Corporate Culture, Environment,

and Strategy

Charles J. Fombrun

In recent years, it has become particularly fashionable to discuss the

dynamics of behavior in organizations in terms borrowed from anthro-
pology. This is manifest in the prevailing terminology of rituals, stories,
myths, and the analysis of symbols, all of which are subsumed by the
all inclusive concept of "corporate culture." The popularity of Japanese
management techniques has been legitimated by such academically
grounded research as Ouchi's on "clan" forms of organization and the
systemic interdependence of the "7 Ss" of Pascale and Athos. In a prag-
matic vein, the concept of a "corporate culture" received full play in the
more recent Deal and Kennedy book of that name, and Peters and
Waterman have articulated it in terms of the symbolic role of the Chief
Executive Officer at asserting and systematically encouraging adherence
to a "dominant value" in well managed firms.
The purpose of this article is to discuss the nature of a corporate culture
in terms of the systems that are designed to support it. A concept of
effectiveness is introduced as a way of addressing the notion of an "ap-
propriate" culture for the society, industry, and strategic orientation of
the organization. While it is true that cultures cannot be designed, the
point we make is that the various control systems of the organization
can work to shape through judicious reinforcement and feedback the
desired attitudes and behaviors that are consistent with a particular stra-
tegic direction. The "culture" of the organization can therefore be defmed
as the emergent pattern of beliefs, behaviors, and interaction that uniquely
characterize the organization as it operates within an industrial and a
societal context.

LEVELS OF CULTURE

As we attempt to articulate the elements of corporate culture, it is

important to recognize the context in which a corporate culture emerges.

Human Resource Management, Spring/Summer 1983, Vol. 22, Numbers 1/2, P 139-152
*' > 1983 by John Wiley & Sons, Inc. 0090-4848/83/010139-14$04.00
A good deal of academic research and descriptive analysis has addressed
the nature of "culture" at various levels of analysis. Understanding the
interplay between them is crucial if we are to properly position the concept
of a "corporate" culture as a unique and worthwhile level of analysis.
From a system perspective three levels can be distinguished from the
start: (1) the societal level, (2) the industry level, and (3) the organizational
level.
We will discuss these in turn. As we point out, there are some built-
in contradictions and tensions between these levels which may help ex-
plain the difficulties inherent in "managing" a corporate culture.

Societal Culture

Anthropologists have successfully demonstrated the importance of

culture in understanding behavior in different societies. They point to
the dialectic unity between what people do and the meaning they attach
to objects, activities, and events. For them, the proper level of analysis
for analyzing individual behavior is the societal level, and its articulation
in terms of an institutional matrix of structures and processes that ef-
fectively induces a value-orientation and attaches meanings to events
for the individual members of that culture.
In this fashion, a societal-level contrast between Japan and the United
States, for instance, opposes the two cultures in terms of their institutional
frameworks and the values they support. Numerous authors have de-
scribed the collective orientation of Japanese society, its historical origins
in the "bushido" code of loyalty of the samurai warrior, and the per-
petuation of the feudal system through the loosely coupled group structure
of firms linked through their origins in the "zaibatsu" trading companies,
formally broken up by antitrust legislation, but institutionalized as a de-
dsion-making structure nonetheless. Contrast that to the individual ethos
of American culture, its institutionalization of bargaining relations within
organizations and of negotiation at the national level in the separation
of powers between the executive, legislative, and judicial branches of
government, and the exchange processes in the free market system.
In each case, a cultural context instills a value orientation that is rein-
forced through the educational system, the social system (manifested
for instance in the male-dominated society of Japan and its use of women
as a part-time slack labor pool, versus the search for equal opportunity
in the U.S.), and the economic system (state planning and protectionism
in Japan versus laissez-faire in the U.S.).
From this perspective, then, a "corporate culture" must necessarily
be at least minimally consistent with the societal culture it is derived
from. Societal exposure and heritage foster a labor force with a given
value orientation, beliefs, and expectations about work and the work
environment that are the "raw material" of corporate cultures.

