Competitive advantage from organizational culture

If a firm’s culture, in order to be the source of sustained competitive advan- tages, must be valuable, rare, and imperfectly imitable, then the possibility that organizational cultures with these characteristics exist must be eval- uated. Previous research on organizational cultures suggests that at least some cultures of some firms have these characteristics, and thus can be a source of sustained competitive advantage. This research also suggests that not all firms have cultures with these three attributes (Martin et al. 1983; Tichy 1983), and thus organizational culture is not a source of competitive advantage for all firms.


Much of the literature on organizational culture and the performance of a firm can be interpreted as suggesting that culture can have signifi- cant positive economic value for a firm. Certain organizational cultures apparently enable firms to do and be things for employees, customers, suppliers, and others that could not be done, or could not be done as well, by firms without these cultures (Ouchi 1981; Deal and Kennedy 1982). Many of these activities have shown a positive economic impact on firms.

Peters and Waterman (1982) provided a broad description of the eco- nomic value of certain organizational cultures. Each of their eight char- acteristics of an excellent company reflects strong values and beliefs in organizational cultures. Thus, for example, firms that are simultaneously loosely and tightly coupled typically have an organizational culture with a strong set of core values—one of which encourages creativity and inno- vativeness (Peters and Waterman 1982: 319). Firms without such a cul- ture may attempt to develop the attributes of a tight–loose system, but such attempts generally are not as successful because the culture of the organization neither supports nor values such behavior. In a similar vein, firms that are successful at obtaining productivity through their people generally have an organizational culture that supports and values the worth of the employee. Firms without such a supportive culture generally do not succeed in maximizing their productivity through their people. Firms that stay close to their customers typically are obsessed with customer service and satisfaction. This obsession, once again, reflects some of the core values of an organization’s culture.

Each of these cultural traits can result in positive economic gains for firms. Both Peters and Waterman (1982) and Porter (1980) note that stay- ing close to one’s customer can result in timely market information, joint product development activities, and intense brand loyalties. These benefits result in high sales and increased margins, and thus have a direct positive financial impact on a firm. Innovativeness, productivity through people, and the other cultural factors cited by Peters and Waterman (1982) also have positive economic consequences.

Simply because the cultures of certain firms enable them to engage in activities with positive economic impact does not imply that all organiza- tional cultures have such effects. Indeed, implicit in much of the organi- zation cultures literature is the notion that an organization’s culture can significantly reduce a firm’s effectiveness, disabling the firm from perceiv- ing all its competitive/operational options and preventing it from choosing options consistent with competitive/operational necessities (Crozier 1964; Porter 1980; Riley 1983; Tichy 1983).


That a firm’s culture may enable it to behave in ways with positive eco- nomic impact does not necessarily imply that a firm can obtain sus- tained competitive advantages from its culture. In addition, these cultural attributes must be rare.

The frequency with which valuable organizational cultures occur among firms is ultimately an empirical question. Previous research has indicated that some organizational cultures, far from being rare, are likely to be quite common among any given set of firms (DiMaggio and Powell 1983; Spender 1983). Indeed, some have argued that though cultures may appear to be unique or specific to a given firm, they sometimes actually reflect an underlying commonality and function, and thus are not rare at all (Martin et al. 1983).

Despite these findings, it must be admitted that some organizational cultures might exist in a relatively small number of firms, and thus hold the potential for generating sustained superior financial performance. Numerous authors have noted that firms are idiosyncratic social inven- tions, reflecting the unique personalities and experiences of those who work there (Polanyi 1958; Barley 1983). Firms are also historically bound, partially reflecting the unique circumstances of their founding (Selznick 1957; Pettigrew 1979), the unique personalities of their founders (Zucker 1977; Schein 1983), and the unique circumstances of their growth (Chamberlin 1933; Clark 1970, 1972). Often, these unique experiences of a firm are reflected in a firm’s culture. Rare experiences can lead to a rare culture. If these cultures are also valuable, then they hold the potential for generating sustained competitive advantages.

