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Determinig the Effect of Organizational Culture on Small and Medium Enterprises Performance- A SEM Approach

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  Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-17 ! aper# ISSN 2222-2$%% !&nline# 'ol.%( No.17( 21) 1 Determinig the Effect of Organizational Culture on Small and Medium Enterprises Performance: A SEM Approach *li+u ,utar Seu 1 ( /osli ,amood 2  1( .D !0andidate#( &tman eop *bdulla raduate Scool of 3usiness( 4niversit+ 4tara ,ala+sia 2( Scool of 3usiness ,anagement( 0ollege of 3usiness( 4niversit+ 4tara ,ala+sia 0orresponding *utor5 ali+umutarseu6gmail.com  Abstract e ob8ective of tis stud+ is to investigate te relationsip of organi9ational culture on small and medium enterprise !S,E# performance( underpinned b+ contingenc+ teor+( and te structural e:uation modelling !SE,# for data anal+sis. eir relationsip receives a considerable scolarl+ attention in te literature( but few studies ave been conducted among Nigerian S,Es. S,Es are considered as important to te economic growt of  Nigeria and te+ served as te ma8or source of emplo+ment and significantl+ contribute to te te gross domestic  production. 3ased on te teoretical consideration( a model was proposed to e;amine tis relationsip. * :uantitative metod was used wit a total of <) :uestionnaires( self = administered to te owner>managers of S,Es in Nigeria. * total of %11 :uestions was dul+ completed and returned representing 7?.$@ response rate. e stud+ finding is in support of previous studies wo ave suggested te negative relationsip of organi9ational culture and firm performance in man+ organi9ations. e finding from tis stud+ will benefit S,E owner>managers( regulator+ agenc+ ie small and medium enterprise development agenc+ of Nigeria( it will also elp in polic+ formulation and will serve as a frame of future reference. 1.ntroduction Strategies are aimed at gaining a competitive advantage wic is discussed in te management literature. &ne of te most vital variables e;amined at a teoretical and practical dimension witin suc competitive strategies as  been te firm performance. Interactions of variations were anal+9ed in various discussions and studies concerning increase in performance( wic is discussed as an important conclusive variable in te literature. * common teor+ e;plaining performance is te /esource 3ased 'iew !/3'# wic concerned wit emplo+ing resources tat are uni:ue and diversel+ distributed wit a basic trust of using resources tat are valuable( rare( imitable and non = substitutable !3arne+( 1??1#( and contingenc+ teor+. 0ameron and Auinn !2<# saw &0 as a persistent set of values( beliefs( and assumptions tat described organi9ations and teir members( wile 0in-lo+ and ,u8taba !27#( and De long and Bae+ !2# viewed organi9ational culture as a pattern of norms( values( beliefs and attitude tat influences beaviour witin an organi9ation. &rgani9ational culture to  performance relationsip produced mi;ed finding5 e stud+ of 3erson( &reg and Dvir !2%#( Ceniuo and Simosi !2<#( Ngo and oi !2$#( Noar( oldstein and Scroeder !2$#( iu !2?#( E9irim( Nwibere and Emeceta !21# reported significant positive relationsip between organi9ational culture and performance( wereas( te stud+ of leanson etal( !2#( ee etal( !2<#( Navarro and ,o+a !27# establised a significant negative relationsip between te stud+ constructs. e conflicting finding on te &0 = performance relationsip suggest a furter e;amination of organi9ational culture to small and medium enterprises performance !S,E# witin te Nigerian conte;t. erefore( te paper is organi9ed as follows5 section two provides te review of related literature section tree is about te metod including sample and procedure( measurement( goodness of measure and model testing( te ne;t section discuses anal+sis and result( including +potesis testing section five lament on te implications for management section si; provides te limitations and direction for future studies. !. e#ie$ of %iterature 2.1 Organizational culture &rgani9ational culture !&0# as been defined b+ different scolars in different situations and conte;ts !Fale( 1??1#. *ccording to ata !1?$?# organi9ational culture is defined as te wa+ of life of a cluster of people. It is made up of nowledge( morals( belief( norms and values and an+ oter abilities gained b+ one as a fellow of a given societ+. In oter words( it is considered as te uni:ue wa+ of life of a group of people and teir compreensive wa+ of life. *ccording ai and ee !27# organi9ational culture is seen as a collective set of values tat encourages organi9ationGs values( opinion( preference and response. Hofstede !1??)# defined culture as te collective programming of te mind wic differentiates te members of one group from tat of anoter. 0ulture refers to sared traditions( values( and norms !Scein( 1??)#. 