The Corporate Culture and its Effect on Managerial...

Proceedings of the Second Asia-Pacific Conference on Global Business, Economics, Finance and Social Sciences (AP15Vietnam Conference) ISBN: 978-1-63415-833-6

Danang-Vietnam, 10-12 July, 2015 Paper ID: VL531

1 www.globalbizresearch.org

The Corporate Culture and its Effect on Managerial Effectiveness in

Vietnamese Companies

Nguyen Thanh Phuong,

Member of Graduate Student Support Project, Dai Nam University, Vietnam,

Candidate, Asia E University, Malaysia.

E-mail: [email protected]

Nguyen Quang Vinh,

Research and International Corporation Department,

Dai Nam University, Vietnam.


Nguyen Viet Anh,

Research and International corporation Department,

Dai Nam University, Vietnam.


___________________________________________________________________________________

Abstract

The concept of corporate culture has received increasing attention in recent years both

from academics and practitioners. In the process of international economic integration,

corporate culture is the sharp weapon for Vietnamese enterprises to obtain the competitive

advantage and managerial effectiveness. The main aim of this study is to explore the influence

of Corporate Culture on Managerial Effectiveness in Vietnamese Companies. This study

proposes a structural model of the relationships among corporate culture (CC), managerial

effectiveness (ME), Randomly-selected respondents from the population of three types of

enterprise in Vietnam including: Private Company, State Own Company, and Joint Venture

Company. Initially, the exploratory factor analysis (EFA) was performed to test the validity of

constructs, and the confirmatory factor analysis (CFA), using AMOS, was used to test the

significance of the proposed hypothesizes model. The results show that the relationships

among CC and ME appear significant in this study. The results also indicate that corporate

culture could improve the managerial effectiveness. Finally, implications of the findings for

Vietnamese companies and limitation are also discussed in this study.

___________________________________________________________________________

Keywords: Corporate culture, managerial effectiveness, Vietnamese companies

mailto:[email protected]






1. Introduction

Corporate culture is intangible and priceless of every business. In the process of

international economic integration and the development of the socialist oriented market

economy of Vietnam, the construction of corporate culture is a challenging but critical task

for businesses.

In an enterprise, especially the large ones, the diversity of workforce in various aspects

such as qualifications, education level, the level of awareness, social and geographical

characteristics, or ideological culture ... is the main difference creating a diverse work

environment and complexity (Schein, 2004). Besides, the fierce competition of the market

economy and globalization trends are forcing businesses to constantly explore new things and

boost creativity and adaptability to changes in order to survive and develop (Giri, and Kumar,

2007). This requires businesses to build and maintain culture-specific routines to promote the

capacity and promote the contribution of everyone to achieve the overall objectives of the

organization - which is Corporate Culture (CC).

In Vietnam, after “Doi moi” policy in 1986, there are only a few businesses that have

built themselves a strong culture. However, as the effects of the economic reforms keep

spreading, the so-called equalization process has become a growing phenomenon in the

Vietnamese economy’s transition from a centralized to a market-based economy, which was

introduced in 1992 with the expectation that the performance of state-owned enterprises

(SOEs) would be improved once they were equalized. Previous researches have extensively

examined the effects of privatization on organizational change in former SOEs worldwide

(Tsamenyi et al., 2010; Forster, 2006; Daniel et al., 2004; Cunha, 2000). Overall, they find

that the performance of SOEs significantly improved after privatization, and these

improvements were accompanied by certain organizational changes, including changes in the

corporate governance practices and accounting and control systems. Little is however known

about the Vietnamese experience.

The main objectives of this study are to investigate the relationship between corporate

culture and, managerial effectiveness, and the difference between managers of private and

public undertakings on the variables under study.

The specific objectives of the present study are as follows:

- Provide a theoretical framework for understanding the completed concept of

corporate culture and its effect on managerial effectiveness.

- To examine the influence Organizational Culture on Managerial Effectiveness among

Vietnamese companies




2. Literature review

2.1 Definition of Corporate Culture

The culture of an organization is not simply a cultural communication and business

culture as we often think. For a long time, culture has played an important role in life of

human beings (Aarons and Sawitzky, 2006). Nowadays in particular, in the age of modern

civilization when the human factor has been considered as the engine as well as the

objective of all social reforms, culture has become an inevitable part and been

regarded as the measure to assess every activity and a thorough understanding of culture,

together with its role in social life, therefore, it is being paid much attention to.

