Theories of Organizational Climate: Ouchi Framework, Peters and Waterman’s, Udai Pareek

Table of Contents

1 Functions of Organizational Climate
2 Theories of Organizational Climate
3 The Ouchi Framework
4 Theory Z and Performance
5 Peters and Waterman’s Approach
6 The Udai Pareek Approach

Functions of Organizational Climate

Culture to an organization is an intangible force, with far-reaching consequences. It plays several important roles in organizations. Different functions performed by culture are discussed below:

Culture Gives a Sense of Identity to Its Members

An organization’s culture provides a sense of identity to its members. The more clearly an organization’s shared perception and values are defined, the more strongly people can associate themselves with their organization’s mission and feel a vital part of it.

Culture Helps to Generate Commitment Among Employees

The second important function of culture is generating commitment to the organization’s mission. Sometimes it is difficult for people to go beyond thinking of their own interests: How will this affect me?

However, when there is a strong, overarching culture, people feel that they are part of that larger, well-defined whole and involved in the entire organization’s work. Not just focused on any one individual’s interest, culture reminds people of what their organization is all about.

Culture Serves to Clarify and Reinforce Standards of Behavior

A third important function of culture is that it serves to clarify and reinforce standards of behavior. While it is essential for newcomers, it is also beneficial for veterans. In essence, culture guides employees’ words and deeds, making it clear what they should do or say in a given situation.

In this sense, it provides stability to behavior, both with respect to what an individual might do at different times and what different individuals may do at the same time.

For example, in a company with a culture that strongly supports customer satisfaction, employees will have clear guidance as to how they are expected to behave; doing whatever it takes to please the customer. By serving these important roles, it is clear that culture is an important force influencing behavior in organizations.

Theories of Organizational Climate

No single framework for describing the values in organizational culture has emerged; however, several frameworks have been suggested. Although these frameworks were developed in the 1980s, their ideas about organizational culture are influential even today.

Some of the “excellent” companies that they described are less excellent now, but the concepts are still used in companies all over the world. Managers should evaluate the various parts of the frameworks described and use the parts that fit the strategic and cultural values of their own organization. The following are the theories of organizational climate by different authors:

The Ouchi Framework

One of the first researchers to focus explicitly on analyzing the culture of a limited group of firms was William G. Ouchi (1981). Ouchi analyzed the organizational culture of three groups of firms, which he characterized as (1) typical US firms, (2) typical Japanese firms, and (3) type Z US firms.

Based on his analysis, Ouchi developed a list of seven points on which these three types of firms can be compared. He argued that the cultures of typical Japanese firms and US type Z firms are very different from those of typical US firms and that these differences explain the success of many Japanese firms and US type Z firms and the difficulties faced by typical US firms. The seven points of comparison developed by Ouchi are as follows:

Commitment to Employees

According to Ouchi, typical Japanese and Type Z US firms share the cultural value of trying to retain employees. Thus, both types of firms lay off employees only as a last resort. In Japan, the value of “keeping employees on” often takes the form of lifetime employment.

This cultural value is manifested in a commitment to what Ouchi called “long-term employment.” Ouchi suggested that typical US firms do not have the same cultural commitment to employees as Japanese firms and US-type Z firms do.

In reality, American workers and managers often spend their entire careers in a relatively small number of companies. Still, there is a cultural expectation that if there is a serious downtown in a firm’s fortune, change of ownership, or a merger, workers and managers will be let go.

Evaluation

Ouchi observed that in Japanese and type Z US companies, appropriate evaluation of workers and managers is thought to take a very long time up to 10 years, and requires the use of qualitative as well as quantitative information about performance.

For this reason, promotion in their firms is relatively slow, and promotion decisions are made only after interviews with many people who have had contact with the person being evaluated.

Careers

Ouchi next observed that the careers most valued in Japanese and Type Z US firms span multiple functions. In Japan, this value had led to very broad career paths, which may result in employees gaining experience in six or seven distinct business functions. The career paths in type Z US firms are somewhat narrower.

However, the career path valued in typical US firms is considerably narrower. Ouchi’s research indicated that most US managers perform only one or two different functions in their careers. This narrow career path reflects the value of specialization that is part of so many US firms.

Control

All organizations must exert some level of control to achieve coordinated action. Thus, it is not surprising that firms in the US and Japan have developed cultural values related to organizational control on how to manage it. Most Japanese and type Z US firms assume that control is exercised through implicit, informal mechanisms.

One of the most powerful of these mechanisms is the organizational culture. In contrast, typical US firms expect guidance to come through explicit directions in the form of job descriptions, delineation of authority, and various rules and procedures, rather than informal and implicit cultural values.

Decision-Making

Japanese and type Z US firms have a strong cultural expectation that decision-making occurs in groups and is based on the principles of full information sharing and consensus. In most typical US firms, individual decision-making is considered appropriate.

Responsibility

Here, the parallels between Japanese firms and type Z US firms break down. Ouchi showed that in Japan strong cultural norms support collective responsibility, that is, the group as a whole, rather than a single person, is held responsible for decisions made by the group. However, in type Z US firms and typical US firms, individuals are expected to take responsibility for decisions.

Concern for People

In Japanese firms and type Z firms, the cultural value that dominates is a holistic concern for workers and managers. Holistic concern extends beyond concern for a person simply as a worker or a manager to concern about that person’s home life, hobbies, personal beliefs, hopes, fears, and aspirations.

In typical US firms, the concern for people is a narrow one that focuses on the workplace. A culture that emphasizes a strong concern for people, rather than the one that describes a work task orientation can decrease worker turnover (Powell and Mainiero 1993).

