literature to bring a fresh perspective. Dulheim states that corporate
culture is no peripheral to performance. It affects productivity by shaping the use of
human resources35. Churella sees no other explanation than in corporate culture for
the dramatic change of fortunes of AlCo after a revolutionary technological change in
the industry 36. Similarly, Stranger attributes Larkin’s success to its unique corporate
culture37.
Corporate culture goes beyond the structural functional paradigm dominating
business history literature where technologies, markets and self-interested competition
drive understanding of organisational behaviour and performance and separate the
activities of the firm from culture. As such, they ignore this latter’s impact on
economic decisions38. Lipartito shows the limits of this paradigm in explaining
divergent organisational behaviour amongst competitors. He draws on corporate
culture to potentially overcome them. He states that ‘capabilities understood as
cultural values specific to individuals firms or entire national economies may be more
important than formal structures like multidivisional organization in explaining
performance’ and that culture can provide a novel appreciation of the relationship
between a firm and its environment39. A new approach is therefore suggested. Studies
of structure and strategy are to be complemented with attitudes and meanings to
account for organisational behaviour and performance40.
The concept of corporate culture emerged as a promising solution to the
structural competitive difficulties witnessed in the 1970’s by US companies. The
1970s were a turbulent period. Japan was rising as international economic
powerhouse. It was able to compete, challenge and even outperform the United States
in some industries in global markets. The intensification of business competition both
in the local and international environments initiated a reflexion on the importance of
competitive advantage building. Finally, within this highly competitive environment,

35
Dellheim,
“Business
in
Time.”

36
Churella,
“Corporate
Culture
and
Marketing
in
the
American
Railway

Locomotive
Industry.”

37
Stanger,
“From
Factory
to
Family”;
Stanger,
“The
Larkin
Clubs
of
Ten.”

38
Dellheim,
“The
Creation
of
a
Company
Culture”;
Lipartito,
“Culture
and
the

Practice
of
Business
History.”

39
Lipartito,
“Culture
and
the
Practice
of
Business
History.”

40
Dellheim,
“The
Creation
of
a
Company
Culture.”

10

some US companies proved to be consistently outperforming their peers. These three
factors exposed by Heskett and Kotter (1992) led to the following question: How can
companies effectively strive and outperform within increasingly intensive competitive
local and international environments?41 Research on the highly performing Japanese
and US companies was undertaken. The main insight derived was the centrality of
corporate culture in generating performance42. Many viewed it then as superior to all
organisational factors (strategy, structure, management systems, financial analysis,
leadership…) that were mainly discussed so far in defining organisational
performance43. Thirty years of research provide today more perspective on the
concept, away from the hype that may have characterised research at the beginning.
The definition of corporate culture varies depending on the view the author
positions himself within the literature. Martin (1987) singles out three central views
differentiated by their perception of the degree of consensus amongst members to a
culture within an organisation, the degree of consistency of the manifestations of
culture and the reaction to ambiguity44. For the integration view, the consensus is
organisational wide, the manifestations are consistent and ambiguity is limited. For
the differentiation view, the degree of consensus is limited with the existence of
subcultures within the organisation, the manifestations are inconsistent and ambiguity
is given greater importance. Finally, the ambiguity view perceives a lack of clarity
and irreconcilable inconsistencies in the manifestations of culture, embraces
ambiguity as a fact and rejects organisation wide consensus as an unrealistic ideal.
Our position lies within the integration view. The notion of alignment to a corporate
culture to a high degree of consistency and consensus within an organisation cannot
be separated from the concept itself. Otherwise, it may indicate an inexistence of
corporate culture itself. As such, it is then of little relevance to explore its relationship
with performance.
Within the Integration view, Schein’s (1985) definition of corporate culture is
dominant. The majority of authors within the corporate culture literature use Schein

41
Kotter,
Corporate
Culture
and
Performance,
2008.

42
Pascale
and
Athos,
“The
Art
of
Japanese
Management”;
Deal
and
Kennedy,

Corporate
Cultures.

43
Kotter,
Corporate
Culture
and
Performance,
2008.

44
Meyerson
and
Martin,
“Cultural
Change.”

11

inspired definitions to conduct their research45. Schein defines corporate culture as
follow: ‘a pattern of basic assumptions – invented, discovered or developed by a
given group as it learns to cope with its problems of external adaptation and internal
integration – that has worked well enough to be considered valid and, therefore, to be
taught to new members as the correct way to perceive, think and feel in relation to
those problems’46. Schein (1985) distinguished three levels of corporate culture. At
the deepest level, there are the basic assumptions. These capture the view an
organisation holds often unconsciously of itself and of the nature of the environment,
human nature, human activity and relationships. At a more apparent level, there are
values. These latter are the solutions developed by an organisation that are apparent in
their organisational processes, their organisational ideology and philosophy. Finally,
the third level is about artefacts. These are the different expressions of a corporate
culture that are visible or explicited such as mission statements, behavioural norms,
rituals or any other type of manifestations47.
The concept of corporate culture can be better defined by adding Pettigrew’s
(1979) emphasis on meaning to Schein’s definition. Schein provides a dynamic view
of corporate culture. It is basically composed of the solutions developed to cope with
problems an organisation faces and that have proven to be effective a sufficient
number of times to become implicit unconscious basic assumptions. However, the
starting point of these problems seems to be assumed as to how to maximise profits.
Whilst this belief may be true for a significant number of organisations, it cannot be
generalised. Some of them may hold beliefs that are not centred on money but on
prestige, the nation, society, the environment or humanity amongst others that are of

45
See
Schneider,
Gunnarson,
and
Niles-‐Jolly,
“Creating
the
Climate
and
Culture
of

Success”;
Booth
and
Hamer,
“Corporate
Culture
and
Financial
Performance”;

Zheng,
Yang,
and
McLean,
“Linking
Organizational
Culture,
Structure,
Strategy,

and
Organizational
Effectiveness”;
Ulijn
and
Brown,
“Innovation,

Entrepreneurship
and
Culture,
a
Matter
of
Interaction
between
Technology,

Progress
and
Economic
Growth?”;
Rashid,
Sambasivan,
and
Johari,
“The

Influence
of
Corporate
Culture
and
Organisational
Commitment
on

Performance”;
Wilson,
“Understanding
Organisational
Culture
and
the

Implications
for
Corporate
Marketing”;
Kotrba
et
al.,
“Do
Consistent
Corporate

Cultures
Have
Better
Business
Performance?”;
Salama,
“Privatization
and
Culture

Change”;
Ogbonna
and
Harris,
“Organizational
Culture”;
Fey
and
Denison,

“Organizational
Culture
and
Effectiveness.”

