The degree to which within-country variance in culture is restricted relative to between-country variance is a question of statistical effect size magnitude (e.g., Cohen, 1994) for country. Thus, I examine evidence on the country effect size, as well as the degree to which (overall) country effects are explained (specifically) by national culture effects. Because national culture is just one characteristic on which countries vary, the country effect is an upper bound for the national culture effect (Raudenbush & Bryk, 2002: 74). I begin by placing the national culture as a constraint argument within the broader management literature and its differing perspectives on the relative importance of constraints and management discretion and strategy.
Constraints and Strategic Choice
In considering the claim that organizations are constrained by (or mirror) the national culture of the country where they are located, it is helpful to further clarify how the issue of constraint (versus management discretion) has been viewed in the broader management literature. Management theory recognizes that organizations face pressures to be similar to other organizations as well as opportunities to be different from other organizations. Institutional theory (DiMaggio & Powell, 1983; Scott, 2000), for example, emphasizes that organizations respond or adapt to pressures in their environments to conform to accepted ways of doing business so that they will appear legitimate to investors, customers and others who can influence their success. Over time, institutional influences, whether industry specific or country specific, are expected to create a significant degree of similarity (or conformity) in structures and practices across organizations. Similarly, industrial–organizational economics perspectives de-emphasize firm differences in financial performance, instead focusing on the importance of industry differences in shaping and constraining strategies and performance (Bain, 1959; Porter, 1980).
The process common to these perspectives is that the environment constrains firm agency or discretion, which is observed as reduced variance in firm practices or attributes. In the short run, firms that do not conform are expected to have poorer performances, thus putting their survival at risk over the longer term as the environment selects firms that match the environment's demands (Hannan & Freeman, 1977). To the degree that nonconforming firms do, in fact, more often fail, a further reduction in variance is observed.
In contrast, the resource based view (RBV) has taken the lead in ‘reemphasizing the importance of organizations in strategy research’ (Hoopes, Madsen, & Walker, 2003: 889). The RBV focuses on how organizations differentiate themselves by ‘looking inside’ for resources and capabilities that are rare and difficult to imitate (and not substitutable) and that can be leveraged to build sustained competitive advantage (Barney, 1986, 1991; Carmeli & Tishler, 2004; Wernerfelt, 1984). Thus, the RBV, in comparison to institutional and industrial–organizational economics theories, leads us to expect greater variance in firm practices and attributes. In addition, while sharing the view that being different (industry comparisons are often emphasized) can be risky, it also recognizes the opportunity to achieve sustained competitive advantage by not conforming to environmental pressures and constraints.
One resource that is a strong candidate for meeting the test of adding value and being difficult to imitate is organizational culture (Barney, 1986). Business press and academic studies on what makes some organizations perform better than others in the same industry often highlight the role of culture or related concepts such as ideology or values in making organizations distinctive, successful and difficult to imitate (e.g., Collins, 2001; Deal & Kennedy, 1982; Denison, 1990; Kotter & Heskett, 1992; Peters & Waterman, 1982). According to Barney (1986: 664), ‘precisely because an organization's culture is hard to describe . . . and because even if the culture can be described, it is difficult to change; a firm's culture can hold promise for sustained superior financial performance for some firms.’
A primary avenue for firms to influence culture is through their human resource practices and strategies (Barney & Wright, 1998; Den Hartog & Verburg, 2004; Lado & Wilson, 1994). Barney and Wright (1998: 43), for example, observe that ‘one important implication of the [RBV] framework is that the Human Resource function manages the set of resources (e.g., human capital skills, employee commitment, culture, teamwork, etc.) that are most likely to be sources of sustained competitive advantage’. Lawler (2003: 35) states that ‘the organizational design elements of people, structure, rewards, and processes lead to . . . corporate culture.’
Like the broader strategy literature and the RBV in particular, the literature on strategic human resources (e.g., Barney & Wright, 1998; Becker & Gerhart, 1996; Cappelli & Crocker-Hefter, 1996; see also the strategic choice industrial relations framework, Kochan, Katz, & McKersie, 1994) has proceeded under the assumption that organizations, even when facing similar competitive environments and pressures, can and do differentiate themselves with respect to human resource management practices and organizational cultures and that being unique may help generate uniquely high levels of success. Cappelli and Crocker-Hefter observe that ‘there are examples in virtually every industry of highly successful firms that have very distinct management practices’ (1996: 7).
Oliver (1991) has attempted to integrate strategic and institutional frameworks, as well as consider when and to what degree institutional pressure is most likely to act as an influence or constraint on strategy. She notes that ‘the institutional perspective has been increasingly criticized for its lack of attention to the role of organizational self-interests and active agency’ (145). She proposes that institutional theory ‘can accommodate interest-seeking, active organizational behavior’ if organizational responses are ‘not assumed to be invariably passive and conforming to all institutional conditions’ (146). She also describes five different strategic responses (acquiescence, compromise, avoidance, defiance, manipulation) and proposes that the type of strategic response depends on the nature of institutional pressures.
