Corporate Culture

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An insight into corporate culture & its role in promoting efficiency in a global economy Liandri Boonzaier Matrikel nr: 2585923 Theory of the Firm Porf. Dr. Christian Cordes

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INDEX 1. Introduction……………………………………………………………………Page 3 2. Important elements of Edgar Schein’s theory on corporate culture 2.1 Definition of corporate culture………………………………………..Page 3 2.2 Levels of corporate culture…………………………………………....Page 3 2.3 Origins of organizational culture……………………………………..Page 4 2.4 Strength of organizational culture…………………………………....Page 4 2.5 How leader embed & transmit culture…………………………….....Page 4/5 2.6 Change in organizational culture…………………………………......Page 5 3. Studies done by economists on corporate culture 3.1 KREPS, D. (1990)……………………………………………………… 3.1.1 The Kreps model on corporate culture…………………………...Page 6 3.1.2 The trust game……………………………………………………..Page 6/7 3.1.3 Roles of corporate culture identified by Kreps…………………..Page 7 3.2 CRéMER, J. (1993)……………………………………………………. 3.2.1 3 Components of corporate culture ……………………………...Page 8 3.2.2 Communication in three possible organizational forms………...Page 9 4. A practical study on the role of corporate culture on efficiency……………Page 10 5. Creating a culture of Corporate Governance………………………………..Page 11/12 6. Conclusion……………………………………………………………………...Page 12 7. Reference list…………………………………………………………………...Page 13

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1. Introduction As Benjamin. (1999) points out that most economists have overlooked the topic of corporate culture in their studies on organizations. Therefore its role in our increasing global economy can sometimes be underestimated. The studies done by a famous theorist of corporate culture; Edgar Schein provides some insight into the topic of corporate culture from an organizational physiologists’ view. A brief overview of the essentials of his theory which relate to economics is used as an introduction in this paper. There are of course the exceptions of the work done by economists such as Kreps, 1990; Crémer, 1993; Lazear, 1995 and Hodgson, 1996 whose work should not be overlooked. Some of their research will be discussed in this paper in more detail. Kreps. (1990) himself suggests that it is best to integrate an economic approach together with a psychological approach to get a broader view, as each individual may ignore certain essentials of the opposite approach. 2. Edgars Schein’s theory of corporate culture There are many definitions of corporate culture but a very basic explanation is given by Schein. 2004. He defines corporate culture as “a pattern of basic assumptions that was learned by a group as it solved 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.” From Schein’s definition we see that the values, norms and beliefs of an organization evolve and develop over time to form an organizations core identity. This corresponds to the view of Kreps, D which will be mentioned later. 2.1 Schein starts by distinguishing between 3 levels of organizational culture: Figure 2.1 Levels of culture

Source: Schein,E.H.,2004 p26
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Schein states that if one wants to understand organizational culture it is necessary to understand the origins of culture first. 2.2 Origins of organizational culture: At the formation of a group each individual is self-orientated and has his own assumptions, goals and beliefs. As the group is built up, individuals have the emotional need to feel accepted and therefore try to avoid conflict and create an atmosphere of harmony. As the group reaches the stage where each individual knows what is expected of him, the group is less pressurized to conform and can now develop norms to promote personal growth. Finally as the group reaches maturity, it can consider the assumptions developed over time as the correct way of dealing with such problems and it then...
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