46
Schein,
Organizational
Culture
and
Leadership.

47
Ibid.

12

greater importance to them. These latter may better correspond to the meaning they
provide to their lives. This can actually be a fundamental point of differentiation
between organisations. Pettigrew’s (1979) focus on meaning in his definition provides
us the tool to capture the diverse central beliefs and starting points of Schein’s
dynamic corporate culture definition48. Thus, we add a fourth level we would call
‘central belief’ to put it into perspective.
Brinkman’s (1999) introduction of a tangible dimension of corporate culture is
a necessary addition for a complete definition of the concept. Most authors in the
literature suggest that corporate culture is intangible. Brinkman (1999) supports a
definition corporate culture as a dynamic concept in the line of Schein (1985). He
acknowledges its intangible side but also argues that corporate culture has a tangible
dimension49. The solutions and insights developed within organisations to advance
toward their vision based on their central belief are added to the content of the
corporate culture. They are then transformed into tangible resources and processes.
For example, if an organisation realizes that the way to effectively advance toward
their vision is through innovation, then the company may allocate parts of its tangible
economical resources to establish this new insight within the organisation. It may
allocate resources to build a research and development department, hire researchers,
build partnerships with universities and take other forms of tangible actions instigated
by the new insight.
In conclusion, we define corporate culture as a dynamic concept that has both
intangible and tangible dimensions. This dynamic begins with a central belief around
which a vision is developed. The question arises then on how to advance toward that
vision. The fundamental insights and answers to this question provide the content of
the corporate culture. These insights are then established into organisational processes
and are expressed in a very specific clear way in how the organisation solves its
inherent internal integration and external adaptation problems. These latter become
norms and standards every organisational member has to align and behave according
to. They are then perpetuated through a set of mechanisms. The insights are also
established through the concrete allocation of resources that transform them into a
tangible organisational reality.

48
Pettigrew,
“On
Studying
Organizational
Cultures.”

49
Brinkman,
“The
Dynamics
of
Corporate
Culture.”

13

c. Creation, transmission and sustainability of corporate culture

The case of Cargill shows the role the founder and early leaders in the creation
of a unique corporate culture. Since the founding of Cargill in 1865, the company
only had 5 chief executives in its 130 years history50
. Three have been from the
founding and owning families. The two others did not have any linkage to the
dynasty. Still, two of the first leaders have played an enduring role in shaping
Cargill’s culture. These are John Sr and John Jr. The first came leadership at a critical
stage for the company. Cargill was encountering severe difficulties. It was on the
brink of bankruptcy. The determined resilient cautious personality of John Sr enabled
the company to survive this dangerous phase. It took several years of dealing with
creditors and using his already heightened financial skills to turn the organization
around. Bankruptcy was averted. John Sr was a fine manager of his people. He
brought innovative accounting practices and gained strong loyalties from his
employees. He put into place a corporate culture of consistency, caution and honesty.
It reflected his personal values. Whilst his extreme caution proved to be instrumental
in pulling the company through these difficult times, it became an impediment to
growth. His lack of opportunity orientation refrained Cargill from pursuing further
growth51
. This however prepared the ground for John Jr, the next influential leader.
He built on these values and brought of his own to further develop and cement a
unique corporate culture. According to Broehl, John Macmillan, Jr, exerted a
tremendous influence on Cargill’s values from the early 1930s to his death in 1960.
His thoroughgoing entrepreneurship, his exciting leadership, and his willingness to
take on ‘close calls’ in trading battles were all legendary. Overall, he provided a
unique form of leadership for Cargill. John Jr had an incredible impact on Cargill52
.
In studying corporate culture and performance, one should clearly differentiate
between a purposefully designed corporate culture as opposed to a spontaneous one.
Schein (1985) provides a general framework capturing how culture is formed within
an organisation based on group theory. As such, all organisations develop
spontaneously a corporate culture over time when a group comes together to achieve a

50
Broehl
and
Chandler,
Cargill.p2

51
Ibid.p4

52
Ibid.p5

14

common objective53
. From this perspective, all organisations adopt the same approach
naturally and therefore a spontaneous corporate culture in itself cannot be a
competitive advantage that is leveraged to generate high sustainable performance. At
best, short-term performance can occur when a set of uncontrolled circumstances mix
to create an effective corporate culture. However it cannot be maintained over the
long-term as the process for its perpetuation is not established (Heskett and Kotter,
1992). Studying corporate culture and performance is studying an intentionally
developed one that is formed and perpetuated on purpose. The existence of such
culture can only be claimed when a set of mechanisms are systematically present
within an organisation.
Heskett and Kotter (1992), Schein (1985) and Chatman (2007) highlight these
mechanisms defining the existence of a strong culture in details54
. The founder is
perceived as the main figure behind the creation of corporate culture. The founder
anchors the central belief, the insights, the underlying values and the business
philosophy that form the content of the corporate culture55. This latter is then
expressed into all organisational processes and perpetuated through a set of
mechanisms. Leaders that follow the founder in leading these companies were
selected based on their alignment to these values. As such, they are organisational role
models that embody the culture, coach and train employees on that basis, constantly
communicate them within the organisation and align their choices accordingly within
all the organisational processes. Leaders pay particular attention to the maintenance
of the culture across all functions. They establish measure and control systems as well
as reward and status allocation criteria on a basis that highlights the content of the
corporate culture. They need to remain committed to it at all times, including during
crises. Additionally, the decisions of recruitment, selection, promotion, retirement and
excommunication of employees are also based on it 56
The cases of Norton and Cadbury show the mechanisms of transmission and
maintenance of corporate culture in action. The founders of Norton shared a deep
commitment for direct control. The timely arrival of talented, interested sons assured

53
Schein,
Organizational
Culture
and
Leadership.

54
Kotter,
Corporate
Culture
and
Performance,
1992;
p7
Schein,
Organizational

Culture
and
Leadership;
Lyons,
Chatman,
and
Joyce,
“Innovation
in
Services.”

55
Schein,
“The
Role
of
the
Founder
in
Creating
Organizational
Culture.”

56
Schein,
Organizational
Culture
and
Leadership;
Kotter,
Corporate
Culture
and

Performance,
1992;
Lyons,
Chatman,
and
Joyce,
“Innovation
in
Services.”