140 / Human Resource Management, Spring/Summer 1983

 Industrial Culture

Little research has been done on the nature of an industry culture.

However, much descriptive insight is provided by the discussions of
industry executives and industry case studies. Thus, it is commonly ac-
cepted that the motion picture industry has norms and values that differ
markedly from those of the banking industry. The advertising and public
relations industry is rather closer in this respect to the motion picture
industry. Similarly, the textile industry is frequently said to be somewhat
"different" from, say, the automobile industry, the farm-products in-
dustry, or the telecommunications industry in terms of norms, career
patterns, and "personalities."
From this perspective, then, it is possible to describe a dominant value
orientation for the industry, which an institutional structure at the industry
level probably supports. The critical implications of "industry culture"
would seem to be the kinds of norms that develop around secrecy, political
stance, dress, lifestyle, and "the way we do business" in the industry.
Anthropologists would suggest that this has a great deal to do with the
nature of the work, or the product the industry is dealing with. Thus,
the fact that banks are buying and selling money means they must engage
the trust of depositors and shy away from risk, all of which spells con-
servatism in lifestyle, dress, and politics. On the other hand, the motion
picture industry, in dealing in glamour, must foster eccentricity, stimulate
fantasy, and encourage liberalism. Similarly, in high technology industries,
rapid technological change encourages values, myths, and norms that
foster creativity and innovation. This generally means "closeness." Thus
the inbred nature of California s Silicon Valley is described in an anecdote
as "a change in firm without even having to change car pools."
These points suggest that, in addition to societal culture, the specific
industry a firm operates in is an important context for understanding
corporate culture. Critical dimensions will involve (among others):

(1) Nature of the product—consumer goods, producer goods, public image,

social function; can product be "stolen" or improved by competition
(need for secrecy);
(2) Stage in industry life-cycle—early stage characterized by uncertain
function, low familiarity of product for consumer, uneven quality
control; later stages, declining importance of advertising, sophisticated
customer demand;
(3) Technology—kinds of skills required, pace of change, nature of dom-
inant work activities;
(4) Institutional structure—number of competitors, industry concentration,
trade associations, and stakeholders.

These four dimensions are interdependent. Together with the societal

culture they are embedded in, they describe another broad cultural context

Fombrun: Corporate Culture, Environment, and Strategy / 141

from which the single organization derives its own unique "corporate"
culture.

Organizational Culture

In the last few years we have witnessed a veritable explosion of writing

in the popular press on the importance of "corporate culture." A faddish
wave of interest in so-called "Japanese management techniques" has
provoked a plethora of seminars, conferences, and books on quality-
control circles, productivity management, and a resurgence of interest
in operations management as well as personnel management techniques.
William Ouchi's Theory Z, a forerunner of numerous others, suggested
that American companies could design hybrid cultures in their corpo-
rations to emulate Japanese organizations. He and others suggested that
many had already done so, citing Hewlett Packard, Texas Instruments,
3M, and Intel, among others. Ouchi, Pascale and Athos, Deal and Ken-
nedy, and Peters and Waterman, all address specific elements of corporate
culture and suggest that excellence (presumably high performance) results
from the internal consistency of their corporate cultures. In stressing the
internal dimensions of culture, they unfortunately fail to address the
linkage between a single corporate culture and the external context of
the organization, especially its competitive context. For "corporate culture"
to be a useful construct, it would be valuable to specify its relationship
to both industry culture and societal culture, in addition to an analysis
of its internal consistency as an institutional system of management.
While a complex array of internal dimensions affect the corporate cul-
ture, the following would seem to be among the most critical:

(1) Size of firms—large organizations have the discretionary resources

and the power vis-a-vis other firms in the industry to create "deviant"
cultures;
(2) Stage in product life-cycle—firms in the early stages of their life-cycle
require a different corporate culture to support their entrepreneurial
activities; firms in later stages need a culture that drives cost control
and efficiency;
(3) Strategy of growth—in specifying the value orientation of the firm,
the corporate culture should support the strategic growth plans of
the firm;
(4) Control systems—a corporate culture depends in part on the systems
the organization has created to control its activities, including the
formal structure, financial systems, and the human resources systems.

