The influence of organization Culture towods Performance in The Perspective of Balanced Scorecard.

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ABSTRACT

The Influence of Organization Culture tow ards Performance in the Perspective of Balanced ScoreCard

(Study on Cooperatives in Denpasar Area) I Gusti Ayu M ade Asri Dw ija Putri Faculty of Economy University of Udayana

Inspired by real-life phenom enon, t hat is: m any cooperat ives in Bali Province fall int o bancrupt cy. The problem at ic cooperat ives result from various fact ors such as, t he t endency of cooperat ive’s m anagem ent t o t ake profit for individual advant ages, inappropriat e cooperat ive m anagem ent , and t he perform ance of t he bad m anagem ent . One of t he fact ors t hat can help raise cooperat ive’s perform ance is organizat ion cult ure. The aim of t his st udy is t o draw em pirical evidence t hat organizat ion cult ure on orient at ion t ow ards process, em ployee, and pragm at ism influences t he perspect ive perform ance of balanced scorecard w hich covers several aspect s like finance, cust om ers, int ernal business, as w ell as learning and grow t h.

The research populat ion covers t he m ult i-purpose cooperat ives (KSU) around Denpasar, Bali. The dat a classificat ion is prim ary dat a t hat w as collect ed by spreading quest ionnaires. The dat a w as analyzed using Sm art PLS (Part ial Least Square).

The research found t hat generally t he m odel t hat w as used had relevant predict ion pow er, t hat t he orient at ion of organizat ion cult ure on process, em ployee, and pragm at ism affect ed t he perform ance in t he perspect ive of balanced scorecard. This st udy f ound t hat : t he cult ure t hat influenced t he perform ance of financial perspect ive w as t he organizat ion cult ure of orient at ion on process and pragm at ism , t he cult ure t hat influenced t he cust om er perspect ive perform ance w as organizat ion cult ure of orient at ion on process, em ployee, and pragm at ism , w hile t he cult ure t hat influenced t he perspect ive perform ance of int ernal business w as organizat ion cult ure of orient at ion on process and pragm at ism , and last , t he cult ure t hat influenced t he perspect ive perform ance of learning and development w as organizat ion cult ure of orient at ion on process.

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2 1 INTRODUCTION

1.1 Background

Cooperative is one kind of corporations that is hoped to be the leading institution in developing society’s economy in Indonesia, in order to eliminate poverty. The platform of cooperatives which was built on the spirit of mutual cooperation and brotherhood fits Indonesian people’s personality well. The legal basis of cooperatives in Indonesia is the 1945 Constitution and spesified further in the Law of Cooperatives No. 25 Year 1992. Cooperative is based upon Pancasila and UUD 1945 which rely on the spirit of brotherhood and aims at particularly creating a better life for the members as well as the society in general, and participates in developing national economy in order to build just and prosperous society. The government attempt to build cooperative as one pillar of economic development with the purpose of developing people’s economy. In the beginning of cooperative movement in Indonesia, it was clearly shown that the development was heading towards the rise of people’s economy. The development of cooperatives showed significant growth in number. The number of cooperatives in Indonesian according to a statistic report grew as much as 3.3 percent in 2010 compared with the previous year, with the number of registered cooperative at 170,411 units. The number of cooperatives in Bali area alone reached 3,678 units. For Denpasar area there were specifically 723 cooperatives registered until the early 2009. They were classified into 17 categories, KUD, KSU, KPN, ABRI, Kopkar, Cooperatives for Retirees, Kopinkra, production cooperatives, KSP, Koppas, Cooperatives for Transportation Service, Youth cooperatives, Women’s cooperatives, veteran cooperatives, college students’ cooperatives, pondok pesantren cooperatives, and other types of cooperatives.

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cooperatives can be caused by various factors such as: some officers who take individual advantages from the institution, dysfunctional management of the cooperatives, and bad performance of the management. In addition, there are possibilities that the bad cooperative performance results from the factor of organization culture.

