ORIGINAL SCIENTIFIC paper

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Date of Receipt: April 3, 2012

Nebojša Janićijević ORGANIZATINAL CULTURE

Organizaciona kultura
i strategija

Abstract Introduction
The paper analyzes the relationship of strategy and organizational cul-
ture as two fundamental concepts in management. The results of recent The relationship between organizational culture and strategy
empiric research are first presented, which prove that there is a relati- has, very soon after the establishing of organizational culture
onship of interdependence and influence between strategy and organi-
concept, become interesting to the academic researchers,
zational culture. Then, the nature and mechanism of the influence of cul-
ture on strategy formulation and implementation are analyzed, as well but also to the practicing managers. It was immediately
as the influence of strategy on organizational culture. It is shown that or- clear that there is a specific causal relationship between
ganizational culture influences the strategy formulation by determining organizational culture and company’s strategy, although
the gathering of information, perception and interpretation. Also, orga-
it was not clear which of those two was “older” in this
nizational culture can, through the process of legitimization, facilitate or
disable strategy implementation. On the other hand, implementation of relationship, i.e. which one is the cause and which one is
the selected strategy leads to the strengthening or changing of organi- the effect. Recent empiric research proved that there is a
zational culture through the process of its institutionalization. relationship of interdependence and influence between
Key words: strategy, strategic management, organizational culture the company strategy and its organizational culture
[12]. Organizational culture significantly influences the
Sažetak process of strategy formulation and selection, as well as
U radu se analizira odnos strategije i organizacione kulture kao dva fun- its implementation. On the other hand, the selection and
damentalna koncepta u upravljanju preduzećem. Prvo se prezentiraju re- implementation of strategy can strengthen or change the
zultati novijih empirijskih istraživanja koji dokazuju da između organiza- existing organizational culture. But, what has less been
cione kulture i strategije postoje odnosi međusobne zavisnosti i uticaja.
investigated is the nature and mechanism of mutual
Zatim se analizira priroda i mehanizam uticaja kulture na formulisanje i
implementaciju strategiju kao i uticaj implementirane strategije na orga- influence between organizational culture and strategy.
nizacionu kulturu. Pokazano je da organizaciona kultura utiče na formu- In what way does strategy implementation strengthen or,
lisanje strategije tako što determiniše prikupljanje informacija, percep- more importantly, change the existing culture? In what way
ciju i interpretaciju okruženja. Takođe, kultura može, kroz proces legiti-
does culture influence the selection and implementation of
mizacije, da olakša ili da onemogući implementaciju strategije. Sa dru-
ge strane, primena izabrane strategije utiče na jačanje ili promenu orga- strategy? The aim of this paper is to answer these questions.
nizacione kulture kroz proces njene institucionalizacije. Hence, after presenting the strategy and organizational
culture, the results of recent empiric researches regarding
Ključne reči: strategija, strategijski menadžment, organizacio-
na kultura their relationship will first be presented. Then the nature
of their relationship will be explained through the analysis

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of the mechanism of organizational culture’s influence are allocated to individual activities with the purpose of
on strategy and vice versa, the influence of strategy on acquiring competitive advantage in the chosen business
organizational culture. Finally, both implications and areas.
recommendations for management will be presented. Strategic management process is actually a process
of formulation and implementation of strategy. It consists
Understanding of strategy and organizational of three basic phases: strategic analysis, strategy selection
culture and strategy implementation [7]. Strategic analysis includes:
analysis of mission and goals; analysis of external factors
Strategy is the most important planned decision whose (environment), analysis of internal factors (enterprise’s
influence on business operations of an enterprise is crucial. abilities and resources). Selection of strategy includes:
It is in the heart of the strategic management concept, i.e. generating of strategic options, evaluation and choosing
the concept of company management by means of strategy. the best strategic option. Strategic options represent
Strategy represents a basic way of achieving the goals of alternative responses of a company to the situation in
an enterprise [7]. It shows how enterprise harmonizes the environment, which are harmonized with its abilities
its abilities and resources with the requirements of ever- and resources. In the last phase of strategic management,
changing environment in which it operates. Through its the implementation of strategy is conduced. In order
strategy, company strives to use all the options and avoid for the selected strategy to be realized, it is necessary to
all the dangers in its environment, but also to use all the operationalize it through a plan of action and allocate
advantages and minimize the weaknesses with respect to the resources to the chosen course of actions. Then, it is
competitions. Strategy is today observed dynamically, as necessary to adjust the organization to the requirements
a continual process. Hence, it is regarded that strategy is of the new strategy. Finally, since application of a new
“formed, rather than formulated” [7]. The following are strategy usually implicates making certain changes in an
usually quoted as basic components of strategy: 1. business organization, the strategic change management is a part
area in which the company will perform its business and prerequisite for application of the strategy.
activities; 2. the way in which competitive advantage Organizational culture may be defined as a system
in the chosen business areas is achieved; 3. allocation of assumptions, values, norms and attitudes manifested
of resources on the chosen courses of action. In other through symbols, which the members of an organization
words, through strategy, as a planned decision, a company have developed and adopted through mutual experience
first chooses the business area in which it will perform and which help them to determine the meaning of the
its business activities, and it usually does so within the world surrounding them and how to behave in it [11]. From
frame of the product/market matrix. Then, a specific way the definition, it can be concluded that organizational
in which competitive advantage over the competitors will culture consists of collective cognitive structures, such
be achieved in the chosen business areas is determined by as assumptions, values, norms and attitudes, but also
the strategy. While determining a competitive strategy, an of symbols which materialize and manifest its cognitive
enterprise must make two choices. The first choice refers content. Also, it consequently follows that organizational
to the width of the competitive scope: to cover all market culture is a result of social interaction of the members
segments within the chosen business area or to focus on of organization which takes place during solving of the
just one market segment. The second choice refers to the problem of external adaptation of an enterprise to the
way in which an enterprise achieves the advantage over environment and internal integration of the collective [17].
its competitors: by a leading position with respect to The successful solutions to these problems are generalized,
costs or by differentiation with respect to the competition systematized, pushed into the subconsciousness of the
[22]. Finally, resources (material, financial, human) are members of organization, and thus converted into collective
apportioned through implementation of strategy, so they cognitive structures shared by all or most of the employees