15

continuity and endurance of the value on which the company was originally built. The
tutelage of Charles Allen, Jeppson and Higgins institutionalized these founder values.
They firmly established the pattern of continued owner-operation. This latter has been
perceived as crucial to the preservation of Norton values. It gained fundamental
importance for following generations of management. In this logic, Jeppson and
Higgins recruited and trained descendants for top positions. However, this dynastic
approach did not entail the absence of any meritocratic basis. To the opposite, the
large family provided a rich pool from which to draw and nurture individuals with
great talents to become the future leaders of Norton57
. Cheape notes that employment
of various sons, nephews, brothers in law, cousins, and other male offspring from four
of seven founders made nepotism obvious, but advancement at the top was not
reserved to any family or individual. Those with less talent were held to lower or
middle management jobs until they quit or retired; those with aptitude were moved
and promoted. Many applied but few were chosen58
. Norton’s experience makes clear
that whilst the personalities of the founding members were important to the
company’s heritage, it is the institutionalisation and perpetuation of their values in the
company’s structure and strategy through the selection and training of its top people
that carried Norton’s culture59
.
Cadbury offers equally an interesting example showing the mechanisms underlying
the existence of a corporate culture. The death of the founders of the company did not
mean the death of the values on which they built Cadbury. To the opposite, the next
generation of leaders drew on the values transmitted and built on them in continuity.
The fundamental objectives remained the same. However, the ways to achieve these
objectives were subject to much exploration paving the way for the industrial
experimentation initiatives that characterised Cadbury. The joint pursuit of business
efficiency and industrial reform was the motto of the second generation. This
generation of leaders embodied the culture, behaved consistently to the values they
stated and encouraged. They were role models for the younger generations. Particular
attention has been given to these latter. A person could get employed at Cadbury as
soon as at 14 years of age. She was subsequently trained and nurtured within this
culture. Promotion was almost exclusively from within. Those who best seized and

57
Cheape,
Family
Firm
to
Modern
Multinational.p357

59
Cheape,
Family
Firm
to
Modern
Multinational.
P359

16

acted in accordance with Cadbury values were given positions of responsibility. It
ensured both the perpetuation of Cadbury’s culture as well as an unshakable
commitment and loyalty to the company.
The sustainability of a corporate culture over the long term or its demise
depends mainly on the controlling owners of the organisation60. The controlling
owners ultimately hold the company’s power of decision. Corporate culture is lived
and transmitted through making decisions at all organisational levels according to the
values of the firm. It is therefore necessary that the controlling owners live up this
culture as well as have the decision power to carry it out. Financial independence is
thus critical. The second leader of Cargill understood the importance of this lesson.
He stepped up in times of severe financial difficulty. Cargill was at the mercy of
creditors. It was difficult to lead the company according to the values he was trying to
instil. Once the situation changed for the better, the resentment and fear of being
deprived of power were transmitted to the next generation. Throughout his leadership
and that of John Jr,, Cargill always chose to finance its projects on its own according
to its means rather than seek for external finance that would undermine the company’s
independence. This latter also ensured Cargill’s ability to move quickly and
decisively on its own information and analysis. It came to be one of its main strengths
in its highly competitive industry. The company adopted and maintained a policy of
small dividends with most profits funnelled back to invested capital. This policy
endured ever since through the following generations61
. The Norton case reaches the
same conclusion. The company’s deep attachment to its values and unique corporate
culture resulted in a great emphasis to ensure the financial independence necessary to
carry it out. The way it did so was clearly summed up: ‘self finance assured
independence, and success and thrift assured self-finance’62
. The company’s high
returns from its premium products generated ample cash flow. Moderate dividend
policy marked by a high percentage of reinvested earnings (32% between 1975-1979)
channelled these funds to reinvestment to sustain and generate further growth.
Norton’s strong financial position enabled it to contract short-term loans for

60
Broehl
and
Chandler,
Cargill;
Cheape
and
Chandler,
Family
Firm
to
Modern

Multinational;
Stanger,
“From
Factory
to
Family”;
Stanger,
“Failing
at
Retailing.”

61
Broehl
and
Chandler,
Cargill.
Trading
the
world’s
grain.
P789

62
Cheape
and
Chandler,
Family
Firm
to
Modern
Multinational.
P357

17

additional capital without needing to surrender any power to creditors63
. Finally,
Cadbury further sustain this point. It is most obvious in the great reluctance of George
Cadbury to sell any shares. He feared stockholders would reject the social aims that
have been an integral part of Cadbury culture. Even when the company went public in
1912, the family retained controlling power. This independence provided Cadbury
leaders with the ability to finance their unorthodox industrial and social experiments64
.
A note of caution has to be issued. It is critical the controlling owners be immersed
and aligned to the corporate culture to sustain it. Otherwise, these controlling owners
can be the primer destroyers of their inherited culture. The case of Larkin
demonstrates it. The son of the founder assumed leadership using his ownership
power. He was not trained within the company or nurtured within its culture. He
caused the departure of key leaders behind its previous success. They were the
representatives and models of Larkin culture. He quickly dismantled the company’s
culture and led it to bankruptcy65
.
2) Corporate culture and performance
a. Strong, mission driven and adaptation cultures’ influence on performance

Three corporate cultures have been linked to organisational performance in the
literature: strong culture, mission driven culture and adaptation culture. In the
following, we explore the mechanisms through which they supposedly influence firm
performance. We equally assess their actual impact on performance as measured in
the literature.
A strong corporate culture is said to generate many benefits within the
organisation by solving internal integration problems that stimulate performance.
The influence of a strong corporate culture on employees is surely one of the
main mechanisms the literature insists upon. Accordingly, it is important to explore
this point in great details. The concept of fit between organisational culture and the
employee’s values is central in this assessment. Posner finds clearly articulated
organizational values make a significant difference in the lives of employees, as well
as in their organization’s performance. His findings reveal that efforts to clarify and
merge personal and corporate values can have a significant payoff for both managers