Of particular relevance here is Oliver's proposition that ‘The lower the degree of economic gain perceived to be attainable from conformity to institutional pressures, the greater the likelihood of organizational resistance to institutional pressures’ (1991: 161). Also of interest are her propositions that resistance is greater when institutional norms conflict with organizational goals and when there is a multiplicity of institutional constituents. Taken together, these suggest that conformity is resisted when being different is the organization's path to sustained competitive advantage, consistent with the RBV, and also that conformity is resisted when there is a lack of consensus among actors (i.e., multiplicity) in the institutional environment.
To summarize the discussion so far, there are different, perhaps conflicting, views in the broader management literature on the issue of constraint versus strategic choice and differentiation. The assumption made by the RBV and related frameworks (e.g., strategic human resources) is that organizations can differentiate themselves with respect to attributes like organizational culture (and relatedmanagement practices). In contrast, institutional and industrial–organization economics views tend to give greater weight to the constraining influence of the environmental/institutional context. The organizational culture literature includes both perspectives. Finally, some work (e.g., Oliver, 1991) is aimed at understanding when constraints are most and least likely to limit managerial discretion.
The Role of Intracountry Cultural Variability: A Conceptual Model
In considering national culture as a constraint, I suggest that Oliver's (1991) concept of multiplicity relates to the concept of variance, an important theme in explanations of when national culture is most likely to act as a constraint. Limited within-country variance in norms (e.g., cultural values) may, in turn, act to limit the degree to which organizational cultures could be unique, whereas greater within-country variance may provide organizations with more leeway to be unique. As discussed, this question concerns the effect size of country.
Au (1999: 806), in his discussion of intracultural variability, observed that multinational corporations (MNCs) ‘usually have special preference for workers that suit their needs and company culture . . . A heterogeneous [national] culture means a better chance for MNCs to achieve their goals, as the variety of labour within this culture can be as large as the MNC can find across a number of cultures’. Bloom and Milkovich (1999) argued that such variability would allow organizations to be more selective in their employee attraction, selection and attrition/retention (ASA) (Schneider, 1987) processes, thus making it more likely that an MNC could find the individual employees needed to serve as the foundation for its desired organizational cultures, even if it was not typical for that country.
Likewise, Tsui, Nifadkar and Ou (2007: 461) suggest that ‘There is potential for interesting theory development by focusing on the variance of culture held by the individuals in a nation’, using, for example, the concept of tightness or looseness of culture (Pelto, 1968; Triandis, 1989; cited in Tsui et al., 2007). Gelfand, Nishii and Raver (2006: 1226) define tightness–looseness in terms of ‘The strength of social norms, or how clear and pervasive norms are within societies, and the strength of sanctioning, or how much tolerance there is for deviance from norms within societies.’ In countries that have looser cultures, there should be more room for organizations to be distinctive and to find employees that fit that distinctive model.
The model presented in Figure 1 summarizes the key ideas discussed thus far. The model shows that countries have different contexts and these contextual factors influence organizational culture and related management (especially human resources) practices. The model recognizes that culture is one of the ways that contexts differ across countries. Thus, some portion of the effect of country on organizational culture and related management practices is thought to be mediated by the country's cultural values. These, in turn, have two dimensions. First, the mean of individual cultural values is the traditional definition (and measure) of national culture. (Additional individual characteristics such as personality may also be relevant.)
Second, individual cultural values and other characteristics may vary more or less within some countries than in others. This intracultural variability (Au, 1999), which relates to the concept of cultural tightness–looseness, may statistically moderate the degree to which national culture influences organizational culture and related management practices. This statistical interaction would provide the most direct test of the constraint hypothesis. However, the Hofstede and GLOBE studies do not report within-country variance by country. Thus, the interaction cannot be tested as of yet using these data.
It is possible to estimate the magnitude of the average relationship between country and organizational culture and between the mean of cultural values (national culture) and organizational culture. To the degree that these effect sizes are large, on average, then organizational culture is more likely to be constrained. In contrast, smaller effect sizes (e.g., less variance explained) would argue, on average, against such a constraining influence. Gerhart and Fang's (2005) re-analysis of Hofstede's (1980) data as well as other research (Au, 1999; Oyserman, Coon, & Kemmelmeier, 2002) suggests that there is considerable within-country variation at the individual level in cultural values. To the degree this individual level variation translates into organization level variation within countries, the effect size of country (and national culture) on organizational culture would be weakened (Gerhart, 2008).
Note that the model in Figure 1 recognizes that, in addition to culture, countries differ in other aspects of their institutional environments and this broader institutional environment, as well as the competitive environment (e.g., industry, which also varies in terms of its institutional forces), management practices/strategy, organizational history and managerial agency, are expected to influence organizational culture.
Before examining empirical evidence on the relationship between country, national culture and organizational culture and its implications for the constraint hypothesis, it is necessary to first define the meaning of a significant effect size, culture and the difference between country and culture.