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and managers. Then, these collective cognitive structures Symbols include everything that can be seen, heard or
become a guide to the employees while interpreting the felt in an organization and they can by their nature be:
reality and the world surrounding them, as well as a guide behavioral, semantic and material [9].
for their behavior [1] [13]. Culture helps the employees and
managers determine the meaning of the concepts, things Results of the recent researches of
and events both within and outside of the organization. the relationship between strategy and
In conformity with the interpretation of the reality, they organizational culture
also behave in it: make decisions, take actions and enter
interactions with others. From this fact, a strong influence Recent empiric research of the relationship between
which organizational culture has on the business operations strategy and culture can be, conditionally, divided into
of an enterprise also emerges. Through determining two groups. One group of research deals with relations of
the meanings, which managers and employees attach general strategies and cultural assumptions and values.
to the events and occurrences both within and outside The other group of research deals with relations of culture
of the enterprise, organizational culture shapes each of and individual functional strategies of an enterprise or
their decisions, actions or interactions [19]. Therefore, strategies within specific business areas, such as human
everything that happens in an enterprise, starting with resources management, production or marketing. We
strategic, through operational decisions, to interpersonal will present only representative researches in both groups
relationships is, at least partly, determined by organizational and their results.
culture. Researches show that strategy, wages system, The most comprehensive empiric research of
organizational structure, system of control, knowledge the relationships of general strategy of an enterprise
management, leadership style and many other elements and organizational culture was, recently, conduced in
of management are under the influence of organizational Australia [3]. The authors start from the assumption
culture [4]. For this reason, organizational culture is a that organizational culture and strategy are mutually
significant factor of the enterprise’s performances; it may conditioned, and even that they are the two sides of the
be a “magic wand of success”, but also a “silent killer” [21]. same coin. For this reason, the authors do not assume
Collective cognitive structures which are at the existence of dependent and independent variable in the
heart of organizational culture include assumptions, interrelation of organizational culture and strategy, i.e.
values, behavior norms and attitudes [4]. Assumptions that one is the cause and the other is the effect. What is
are descriptive in character, because they explain the of the authors’ interest is to operationalize this mutually
nature of the world and relationships in it to the members conditioned relationship by showing that a specific type of
of organization. Values are prescriptive in character, strategy and a specific type of organizational culture “get
because they show to the members of organization how along”, i.e. that there is a high correlation between them.
they should act and to what should be strived for. Norms This would then mean that, in order to implement a specific
are unwritten, informal rules of behavior, which are, as a strategy, it is necessary to build a specific organizational
type of social expectations, imposed on all the members culture, or that a specific organizational culture leads to
of organization in everyday working activities. Attitudes selection and implementation of a specific strategy.
are beliefs of the members of organization about certain The authors operationalized and measured organizational
occurrences or things that predispose their behavior and culture by means of modified Organizational Culture
their relations to these occurrences and things. Besides Profile (OCP) instrument, i.e. by means of classification
the cognitive component, organizational culture also of cultural norms, which was conducted, by using the
contains a symbolic component. Namely, the symbols original OCP questionnaire, by O’Reilly and his associates
that manifest collective assumptions, values, norms and [16]. In the modified version used by the authors, there are
attitudes are also part of the culture of an organization. six cultural norms: result orientation, detail orientation,