63
Ibid.

64
Dellheim,
“The
Creation
of
a
Company
Culture.”p352

65
Stanger,
“From
Factory
to
Family.”

18

and their organizations. The strength of the congruence between values of an
organization and its employees affects quality of managerial commitment, direction of
energy and effort willingness on behalf of the organization. Strong shared values
provide individuals with a sense of success and fulfilment, a healthy assessment of the
values and ethics of their colleagues, subordinates, and managers as well as a greater
regard for organizational objectives. More specifically, managers who felt that their
values were particularly compatible with those of the organization were significantly
more confident they would remain with their current employer for the next five years.
They were more likely to work long hours for their employer66
. Similarly, O’Reilly
(1991) finds that person-organization fit predicts job satisfaction and organizational
commitment a year after fit was measured and actual employee turnover after two
years67
. Person-organization fit is a significant predictor of normative commitment,
job satisfaction, and intentions to leave, independently of age, gender, and tenure68
.
Shared values matter to organizational goals. These latter were more important for
employees who felt their values were aligned with the organization. They highly
ranked the goals of effectiveness, productivity, reputation, morale, profit
maximization and stability. Hence, clarity, consensus, and intensity about vision and
values are presented as producing significant results for the organization. Last, shared
values are associated with concern for stakeholders. Managers’ alignment to the
organisation’s values affects their orientation, attention and concern for various
stakeholders in the activities of the corporation69
.
Firms with a strong culture attract, motivate and satisfy employees with similar
beliefs as well as generate their alignment without interventionism. Van den Steen
(2005) finds that the firm with a strong culture attracts precisely those employees who
take action according to its manager’s beliefs. The sorting effect systematically aligns
the beliefs of employees as well as their actions. It directly eliminates one major cost:
employee demotivation due to difference with manager’s vision. While the manager’s
opinion has an important influence on the decisions of the employee, it is also a key
determinant for the employee’s effort and utility, that is, his motivation and
satisfaction. A stronger belief of the manager motivates the employee and increases

66
Posner,
Kouzes,
and
Schmidt,
“Shared
Values
Make
a
Difference.”

67
O’Reilly,
Chatman,
and
Caldwell,
“People
and
Organizational
Culture.”

68
Ibid.

69
Posner,
Kouzes,
and
Schmidt,
“Shared
Values
Make
a
Difference.”

19

his utility when the employee’s belief acts according to the manager’s beliefs.
Employees with a strong opinion about the correct path of action are very motivated
under managers who agree with them. They are however demotivated under
managers with a different opinion. Employees get higher utility working for firms that
espouse a vision they agree with as in the case of strong culture companies.
Consequently, they get higher productivity from employees who agree with their
vision. Delegation is more compelling. It requires no efforts of supervision within a
strong culture. In his latter, employees’ actions are influenced by their managers’
beliefs. Since they are unified, they become more aligned. When employees choose
their projects without intervention from the top, they choose what management would
want them to choose. Ultimately, employees are aligned without any explicit
coordination mechanism resulting in more delegation70
. Besides greater delegation, a
strong culture leads to less monitoring, higher utility (or satisfaction), higher
execution effort (or motivation), faster coordination, less influence activities, and
more communication. The fundamental intuition behind these effects is in in agency
theory. Shared beliefs and values reduce differences in objectives. It intrinsically
affects every type of agency issue. The time to coordination increases in the level of
belief heterogeneity. The homogeneity in a strong culture makes coordination thus
faster and easier. Furthermore, an employee is more likely to hold information if he
differs with manager’s beliefs and values. Therefore, strong culture leads to higher
exchange of information71
.
A strong culture impacts performance by influencing strategy execution and
customer satisfaction. Chatman (2003) builds her argument on the effect strong
cultures create on employees as detailed above. It pushes it further by linking it to an
organisation’s strategic level. This link is identified as of crucial importance to an
organisation’s success or failure. The nature and content of strategy formulation, no
matter how competent and appropriate, can remain but a strateg. The analyses of
different companies showed it is not strategy formulation that is of outmost
importance but an organisation’s ability to execute it effectively. This depends on
how on how clearly employees understand the culture and how intensely they feel
about it. A strong culture plays this bonding role between strategy formulation and

70
Steen,
“Organizational
Beliefs
and
Managerial
Vision.”

71
Van
den
Steen,
“Culture
Clash.”

20

strategy execution. First, a strong culture energizes employees. It appeals to their
higher ideals and values. It rallies them around a set of meaningful, unified goals.
These ideals excite employee commitment and effort to achieve them because they
are inherently engaging and fill voids in identity and meaning. Second, strong
cultures shape and coordinate employees’ behaviour in a very effective and efficient
way. Company’s values and norms focus employees’ attention on organizational
priorities that then guide their behaviour and decision-making at their own level. It
turns complex strategic organisational objectives into manageable clear goals
employees relate to and are eager to reach72
. The efficiency with which strong culture
organisations fulfil this function creates an important competitive advantage.
Chatman clearly expresses it in the following: ‘ They do so without impinging, as
formal control systems do, on the autonomy necessary for excellent performance
under changing conditions. The irony of leadership through culture is that the less
formal direction you give employees about how to execute strategy, the more
ownership they take over their actions and the better they perform. Strong norms
increase members’ clarity about priorities and expectations as well as their bonds with
one another. Unlike formal rules, policies, and procedures, culture empowers
employees to think and act on their own in pursuit of strategic objectives, increasing
their commitment to those goals. Organizational culture can be a powerful force that
clarifies what’s important and coordinates members’ efforts without the costs and
inefficiencies of close supervision.’73
The superior coordination ability in strong cultures is related to customer satisfaction
according to Denison. The ability to coordinate service delivery in a consistent way is
a critically important aspect of customer satisfaction. Strong cultures ensure it. They
are related to customer fidelity and repeated purchases. They ensure continuous
streams of revenues over the long term. As such, they impact organisational
performance74
. Last among strong culture beneifts, Kilman suggests it is central to the
success for both innovation and corporate mergers75
.

72
Chatman,
“Leading
by
Leveraging
Culture.”

73
Ibid.

74
Gillespie
et
al.,
“Linking
Organizational
Culture
and
Customer
Satisfaction.”

75
Sørensen,
“The
Strength
of
Corporate
Culture
and
the
Reliability
of
Firm

Performance.”

