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4. Organisational Culture and Investment Behaviour: A Theoretical Framework

The study utilises an ‘organisational culture’-based analytical framework to help identify the current practices and rationale for capital formation and capital budgeting in Kenyan milk and coffee co-operatives with the aim of making these practices more effective and efficient. ‘Organisational culture’ is defined in this study as being ‘shared realities’ that appear to exist among groups of people within an organisation. Such a culture is constructed from the governance structure of the organisation, from the norms, which are followed in every-day actions, and from the language used as a means of daily communication within these organisations (Giddens, 1979 and 1984). ‘Governance structure’ refers to the power structure of the organisation, from which power positions originate, and influence the various stakeholder groups that control or govern the organisation. ‘Organisational norms’ define the types of actions that are acceptable to the influential stakeholders. ‘Communication’ comprises the concepts, language used and their interpretation by the stakeholder parties who interact within the context of an information exchange process in the organisation. These three components form the interrelated parts of any ‘organisational culture’.

Co-operative Organisational Cultures

The selected co-operatives and private businesses were classified into the following five types of co-operative ‘organisational cultures’ according to their dominant stakeholder groups: (1) supplier-oriented, (2) government-oriented, (3) specialist-oriented, (4) customer-oriented, and (5) owner-oriented. It is argued that this theoretical approach offers a good basis for understanding differences in co-operative capital investment as well as capital formation strategies4.

4 Similar ideas were presented also in the paper by Hardesty (1992).
Supplier-oriented organisations are defined as typically interested in maintaining or increasing suppliers’ wealth. Their culture, therefore, emphasises good member service, high producer price and low farm input prices. Typical capital investments of supplier-oriented organisations, therefore, include vehicles to collect the supplier’s products, information systems to improve service to suppliers, education of staff to offer better service to the suppliers and machinery to increase the output of supplier-delivered products.

Government-oriented organisations emphasise the importance of satisfying the needs of their principal stakeholders, i.e. government and bureaucrats. The role of formal rules and cost budgeting as well as member and staff loyalty and obedience are highlighted. Preserving the safety and wealth of bureaucrats are important goals of these organisations and investments tend to focus on maintaining current production levels.

Specialist-oriented organisations, on the other hand, emphasise the professional values of their principal stakeholders in which quality of product considerations and production technology are important. Capital investments emphasise technological expansions and the importance of expertise rather than satisfying supplier needs or customer demands.

Customer-oriented organisations focus on satisfying the needs and activities of customers, who in the case of co-operatives are generally considered to be non-members. Customer satisfaction creates the normative visibility of activities within the organisation for which purpose quality of products and production systems as well as availability of services are highlighted. In capital investments, quality control systems and effectiveness are emphasised from the customer perspective.

Shareholder-oriented organisations are interested in satisfying their shareholders’ needs, which are manifested either through changes in stock prices, dividends or in the profitability of the organisation. Capital investments in these organisations are generally targeted either towards reducing operating or fixed costs or towards achieving long term improvements in profitability and efficiency.

Organisational Cultures and Environments

Organisational cultures are also partly the result of environmental conditions under which organisations must operate to survive. These environments can be analysed according to their dynamism and degree of market-basis. ‘Dynamism’ refers to the degree to which the environment stimulates changes in products and production technologies. In dynamic markets, the product life cycle remains short, or there is a rapid evolution in production technologies. The ‘degree of market basis’, on the other hand, refers to the market conditions for raw materials or end products. If markets are regulated competition is limited either through regulation or contracts, whereas in the deregulated markets, no such limitations exist.

The fit between the environment and organisational culture can be illustrated as follows: a supplier-oriented culture is not likely to provide a responsive basis for a change in products and production technologies. Nor is it likely to accommodate well the need for open competition; therefore, the only environment where this culture is apt to be successful is a stable and non-market-based environment.

In a similar way, a government-oriented culture tends to focus on formal rules and, therefore, is not likely to function well in a regulated, non-market-based environment. In addition, the internal regulations of such a culture generally seek to stabilise its organisational activities. This culture is best suited to a stable and regulated environment.

Specialist-oriented cultures, in contrast, tend to emphasise innovations. Therefore, these organisations generally cope better in a dynamic environment though they also usually manage well in regulated and unregulated markets when they put their innovative skills into practice. For example, in the regulated markets, where benefits of innovations are protected with patents, specialist-oriented cultures are highly competitive for a longer period of time. On the other hand, in the deregulated markets, specialist-oriented culture may generate new innovations and these innovations could be rapidly diffused without any barriers due to regulated markets.

Customer-oriented cultures aim at satisfying customer needs. Changes in customer needs in dynamic markets tend to lead to an evolution of the product range as well as higher requirements in product and production quality. Therefore, a customer-oriented culture generally operates well within a dynamic environment, where the identification of customers’ needs is important. However, these organisations may lack efficiency in the operations to generate profits.

Shareholder-oriented cultures emphasise increases in shareholders’ wealth; therefore, they usually cope well in market-based environments where efficiency is important. However, they may also create wealth in stable markets, where product development or processing changes is limited. Additionally, they may fare well within dynamic environments, although this culture may not appear to be as competitive in a highly dynamic industry, where product and processing innovations are critical for success.

Co-operative Response to Market Liberalisation in Kenya

Prior to market liberalisation, Kenyan coffee and dairy product markets were stable without any market-based product pricing and quantity mechanism. In coffee sector, markets are now being liberalised but products as well as production technologies have not yet changed much; however, in the dairy sector, transition from regulated markets to liberalised markets has already occurred. Product differentiation is increasing and production technologies are improving.

As markets in Kenya become more dynamic or deregulated, it is likely that supplier-oriented and government-oriented cultures will be less able to compete successfully. In a dynamic environment, as is now the case in the dairy sector, it is important that these organisations transform their organisational thinking towards more customer- or specialist-oriented cultures. In the coffee sector, deregulation is likely to lead to higher efficiency requirements. This kind of new environment favours efficiency seeking shareholder-oriented culture.

Although organisational culture is a static concept by nature, it also has a dynamic dimension, since the dominant culture is always challenged and modified by events, learning and interactions with other cultures (Hatch, 1993). Several cultures may also coexist within the same organisation, creating inconsistencies and conflicts. By viewing cultures in this dynamic way, persons interested in improving organisational efficiencies can first evaluate the current state of organisational culture and then to propose new directions for cultural development. The seeds of cultural change may originate either from inside or outside the organisation.

Within an organisation the seeds of change may include a variety of factors that lead to cultural ®evolution and to better capital formation. These include for example computerisation, changes in the management committee, financing decisions and employee remuneration. External seeds of change include all exogenous factors, such as changes in the markets, legislation concerning corporate governance, profit sharing and information production as well as changes in financing possibilities and education.

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