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support for the people, innovativeness, team orientation and stability and detail orientation. This hypothesis is also
stability. Cultures actually differ by the relative strength of proven empirically. Defenders must create stability, since
each of these norms. The authors also measured average, their strategy is based on high efficiency and low costs.
or typical, organizational culture profile of Australian Also, orientation to details which includes norms, such
firms, finding that organizational culture is above all as precision, obeying the rules and attention, is highly
characterized by result orientation, but this is beyond suitable to the requirements of high quality and low costs.
our interest for the time being. Strategy is operationalized On the other hand, detail orientation and stability deprive
and measured by the use of the well-known Miles and the company of flexibility and innovativeness. Hence, a
Snow classification [14] which recognizes four types of company that wishes to implement a defender strategy
strategies. Prospectors are companies which highly value must build a culture in which stability and orientation
innovations, seek and use opportunities in the market, do to details are highly valued. Or, in other words, if a
not flinch from taking risks, intensively invest in research company has a culture dominated by stability and detail
and development, as well as in organizational learning orientation, then a defender strategy is the right choice
and knowledge management, and often innovate their for such a company.
products. Defenders are companies which highly value The third hypothesis refers to companies which
safety and stability, refrain from taking risks, and do not implement a reactor strategy. Since this is not actually
seek opportunities in the market. They do not innovate a consistent strategy, a logical hypothesis is that these
their products often, but they do achieve high quality and/ companies will have a lower score, or weaker all of the
or low price of their products. This is the reason that they cultural norms. This hypothesis was also proven correct.
invest little in development and innovations. Analyzers are Another recent empiric research regarding the
somewhere between prospectors and defenders. Reactors relationship between company strategy and organizational
are companies which actually do not have a consistent culture is based on Miles and Snow classification [10]. But,
strategy, but react to events in the environment as they this research uses organizational culture classification
occur, and usually make extorted moves. known as the Competing Values Framework [5]. In this
By setting up hypotheses about the relationship classification, the following types of organizational culture
between strategy and culture, the authors have limited are recognized: clan culture, hierarchy culture, market
themselves to just four out of six cultural norms. Thus, they culture and adhocracy culture. An important characteristic
first set a hypothesis, which is then proven, that prospectors of this research is that it included different economy sectors
have a culture which highly values orientation to results with the intention to explore whether the relationship
and innovativeness, in a certainly greater extent than between strategy and culture is equally important in all
companies defenders. By the strength of these cultural the sectors. The research started from the assumption that
norms, analyzers are somewhere between prospectors and strategy and culture are mutually conditioned, and that
defenders. This hypothesis is logical, since prospectors every enterprise which changes the strategy must adapt
are proactive, oriented to innovations, changes, risk its culture to the selected strategy, otherwise it will face
taking and learning. In order to be able to implement failure in strategy implementation. Culture impacts the
prospector strategy, companies must build a culture in behavior of employees and managers, and this is why it
which precisely innovativeness and result orientation are must be such to induce the behavior which will lead to the
highly valued. Or, in other words, if they have a culture strategy realization. Since every strategy in Miles and Snow
in which innovativeness and result orientation are highly classification implicates different behavior of employees
valued, then implementation of prospector strategy is the and managers, different criteria of success, different styles,
right choice for such companies. etc., it means that different cultures will be needed for the
On the other hand, defenders highly value, certainly successful implementation of different strategies. Hence,
higher than prospectors and analyzers, the values of specific strategies will match specific cultures.

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The mutual conditioning of organizational culture diversification of work. The assumption here is that people
and strategy also applies in the case of specific, functional are motivated above all by intrinsic factors, such as the
strategies in specific business areas of enterprise. Thus, work itself, and that human resources can best be used if
one research focuses on the relationship between company they are included in organizing, and not if they are well
strategy and human resources management (HRM) paid. Involvement strategy is suitable for enterprises with
strategy [6]. This research started with the assumption high rate of highly skilled employees who perform non-
that mutual compatibility of culture and strategy leads to repetitive tasks.
better performances of the enterprise. The authors set the With respect to organizational culture, authors
hypothesis that efficiency of HR strategy depends on its use Wallach classification [20], which recognizes three
compatibility with organizational culture, but also with the types of culture: bureaucratic, supportive and innovative,
business strategy. In this research, culture does not have or competitive. Bureaucratic culture is based on the
a direct, but a modifying influence on human resources assumptions of rationality and formalization. Therefore,
management (HRM) strategy. Namely, organizational it includes the focus on clear regulations of work and
culture does not directly influence the selection of HR relations in an enterprise, which is accomplished by means
strategy, but the effects of this strategy on company such as hierarchy, structure or formal procedures. Work
performance and employee turnover rate. is clearly and systematically organized. This culture is
The authors used HR strategy classification which suitable for repetitive tasks and there are no prospects that
identifies two basic strategies, or systems, of human resources it would lead to dedication of the employees. Supportive
management (HRM): inducement and involvement. These culture is the one which is based on the assumption that
two strategies, or systems, of HRM are based on two different an enterprise is a family, and that the best results from
philosophies, or assumptions, on human resources, hence it people are achieved when harmonious relationships
is no wonder that they are compatible with different types between them are established. This culture strives to
of organizational cultures. Human resources management create an ambient of support, harmony, warm and close
(HRM) based on inducement includes focus on lowering relationships between people. Supportive culture implies
the costs. This strategy therefore includes narrowly defined a paternalistic leadership style, but it is likely that it will
and specialized jobs and a very clear connection between create a higher degree of employees’ satisfaction and their
individual performances and rewards. Payment based dedication to the company. Finally, competitive culture is
on performances is a mandatory part of HRM system. the one which focuses on the value of innovations, results,
Performance appraisal is highly developed, systematic, competition, changes and entrepreneurship. It creates a
formalized and detailed. Generally speaking, inducement dynamic, but also a competitive ambient, in which success
strategy requires very strict control and monitoring of the is highly valued in the sense of innovations and revenue.
employees. From the description of this strategy it can be In the research, the hypothesis is set and then
seen that it is based on the assumption that employees are empirically proven that the effects of human resources
above all motivated by extrinsic factors, such as salary, management strategy on company performance and
and that human resources in an enterprise can be best employee turnover rate will depend on its compatibility
used by inducement based on transactional relationship with an adequate type of culture. Hence, the culture does
between an enterprise and its employees, and on clear not directly determine the selection of HR strategy, but
and fair performance-based salary. Involvement strategy modifies its effects on financial performance and employee
includes a human resources management (HRM) system turnover rate. When it comes to the specific relationship
which emphasizes innovations and quality. This strategy between organizational culture and HR strategy, three
therefore implies a high use of teams, high autonomy of relations have been proven. First, implementation of
the employees, less clear division of labor, higher emphasis inducement strategy in supportive culture leads to better
on learning and knowledge management, and higher performance and lower employee turnover rate. Second,