To summarize the concept of corporate culture, Table 2.1 shows that although

organizational culture has been defined in many ways by various researchers, most of them

agree that corporate culture can be referred to as a set of values, beliefs, and behavior patterns

that form the core identity of organizations, and help in shaping employee behavior.

Accordingly, the values and beliefs underlying organizational culture probably reflect what is

most important to the company’s leaders, since they are responsible for the vision and

purpose of the organization, and reinforce the core values and beliefs through their own

behavior. Throughout this paper we follow this concept to gauge the multidimensional aspects

of the organizational culture of Vietnamese firms.

Table 1: Organizational Culture Definitions

Author Definitions

( (Schein, 1992)

Organizational culture is commonly referred to as the values, beliefs and

basic assumptions that describe the essence of an organization and that guide

employee behavior.

(Desphande &

Webster, 1989)

Corporate culture is defined as the pattern of shared values and beliefs that

help individuals understand organizational functioning and thus provide

them with norms for behavior within the organization.

The extent to which members perceive and accept the values and

assumptions of the organization determines the strength of organizational

culture in gui ding and coordinating member behavior.

(Cunha & Coope,

2002)

Corporate culture represents the way things are done in the organization,

reflecting the beliefs of organization members as to what are appropriate

behaviors and procedures.

(Schein, 2004) Organizational culture as a pattern of shared basic assumptions that the

group learns as it solves problems of external adaptation and internal

integration and 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 the relation to those problems.

(MacIntosh & Doherty,

2010)

Organizational culture is a shared understanding and acceptance among staff

members of what is valued and expected in an organization; thus it may be

directed, but is not ultimately determined, from above.

2.2 The Relationship between Corporate Culture and Managerial Effectiveness

The topic of managerial effectiveness assumes paramount importance especially in

developing countries like Vietnam. If inefficient managers would be at the helm of affairs in

organizations, pace of development would slow down. Hence, there is an increasing need to




identify predictors of managerial effectiveness. Do effective managers demonstrate distinctive

competencies and if so, which competencies distinguish effective managers from less-

effective ones?

The definition of Margerison (1981) stressed that managerial effectiveness appears when

a manager behaves appropriately in tune with the situation. Mullins (1995) considered it as

doing the right things, attainment of objectives, increasing profitability and optimizing use of

resources. While individual provides his services to the organization through intrinsic abilities

and competence, the organization on the other hand provides constraints and facilities.

The research of Zhang (2010) investigated the characteristics of organizational culture

and its effects on organizational variables. His research showed that organizational culture has

significant main effects on human resources management effectiveness such as turnover

intention, job satisfaction and work efficacy; organizational culture also has significant main

effects on organization effectiveness like staff members’ organization commitment and

collective identity.

Catherine and Cherly (2007) revealed that organizational culture was strongly perceived

as being related to both leadership effectiveness (explaining 40% of the variance) and

personal effectiveness (24% of the variance). Aspects of organizational culture promoting

employee fulfillment and satisfaction were uniformly viewed as positively related to

leadership and personal effectiveness.

The perceived relationship across samples was stronger between organizational culture

and leadership effectiveness than between organizational culture and personal effectiveness.

Organizational culture is important because shared beliefs and norms affect employee

perceptions, behaviors, and emotional responses to the workplace. For example, culture has

been found to influence organizational climate and provider attitudes including work attitudes

(Aarons & Sawitzky, 2006; Carmazzi & Aarons, 2003), as well as employee behaviors that

contribute to the success or failure of an organization (Ashkanasy, Wilderom, & Peterson,

2000).

However few studies have point out the effect of organizational culture on specific sub

variables with the different type of enterprise. For example, Morris and Bloom (2002)

examined the effects of culture and climate on job satisfaction and organizational

commitment, and then defined culture and climate as a combined construct. Other researchers

have examined culture and climate as simultaneous predictors of work attitudes. For example,

Glisson and James (2002) analyzed two separate models: one that tested the relationship

between organizational culture and climate on work attitudes and one that tested the effects of

organizational culture and climate on staff turnover. In the former study, culture and climate

were merged, while in the latter study the potential mediation of culture by climate was not




examined. Neither of the studies noted above allow disentangling the direct effects of culture

on managerial effectiveness. This suggests the proposition that these sets of correlates are

inter-related in some way, and consequently this issue is worthy of empirical investigation.