In important respects, the emergent corporate culture—if it is to be

effective at supporting excellence in the management of the organization—
strives for coherence in terms of these four dimensions, in addition to

142 / Human Resource Management, Spring/Summer 1983

 SOCIETY INDUSTRY ORGANIZATION
POLITICAL IDEOLOGY CONCENTRATION STAGE IN LIFE CYCLE
SOCIAL VALUES SOCIAL FUNCTION OF PRODUCT COMPETITIVE STRATEGY

INSTITUTIONAL RELATIONS COMPETITIVE NICHES ORGANIZATION STRUCTURE

BETWEEN BUSINESS, LABOR AND IN PRODUCT/MARKET HUMAN RESOURCE SYSTEMS

Figure 1. Society, industry, and corporate culture.

the industry and societal level dimensions previously discussed. The

rest of the chapter discusses the contingent relationships presented in
Eigure 1 in greater detail.

CORPORATE CULTURE, STRATEGY, AND STRUCTURE

Given the wide variety of organizations in modern society it will be

useful to distinguish from the start between different organizational forms.
EoUowing Alfred Chandler, it is possible to contrast three forms:

(1) Single-function (or departmental) organization—a single activity dominates

the organization, e.g., marketing, manufacturing, or research;
(2) Multifunction (or functional) organization—the vertically integrated se-
quential activities of the classical structure ranging across the de-
velopment, manufacturing, and marketing functions servicing a single
product;
(3) Multidivisional (or conglomerate) organization—the broadly diversified
organization with multiple products, operating in multiple markets.

As Chandler's historical account suggests, firms in American industry

began as single plant operations growing through horizontal expansion
to capture large market shares. The second stage of growth was dominated
by vertical integration into activities that ensured the firm s supply of
inputs and the markets for its outputs, hence the birth of the functional
firm.
More recently. Chandler has argued, expansion has taken the form
of diversification into related and unrelated products and markets, en-
couraging the birth of the conglomerate organization with a portfolio of
products. These three stages of evolution are diagramed in Table I. Con-

Fombrun: Corporate Culture, Environment, and Strategy / 143

sistent with each strategic stage, we argue, a dominant value orientation
could be said to characterize the corporate culture. They are discussed
below.

Single Plant

Characteristic of start-up businesses engaged in a single activity, the

corporate culture of the "single plant" organization tends to be unso-
phisticated in that it is typically dominated by a charismatic entrepreneurial
founder who controls the behavior of his small staff largely through direct
supervision. Richard Edwards describes this as a "simple control" struc-
ture, an embryonic culture with few institutionalized rules.
This kind of corporate culture seems characteristic of the numerous
small organizations in the periphery of modern industry. It dominates
retail trade and agriculture, and accounts for a large part of the con-
struction industry as well as many consulting firms, legal partnerships,
and advertising agencies.

Departmental Organization

As the small scale activity of the initial plant grows through market
expansion, the culture of the organization tends to champion cost-efficient
techniques for production that maximize competitiveness. A larger scale
of operations decreases the average costs of production, thereby opening
up demand. With growth in output comes growth in labor input, the
need for delegation through structure, and the beginnings of systematic
personnel management techniques.
For each type of departmental organization, the central value orientation
will of course vary. In manufacturing, for instance, mechanization and
technical control of the workforce tend to prevail. Pay systems and ap-
praisal systems are piece-rate, and the necessary skills are simple indeed.
In a marketing organization, on the other hand, the sales function probably
dominates, with pay and appraisal based on quantitative measurement.
Table II attempts to specify the different cultures and human resource
systems consistent with the three principal departmental organizations.
The unity of the corporate culture as a whole depends on the systematic
support of the dominant value orientation across the four human resource
systems of the departmental organization.