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implementation of involvement strategy in competitive is precisely the innovativeness and creation of innovative
culture leads to better performance and lower employee products and services. The leaders are innovators, and they
turnover rate. Third, bureaucratic culture has no effect on themselves take risks. The people in such organization are
implementation of either inducement strategy or involvement connected by the desire for experimentation and trying
strategy. Therefore, the conclusion is that inducement out new things. Competition between people is valued
strategy is compatible with supportive culture, and the instead of team work, but employees and managers are
recommendation is that this strategy be used only in this consequently allowed autonomy and discretion in decision-
type of organizational culture. Also, involvement strategy making, which leads to their innovative behavior. On the
is compatible with competitive culture, and therefore it other hand, hierarchy culture is an excellent ambient for
should be used only in the context of this culture. implementation of imitation strategy. In this culture,
Relationship between strategy and culture has also stability, predictability and safety of employment are
been proven with respect to market entry strategy [15]. It highly valuated. Internal and control orientation in this
has been empirically proven that organizational culture type of culture form orientation toward rules, in which
influences company strategy regarding market entry, rationality, procedures, hierarchy, authority and division
specifically with respect to the selection between innovation of labor are emphasized. The most important thing is to
strategy and imitation strategy. Innovation strategy means achieve efficient, harmonious and smooth functioning of
that company always strives to be the first to place a new organization. Following of the same rules and procedures
product or service to the market segment, while imitation keeps the people together. The emphasis is on long-
strategy means that company imitates innovators and term efficiency, low costs and harmonious functioning.
places similar products or services to the market after Employees enjoy relative safety of employment and certainty
them, thus lowering the risk. Innovativeness requires regarding the organization. This is not an ambient in
certain characteristics and behavior of an enterprise, such which new ideas and new products would emerge, but it
as flexibility, openness for change, entrepreneurship, risk is an ambient in which new products that someone else
acceptance and error tolerance. Imitation as a strategy creates are efficiently imitated and all advantages of safe
implies greater reliance on control, stability, efficiency and market entry without the presence of large risk are used.
precision. It is reasonable to expect that organizational Hierarchy culture enables the efficient use of innovations,
culture will influence the selection of company strategy and even gaining, with greater efficiency, more benefits
between innovation and imitation. Organizational culture out of them than the very creators of these innovations
can significantly stimulate, but also limit those behaviors have. The remaining two types of culture, clan culture and
and attitudes that are compatible with innovativeness or market culture, do not have values and norms compatible
imitation. with any of the marker entry strategies.
In the analysis of organizational culture influence Another research has pointed out the relationship
on strategy of innovativeness or imitation, Competing between marketing, or product–market, strategy and
Values Framework is used, which recognizes: clan culture, organizational culture [22]. The basic hypothesis is that
hierarchy culture, market culture and adhocracy culture [5]. compatibility of marketing strategy, or product market
The authors set the hypothesis that adhocracy as a model strategy, and organizational culture type will have influence
of organizational culture indeed leads towards innovative on better company performance, because this compatibility
company behavior, while hierarchy culture leads to imitation will enable more efficient implementation of the selected
as a market entry strategy. Adhocracy is a type of culture in marketing strategy. Compatibility of marketing strategy
which values of creativeness, innovations, entrepreneurship and organizational culture will contribute to better
and risk taking are strongly present. The fundamental adaptation of the company to the environment, which
goal of a company with such culture is to be first on the is a key factor of good organizational performance. The
market, i.e. to innovate, and the basic criterion of success research uses organizational cultures’ classification known