0ameron and Auinn !2<# saw &0 as a  persistent set of values( beliefs( and assumptions tat described organi9ations and teir members( wile 0in-lo+ and ,u8taba !27#( and De long and Bae+ !2# viewed organi9ational culture as a pattern of norms( values(  beliefs and attitude tat influences beaviour witin an organi9ation.  Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-17 ! aper# ISSN 2222-2$%% !&nline# 'ol.%( No.17( 21) 2 In addition( according to *8mal and Fosinen !2$# organi9ational culture represents te basic( taen for granted assumptions and deep patterns of meaning sared b+ organi9ational participation and e;pressions of tese assumptions. Despande( Jarle+ and Kebster !1??L# opined tat &0 guide te perception and beaviour of its members. Studies ave proven tat &0 serves as a source of sustainable competitive advantage !*lavi et al.,  2< Ceniuo M Simosi( 2<#. &rgani9ational culture is important for influencing te people and organi9ational tining( beaviour( state of mind( norms and values !Sa( I:bal( Sabir M *sif 211#. Scien !1??)# provided te basic levels of culture as basic assumptions( values and artifacts respectivel+. e assumptions are te e;planator+ scemes tat people use in identif+ing situations and maing sense of on-going events( activities and uman relationsip wic will form te basis of collective action. ese assumptions ave fasioned over time as members of a group develop plans to manage te problem and passing along te strategies to new peers. *t te ne;t level( values are representations of a more visible appearance of culture tat sows acceptance as well as identif+ing wat is significant to a particular group. Kile( te last level of culture is establised troug artifacts tat are visible. ese artifacts ma+ include tings lie art( tecnolog+( language ceremon+ and man+ more. 2.2 Organizational culture and Firm performance Several studies ave been conducted in relation to organi9ational culture and performance and some of te findings reported significant relationsip between te two constructs( oters negative wile tere are also reported mi;ed findings. 3erson( &reg and Dvir !2%# investigated cief e;ecutive officers values and organi9ational performance of twent+ si; companies. e finding indicated tat organi9ational culture is a good mediator on te relationsip between 0E& values and organi9ational performance. Ceniuo and Simosi !2<# e;amined transformational leadersip( culture and business performance( using a sample of tree undred emplo+ees of large financial companies in reece. e finding of te stud+ sows tat cultural orientation ad a direct effect on te overall business performance. However( Ngo and oi !2$# reported a significant relationsip between adaptabilit+ culture and uman resource and mareting culture related performance of multinational firm operating in Hong Fong. Naor( oldsttein and Scroeder !2$# inspected one undred and ninet+ eigt manufacturing enterprises using a regression metod and mail surve+s. e result indicated a positive relationsip between culture( infrastructure and performance. Similarl+( te stud+ of iu !2?# assessed te relationsip between organi9ational culture and new service deliver+ performance( using a face = to = face interview wit one undred and ninet+ two business managers. 0orrelation was used for data anal+sis( te finding reported tat tere are strong complementar+ relationsips among innovative culture( supportive culture( maret orientated culture( learning culture( customer communication wit new service deliver+ performance. e stud+ of Eer and Eer !2?# investigated te relationsip between organi9ational culture and  performance of te uris manufacturing sector. * Sample of one undred and twent+ two manufacturers of te top five undred firms was used( wit logistic regression for data anal+sis. e finding sows tat firms wit fle;ible culture tend to be non = financial performance( wile firm to control tend to use performance measurement s+stem for monitoring. uc9a( ,oan and Hill !21# e;amined national culture( maret orientation and networ-derived benefits for service S,Es. e findings of teir stud+ indicated culture affects  business owners maret orientations. Sa et al.,  !211# e;amined te influential role of culture on leadersip effectiveness and organi9ational performance in aistan. eir findings indicated a significant and positive relation between culture and performance. Similarl+( Slater( &lson and Binnengan !211# in teir stud+ of  business strateg+( culture( and performance used a sample of senior mareting managers wit five undred and above emplo+ee wit te use of te :uestionnaire as a researc instrument. e+ found tat cultural orientation  pla+ a role in creating superior performance( evidencing significant and positive relationsip between culture and  performance. a9ici !211# surve+ed pro8ect manager engineers and e;ecutive from sevent+ si; 4S firms. e finding indicated tat a clan or group culture facilitate a coesive( ig performing team wor environment( wic result in improved pro8ect and business performance. ,u8eeb and *mad !211# empiricall+ tested te relationsip between component of organi9ational culture and performance management practices( and reported significant and positive relationsip between elements of organi9ational culture and performance management  practices. Similarl+( 0ow !212# e;amined te role of organi9ational culture in te uman resource to  performance lin( used a sample of two undred and fort+ tree Hong Fong and aiwanese firm operating in uangdong( 0ina. e finding indicated tat organi9ational culture mediated te relationsip between uman resources and performance relationsip. is finding is similar to Due and Edet !212# wic surve+ed ninet+ nine non = governmental organi9ational out of one undred and tirt+ two operating in Nigeria. e results of ordinar+ least s:uares !