Functional Organization

As the departmental organization grows through vertical integration

both backward into sources of supply and forward into its markets, the

144 / Human Resource Management, Spring/Summer 1983

functional organization emerges. As a concatenation of departmental or-
ganizations under a single administrative umbrella, the functional or-
ganization's culture is a mixture of the departmental cultures that preceded
it. Whether innovation, cost control, or sales dominates the culture of
the functional form largely depends on the growth strategy the combined
form pursues. Typically this will manifest itself in terms of a dominant
orientation at the business level, with the continued existence of sub-
cultures within the original departments. Since at this stage a variety of
competitors are likely to have entered the industry, the concern for com-
petitiveness can drive the business to pursue a growth strategy predicated
on either (1) substantive or process innovation in the production of the
firm's output, and hence a unique market niche of quality or function,
or through (2) cost efficiency and the ability to minimize output price
and hence increase market share. Each of these competitive strategies
would then have to be supported through the appropriate business-level
human resource systems described in Table I.
The creation of a business hierarchy above the departmental structures
provides the context from which a business culture emerges. Thus, the
career paths and promotion opportunities could emphasize departmentcil
specialization and the business culture is then dominated by a single
function (e.g., the oil companies are culturally controlled at the business
level by geological engineers). On the other hand, broad-based rotations
through all the functions would emphasize generalism and a "negotiated"
business culture would emerge (e.g., Texas Instruments, where func-

Table I. Strategy, structure, and corporate culture.

Strategy Structure Corporate Culture
Single Plant Simple Controls
Entrepreneurial
Horizontal Expansion

i
Department Organization Cost-Control
Market Expansion
Vertical Integration

i
Multi-Functional Market-Share
Organization Growth
Diversification Competitiveness
Bureaucratic Controls

i
Multi-Divisional Portfolio
Organization Management
Bottom-Line Impacts
Corporate/Business
Dichotomy

Fombrun: Corporate Culture, Environment, and Strategy / 145

tionalism is not emphasized and the ability to negotiate between functions
is highly prized). The political configuration of the functional business
organization and its early bureaucratic controls favoring cultural specialism
or cultural generalism sets the stage for the emergence of the multidi-
visional organization, and represents the underlayer of the corporate
level culture.

Multidivisional Organization

Born of diversification in products and markets, the multidivisional

organization creates a corporate administrative structure to manage the
multiple businesses of the organization. Following Rumelt's classification,
these diversified conglomerates can be described on a continuum ranging
from (1) single- or related-products conglomerates to (2) diversified or
unrelated-products conglomerates or holding companies.
Holding companies tend to have undeveloped corporate-level cultures
and the organization as a whole is dominated by business-level cultures.
The corporate umbrella acts as a tool for allocating financial capital, and
the human resource systems are not integrated across businesses.
Single-product or related-products conglomerated firms systematize
the human resource systems of the different businesses to promote a
corporate culture that binds the related businesses into a whole. Most
of the examples of strong corporate cultures cited in the popular press
describe dominant-product or related-products conglomerates like IBM,
Exxon, AT&T, Proctor and Gamble, and Intel. At the other extreme are
such weak corporate forms as Gulf and Western, Transamerica, and
Honeywell where business subcultures dominate.
The recent failure of Exxon enterprises is frequently dted as an example
of a strong business culture (the "Eixxon Way") dominated by traditional
oil production and unable to accommodate the deviant activities of a set
of small single-function organizations committed to entrepreneurial val-
ues. It addresses the tension between business cultures in a conglomerated
form.
Similarly, Hewlett-Packard's significant increase in computer sales is
moving the organization from a single business configuration to a mul-
tidivisional organization. The dilution of its original business culture is
a serious concern as it struggles with the concurrent loss of charismatic
identification in the paternalistic culture designed by its entrepreneurial
founders who retired in 1978.
Table III diagrams the critical dimensions of corporate culture at each
of the three levels of a large conglomerate torm. As Table III suggests,
two kinds of cultural tension are symptomatic of organizations as they
struggle to integrate their operations under ever larger administrative
umbrellas. The first is the cultural tension between different functions
of the business. The business-level culture partially reflects the strategic