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as Competing Values Framework which recognizes: clan work program of production function which is compatible
culture, hierarchy culture, market culture and adhocracy with the overall company strategy. Key elements of
culture [5]. As a basis for marketing strategy classification, company production strategy are four competitive goals
three of its dimensions are used: differentiation, cost-based which should be achieved by production function: costs,
efficiency or leading position in costs, and market scope. quality, flexibility and reliability. Production strategies
The hypothesis is that marketing strategy influences differ with respect to which of the stated goals has the
culture in that the choice of market scope and value priority in the company.
propositions signalizes what kind of behavior is expected In the paper, the hypothesis is set and proven that
from the employees and managers, because each choice organizational culture and organizational learning
of market scope and value proposition requires different influence the production strategy. Organizational culture
behavior. Second, selection of marketing strategy is measured through four dimensions which Hofstede
influences institutional arrangements (structure and also used for national cultures analysis: power distance,
systems) which regulate behavior of the employees and avoidance of uncertainty, individualism–collectivism,
managers, and thus also influences their awareness and and male–female values. The research showed that out
organizational culture. On the other hand, the research of four stated cultural dimensions, two have especially
has shown that organizational culture determines the significant influence on production strategy: power
way in which the employees and managers will perceive distance and individualism.
stimuli from the environment, and thereby also which
decisions they will make regarding the selection of The nature of relationship between strategy and
marketing strategy. Also, culture influences the choice organizational culture
of company goals, and thereby also the selection of
strategy for realization of these goals. A survey of empiric research shows that there is a
Hence, the authors set the hypothesis that marketing strong mutual influence, or compatibility, between
strategy and organizational culture influence one another, strategy and organizational culture, as well as that this
and that they fluctuate in the same direction. Compatibility compatibility positively influences financial, market and
of marketing strategy and culture leads to greater customer other company performances. Compatibility of strategy
satisfaction. The reason for this is that compatibility of and culture is manifested in that certain types of company
marketing strategy and cultural values and norms enables strategies are effective and applied only in certain types of
the employees to identify themselves with the selected organizational culture and vice versa, that certain type of
strategy, so their behavior develops in the direction of organizational culture is developed only in the companies
realization of the selected marketing strategy. Then the which apply a certain type of strategy. In other words,
performances will also be better, and the first performance certain types of organizational culture imply formulation
aspect that the authors analyze is customer satisfaction. and implementation of certain strategies, while certain
Another performance aspect of influence of marketing strategies lead to creation of specific types of organizational
strategy and culture compatibility is financial aspect, cultures. However, in order to fully understand the nature
and the authors measure it through cash flow return on of the relationship between strategy and organizational
assets. Greater compatibility of marketing strategy and culture, we must explain the mechanism of this mutual
organizational culture leads to higher value delivered to influence of strategy and culture. We must understand
consumers, which makes them more satisfied, and thereby the way in which organizational culture determines the
the cash inflows are higher. selection and implementation of strategy, and the way in
Relationships between organizational culture and which strategy implementation influences organizational
production strategy are explored in the work of Fang and culture. In the rest of this paper we will provide answers
Wang [8]. Production strategy is defined as a long-term to these questions.

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Influence of organizational culture on strategy and norms regarding the environment and the position of
Organizational culture strongly influences both the strategy the company within it, organizational culture determines
formulation process, as well as strategy implementation sources, types and ways of information gathering. Whether
process. In strategy formulation phase, culture significantly a company prefers qualitative or quantitative information,
influences the selection of strategy, while in the phase of its whether it even has formal procedures for environment
implementation culture may be both stimulating factor, as scanning, and whether a company is at all systematic and
well as an insurmountable barrier. The influence of culture continual in its environment scanning, it all depends on
in both phases emerges from its influence on interpretative the values and assumptions shared by the employees and
schemes or mental maps of top management, as well as company management. The enterprises with a culture in
middle- and lower-level managers and employees. which openness toward environment, extrovert perspective
In strategy formulation process which, as we have and flexibility prevail have a significantly more developed
seen, includes activities of strategic analysis, strategic practice and mechanisms of environment scanning, in
options generation and selection of strategy, organizational comparison to the enterprises with prevalent introvert
culture represents a reference framework in which strategic perspective, inaccessibility and stability. However, not
decisions makers operate. Cultural assumptions, values only the analysis of external environment is under the
and norms shared by all the people in an enterprise strong influence of organizational culture, but so is the
create a framework which encloses the perception, internal environment as well. Procedures of company
interpretation and conclusions of all the people in the resources and abilities evaluation are also determined
enterprise, including those who conduct strategic analysis, by company values and norms.
generation and selection of strategic options. Generally Organizational culture causes selective perception
accepted assumptions, values and norms significantly of events in an environment. Organizational culture
shape top management mental schemes. These schemes influence on perception during strategic decisions making
in turn significantly influence their perception and is achieved through mental or interpretative scheme.
interpretation of both the external environment and the Mental or interpretative scheme represents a systematized
organization itself, making conclusions regarding possible and generalized knowledge which an individual has
organizational strategies, as well as selection of the best gained during his experience with certain occurrences,
strategy. Whether the management of an enterprise will and which helps him interpret events around him. It
even notice the occurrence of new trends in consumers’ is already stated that organizational culture, with its
taste, whether trade liberalization in some sector will be assumptions, values and norms, determines a significant
interpreted as a threat or an opportunity, whether the part of mental schemes of the members of organization.
management faced with decrease of sale will lower the Psychologists have determined that people are prone to
costs or increase marketing efforts, it all in a great extent “oversee” those events, people or occurrences which are
depends on top management interpretative schemes, and not in conformity with their mental schemes, and also to
they are strongly influenced by cultural assumptions and overrate the significance of those which are. Information
values. More specifically, organizational culture influences from the environment which is not compatible with mental
the strategy formulation in the following ways. schemes is significantly more difficult to perceive and
Organizational culture determines the way in more easily forgotten. Since a significant part of these
which management gathers information and analyzes schemes is determined by assumptions, values and norms
both the environment and company resources. Which of organizational culture, it means that organizational
information from the environment will a company gather culture also represents a kind of filter through which
and what image of the environment will it build in the some information can go through, and some cannot.
process of external analysis, it depends on the way in which In this way significant errors may occur while making
it gathers information. Through its assumptions, values strategic decisions. Selective perception is the basic cause