&S# reveal a positive association between organi9ational culture and organi9ational  performance. Some studies( owever( reported a negative relationsip between organi9ational culture and firm  performance. leason( et al.,  !2# reported a significant negative relationsip between culture( capital and  Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-17 ! aper# ISSN 2222-2$%% !&nline# 'ol.%( No.17( 21) L  performance( wen te+ conducted a stud+ on te relationsip between culture and performance. e data were generated from fourteen European countries using retailers( grouped into four different clusters troug secondar+ data. ee( oon( Fim and Fang !2<# investigated te effects of maret-oriented culture and mareting strateg+ on firm performance wit one undred and twent+ samples of businesses using te surve+ as an instrument. e data were collected using bot :ualitative and :uantitative approaces. /egression and structural e:uation model were used for data anal+sis. e result found tat ,& culture does not affect firm  performance. Navarro and ,o+a !27# investigated learning culture using surve+ :uestionnaire and structural e:uation modeling. e sample collected made up of two undred and si;t+ nine S,Es in two sectors tat is te Spanis optometr+ sector and te Spanis telecommunications sector respectivel+. e+ reported a negative association between te culture of tese two sectors and maret orientation to performance. *dditionall+( Oainol !21# e;amined cultural bacground and firm performance of Indigenous ,ala+ famil+ business using samples of S,Es from Fuala umpur and Selangor were used( wit surve+ :uestionnaire and a multiple linear regression for data anal+sis. e finding of te stud+ reported tat E& is not a mediator of te relationsip between cultural  bacground and firm performance. Far+ei8a !212# assessed te impact of culture on performance appraisal reforms in *frica. Data was generated from one undred and fort+ seven :uestionnaires and twent+ seven interviews from 4gandas 0ivil Service. e finding sows a negative association between culture and performance. Similarl+( o !212# assessed te managerial capabilities( organi9ational culture and organi9ational performance( using resource  based view as teoretical underpinning. e sample frame consists of four undred and eleven otels in 0ina( structural e:uation modeling was used for data anal+sis and te stud+ emplo+ed a surve+ :uestionnaire. e result of te stud+ sows a negative linage between bot managerial capabilities and organi9ational culture on financial performance. e findings above are in agreement wit eac oter( tat organi9ational culture does not ave an+ significant relationsip wit organi9ational performance. E9irim( Nwibere and Emeceta !21# e;amined te effect of organi9ational culture on organi9ational performance wit regression metod for data anal+sis. &rgani9ational culture to performance relationsip was found to be significant. 0ompetitive( entrepreneurial and consensual organi9ational culture was found to be significantl+ positive to profitabilit+( sales volume and maret sare. 3ureaucratic organi9ational culture was negativel+ related to organi9ational  performance. 3ased on tese argument( we proposed5  H1: Organizational culture has a Positive relationship with firm performance &. Method 3.1 ample and Procedure *ccording to Small and ,edium Enterprises Development *genc+ of Nigeria !S,ED*N( 212#( tere were 1$2? S,Es in Fano wic constituted te population of te stud+. e sample si9e was drawn from Frie8cie and ,organ !1?7# table for sample si9e determination( based on its L2 S,Es were selected. In order to tae care of none response rate and minimi9e error in sampling as suggested b+ Hair( Kolfinbarger and &rtinal !2$#( te sample si9e was double( ence( a total of <) :uestionnaires was distributed to te owner>managers of small and medium enterprises in Fano( te nort- western part of Nigeria. e respondents were selected on te basis of s+stematic probabilit+( random sample tecni:ue. * total of 1$2? constituted te population( <) represent te sample. Hence( based on s+stematic procedure te sample interval is piced b+ dividing te population wit te sample si9e as !population>sample#. 3ased on tis( an interval of nt wic represents L was cosen. erefore( te selection process was tat at starting point a value between 1and L was piced( ten subse:uentl+( <( ? 