Theory Z and Performance

Ouchi argued that the cultures of Japanese and Type Z firms help them outperform typical US firms. Toyota imported the management style and culture that succeeded in Japan into its manufacturing facilities in North America. Toyota’s success has often been attributed to the ability of Japanese and Type Z firms to systematically invest in their employees and operations over long periods, resulting in steady and significant improvement in long-term performance.

Peters and Waterman’s Approach

Tom Peters and Robert Waterman (1982) in their bestseller “In Search of Excellence” focused even more explicitly than Ouchi on the relationship between organizational culture and performance.

Peters and Waterman chose a sample of highly successful US firms and sought to describe the management practices that led to their success. Their analysis rapidly turned to the cultural values that led to successful management practices. Some of the excellent values practiced in the sample firms are as follows:

Bias for Action

According to Peters and Waterman, successful firms have a bias for action. Managers in these firms are expected to make decisions even if all the facts are not in. They argued that for many important decisions, all the facts will never be in.

Delaying decision-making in these situations is the same as never making decisions. Meanwhile, other firms probably will have captured whatever business initiatives that existed. On average, according to these authors, organizations with cultural values that include a bias for action outperform firms without such values.

Stay Close to Customer

Peters and Waterman believe that firms that value customers over anything else outperform firms without this value. The customer is a source of information about current products, a source of ideas about future products, and responsible for the firm’s current and future financial performance.

Focusing on the customer, meeting the customer’s needs, and pampering the customer when necessary lead to superior performance.

Autonomy and Entrepreneurship

Peters and Waterman maintained that successful firms fight the lack of innovation and the bureaucracy usually associated with large size. They do this by breaking the company into smaller, more manageable pieces and then encouraging independent, innovative activities within smaller business segments.

Stories often exist in these organizations about the junior engineer, who takes a risk and influences major product decisions, or of the junior manager, who implements a new and highly successful marketing plan because he is dissatisfied with the current plan.

Productivity Through People

Peters and Waterman believe that successful firms recognize that their most important assets are their people both workers and managers and that the organization’s purpose is to let its people flourish. It is a basic value of the organizational culture a belief that treating people with respect and dignity is not only appropriate but also essential to success.

Hands-on Management

They also noted that the firms they studied insisted that senior managers stay in touch with the firm’s essential business.

It is an expectation, reflecting deeply embedded cultural norms that managers should not manage from behind the closed door of their offices but by “wandering around” the plant, the design facility, the research and development department, and so on.

Stick to Knitting

Another cultural value characteristic of excellent firms is their reluctance to engage in business outside their areas of expertise. These firms reject the concept of diversification, the practice of buying and operating businesses in unrelated industries. This notion is currently referred to as relying on the “core competencies,” or what the company does best.

Simple Form, Lean Staff

According to Peters and Waterman, successful firms tend to have few administrative layers and relatively small corporate staff groups.

In companies that are managed excellently, importance is measured not only by the number of people who report to the manager but also by the manager’s impact on the organization’s performance. The cultural values in these firms tell managers that the performance of the staff is more important than their number.

Simultaneously Loose and Tight Organization

The final attribute of organizational culture identified by Peter and Watermen appears contradictory. The firms are tightly organized because all their members understand and believe in the firm’s values. This common cultural bond is the strong glue that holds the firms together.

At the same time, however, the firms are loosely organized because they tend to have fewer administrative overheads, fewer staff members, and fewer rules and regulations. The result is increased innovation and risk-taking and faster response time.

The Udai Pareek Approach

According to Pareek (2002), there are eight values that govern the culture of an organization. These eight values together are responsible for making the culture of an organization strong or weak. These are as follows:

Openness

As the term implies openness refers to the free sharing of thoughts, ideas, and feelings with each other in an organization. The open environment of the organization results in a culture where employees have no reservations or negative hidden feelings against each other.

In situations of disagreements, they are able to come out openly and share their concerns with each other. Openness also deals with doing away with physical boundaries and erecting walls in the organizations. Openness has to be practiced both in terms of giving as well as receiving information at all levels in the organization.

Confrontation

With openness comes the ability to face the situation as it comes to us rather than move away from it. In cases where there is a willingness to face the problem and solve it, many interpersonal differences are resolved and individuals come forward with their ideas and solutions.

Trust

The surety with which people can share their confidential information with each other without the fear of it being known all over the organization reflects the level of trust in the organization. In organizations where trust is high among employees, there is better problem-solving and less stress.

Authenticity

This refers to the equivalence that members of an organization have between their words and deeds. If people do what they say and feel, it leads to a high level of openness and trust in organizations.

Proactivity

Proactive organizations are ready to face any eventuality and are prepared for adversaries too. Proactive individuals are more calm and relaxed in their behavior toward others. With proactivity, there is a possibility of thinking and planning ahead and being prepared to encounter situations or individuals.

Autonomy

It involves giving enough space to other individuals in the organization as you would seek for yourself. A person with knowledge and competence should be given the freedom to make decisions for the department or the organization. This promotes a sense of achievement and self-confidence among employees thereby leading to mutual respect.

Collaboration

Organizations consist of individuals who are expected to work together in a group and this sense of togetherness can only be generated by the top management in organizations. People should be forced to learn to work together to develop a sense of team spirit. It will result in openness, trust among members, sharing, and a sense of belongingness and commitment to the organization.

Experimentation

In this age of scarce resources and fast change, any organization which is not willing to try out new and better ways of working is likely to perish fast.

Individuals as well as organizations can sustain themselves only if they are able to experiment with the available resources and identify and develop better approaches to deal with the problems. There has to be out-of-the-box thinking in which nothing that is obsolete is likely to be accepted.