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of many failed investments, as in the case when, during strategic analysis can be set only within the framework
decision-making regarding entering into some investment set by cultural assumptions and values. Top management
project, only those facts that go in favor of the preferential cannot consider some strategic action if it surpasses the
option are taken into account, while other information, framework defined by cultural assumptions and values.
regarding possible negative effects, are consciously or Simply put, such strategic alternatives are “unthinkable”
unconsciously suppressed. to managers, and therefore impossible. Hence, culture, in
Organizational culture directs interpretations of the first place, influences strategic selection by narrowing
events in the environment and organization. It is not down the list of strategic options and excluding from it
enough that decision-makers in an enterprise perceive the culturally unacceptable ones. Another way in which
some occurrences or events. In order to truly have impact culture, with its assumptions and values, influences strategy
on strategy formulation, it is necessary for them to be selection is its role in strategic alternatives evaluation and
interpreted in the way which will cause specific effects. in selection of the best one among them. It is misconception
Interpretation of perceived events in the environment or, to think that evaluation and selection of strategic option is
even, of company resources depends on mental schemes of an “objective” process in which decisions are made based
those who perform this interpretation. Since a significant on the clear and quantified criteria known in advance.
part of mental schemes has actually emerged from Motives, interests, battle for power, as well as subconscious
organizational culture, it may be said that culture is a very assumptions and values of those who make the selection
active factor which direct the way in which external and of strategy become prominent in this process. The best
internal factors of strategic selections will be interpreted strategy is the one marked as such by top management,
and understood. The example of IBM is very illustrative starting from certain assumptions, values, beliefs, attitudes
here. This world known leader in personal computers was and norms, and not from numbers and analyses. Besides
the first world producer of large computers, the so called organizational culture, the selection of strategy is also
mainframe computers. When PC first appeared, IBM top influenced by subcultures in an enterprise. The differences
management simply did not realize what that occurrence between functional subcultures in an enterprise are
actually meant. IBM was paralyzed by its assumptions especially important. Differences in assumptions, values
that information actually meant memory. The assumption and beliefs between commercial, production, financial, and
underlying PC was, however, that information meant research and development department in an enterprise
software. Led by wrong interpretation of the nature of make the process of strategy formulation significantly
personal computers, IBM was not in the beginning able to more difficult. Functional managers and experts, who
react in the right way. The change still occurred, although participate in the process of business strategy formulation,
somewhat later, after IBM management had changed their sometimes start from completely different assumptions,
perspective on business in which their company operated. values and beliefs of both the character of trends in the
Organizational culture determines the selection environment, as well as of the company mission, goals and
of strategic option. From the perception of external resources. Therefore, their discussion on the procedures
environment and company resources, as well as from of company strategy shaping often resembles a “dialogue
their interpretation, the selections of strategic directions of the deaf”. The situation is further complicated by the
of actions also emerge. Thus, culture indirectly, through connection which may be established between different
perception and interpretation of the environment and the subcultures in an enterprise and different interests, so
company itself, directs strategic selection. But, assumptions, the entire process of strategy formulation may assume
values and norms prevailing in organizational culture political dimension. Subcultures may easily turn into
also directly influence the generating of possible strategic interest groups, and in such a way that their members will
options, as well as the selection of the best one among them. unite in order to impose their views and perspective. On
Strategic options that top management generates based on the other hand, interest groups in a company are often