12 until te last sample piced wic was te number <) respondent. *fter respondents identification troug teir lists( a total of <) :uestionnaires was personall+ administered wit te elp of si; researc assistants. Some of te respondents answer te :uestionnaire instantl+( oters after some few wees( wile some too some monts before teir responses retrieved. !a le 1. #uestionnaire $istri ution and %etention Item Bre:uenc+ ercentage @ Distributed Auestionnaires <) 1 /eturned Auestionnaires %11 7?.$ /e8ected Auestionnaires <L ?.$ /etained Auestionnaires ))$ 7 * total of ))$ respondents constituted te sample for tis researc wic sows a good response rate of 7  percent tat covers te entire S,E owner>managers in Fano( Nigeria. is rate is considered sufficient based on Searans !2L# argument tat a L percent response rate is suitable for te surve+. Similarl+( te current response rate is regarded ade:uate going wit te suggestion tat a sample si9e sould be between % and 1 times te number of stud+ variable for regression t+pe of anal+sis to be carried !Hair et al., 21 allant( 21#.  Journal of Economics and Sustainable Development www.iiste.org ISSN 2222-17 ! aper# ISSN 2222-2$%% !&nline# 'ol.%( No.17( 21) ) iven te number of stud+ variable < a sample of < is considered ade:uate for data anal+sis. Hence( )$$ usable responses of 7 percent satisfied te re:uired sample si9e re:uired for data anal+sis. 3.2 &easurement e measurements of te stud+ were from different sources. * measurement adopted from Suli+anto and /aab !212# was used to measure firm performance wit reliabilit+ values of .$2$ and si; items. &rgani9ational culture measurement was adopted from *l = Swidi and ,amood !212# wit a reliabilit+ value of .$%< and eigteen items. e firm performance and organi9ational culture scales were measured as uni = dimensional respectivel+. *ll variables were measured in tis stud+ using te %- point scale( ranging from 1 !strongl+ disagree# to % !strongl+ agree# based on te previous wors of Oang and Bang !2#( *min and Fan !2?#( and *l = Sardia and *mad !21)# Seu !21)#( Seu and ,amood !21)a#( Seu and ,amood !21)b#. 3.3 'oodness of &easures In tis stud+ te construct reliabilit+ is assessed b+ computing te composite reliabilit+ !0/# for eac construct after emplo+ing te ma;imum lieliood estimation. Bornell and arer !1?$1# criteria was used taen in te computation of 0/ inde; alongside wit te reliabilit+ calculation as illustrated in able 1. 0onse:uentl+( te average variance e;tracted !*'E# were assessed for eac construct !*nderson( 1?$2 3ago99i M +nn( 1?$2 Bornell M arcer( 1?$1 Hair( *nderson( atam M 3lac( 1??$#. *'E was used to measure convergent validit+ !Bornell M arcer( 1?$1 Hair et al.( 1??$# suggested convergent measures sould contain less tan %  percent error variances meaning tat *'E sould be .% or above. Hair et al.( !1??$ 21# cutoff value of .7 and .% for 0/ and *'E respectivel+ was emplo+ed. e 0/ value ranges from .$77 to .$$?( and te factor loadings were between .%2) to .?12 !p P .%#( and te *'E ranged from .%2L to .<7? wic as met te minimum tresold set !Bornell M arcer( 1?$1 Hair et al.( 1??$#. e *verage variance e;tracted was used in tis stud+ in order to assess te convergent validit+ as recommended b+ Hair et al.( !21#. e test sow ow te indicators of te construct converged and sare te same variance. In a nutsell( te indicators are e;pected to converged and sare a ig proportion of variance on a common point( te latent constructs. able 1. 'alidit+ and /eliabilit+ 'ariable Indicators oading *'E 0omposite /eliabilit+ &rgani9ational culture &0% &0< &07 &0$ &01< &017 &01$ .<2 .<%< .%%$ .<%2 .$11 .$7) .?12 .%) .$$? Birm performance E/1 E/2 E/% E/< .$1< .?%) .%2) .%71 .<17 .$77 e stud+ also assesses te discriminant validit+. Discriminant validit+ as te name implies( is basicall+ concerned wit te degree to wic a given construct is different from oter construct !Hair etal.( 21#. 0onse:uentl+( ig level of discriminant validit+ sows tat te latent construct is uni:ue and captures some  penomena as against oters. &ne of te wa+s of computing discriminant validit+ is to compare te s:uare root of a given construct wit te wole correlation of tat construct( and *'E is e;pected to be greater tan te construct correlation !Bornel M acer( 1?$1#. able 2 below indicated tat all te s:uare root of *'E ranging  between .7L) to .7$% were greater tan te value of te construct in te correlation matri;. Hence( tis indicated tat all constructs sare more variance wit teir items tan wit oter constructs( ence supporting discriminant validit+. !a le 2. $iscriminant (alidit)  B &0 Birm performance '.(&) &rgani9ational culture .2% '.(*+ *.+ &odel !esting e model fit was assessed using a series of indices recommended b+ Hair etal.( !21#( 3rian !2<#( = te DE*2 !3ollen( 1?$?#( 0omparitive fit !0BI# ! 3entler(1??#( good-of-fit inde; !BI#( ucer-ewis !I#( and te root mean s:uare error of appro;imation !/,SE*# indices. * fit to te data was acieved for te BI Q .$7 as indicated in table L.
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