21

A strong corporate culture can equally have disadvantages that can offset the
benefits mentioned above. The alignment, consistency, homogeneity and uniformity
a strong culture generates are seen as critical advantages. They facilitate important
organizational processes and performance. However, another strand of the literature
points out to limits and impediments they also create. The main limit is strong
culture’s inability to deal with change in the environment. Sorensen (2002) asserts
strong cultures are appropriate in stable environments. They excel in exploiting
established competencies. However, in changing environments, these strengths
become weaknesses. The discovery of new competencies becomes critical in volatile
environmental conditions. Exploration rather than exploitation is the key. Strong
cultures are ill suited in that exercise, They lack internal diversity and heterogeneity
of perspectives. Adaptation is thus more difficult. Similarly, Nemeth and Staw (1989)
single out a common assumption in strong cultures: truth is correlated with consensus.
Thus, consensus is maintained even in changing circumstances. With this uniformity,
strong culture organisations are likely to fail to adjust to shifts in the environment.
Moreover, pressures for uniformity equally cause rush to judgment and an inability to
make careful, deliberate and divergent decisions76
.
Strong culture is detrimental to innovation. The agreement to conform to established
behavioral patterns is a psychological tendency in strong cultures. Decrease in
innovation and detection of error are noticed. The majority influence narrows the
alternatives for a given situation. It reduces the quality of decisions made. Thus, it
stifles innovation. Organizational members’ insistence over established courses of
action reduce individual initiative to identify and correct organizational errors77
. Van
den Steen argues difference in beliefs rather than their homogeneity makes people
collect more information to convince the other party. In a strong culture, the inherent
agreement between parties does not provide any incentive. Hence, there is
organizational loss when parties constantly agree. In a similar logic, diversity of
beliefs is linked to more experimentation. It is defined as ‘trying different things and
learning about the payoffs of different actions’. When beliefs are heterogeneous, more
courses of action are experimented. They may result in innovations or in the

76
Staw
and
Nemeth,
“THE
TRADEOFF
S
OF
SOCIAL
CONTROL
AND
INNOVATION

IN
GROUPS
AND
ORGANIZATIONS.”

77
Ibid.

22

discovery of better courses of action than those deeply rooted in a strong culture78
.
Chatman (2007) challenges these arguments. Strong culture limits innovation only
when it is not in the content of the strong culture. Otherwise, it is the opposite
dynamic. A strong culture characterized by innovation can be an important stimulator
of innovation within an organization79
. It turns divergent thinking a value shared by
all members instead of establishing uniformity80
.
The second type of culture linked to organisational performance in
organisational theory and business history literature is the mission driven culture.
Corporate culture starts from a belief on which a vision is built. Within the corporate
world, the natural widespread belief is profit. All organisational efforts are
exclusively directed towards that goal. A mission driven culture is different. Its
central belief is not profits or self-interested competition. This difference is said to
create a unique culture that relates better to performance. We explore how.
Collins (2004) attributes distinguished superior performance of elite companies or
‘visionary companies’ to their mission driven culture. These are organisation
ideologically rather than profit driven. Their beliefs are apparent in their statements
and embraced in their very perception of profits. Profit is allegedly like oxygen. It is
necessary for life but not the point of it. These basic beliefs outline the purpose and
ideology of the company. They are forces shaping everything the organisation does.
The organisation’s core ideology waves the fabric of the firm. It is translated in every
organisational function from the design of goals, jobs, strategies, tactics,
compensation systems and cultural practices to more artificial edifices such as
building layouts. It is the essence driving the company with messages consistent and
reinforcing. Every organisational member understands it and behaves accordingly81
.
Kotter (1992) further supports the idea. Companies with a managerial culture giving
great importance to all organisational constituencies (customers, employees,
stockholders) perform better82
. When managers care about all constituencies, they
perform well financially. In a competitive industry, it can only be achieved by taking
care of customers. In a competitive labour market, it means taking care of those

78
Van
den
Steen,
“Culture
Clash.”

79
Lyons,
Chatman,
and
Joyce,
“Innovation
in
Services.”

80
Ibid.

81
Collins
and
Porras,
Built
to
Last.
P40

23

whose who serve customers: employees83
. It is difficult to assert every constituency
hold the same importance. However, no group has been ignored. Fairness to all
constituencies has been the underlying principle84
. On the opposite, a culture lacking
care for the three constituencies generate a limiting dynamic. It refrains a company’s
ability to effectively adapt. It negatively impacts performance. Finally, Denison
(1995) finds combination of economic and non-economic objectives is important for
organisational effectiveness. It provides purpose and direction to its members. The
organisations studied showed compelling evidence of the close relationship between
the overall purpose and direction of the firm, and the actual meaning held by each
employee. Crises occurred when the basic mission was questioned or altered. The loss
of meaning and direction coincided with significant losses in momentum and
effectiveness85
.
Specific organisational capabilities develop as a result of mission driven
culture. It creates unique competitive advantages that stimulate performance.
Vrdenburg (1998) studied the impact of a mission driven culture built on care for the
environment. Companies placing the environment at the heart of their culture
developed proactive environmental strategies and unique competitive capabilities in
their industry. These capabilities include superior stakeholder integration, a capacity
for higher order learning and continuous innovation. It differentiated competitors
without proactive environmental strategies. These unique organisational capabilities
of environment driven cultures account from more than 50 percent of the firm’s
variance in competitive benefits (process, product, operational innovations, cost
reductions, improved corporate reputations and better employee moral) and directly
influence performance86
. A mission driven culture shifts the focus from the individual
to the collective. Chatman (1998) shows how collectivistic cultures stimulate the
emergence of benefits of demographic diversity favourable to performance 87
.
Collectivistic values positively interacted with demographic composition to influence

83
Kotter,
Corporate
Culture
and
Performance,
1992.p46

84
Ibid.
p52

85
Denison
and
Mishra,
“Toward
a
Theory
of
Organizational
Culture
and

Effectiveness.”

86
Sharma
and
Vredenburg,
“Proactive
Corporate
Environmental
Strategy
and

the
Development
of
Competitively
Valuable
Organizational
Capabilities.”

