Culture as a source of sustained competitive advantage*

Many attempts to explain the sustained superior financial performance of firms like Dell, McDonald’s, and Southwest Airlines have focused on the managerial values and beliefs embodied in these firms’ organizational cultures (Corporate Culture 1980; Deal and Kennedy 1982; Peters and Waterman 1982; Tichy 1983; Kotter and Heskett 1992; Quick 1992; Freiberg and Freiberg 1996; Collins and Porras 1997). These explanations suggest that firms with sustained competitive advantages typically are characterized by a strong set of core managerial values that define the ways they conduct business. It is these core values (about how to treat employees, customers, suppliers, and others) that foster innovativeness and flexibility in firms; when they are linked with management control, they are thought to lead to sustained competitive advantage. Many of these explanations have a strong normative orientation. Firms with strong cultures are pointed out as examples of excellent management (Peters and Waterman 1982); mechanisms for modifying the cultures of other firms to approximate closely the cultures of successful firms have been widely discussed and applied (Corporate Culture 1980; Quinn 1980; Tichy 1983). These efforts are seen not only as ways of improving employee morale or quality of work life, but also as vital for improving a firm’s performance. Recall that Peters and Waterman (1982) and Collins and Porras (1997) chose firms for their samples that not only had an excellent reputation for management, but also were superior financial performers over long periods. This chapter examines the relationship between organizational culture and sustained competitive advantage.