Therefore, this study will be designed to examine how managerial effectiveness is being

influenced by organizational culture by examining the linkages with the sub-variable of

corporate culture in correlates with managerial effectiveness.

2.3 Research Frame Work and Hypothesis

Figure 1: Research Model

Table 2: Research Hypothesis

Hypothesis Description

H1 There is a relationship between performance orientation as a sub-variable of

Corporate Culture and Managerial Effectiveness.

H2 There is a relationship between People orientation as a sub-variable of


H3 There is a relationship between Organization integration as a sub-variable of


H4 There is a relationship between Market orientation as a sub-variable of


3. Research Methodology

Quantitative research was conducted to test the scale of the research model. This is a

detailed analysis of the data collected through questionnaires sent to the client to determine

the logical correlation of these factors together and then give specific results of this research.

This study used the questionnaire (in the level of Likert from 1- strongly disagree to 5 -

strongly agree) to collect data to test hypotheses quantitative approach is applied to the test

the hypothesis of this study.

Questions will be distributed to the leaders of three type of enterprise in Vietnam

includes: Private company, State Own Company, Join Venture Company. The goal is to

collect 500 samples of the survey questions different units in 2015.

Determining how many appropriate sample size remains controversial and many different

perspectives. MacCallum, Widaman, Zhang and Hong (1999) have summarized the views of

Performance orientation

People orientation

Organization integration

Market orientation

Managerial Effectiveness




the previous studies on the minimum standards of the sample size for the analysis of factors.

MacCallum and colleagues said that the sample size should be about five times the number of

questions. This study has a total of 28 questions in the questionnaire. Therefore, a minimum

standard for the sample size of this study is 28 x 5 = 140.

Organizational culture variables were developed based on four cultural constructs,

suggested by (Cunha & Cooper, 2002). The culture dimension ratings were measured on 5-

level Likert scale with a choice of 1 means strongly disagree with the statement and choose

the number 5 is strongly agree with the statement . The contents of the variables observed in

the composition are adjusted to suit the objective of research and the context of Vietnam

companies.

For the managerial effectiveness scale, this study is going to develop new questionnaire

for collecting the data from managers. This scale will consist of 5 dimensions. These

dimensions are: (1) Managing and leading, (2) Interpersonal relationships, (3) Knowledge and

initiative, (4) Success orientation and (5) Contextually adept. The structure variables are

presented in Table 3.1

Structural equation modeling (SEM) method is used in this study. SEM is a general term

that has been used to describe a large number of statistical models used to evaluate the

validity of substantive theories with empirical data. Statistically, it represents an extension of

general linear modeling (GLM) procedures, such as the ANOVA and multiple regression

analysis. One of the primary advantages of SEM (vs. other applications of GLM) is that it can

be used to study the relationships among latent constructs that are indicated by multiple

measures. It is also applicable to both experimental and non-experimental data, as well as

cross-sectional and longitudinal data. SEM takes a confirmatory (hypothesis testing) approach

to the multivariate analysis of a structural theory, one that stipulates causal relations among

multiple variables. The causal pattern of inter variable relations within the theory is specified

a priori. The goal is to determine whether a hypothesized theoretical model is consistent with

the data collected to reflect this theory. The consistency is evaluated through model-data fit,

which indicates the extent to which the postulated network of relations among variables is

plausible. SEM is a large sample technique (usually>200; e.g., Kline, 2005, pp. 111, 178) and

the sample size required is somewhat dependent on model complexity, the estimation method

used, and the distributional characteristics of observed variables (Kline, pp. 14–15). SEM has

a number of synonyms and special cases in the literature including path analysis, causal

modeling, and covariance structure analysis. In simple terms, SEM involves the evaluation of

two models: a measurement model and path model.




