There are some multinational companies that were superior in their industry but are now struggling for market survival. General Motors, Ford and Chrysler were the three largest automobile companies in The United States over the last decade (Micheline, 2003). Surprisingly, in 2008 those three companies declared for bankruptcy. They admitted to have suffered substantial losses in the previous years and been unable to make debt payments (Rauh, 2009). This situation was recorded as the biggest industrial bankruptcy in The United States history. Economic experts argue that their insufficient flexibility and unwillingness to adapt to new markets are the main reasons for their bankruptcy (Rauh, 2009; Gilson, 2010). Soon after, their bankruptcy became the example of bad company culture and was viewed as one prominent case of denial and arrogance in organizations (Jagdish, 2008).

The amount of research studying organizational culture has increased significantly over the last decade (Denison 1990; Agbonna 2000; Hofstede 2001). However, researchers varied in how they classified culture and what perspective they used when they claim to be studying cultural phenomena. Moreover, each of them had different definitions on what organizational culture is. Results of their studies were thus diverse and varied. Organizational culture is difficult to measure. Cameron and Quinn (2006) cited more than three types of organizational culture. Kennedy and Deal (1982) described organizational culture as a complex set of beliefs, assumptions, symbols, and values that determine the way a firm conducts business. Hofstede (2001) asserted that although organizational culture is a complex concept that makes it hard to perform research, it holds a tantalizing promise that cultures may have a great influence in shaping organization’s behavior. Barney (1986) mentioned that culture has a pervasive effect on a firm: it defines not only the firm’s relevant competitors, customers and employees, but also defines how the firm cooperates with these key actors. This statement illustrates how organizational culture is incorporated in an organization’s daily activities. Furthermore, because organizational culture creates a framework of values, rules, and beliefs that individuals must work with, it may influence the output. Thus a link or correlation should exist between the two.

Generally, a higher output usually correlates with a higher performance.  Market survival process stresses the importance of firm performance. For many years performance has been a common topic among researchers. However, despite the high number of performance studies, there is no universal agreement in conceptualizing organizational performance (Walton, 2001; Papadimitriou, 2000). It is very difficult to construct a comprehensive measurement theory of performance. This is because researchers use different perspectives to develop the performance theory. Meanwhile, we cannot take this for granted. It is helpful to understand what this theory comprises in order to measure organizational performance.

All the arguments mentioned above appear to suggest that if companies want to search for a performance source, they can start by looking at their organizational culture. However, according to Ogbonna (2000) various researchers in the past have been unable to come up with a universal theory to connect the notions of organizational culture and performance, therefore the influence of organizational culture to performance is still somewhat ambiguous and blurred.

1.2 Research Questions

For that reason, the objective of this thesis is to investigate in what ways does performance and culture relates. This leads to the following problem statement:

How does organizational culture affect organization performance?

There are several research questions established in order to answer the problem statement

What are the perspectives on organizational culture and which approach can be used to analyze organizational culture?

What factors determine organizational performance and what are the different indicators used to measure organization performance?

How does organizational culture, both directly and indirectly, have an impact on organizational performance?

In investigating the relationship, different dimensions commonly used to frame organizational culture need to be explored. The definition and common indicators of performance also will be explained and identified. By doing so, the relationship can therefore be analyzed.

1.3 Methodology

This research aims to clarify the relationship and generate more understanding of organizational performance and culture. This will be done by extracting the literatures and empirical data relevant to this issue and frame it so that one can get the big picture. As mentioned in section above, in existing literature there are many supporting facts and information available but most of them are not in the same line. According to Sekaran (2003) under this circumstance, an exploratory study is suitable. This paper will used secondary data to conduct this research. Data will be gathered from online literature databases, papers, and books. In order to sustain the quality of data, the snowballing data collection method will be used. By using several journals as the basis and starting point for this research, the possibility of finding large numbers of data relevant to this research is bigger. Literatures that do not have a connection with this paper will be easily recognized and overlooked. Furthermore, most of the basic data are considerably aged, to tackle the bias this paper will use more recent data.

1.4 Structure

The aim of this literature is to explore the relationship between firm performance and organizational culture. Each chapter contains a research question that will be discussed by using academic literature. Thiswill be donesequentially by first discussing general organizationalcultureissues andexplainingthe four types of organizational culture.  In chapter three, several indicators of performance will be identified and explained in detail. In order to clarify the causal relationship between the two concepts, the objective of chapter four is to provide exploration of the relationship between different types of culture and performance. It is postulated that the performance indicator differs across diverse cultural types and that certain type has a tendency to be linked with certain performance indicator. The conclusions, limitations and recommendations for future research are the main focus in the last chapter.

Chapter 2 Organizational culture

Organizational culture is the topic for this part. This material will be discussed in three steps. The first step is to discuss the definition of organizational culture. It is important to understand the meaning of organizational culture. The next step is to discuss two organizational culture’s school of thoughts. Several dimensions of organizational culture that commonly used for culture measurement are presented next.

2.1 Organizational culture definitions

The literature addressing organizational culture issue is scattered. Because different disciplines define organizational culture in different ways, there is no consensus on the definition of organizational culture (Sackmann, 1992; Eagleton, 2000). However, an investigation of different culture definitions shows that researchers viewed organizational culture in three ways. The first group views culture as the shared values, the second group view it as the way of working, and the third group view culture as a combination of both (Gallear, 2004).

Trompenaars (1998) positioned organizational culture as shared values that dictate how we act, what we pay attention to and what we value in an organization. Adopting a similar point of view, O’Reilly and Chatman (1996) argued that culture is a system of shared values defining what is important, while norms define appropriate attitudes and behaviors that guide member attitudes and behaviors.

According to Hofstede (1984) culture can be described as ‘the way things are done in the business’. He distinguished one organization from an