Kotler and Hessket (1992) claim the power of culture is related to performance. Hofstede (1990) says that a strong and unique culture has great influence towards the success of an organization. Moeljono (2002) states that organization culture is a value system, that is embranced by all members of the organization as well as learned and developed continuously, and it has a function as unifying system, and can be used as behavior guidance for every member in the organization in order to achieve the company’s goals.

Thus, the organization culture that supports organization strategy will be able to overcome environmental challenges quickly so that it is easier to achieve the expected organization performance. The performance of a traditional organization is only seen from the financial perspective. Next, Kaplan and Norton (1996) propose a system of performance assessor by adding performance from non-financial perspective which is later known as balanced scorecard. Therefore, balanced scorecard emerged as a reconstruction of traditional performance assessment that only focused on financial performance. The performance with balance scorecard is more comprehensive, covering financial and non-financial measurements by directing personal focus and effort towards non-financial targets, such as: learning and growth, customer, and the process of internal business.

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performance of balanced scorecard perspectives (financial, customer, internal business, as well as learning and growth)?”

2 REVIEW OF LITERATURE AND HYPOTHESIS DEVELOPMENT

2.1 Organizational of Fit Theory

If we take a look back at the development of Fit Theory in the beginning, there has been the organization theory, a theory that explained how exactly an organization being structurized and how it was constructed in the purpose of increasing the effectivity of organization (Robbins, 1994; 6). The next development is

population ecology theory and contigency which later bécame the source of theory of fit, that is the theory on internal relation harmony in an organization (Sobirin, 2007;

268).

So, Organizational of Fit Theory states that organizational strategy should fit other factors so that the organization acheive good performance. And then, the organization should be designed in a way that it can achieve long term goals in the form of organization’s vision and mission in order to give effect to company’s performance. That means with the existence of strategy harmony and external factor (culture), performance can be improved.

2.2 The Definition and Rules of Organization Culture

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According to Adaptionist School, corporate culture is the common faith and value that give meaning to the members of an institution and uses the faith and values as the behaviour guidance in an organization (Sobirin, 2007:131). Robbins (2006:721) gives a short definition which says that organization culture is common meaning system that is embraced by members and differenciate it from other organization. Tika (2005:6-7) states the elements in the definition of corporate culture consists of value system, business environment, heroes, cultural network, ritual pattern of belief, values and behaviour, management style, management system and procedur, norms and procedure, and behaviour guidance. Hence, organization culture and corporate culture is related to each other. Corporate culture is a part of organization culture. The culture of a company has crucial roles to achieve its goals. According to Susanto et al. (2008:37) in order to gain good corporate performance, there is a need to understand the roles or functions of organization culture in a company, such as: (1) as organization binder, (2) integrator, (3) organization identity, (4) energy to achieve high performance, (5) sign of quality, (6) motivator, (7) guidelines of leadership style, and (8) increase of stakeholder values.

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employees and company’s environment so it can be strong culture in supporting company’s development and goals. Hofstede et al. (1990) devide corporate culture into six culture orientations, as follows: (1) process-oriented vs result-oriented, (2)

employee-oriented vs job oriented, (3) pragmatic vs normatif, (4) parochial vs profesional, (5) open system vs closed sstem, dan loose control vs tight control.

2.3 Organization Culture in The perspective of Balanced Scorecard

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There are a few advantages of balanced scorecard (BSC) performance implementation compared with traditional performance which only focus only on financial aspect, such as (1) Traditional performance measurement only pays attention to short term goals, while BS pays attention to both short and long term goals (2) BSC covers financial and non-financial measurement, (3) BSC sees performance measurement both from internal and external perspective, and (4) BSC is more than just performance measurement, because BS can be used as framework for strategic management process.

2.7 Hypothesis Development

Badera (2006 and 2008) studies the influence of organization culture towards performance. Badera’s research (2006) takes the setting of star hotels in Bali and Badera (2008) with the setting of research which takes place in Indonesia Stock Exchange found that organization culture affect performance. Suedjono (2010) found that organization culture affected performance.

Hofstede (1990), states that strong and unique culture is so influential towards the success of an organization. Furthermore, Moeljono (2002) says that corporate culture is value system that is believed and learned by all members in an organization, as well as developed continuously, functioned as bonding system, and can be used as behaviour guidelines for every member in organization to achieve its goals. Therefore, culture can influence organization performance.