146 / Human Resource Management, Spring/Summer 1983

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Fombrun: Corporate Culture, Environment, and Strategy / 147

Table III. The dimensions of corporate culture.
Functional level Type of product activity engaged in
(e.g., marketing, manufacturing, research)
Business level Dominated • • Balanced
by single function between functions

Corporate level Integrated * • Differentiated

across Businesses across Businesses

decision of the organization to be dominated by a single function or to

work to balance the business through systematic job rotations, an in-
tegration across functions.
The second cultural tension is the dilemma faced by diversified cor-
porate forms struggling to cement the different businesses and promote
a unitary corporate culture versus those that take the shape of holding
companies dominated by business-level cultures. Taken jointly, these
two sets of cultural tension represent the two managerial challenges bom
of the strategic control of the human resources dimension of the orga-
nization. They are probably the most undermanaged side of the modern
corporation.
Table II diagrammed the functional/business cultural tension as a di-
lemma in the emergent configuration of the business organization and
its attempt to specify dominant values. In Table IV the life-cycle concept
is used to define the dominant value orientation of each business in a
corporate portfolio and the human resource systems consistent with it.
The business/corporate cultural tension the organization confronts in-
volves the appropriate degree of systems differentiation between busi-
nesses, and their integration through a corporate culture.
While these cultural tensions are central to the management task, they
only address the internal consistency of the organization s systems,
strategy, and structure. As was pointed out early in this chapter, the
corporate culture of the organization is also a function of the industrial
and societal context in which the organization is immersed. The next
section develops some of the dimensions of these contexts and their
relationship to corporate culture.

SOCIETY, INDUSTRY, AND CORPORATE CULTURE

Much of our previous discussion has made an implicit assumption

about effectiveness that it is well to bring out. Namely, it has been assumed
that an "appropriate culture"—the notion of an emergent configuration
of values, norms, and behaviors that supports the strategy of the or-
ganization—will promote organizational effectiveness.
Such an assumption, of course, is rooted in an evolutionary logic
through which firms suffering frsm "cultural schizophrenia" are thought

148 / Human Resource Management, Spring/Summer 1983

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Fombrun: Corporate Culture, Environment, and Strategy / 149

to be noncompetitive in the market place and driven out of business,
while those cultural forms that support the organization s strategy and
structure survive. Given the wide range of cultural forms, it is possible
to suggest that at any single point in time, a specific firm in an industry
occupies a segmented domain in the marketplace which minimizes all
direct competition. Thus organizational cultures dominated by a concern
with price, quality, service, and market segmentation can be interpreted
as strategies for reducing competition within an industry. Each competitive
strategy forces a value overlay on the internal organization which—if
reinforced through the human resources systems—orients the corporate
culture in a different direction. Taken this way, it helps us understand
the co-existence within a single industry of firms with widely divergent
corporate cultures. Presumably these firms have evolved their distinct
cultures in the implementation of a specific competitive strategy. Thus,
IBM's strong corporate culture is a reflection of its service orientation,
a value institutionalized in the corporation early on by Thomas Watson.
It is a corporate culture that is undoubtedly "deviant" from that of its
principal competitors.
Deviance within an industry is not without its costs, however. It reduces
the alternatives open to the organization by encouraging "cultural inertia,"
a form of tunnel vision that may inhibit organizational adaptation to
abrupt environmental changes. Perhaps the automobile, steel, and rubber
industries' lack of responsiveness to early signals of foreign competition
and new technology reflect an entrenched outlook that emphasized their
strength, power, wisdom, and a sense of invulnerability As the auto-
mobile industry changed from a national to a global context, its "deviance"
was a weakness.
It is probably true that "deviant" corporate cultures tend to foster in-
ternal labor markets. Promotion tends to be from within and few senior
slots are filled by individuals drawn from the external labor market. The
culture and human resource systems therefore foster loyalty to the or-
ganization, average tenure tends to be high, and significant rewards accrue
with seniority. While this is undoubtedly a source of strength and con-
tinuity for the organization, it is also costly in terms of administrative
burden, training, and socialization expenses (e.g., the country club), not
to mention the opportunity cost of retaining less than cutting-edge
personnel.
For the rest of the industry, the "deviant" organization is frequently
a training ground. Former employees are viewed as prestigious individuals
to hire by the other (frequently smaller) firms who place them in privileged
positions of leadership. This is the case in the oil industry (Exxon), con-
sumer goods marketing (Proctor and Gamble), banking (Citicorp, Chase
Manhattan), electric goods (GE, Westinghouse), and electronics (Texas
Instruments). Wage rates are therefore bid upwards by the rest of the
industry and compensation is "competitive" (and sometimes lower) in