The assertion that the unique personalities and history of a firm can lead to rare cultures is consistent with the contingency view of culture discussed by Smircich (1983). However, this does not necessarily imply that the cultures of these firms will be unique as well (Martin et al. 1983). Different organizational experiences may lead to similar cultural outcomes. Even among firms with unique histories, cultures may not be rare, and thus without potential for generating sustained superior financial performance.


For a firm’s culture to be a source of sustained competitive advantage, it must not only be valuable and rare, it also must be imperfectly imitable. Without imperfect imitability, any competitive advantage that a valuable and rare culture might give will create strong incentives for imitation.

There is significant evidence which suggests that valuable and rare orga- nizational cultures often may be very difficult, if not impossible, to imi- tate. First, it may not be possible for individuals observing a culture (let alone those experiencing a culture) to describe what about a particular organization’s culture adds value to a firm (Lippman and Rumelt 1982). Values, symbols, beliefs, and the like are notoriously difficult to describe and categorize (Barley 1983; Gregory 1983). Moreover, the relationship between these highly subjective organizational characteristics and a firm’s competitive advantages also defies rigorous description and inspection. The valuable and rare aspects of an organization’s culture often become part of the unspoken, unperceived common sense of the firm. Many have argued that culture is a powerful force in explaining the behavior of individuals and groups within organizations precisely because it is unspo- ken and taken for granted (Polanyi 1958; Goffman 1959; Berger and Luck- man 1967). If those attempting to observe a culture to imitate it cannot describe what it is about it that is valuable, those aspects of that culture cannot be consciously imitated—though firms might accidentally success- fully imitate a culture they cannot describe (Lippman and Rumelt 1982; McKelvey 1982).

Even if valuable and rare organizational cultures can be described by potential imitators, as is apparently sometimes possible (e.g. Ouchi 1981; Peters and Waterman 1982), it still may not be possible to imitate these cultures. The characteristics of organizational culture may make it rare and may also make it difficult to imitate. Valuable organizational cultures may be intrinsically bound up with a firm’s unique history and heritage— and history defies easy imitation. This conception of culture is explored in Clark’s notion (1970, 1972) of an organizational saga, that is, the embodi- ment of the values, symbols, and beliefs of a firm as expressed through its unique history. Selznick (1957), Stinchcombe (1965), and Zucker (1977) observed that the constellation of persistent symbols, beliefs, and values that characterize a firm’s culture at least partially reflects the unique early history of the firm, including the pattern-setting influence of company founders. A firm with a history significantly different from that of a firm whose culture it would like to imitate may find an unbridgeable barrier to imitation. If this firm’s culture is also valuable and rare, then it may enjoy a sustainable competitive advantage.

Finally, even if the economically relevant aspects of a firm’s culture can be described, and even if they are not historically specific in character, con- scious and successful cultural imitation may still be imperfect. The com- ponents of organizational culture (including values, symbols, and beliefs) are as difficult to purposefully change as they are to describe (Smircich 1983). The existence of multiple, possibly contradictory cultures within the same firm makes the management of culture all the more problem- atic (Gregory 1983). Indeed, the data show that attempts to modify such subtle and interdependent aspects of organizations through organizational development methods have met with mixed results at best (Porras and Berg 1978a, 1978b). While numerous authors have described ways in which an organization’s culture can be managed (Peters 1978; Quinn 1980; Tichy 1983; Schein 1999; Cameron and Quinn 1999), it must be admitted that at least some organizational cultures resist planned change. If a potential imitator cannot manage the change of its own culture to approximate the culture of a firm with a culturally based strategic advantage, then the latter may be safe from imitation and its strategic advantage may be sustained.

It has been argued that the cultures of some firms may be immune from planned imitation. If these cultures are valuable and rare, then they can be a source of sustained competitive advantage. This is not to suggest that a firm’s culture stays the same since it certainly does evolve over time (Selznick 1957; Zucker 1977). This also does not suggest that all attributes of all organizational cultures are imperfectly imitable. Rather, previous findings indicate that some organizational cultures may be valuable, rare, and imperfectly imitable, and thus the source of sustained competitive advantage.

Source: Barney Jay B., Clark Delwyn N. (2007), Resource-Based Theory: Creating and Sustaining Competitive Advantage, Oxford University Press; Illustrated edition.

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