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A Dynamic Simulation Model of Organizational Culture and

Business Strategy Effects on Performance


Panagiotis Trivellas*, Panagiotis Reklitis† and Nikolaos Konstantopoulos¶.

*Technological Education Institute of Larissa, 41110 Larissa, Greece



Technological Education Institute of Chalkida, 1st km. Nat. Rd. Thiva-Athens, 32200, Thiva, Greece

University of Aegean, 8, Mihalon, 82100, Chios, Greece

Abstract. In the past two decades, organizational culture literature has gained tremendous interest for both academic and
practitioners. This is based not only on the suggestion that culture is related to performance, but also on the view that it is
subject of direct managerial control and manipulation to the desired direction. In the present paper, we adopt Competing
Values Framework (CVF) to operationalise organizational culture and Porter’s typology to conceptualize business
strategy (cost leadership, innovative and marketing differentiation, and focus).
Although simulation of social events is a quite difficult task, since there are so many considerations (not all well
understood) involved, in the present study we developed a dynamic model to simulate the organizational culture and
strategy effects on financial performance. Data obtained from a six-year survey in the banking sector of a European
developing economy was used for the proposed dynamic model development.
Keywords: Organizational Culture, Business Strategy, Simulation, Dynamic Model.
PACS: 89.65, 07.05.Tp

INTRODUCTION
In culture literature, debate over fundamental issues of theoretical foundations, methodology and epistemology is
furious [2], [3], [11], [12], [14], [15], [22]. Nevertheless, it seems that there is an almost universal acceptance that
firms espoused by strong-culture, defined as "a set of norms and values that are widely shared and strongly held
throughout the organization" [13], should generally be better than firms with weak cultures at avoiding internal and
external threats to reliable and superior performance [7], [8], [17].

LITERATURE REVIEW

Organizational Culture
The Competing Values Framework (CVF) approach to organizational culture [1], [4], [5], [21] that its origins
emerged form organizational effectiveness field [16], was adopted in this study. Howard [9] presented some
supporting evidence that CVM represents a valid framework for examining organizational culture. CVM consists of
four quadrants created by the intersection of two axes, reflecting preferences for structural control versus flexibility
and focusing on internal versus external constituents. Quinn [16] labeled the quadrants as Human relations, Internal
Process, Rational Model and Open Systems, corresponding with the four types of organizational cultures
respectively (Group, Hierarchical, Rational and Developmental), producing a cultural profile for each organization.
In Group culture type, flexibility values and internal focus describe the dominant value orientation. This culture
type is sometimes referred to as clan or cooperative teamwork type, because of its emphasis on employee
ATTACHMENT
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group cohesiveness, loyalty, empowerment,
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CP963, Vol. 2 Part B, Computation in Modern Science and Engineering, Proceedings of the International Conference on
Computational Methods in Science and Engineering 2007, edited by T. E. Simos and G. Maroulis
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The developmental culture type is characterized by flexibility values and has external focus. This culture type is
sometimes referred to as adhocracy because of its ability to readily adapt to its environment. Adhocracy cultures
emphasize entrepreneurship, proactiveness, creativity and innovativeness in discovering new markets and directions
for growth. Developmental cultures are more receptive to innovation [10] and change, have a high tolerance for risk
[18].
The rational culture type reflects the values and norms associated with stability and control, combined with
external orientation. Alternatively, this culture type is labelled as market or rational goal culture, because of its
emphasis on competitiveness, performance, decisiveness, achievement of defined market goals and targets, and
interaction with external agents in the market. The rational culture is described by values focusing on results, task
accomplishment, clarifying goals, efficiency, profitability, productivity, planning and setting objectives.
The Hierarchical culture type is permeated by values in connection with stability, control and internal focus.
This culture type is sometimes named as stable hierarchy or internal process type since it is based on notions of
order, stability and continuity. It is characterized by formal communication, rules and regulations, definition of
responsibilities, centralization of decision making, standardization of procedures, dependability and reliability. Core
values revolve around predictability, job analysis, maintenance of hierarchy, and information management.

Competitive Strategy
Since competitive strategy is an important issue in strategic management, it has received much attention in the
literature. Porter [19] first defined competitive strategy through three specific “generic” strategies: low-cost
leadership, differentiation, and focus, based on an analysis of the firm’s strategic advantage (low cost position or
uniqueness perceived by the customer) and strategic target (industry wide or a particular segment).
The differentiation strategy aims at the production of a product or service that customers believe to be unique.
Miller [20] stated that there are at least two different types of differentiation strategies based on: a) product
innovation and b) marketing and image management. The innovative differentiation strategy endeavours to provide
the most attractive and innovative product by leading the competition in quality, efficiency, design innovation or
style. The marketing differentiation strategy is focused on the establishment of a unique and premium image for the
product through advertising, prestige pricing, and market segmentation. Quality, reliability, convenience or prestige
are some of the attributes that each firm image is based on, in order to attract customers. Superiority in design is not
necessarily implied in this strategy.
The strategy of cost leadership aims at the production of a product or service at the least cost. This strategy is
mainly achieved through economies of scales, cost control, quality control and increased productivity. Companies
that follow this strategy mainly concern for the price of the product or the service rather than the quality of the
product or service.
The focus strategy is mainly applied to very specific customers with unique necessities. According to Porter, this
strategy is based on the assumption that a company can serve a small market if the company can be adapted
thoroughly to the specific requirements of its clients. Gerwin and Guild [6] showed that time-to-market pressures
and related factors, especially for companies acting in a very specific market niche, are compelling firms to rethink
the ways in which they manage new product introduction.

DYNAMIC MODEL
Simulation of social events is a quite difficult task, since there are so many considerations (not all well
understood) involved. There are two types of models used, the analytical and those that use artificial intelligence
techniques. The analytical models usually lead to a system of differential equations, which can be efficiently solved
numerically using advanced methods like [23], [24],[25]. This type of models are easier to program but they are
growing very fast if someone wants to include more parameters and fewer simplifications. On the other hand, neural
networks, fuzzy logic or stochastic techniques can be used to account for complicated models [26],[27],[28]. These
models are harder to program but one can very easily enlarge them to include more considerations.
The model presented in Figure 1 describes the differentiation strategy’s prospect of success, via the successful
flow of the three circuits and particularly of the product innovation circuit.
The company obtains power from a tank of competences and financial resources, with a view to investing on the
three factors of product innovation: efficiency, design and quality. All together these factors corroborate the success

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of the product innovation strategy and consequently - with the image management and marketing management’s
assistance- the success of the product or the service that is being promoted by means of the differentiation strategy.

FIGURE 1: Dynamic Model


In Figure 2, it is depicted the product innovation’s flow with the value “Output Resources=19”. In other words,
given a relatively big resource flow, we observe a great success of the differentiation strategy up to the 8th month,
upon which an appreciable slump follows.

1: dif f erentiation 2: product innovation 3: Resources


1: 400
2: 40
3: 100 2 2

3
1

2
1: 200
2: 20 1
3: 50
3

2
1

1: 0
2: 0 3
3: 0 1 3
1.00 4.00 7.00 10.00 13.00
Page 1 Months 2:27 λλ ο•―, 17 ‚ Τ 2007

FIGURE 2: Differentiation Efficiency


The qualitative and quantitative data that were used in the present model concern the provision of Bank Services
and were deduced from a research that was carried out from 2000 to 2005 in the banking sector of a European
developing economy. Finally, we reach the conclusion that at least regarding Bank Services, the resources should be
consumed in a slower pace so as to ensure that the differentiation strategy will keep going up for a period of 12 to 13
months.

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