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organized around subcultures, since it gives legitimacy to by the existing cultural values, make radical changes
their own interests. In that situation, the members of an in company strategy which go beyond the limits the
interest group represent something that is of pure partial framework of the existing organizational culture. The
interest of some sector or a group as legitimate difference new management can then formulate a strategy which
in views and perspective. confronts the values and beliefs of the majority of the
The numerousness of influences that organizational employees and managers. Finally, incompatibility of
culture has on strategy formulation leads to the conclusion strategy and culture is often the case in the situation of
that strategy may be observed as a cultural symbol. It acquisitions. When one company overtakes another, the
reflects and manifests the basic cultural assumptions, acquired company is forced to change its strategy and
values and norms shared by strategic decisions makers accept the one imposed by the new owner, even though
in a company. By analyzing company strategy, values and this new strategy is often incompatible with the culture
beliefs shared by managers and employees in an enterprise of the acquired company.
may be revealed. The consequence of incompatibility of strategy and
Organizational culture influences not only the process culture is that implementation of strategy includes a set of
of strategy formulation, but also the process of selected operating activities which are not in conformity with the
strategy implementation. Culture may be an incentive factor, existing cultural assumptions, values and behavior norms.
but also an insurmountable barrier to implementation of The implementation of strategy then implies performing
the selected strategic courses of action. It will depend on the the activities which are not culturally acceptable for all or
degree of conformity of cultural assumptions, values and most of the employees and managers. In this case, activities
norms with the selected strategy. Each selected strategic necessary for strategy implementation are illegitimate
course of action implies a specific set of operating activities in the view of employees and managers, and they are
through which it is implemented. If these activities are not justified, useful, or needed. In other words, culture
consistent with cultural assumptions, values and norms, delegitimizes strategy. Of course, performing of operating
they will be interpreted as legitimate, i.e. useful, justified activities with the aim of strategy implementation will be
and needed. In this case, employees and managers who extremely difficult. These activities should be performed
conduct these activities will be motivated to apply them in by employees and managers who do not understand them
both shape and manner as the top management pictured and do not accept them, since they find them wrong,
it. This is a situation in which organizational culture is an unnecessary or useless. Through the pressure performed
incentive factor of strategy implementation. In this case, by top management, who formulated the strategy to begin
culture legitimizes strategy which is, as far as culture is with, it is possible to enable strategy implementation,
concerned, implemented without problems and difficulties. but this implementation will be inefficient, slow, or
However, it might be the case that a strategy done with a very strong resistance. The result would be
incompatible with the existing organizational culture failed strategy implementation, its incomplete or delayed
is formulated. In that case, culture becomes a barrier implementation, or a certain strategy modification during
to strategy implementation. Formulation a culturally its implementation in order for it to be adjusted to culture
unacceptable strategy may occur for numerous reasons. One and become culturally acceptable.
of them is certainly environmental pressure, which forces In all the cases when culture and strategy are incompatible
strategic decisions makers to change their existing views and represent a barrier to strategy implementation, the risk
and accept a completely different, culturally unacceptable, of non-implementation of strategy is called cultural risk.
course of actions. Incompatibility of strategy and culture The question arises how the company should react and thus
also emerges in a situation when new management takes decrease the cultural risk [18]. In case of incompatibility
over the enterprise. It is very often the case that new leader of business strategy and organizational culture, company
and his associates, who are outsiders and unburdened has several options.

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Ignoring of culture. In most cases, this strategy culture depends on the compatibility of cultural values and
does not pay off, nor can it be recommended. Ignoring of norms, on the one hand, and operational activities implied
culture may in short term seem as a simple solution, but by implementation of a certain strategy, on the other. If
in the long run it may cause serious problems in strategy the formulated company strategy implies conducting of
implementation. This strategy might be recommended only activities which are consistent with the existing cultural
with respect to small and young firm, which has not yet values, then the strategy will positively influence the
firmly established its system of values and beliefs, and in existing organizational culture, in the way that it will
which company management may hope that the selected additionally strengthen its values. It does so through the
strategy will gradually shape the necessary cultural profile. process of institutionalization, since strategy is a formal,
Modify the culture to adapt to strategy. This strategy institutional decision. Implementation of strategy requires
is often used in situations when new management wishes conducting of a specific set of operating activities, which
to impose new strategy to the company they acquired. imply that employees and managers perform specific jobs
One of prerequisites of successful strategy realization and tasks and also perform them in a specific way. When
is also a modification of the culture incompatible with performing of activities, jobs and tasks in the process of
the new strategy. However, this is very risky, expensive, strategy implementation is in conformity with the existing
uncertain and long-lasting operation. It can easily be the assumptions, values and norms in organizational culture,
case that the time needed for the culture to be changed is the employees and managers will have confidence in
significantly longer than the time available for strategy properness of activities implied by the strategy, as well
implementation. The situation is slightly less difficult when, as in properness of the strategy itself, hence they will be
instead of completely changing the culture, successful willing to completely implement it. On the other hand,
strategy implementation requires only smaller adaptations this conformity of cultural values and norms with the
of some behavioral norms. selected strategy reassures the employees and managers
Modify the strategy to adapt to culture. This is often in the properness of organizational culture. In this way,
the way in which tensions between strategy and culture implementation of strategy, compatible with the existing
are solved. It is particularly present in the acquisition organizational culture, will strengthen this culture. In
situations, when the acquired companies change their this process, culture becomes institutionalized through
strategies which are incompatible with organizational strategy. Institutionalization of culture represents a
culture of the mother company. process through which cultural assumptions, values and
Change strategy implementation plan. If strategy norms in an enterprise are being built in its strategy.
is of vital importance for the company, and culture cannot Institutionalization of culture is a form of its perpetuation,
be adapted to strategy, the company can change strategy i.e. its self-renewal.
implementation plan by adapting it to culture. Thus, the If newly formulated strategy requires employees
company will not give up the strategy, but will modify and managers to perform jobs and tasks in a way which
certain elements, which are not culturally acceptable, of is not in conformity with values and norms of the existing
its implementation plan. organizational culture, two situations may develop. One
was already described above in this text and it refers to
Influence of strategy on organizational culture the situation in which organizational culture becomes a
We have seen that organizational culture influences barrier to new strategy implementation. However, if the
strategy formulation and implementation, but also pressure by top management to implement the selected
that long-lasting implementation of a certain strategy strategy prevails, it may change the existing organizational
can influence organizational culture, i.e. strengthen or culture. In this case, strategy deinstitutionalizes the
change the existing type of organizational culture of an culture and thereby initiates the process of its change.
enterprise. What influence will strategy have on company By radical strategic turn, company management forces