4. Result analysis

4.1 Respondent Demographic

The survey was distributed to all respondent directly, interviews and personal voluntary

and answers questions based on their knowledge and experience of their own working. All of

288 questionnaires were sent to respondent, 257 questionnaires were returned. After the reject

the invalid questionnaires, there are 225 were input as valid sample and considered for

analyzed inversion 20.0 of SPSS software, count of 87% value rate.

Within the respondent profile, through the research, we find that there is 56% of male

and 44% of female (see Table 3). Concerning the age of the respondents, there is 1.8% of

respondents are less that 30 years old, 46.7% are 31 to 40 years old, the age of 41-50 years

old and above 51 years are 39.1% and 12.4% of total respondents.

From the aspect of working experience, all respondents has at least one year of

experience; most respondent in this survey have 11-20 years of work experience (less than 10

years: 20% and 11-15 years: 25.3% and 16-20 year: 24.9%), while 29.8% of respondents

already own working experience in current position of over 20 years.

Cross-sectional study was also carried out in this study. Among the respondents,

6.2% are vice head of department, 11.1% are Head of department while Deputy Director and

Director count for 15.6% and 13.3%. In this study, the CEO respondent is count for 53.8%

confirm the good quality of respondent (table 3).

Table 3: Respondent Profile

Demographic N=225

Frequency Percent (%)

Gender Male 126 56.0

Female 99 44.0

Total 225 100

Age Less than 30 4 1.8

31 to 40 105 46.7

41 to 50 88 39.1

More than 51 28 12.4

Total 225 100

Working

experience

Under 10 year 45 20.0

11- 15 year 57 25.3

16-20 year 56 24.9

Over 20 year 67 29.8

Total 225 100

Position Vice head of department 14 6.2

Head of department 25 11.1

Deputy director 35 15.6

Director 30 13.3

CEO 121 53.8

Total 225 100

Education Below Bachelor 2 .9

Bachelor 12 5.3

Master 132 58.7

Phd 79 35.1




Total Total 225 100

Referring to level education of respondents, there are only 0.9% do not have the

bachelor degree, 5.3% have completed bachelor. There are 58.7% of respondents who get the

master degree. The respondents who have got the PhD. degree of this study are 35.1%. This

result shows the well-educated of respondent with almost respondent got the master and PhD.

degree.

4.2 Reliability Analysis

In this study, principle component method is used for explorative factor analysis. Four

main factors with 20 items are loaded into the system (Table 4).

Table 4: Factor Analysis

Component

Factor /item

Organizational

integration

orientation

People orientation Performance

orientation Market orientation

ORG1 .849

ORG2 .738

ORG3 .879

ORG4 .916

ORG5 .889

PEO1 .788

PEO2 .877

PEO3 .911

PERF1 .803

PERF2 .796

PERF3 .777

PERF4 .757

MAR1 .845

MAR2 .859

Eigenvalue 6.264 1.851 1.131 1.032

Variance explained (%) 44.740 13.219 8.016 7.368

Cronbach α .911 .855 .795 .674

Total variance explained=73.403; KMO= .890; p = .000

The result indicates that the Kaiser-Meyer-Olkin value was .890, and the Bartlett’s Test

of Sphericity was statistically significant at .000 level. The factor eigenvalues greater than or

equal to 1.0 and motivation variables with factor loadings greater than .5 were reported. .6

items of the loading factor are less than 0.5, which are deleted from the scale (Job rules and

regulations, Promotion based on individual skill rewarded based on task, Rewarded fairly,

Competitiveness, New products developed). The result of factor analysis revealed 4 factors of

corporate culture, which accounted for 73.403 ( > 50%) of the total variance. To test the

reliability and internal consistency of each factor, the Cronbach’s alpha of each was

determined. The results showed that the alpha coefficients range from .911 - .674. Therefore,

it demonstrates that all factors were accepted and reliable as recommended by Nunnally

(1978).




4.3 Structure Model Fit and Model Coefficients

A CFA of the constructs of model were also performed in this study. The fit indices of the

model are summarized in Table 5.

Table 5: Goodness of Fit Indices of Model

Criteria Indicator 2x - test 2x /d.f. <3 2.6 (184.978/71)

Fit indices

CFI >0.95 0.951

NFI >0.90 0.907

TLI >0.90 0.938

RFI >0.90 0.905

RMSEA <0.08 0.073

PCFI >0.50 0.752

PNFI >0.50 0.717

The overall model indicates that 2x is 238.658 / 121 = 1.972 (d.f.) (p= 0.000).