87
Chatman
et
al.,
“Being
Different
yet
Feeling
Similar.”

24

social interaction, conflict, productivity and creativity within the firm. Individualistic
values did not. A collectivistic culture makes organisational membership salient and
encourages people to perceive other members as having the organisation’s interests
and goals in common. The opposite happens individualistic cultures. Distinctiveness
between members is the driver. The social categorisation process is fundamentally
different. In collectivistic cultures, demographic as a social categorisation loses
emphasis towards a categorisation defined by the values of the organisation. As such,
the demographic dimension that can be a barrier in the interaction and harmony
between organisational members is bridged. It facilitates cooperation and
coordination. Expectedly, individualistic cultures generated more conflict. Difference
between individual goals and values lead to tensions and conflict. This was not the
case in collectivistic cultures. Furthermore, collectivistic cultures perceived conflict as
a positive experience increasing learning and improving chances of reaching
organisational outcomes. In individualistic cultures, they were perceived as
detrimental. Last but not least, collectivistic cultures stimulate greater creativity than
individualistic cultures. Trust in collectivistic cultures unlocks diversity of ideas
characteristic of divergent demographic backgrounds, Productivity in collectivistic
cultures is thus higher than in individual cultures88
.
The cases of Cadbury and Cargill are prime examples in business history of
the way mission driven culture can relate to performance. Delheim (1987) seized
Cadbury’s mission driven culture. The Cadbury family was deeply religious. They
were highly active Quakers. The Quaker philosophy had central place in their
perception of business and the objectives it served. This approach differed from
mainstream business. It resulted in a unique unorthodox vision of business and
organisational processes. The primary objective was not profit driven. Rather, it has
been stated as the advancement of the social, moral and physical well-being of all
connected with the company. The Quaker philosophy was behind the very
assumptions upon which crucial business practices have been formed. It is clear in
Cadbury’s labour practices. George Cadbury deeply believed all men are equal to God
and that man was saved to serve: ‘The real joy rest and joy in life is to have an
assurance that we are felling up the place, which God has appointed us’. This deeply

88
Ibid.

25

held belief initiated one of the most progressive labour policies of the era. Employee
welfare was central. The company committed to ensure employment for its workforce
even in times of hardships. It enlarged its recruitment to underprivileged spheres to
offer an opportunity for a better life. In turn, these policies resulted in greater
productivity and harmony. During times of labour manifestations and strikes in
Britain, Cadbury was not affected. The demands of strikers were already met and
exceeded in Cadbury. The mission driven culture also translated in their value
proposition, the selection of product categories and the quality they pursued. Cocoa
and chocolate were seen as having social benefits. They were chosen to be the main
product categories for this reason. The company’s strategy was ‘to provide high
quality products at good value to the consumer’89
. Cadburys’ policy to only use the
very best raw materials compelled the elevation of the industry standards, to the great
disappointment of its competitors. It reduced their profit margins. Finally, the mission
driven culture brought a long-term approach to building the company. An employee
recalls that ‘George and Richard Cadbury took the long-term view in running their
business. They weren’t looking for immediate profit but were building for the future
when their children would reap the advantage’. In Cadbury’s case, the mission driven
culture proved to crucial to the high performance they registered90
. Cargill’s situation
is no different. Its underlying belief is captured upon accession of her fourth leader.
Broehl states ‘there was no doubt that MacMillan was a visionary who wanted
passionately to be the best in improving the living standards for the five billion people
of the world.’ Right from the start of his leadership, he was very strict on placing
critical importance on company ethics at a time where the industry was marked by a
slippage in morality.91
Culture of adaptation is the third type of culture associated with performance.
The Electromotive Company in the American railway locomotive industry perfectly
captures this culture and the way it influences performance. Churella;s (1995) study
of American railway locomotive industry explains divergent performance between the
two main competitors by culture of adaptation. The American Locomotive Company
dominated stream locomotive industry. It had a culture suited for it. However, it was

89
Dellheim,
“The
Creation
of
a
Company
Culture.”

90
Ibid.

91
Broehl,
Cargill,
1998.p252

26

ill suited for the technological shift to diesel locomotives. This ‘maladaptive culture’
cost American Locomotive Company its well-established dominant position to the
detriment of its less resourceful but culturally better-equipped challenger, the
Electromotive Company92 . The American Locomotive Company had no future
orientation. It solely focused on the existent technology. It failed to see the radical
technological change forthcoming. Its leaders perceived innovation and technological
advance as a matter of incremental innovations driven by the continuous
improvements on current technology rather than in terms of major technological
shifts. They could not comprehend how the widespread dominant steam technology
could become obsolete. Thus, they strengthened organisational processes and
capabilities for steam technology only. Manufacturing was based on batch production.
Marketing relied on loyalty. They yielded significant success in steam locomotives.
At the same time, leaders perceived the nascent diesel locomotives technology as a
fad. Consequently, they did not commit resources to develop it. Instead, they provided
abnormally high dividends and invested in their existent abilities. They did not adapt
their capabilities to suit the different model diesel technology required. Batch
production and client loyalty were of limited relevance in this optic. At the same time,
the Electromotive Company was new organisation in the industry. It had very limited
resources compared to the American Locomotive Company and but a tiny market
share. However, its leaders quickly recognised the major shift diesel technology was
to create and instantly committed all their resources to this new technological
paradigm. Its founders built a culture of experimentation and innovation centred on
the development of diesel technology. It developed unique organisational capabilities
perfectly adapted to the requirements of diesel technology. It created new distribution
techniques and invested heavily in assisting, teaching and coaching its users to diffuse
it. Consequently, the company held a privileged position when the technological shift
towards diesel technology occurred. The under resourced Electromotive Company
drove once dominant American Locomotive Company to bankruptcy in a few years.
The company’s ability to anticipate and adapt to its environment has been therefore
credited for both the demise of a dominant player and the emergence of a new

92
Churella,
“Corporate
Culture
and
Marketing
in
the
American
Railway

Locomotive
Industry.”

27

leader93
.
Now that the three cultures relating to performance have been identified and the
ways they influence performance have been explored, we focus on each culture type’s
link to financial performance in both organisational theory and business history.
b. Culture content and performance

A strong corporate culture ensures the reliability of performance within a
stable environment. It has a relationship with short-term performance. However, it
does not guarantee long-term performance. Sorensen (2002) found companies with a
strong corporate culture have a more reliable (less variable) and a superior
performance in relatively stable environments than others. The consensus surrounding
organizational goals and values characterizing strong culture enhance their ability to
exploit established competencies. However, this reliability and superiority in
performance is only enduring as long as the environment is stable. In more volatile
environments, the benefits derived from strong culture attenuate and disappear
because of the difficulty strong culture firms encounter to explore and discover new
competencies better suiting their environmental conditions. Firms with strong cultures
thus incur therefore a trade off with respect to their adaptability in the face of
environmental change94
. Di Tomaso (1992) finds the extent to which individuals agree
in their view of the total culture is predictive of short-term performance. More
specifically, strong culture measured as consistency of survey responses within
organizations, is related to organizational performance in ensuing years 95
. It
strengthens the same conclusion reached by Denison (1990)96
. However, Kotter
(1992) questions these findings. In his study, strong culture has but a modest positive
relationship with performance. The statement strong culture creates excellent
performance is hardly verifiable in a reliable way and cannot be asserted. A strong
culture can have the opposite effect when its content contains dysfunctional elements.
It can lead even thoughtful reasonable people in the wrong direction. At best, a strong

93
Ibid.

94
Sørensen,
“The
Strength
of
Corporate
Culture
and
the
Reliability
of
Firm

Performance.”