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employees to behave, during a certain time period, Culture determines the way in which top management
in a way incompatible with the prevailing cultural gathers information, the way in which they perceive and
assumptions, values and norms. Thereby, management interpret the environment and the company resources,
leads employees into the state of cognitive dissonance. but it also influences the way in which they make strategic
It is an unpleasant state in which values important to an decisions, i.e. make the strategy selection. Organizational
individual are not in conformity with the behavior he/ culture influences strategy implementation by legitimizing
she is forced to practice. Since people have the need to or delegitimizing the strategy, depending on the consistency
be consistent and act according to their beliefs, they will between cultural values and the selected strategy. When
strive to exit the state of cognitive dissonance as soon as culture legitimizes strategy, it significantly facilitates
possible. They may do so in two ways. First, they may strategy implementation, and when culture delegitimizes
strictly stick to their values, which are determined by strategy in the view of employees and managers, it makes the
the existing culture, and therefore return to the previous implementation of the selected strategy almost impossible.
behavior, which is in conformity with their values. This Strategy influences organizational culture by
situation was already described as a situation in which institutionalizing or deinstitutionalizing the culture,
organizational culture blocks the implementation of depending on the conformity with cultural values and
strategy or leads to modification of strategy and adapting norms. If activities through which the selected strategy is
it to culture. However, the members of organization may operationalized and implemented are in conformity with
also exit the state of cognitive dissonance by abandoning cultural values and norms, the strategy will institutionalize
their existing values and norms and accepting new ones, and strengthen the existing culture. Conversely, long-
which legitimize the new behavior forced on them by the lasting and consistent implementation of the selected
new strategy. Massive dealing with the state of cognitive strategy will deinstitutionalize organizational culture,
dissonance of the members of organization in this way whereby the process of its change begins.
will lead to organizational culture change. Therefore, if The basic recommendation to management regarding
management persists in new strategy implementation, the relationship between strategy and organizational culture
the employees will have no other choice but to change is that a way must be found for these two fundamental
their values and norms in the way to comply them with company management components to be harmonized.
the new strategy. The final result would again be harmony This can be achieved in two basic ways. First, in strategy
between culture and strategy, but with a new culture which formulation, management of the company must have in
legitimizes the new strategy. In this way strategy shapes mind cultural assumptions, values and norms in order to
new organizational culture. provide in advance for the new strategy to comply with
them. To be able to do this, management must, in the phase
Conclusions and implications to management of strategic analysis, perform and scan organizational
culture profile of the enterprise. Also, management must,
The survey of empirical researches, as well as their theoretical in the phase of strategy selection, be ready to adapt the
elaborations, indicates that strategy and organizational strategy to the existing culture of the company. On the
culture are mutually conditioned, and that their mutual other hand, if management is forced to select a strategy
conformity and harmony bring advantage to the company. which is inconsistent with the existing culture, they must
Organizational culture influences strategy in both be ready and able to close the “cultural gap” during the
the process of its formulation, as well as in the process strategy implementation, which is achieved by changing
of its implementation. Organizational culture influences the existing culture. In order to do this, management
strategy formulation by shaping the interpretative schemes must have abilities and knowledge of how to change
and meanings which strategic decisions makers assign organizational culture in a planned manner.
to the occurrences within and outside of the company.

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Nebojša Janićijević
is a full professor at Faculty of Economics, University of Belgrade, where he teaches courses in the field
of organization, human resources management and change management to students at undergraduate,
graduate and doctoral studies. So far, as an author and coauthor he published several books, and among
them “Upravljanje organizacionim promenama” (Organizational Change Management), “Organizaciona
kultura” (Organizational culture) and “Organizacija preduzeća” (Enterprise Organization). He published a
number of articles in foreign and domestic academic journals, and participated in many international scientific
conferences. He was three times at study stays at U.S. universities as a receiver of fellowship of Fulbright
Program. He is a member of European Group for Organizational Studies (EGOS) and European Academy of
Management (EURAM). Nebojša Janićijević is a consultant for leading domestic companies in the filed of
organizational restructuring and human resources management.

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