Technically, the p-value should be greater than 0.05, statistically insignificant. However, in

practice the 2x -value is very sensitive to sample size and frequently results in the rejection of

a well-fitting model. Hence, the ratio of 2x over d.f. has been recommended as a better fit

than 2x (Hair et al, 2006). A common level of the

2x /d.f. ratio is below 5 (though below 3 is

better). The 2x d.f. ratio of the model is 1.9 (i.e., is 238/121), indicating an acceptable fit.

Furthermore, CFI=0.951, TLI=0.938 both important index is higher than 0.95 and 0.9, and

RMSEA is 0.073 <0.08 indicating the model fit. The other indices (NFI=.907 and RFI=.905

>0.9, PCFI=0.752 and PNFI=0.717 >0.5) are all within acceptable ranges. The model is a

reasonable presentation of the data.




Figure 2: Model CFA Result

4.4 Hypothesis Testing

For testing the relationship of for factors of corporate culture and managerial

effectiveness, the result indicates that the estimate for the relationships of the organization

integration orientation and managerial effectiveness is consistent with the proposed in the

hypothesis (H1: β=0.109, t=1.636, p<.0.05). The people orientation is positively related to the

managerial effectiveness (H2: β=0. 468, t=5.839, p<.0.01). The effect of performance

orientation on managerial effectiveness is also strong (H3: β=0.643, t= 6.568, p<0.01).

However, the prediction of market orientation is not positively related to the managerial

effectiveness, so hypothesis 4 is not supported as proposed (H4: β=-.055, t= -.692, p<0.01).

(See table 5). The results show that the relationships among corporate culture and

managerial effectiveness appear significant in this study. The results also indicate that

corporate culture could improve the managerial effectiveness

Table 5: Regression Weights

Estimate S.E. T-value P-value Result

Managerial

effectiveness <---

Organizational

integration .109 .055 1.636 .021 Supported

Managerial

effectiveness <---

People

orientation .468 .080 5.839 *** Supported

Managerial

effectiveness <---

Performance

orientation .643 .097 6.615 *** Supported

Managerial

effectiveness <---

Market

orientation -.055 .079 -.692 .489 Unsupported

*** P <0.01




5. Concluding Remarks and Future Work

This study provides a framework for understanding the interrelationships between

corporate culture and managerial effectiveness in Vietnamese companies. It is motivated from

the lack of studies on the organizational culture of firms in Vietnam (Vo and Duc, 2011). The

study found the following results: There is a relationship between the organization integration

orientation and managerial effectiveness, the people orientation is positively related to the

managerial effectiveness and the effect of performance orientation on managerial

effectiveness is strong. However, this study can not found any relationship between market

orientation and managerial effectiveness. As Cunha & Cooper, (2002) state that changes in

market conditions can lead to significant changes in the organizational cultures, this study

highly recommend that Vietnamese company have to develop more market-oriented cultures.

The supported hypothesis point out that performance orientation factor of corporate culture

has strongest influence on managerial effectiveness the second is people orientation and the

third is organizational integration. This result is consistence with the study of Vo and Duc

(2011) in a study of culture in a transition economy in Vietnam.

Since culture is an abstraction, yet the forces that are created in social and organizational

situations that derive from culture are powerful. If we don’t understand the operation of these

forces, we become victim to them. To illustrate how the concept of culture helps to illuminate

organizational issue, this study is conducted to describe the construct of corporate culture and

its influence on managerial effectiveness that may help Vietnamese companies in developing

their own business culture and benefiting from it. The results show that the relationships

among corporate culture and managerial effectiveness appear significant in this study. The

results also indicate that corporate culture could improve the managerial effectiveness.

Although the theoretical contribution and managerial implication, some limitations of the

research to be considered. The first limitation is that the number of questionnaire is just

reasonable; therefore, the future research should perhaps be conducted with bigger number.

Secondly, the model should be more developed in regard to other factors. A third limitation is

related to sample characteristics that may limit the generalization of the results to some

degree. Future studies with larger samples could allow for a comparison among type of

business (SEO, PEs, JVC) as well as among age, sex and working experience.

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