Organizational Culture, Adaptation, and Performance

Prior research emphasizes how organizational culture can hinder organizational adaptation. In this study, we investigate how organizational culture can help promote organizational adaptation to environmental changes, using a formal model from cultural evolution theory. In the model, organizational members face a trade-off between innovating versus following tradition (because environmental changes are uncertain). Members can also decide to help others who are following the tradition, thereby improving its diffusion. Organizational leaders shape the culture of their organization, which influences members’ decisions to choose innovation or tradition or to help others following tradition. Culture comprises two dimensions: beliefs and prosocial values. We find that increasing the accuracy of beliefs leads to improvements in both innovation and following tradition, thereby mitigating the trade-off between them and boosting adaptation and performance. On prosocial values, we find that increasing their intensity reduces the cost of following tradition but at the expense of reduced adaptation, resulting in an inverted-U relationship between intensity of prosocial values and performance. Overall, we show how leaders can fine-tune the dimensions of organizational culture to foster improvements in adaptation and performance. The formal model we introduce is novel to the literature and offers a way of studying adaptation to a changing environment and to incorporate social learning into models of adaptation under bounded rationality.