95
Gordon
and
DiTomaso,
“Predicting
Corporate
Performance
from

Organizational
Culture*.”

96
Denison,
Corporate
Culture
and
Organizational
Effectiveness.

28

culture has a modest relationship to short term performance97
.
The cases of Larkin, Nuffield and Norton in business history support the link
presented above between strong cultures and performance. Stranger (2000) suggests
Larkin Company’s initial positive performance was a result of its strong culture. It
aligned management, employees and customers. It solved internal problems and
smoothed operations unifying major company stakeholders around clear single
organisational objectives and common interests. This strong culture has been
characteristic of the first generation under the leadership of the founder John Larkin.
The move to the second generation changed the company’s fortunes. The death of the
founder was the beginning of the weakening of the Larkin culture. The leadership
assumed by his son led to rapid degradation of the strong culture. The unity that has
been holding management, employees and customers gave way to divergence and
open conflict. The management that has been instrumental in developing its fruitful
mail ordering business and that embodied Larkin culture quickly distanced itself from
the company they built from scratch following a series of conflicts with the new
Larkin leader. This weakening and destruction of the strong culture consequently led
company to bankruptcy in a very short time98
. Nuffield experienced a similar scenario.
Morris founded the company. He was the first to move towards high volume
production in British automobile industry, inspired by the Ford model. He built a
strong engineering team and assembled a handpicked talented team of managers
around a clear vision. The strong culture he built quickly proved fruitful. Nuffield
occupied a prime place in British automobile industry. His retirement however was a
turning point. As in the case of Larkin, the void the founder’s departure left led to the
weakening of culture and to a downward spiral. The once cohesive company guided
by clear vision soon turned into internal division, competition and uncertainty as to
managers’ role. Furthermore, the maintenance of completely independent
subsidiaries, the sacking of key figures, the inconsistency of the values preached with
the empowerment yet punishment of management for taking initiative turned a strong
culture into chaos. Confusion about the company’s direction, lack of communication
and planning rapidly turned a prosperous company into one in difficulty, forced to

97
Kotter,
Corporate
Culture
and
Performance,
1992.p22-‐23

98
Stanger,
“From
Factory
to
Family”;
Stanger,
“Failing
at
Retailing.”

29

merge with a bitter rival to survive99
. Last, Norton equally showcases the same
dynamic. The founding generation deeply rooted a strong culture by which they
conducted business and stood firmly. By World War I, they financed, built and
maintained control of a large, integrated, industrial company. It was the world’s
largest manufacturer of grinding wheels and other bonded abrasives. They had the
clairvoyance to nurture a second generation able to uphold the strong culture and
perpetuate it in business operations. Unlike Larkin, the second generation proved able
and further cemented the company’s success.100
The shift to the third generation
proved to be the pitfall instigating culture weakening. The expansion of the company
and the insistence of the subsequent generation to maintain direct control proved to be
a deadly combination. This generation did not nurture and develop talents to hold
leadership positions across the growing and complex organisation. They were
compelled to hire external managers foreign to the unique Norton culture into
important managerial positions. The strong culture diluted. Scores of acquisitions
granted complete autonomy accentuated this tendency101
. Poor performance and
important financial difficulties followed. In the three cases, strong culture linked to
performance but only in a short to medium term horizon, in line with organisational
theory findings.
Mission driven culture also generates short to medium term performance.
Denison (1995) finds in mission driven culture a strong predictor of performance. The
profitability criteria are best captured by the mission trait of a culture. His research
however is only applicable for the next few following years without providing
insights as to the long-term horizon102
. Delheim (1987)’s study of Cadbury shows the
impact of its mission driven culture on performance. The company went from a
failing company to the 24th
largest manufacturing company from 1879 to 1931. It is
even more impressive as it prospered within the context of broad national industrial
British decline103
. It is however not sufficient to claim mission driven culture
generates and sustains long term performance. Similarly, Collins (2004) used

99
Church,
“Deconstructing
Nuffield.”

100
Cheape
and
Chandler,
Family
Firm
to
Modern
Multinational.p352

101
Ibid.p353

102
Denison
and
Mishra,
“Toward
a
Theory
of
Organizational
Culture
and

Effectiveness.”

103
Dellheim,
“The
Creation
of
a
Company
Culture.”

30

companies’ market performance in assessing the relationship between a driven
mission culture and performance. Mission driven culture companies had stock-return
performance of fifteen times the general market. He claims they stood the test of time.
We do not consider the stock-return performance as an intrinsic measure that truly
captures performance. For this reason, mission driven culture being predictive of
long-term performance remains but an unproved statement104
.
Culture of adaptation does not better than strong and mission driven cultures.
It is also limited to short and medium term performance. Corporate cultures with a
good environment fits can only explain short to medium term performance at best.
Highly performing companies reported better culture-environment fit than their
counterparts 105
. However, a change in the environment can hurt long-term
performance. Most of lower performers had a significantly better culture/environment
at an earlier time and registered excellent performance. However, they could not
maintain it106
. Thus, culture of adaptation can only account for short to medium
horizon performance. The case of the Electromotive Company does not contradict this
conclusion. It started to lose ground the same way it gained from the industry’s
previous leader. The Electromotive Company developed the organisational
capabilities necessary to navigate the diesel revolution. However, it did nothing but
maintain and strengthen these existent capabilities. It was not preparing for the next
environment shift. The entry of GE into its market with an innovative product built on
a new technology far superior to existent products quickly eroded its market share.107
.
Thus, adaptation culture does not ensure long-term performance.
The case of Cargill is the exception. It is the only case that registered sustained
long-term performance. However, given the nature of its industry, no lessons can be
transposed to capital-intensive technology industries. Since John Jr’s turnaround of
the company in early 1920s, the company has been in an upward spiral consistently
maintained through the following generations. It combined the three types of culture
at once. It had a strong culture, a mission driven one as well as a culture of adaptation.