150 / Human Resource Management, Spring/Summer 1983

the "deviant" (but desirable) organizations, though fringe benefits will
likely as not overcome any cash discrepancies.
Finally, cross-cultural comparisons of organizations have long suggested
the symbiotic relationship between organizations and the society they
are embedded in. Organizations, it is said, mirror the values and ideologies
of the society they belong to. Viewed as subcultures, they are institutions
whose task it is to perpetuate the ideological bent of the society, and to
maintain the legitimacy of that society s beliefs and values for its members.
Viewed in this light, Japan s collectivism. West Germany's codetermi-
nation, Sweden s employee ownership, Israel's kibbutzim, and America s
collective bargaining are organizational manifestations (translated into
corporate cultures) which reflect a broader institutional arrangement be-
tween business, labor, and government designed to support a particular
social ideology, In this respect, then, America s pluralistic, conflictual
model of political democracy stands in stark contrast to Japan s cooperative
co-optive model of joint business, labor, and government national plan-
ning. As it also does with codetermination and the collective ownership
of equity capital.
The ability of a single firm to design a corporate culture is surely con-
strained by that societal context. Many experiments have been conducted
that attempt to create corporate cultures around employee ownership
and collaborative decision-making. Where they have succeeded, they
have largely depended on the charismatic leadership of a spiritual founder
(for instance, Donnelly Mirror s adaptation of a modified Scanlon plan).
Of the many experiments, if so few have succeeded perhaps it is for lack
of institutional support from the wider society Social expectations born
of lengthy socialization through education, family and leisure-time ac-
tivities, may have preconditioned employees to think in terms of conflict,
self-interest, and immediate gratification, particularly in the U.S. Difficult
is the orientation to collective decisions, personal involvement, and de-
layed compensation.

CONCLUSION

Figure 1 diagrammed the inter-relationship between the different levels

of culture and some of the critical dimensions of each in terms of their
impact on corporate culture. As Figure 1 suggests, corporate culture is
the outcome of an interplay between a host of variables at each of the
three principal levels of analysis: society, industry, and organization.
"Managing" corporate culture is therefore an awesome if not impossible
task. It calls for a constant reassessment of the external context as well
as the internal systems of the organization. Understanding the parameters
of a corporate culture, however, will better enable an organization to
chart feasible growth strategies based on the constraints of the existing

Fombrun: Corporate Culture, Environment, and Strategy / 151

culture and suggests considerations that facilitate their implementation.
As organizations come to increasingly operate in multiple industries and
multiple societies, they are more than ever before challenged to cope
with the problems of cultural myopia, cultural inertia, and cultural
schizophrenia.

Charles Fombrun is an assistant professor at the Wharton School, University of

Pennsylvania. He holds a Ph.D. from the Columbia Graduate School of Business.
Articles of his have appeared in Human Relations, the Academy of Man-
agement Review and other journals on the application of network analysis to
organizational settings. He is coauthor with Mary Anne Devanna and Noel
Tichy of a book focusing on the implications of human resources management
for strategy formulation and implementation which was published by Little, Broum
in 1981. In addition to his research and teaching interests. Professor Fombrun
acts as a consultant for organizations in the public and private sectors on the
more effective use of human resources.

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152 / Human Resource Management, Spring/Summer 1983