104
Collins
and
Porras,
Built
to
Last.p40

105
Kotter,
Corporate
Culture
and
Performance,
1992.p37

106
Ibid.p40

107
Churella,
“Corporate
Culture
and
Marketing
in
the
American
Railway

Locomotive
Industry.”

31

It is unclear though if the combination of these different attributes is the reason
behind its continued success. Cargill moved from a Midwestern company in the early
1920s to a respected major national force by the 1940s108
. Under the leadership of
John Jr,, it became the world leader of grain trade by 1961, respected, envied and
even fear by whose who had to deal with it109
. By the time of transition from John Jr
to the next leader of Cargill, it was widely recognised by the public as the number one
in the industry110
. It continued its upward performance curve with steady growth in
sales, net worth and profits between 1977 and 1991. It maintained its relentless pace
and advantage over its traditional rivals in the grained trade and fended off new
challengers111
. Cargill remained top of its industry throughout decades. It had superior
abilities in almost any trading situation112
. Thus, Cargill surely represent the best
template in business history literature to derive understanding of the culture type that
best relate to long-term performance. However, the nature of the industry plays an
important role. No such case exists in corporate culture literature for capital-intensive
technologically driven industries. The quest for seizing the corporate culture behind
long-term performance in these specific industries remains wide open in the literature.
We have seen so far that the three types of culture could only account for short
to medium term performance at best. They fail to explain long-term performance. A
major common issue is emerging. It could enlighten the reason why these cultures fall
short in that exercise. Independently from the type of culture, their long-term
performance seems to be hindered by a common factor: technological advance and
change. The rise of the Electromotive Company was due to its early commitment to
the new technological shift from steam towards diesel whilst its decline was equally
led by the development of GE of a novel technology replacing the existent one113
.
Larkin’s rapid demise coincided with the industry’s shift from mail ordering business
to a new business paradigm. It was enable to embrace this major change114
. Norton’s
inability to maintain its technological edge and develop innovative premium high

108
Broehl,
Cargill
:
Trading
the
world's
grain.p854

109
Ibid.p867

110
Broehl,
Cargill,
Going
global
1998.p367

111
Broehl,
Cargill,
Trading
the
worlds'
grain
1992.
p876

112
Broehl,
Cargill,
From
commodities
to
customers
2008.
P9

113
Churella,
“Corporate
Culture
and
Marketing
in
the
American
Railway

Locomotive
Industry.”

114
Stanger,
“Failing
at
Retailing”;
Stanger,
“From
Factory
to
Family.”

32

margin products behind its prior success was a major reason for its subsequent
difficulties115
. Thus, the major shortage facing all three types of culture is their
inability to drive technological progress, create technological revolutions or at least
recognise, embrace and commit to major technological shifts at their early stages
when the short window of opportunity is still open. Culture of radical innovation has
the potential to overcome this fundamental limit and unlock the puzzle of long-term
performance in capital-intensive technology industries.
c. Culture of radical innovation

Culture of radical innovation is defined as a culture that fosters relentless
innovation that aims to ensure a firm is constantly at the leading edge of innovation.
According to Tellis (2009), a radical innovation has transformational effects. It
merges markets, create new ones and destroy old ones. It differs from incremental
innovations that are the result of improvements of existing technologies and products.
Rather, a radical innovation can take the form of completely new product categories
enabled by major advances or complete shifts in underlying technology. It makes
what was impossible yesterday possible today. Radical innovations can propel small
outsiders in position of industry leadership and bring down dominant players that fail
to launch or embrace these radical innovations. Firms at the leading edge of radical
innovation tend to dominate world markets. Radical innovations have thus the power
to drive market growth, a company’s success and a nation’s economic growth. These
radical innovations are however results and the fructification of a whole process.
Amongst all factors, corporate culture is clearly identified as the most important
driver behind the generation of radical innovations. Thus, a culture of radical
innovation is basically a corporate culture geared towards the continuous generation
of radical innovations116
.
A culture of radical innovation consists of three attitudes. The attitudes are
future orientation, the willingness to cannibalise assets and tolerance of risk. The
future orientation attitude means the company is constantly looking ahead and
focusing on the next major technology. A future orientation forces a firm to realize
the limitations of current technology no matter how advanced it is and orients its

115
Cheape
and
Chandler,
Family
Firm
to
Modern
Multinational.
P354

116
Tellis,
Prabhu,
and
Chandy,
“Radical
Innovation
across
Nations.”

33

attention towards the emergence of the next generation of technology that may
become dominant in the future. It shifts the focus from the temptation to channel its
efforts into small improvements and resolution of micro problems of current
technology towards the development of an entirely new and superior technology that
would make the existent technology obsolete in the future. Future orientation has to
be backed by resources allocation. Willingness to cannibalize assets is crucial. In
order to develop the next major technology, the company may have to sacrifice the
stream of profits from current products and services. Finally, trading a current, sure
stream of profits for a future, uncertain stream of profits is perceived as risk.
Tolerance of risk is necessary117
.
A culture of radical innovation is not only a set of attitudes but also requires
the concrete allocation of tangible resources within the organisation. Allocation of
resources towards the activities that organisationally and functionally establish and
sustain the culture of radical innovation is of major importance. These activities
typically are research and development efforts. A culture of radical innovation places
great emphasis in developing major innovations from within its laboratories. They are
more prone to commit significant stream of cash flows towards research activities
than the average company. Eberhart (2004) singles out the effect a commitment to
research and development has on performance. He finds that a significant increase of
research and development expenditures generated abnormal positive long-term
operating and stock performance118
. These increases were beneficial investments
despite the slowness of the market to recognise it. It lead to abnormally high
profitability. This impact was even more marked in high technology companies.
Research and development allocation of resources is a managerial decision. Thus, it
intrinsically relates to corporate culture. Similarly, Leonard (1971) found research
intensity as measured by company research and development spending, relates to
growth rates of sales, assets, net incomes and other variables through the stimulation
of real output rate of growth. This relationship appears two years following the
commitment of funds and gains influence as new products developed occupy a rising

117
Ibid.

118
Eberhart,
Maxwell,
and
Siddique,
“An
Examination
of
Long-‐Term
Abnormal

Stock
Returns
and
Operating
Performance
Following
R&D
Increases.”

Culture of radical innovation and long-term performance in capital-intensive industries : the cases of Maillefer and Secheron in the Swiss electrical industry, 1960-1982.

Culture of radical innovation and long-term performance in capital-intensive industries : the cases of Maillefer and Secheron in the Swiss electrical industry, 1960-1982.

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