Based on the review of literature and previous research can be drawn a hypothesis as follows:

Hypothesis (H):

The orientation organization culture (process, employee, and pragmatcs) affect the perspective performance of balanced scorecard (finance, customer, internal business, and learning).

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H2: The organization culture of employee orientation influences perspective performance of balanced scorecard.

H3: The organization culture of pragmatism orientation influences perspective performance of balanced scorecard.

3 RESEARCH METHOD

3.1 Research Location

The research is conducted at Denpasar City Cooperative, Bali, Indonesia.

3.3 The Identification and Definition of Variable Operational

Organization culture is exogen variable which has latent characteristics. Performance is endogen variable which has latent characteristics.

Organization culture mentioned in this research is the organization that is adopted from Hofstede research, that organization/corporate culture is the entire of thinking, feeling, and behaviour patterns from a social group (Hofstede, 1991). Organization culture is integrated with organization culture adopted from Hofstede that is viewed from 3 orientations, such as process oriented organization culture, employees, and pragmatism. Hofstede generally classifies the cultural dimensions that influence the work values of an organization.

Organization performance mentioned in this reserach is the operational performance based on the perception of the balanced scorecard aspect stated by Kaplan and Norton (1996) which consists of: (1) the aspect of learning perspective that includes: employee empowerment and personal accountability; (2) the aspect of financial perspective which includes: learning growth; (3) the aspect of customer perspective which includes: the number of new customers and customer’s loyalty; (4) the aspect of internal business perspective which includes: innovation ability.

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6 point scale with options such as very disagree (1), quite disagree (2), disagree (3), quite agree (4), very agree (5).

3.5 The Types and Sources of Data

Primary data is in the form of qualitative data that is the perception from the respondents about their organization culture. And then, the questionnaire answers are quantified into interval scale. Data collection is conducted through direct survey by spreading questionnaires to respondents in the cooperatives chosen as research samples.

3.6 The Method of Determining Sample

The population of the research is the cooperatives registered at Denpasar – Bali Cooperative Office. The determination of cooperative sample number in Denpasar that will be analyzed in the research uses Slovin Formula. (Sugiyono, 2002).

The Validity and Reliability Tests

In the first stage of reasearch will be carried out a test on the research intrument that is used to measure the construction of organization culture and organization performance that is the validity and reliability tests.

3.7 The method of Data Collection

The method of data collection is the method used to gather data. Data collection of this research uses questionnaire spread through mailpost as well as directly to the research objects.

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This research will use the method of inferential statistic in analyzing data, that is the structural analysis model with the approach of variance based or componenet based with Partial least Square (PLS).

4. DATA ANALYSIS AND DISCUSSION

4.1 The general Overview of The Research Objects

The objects of the research are copperatives around Denpasar area, Bali. Denpasar is divided into 4 subdistricts, they are: West Denpasar Subdistrict, East Denpasar Subdistrict, South Denpasar Subdistrict, and North Denpasar Subdistrict. The cooperatives used as research objects are spread in the entire subdistrcts in Denpasar. The research specially targets the multi-business cooperatives (KSU). KSU has wider business fields like giving loans and savings and selling grocery.

The population of the research is the KSU situated around Denpasar area with the total of 243 units. The number of cooperatives that are used as research samples is determined using Slovin Formula, and the minimum number of samples that should be collected to be analyzed is 67 units of cooperative. In this research, the total number of questionnaire that are submitted back is 74 KSUs. Each KSU was given 4 questionnaires and the respondents were the chairman of the cooperative, the manager, and 2 members of staff.

4.2 The Characteristics of Respondents

There are 276 respondents from 74 cooperatives that completed the task of filling out the questionnaire forms. It can be explained further that the characteristics of respondents based on their sexes are mostly men, at 59 percent, and the rest is women at 41 percent. Therefore, in the future the roles of women can be taken into account in cooperative activities particularly, multi-business cooperatives.

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The level of education of the respondents represents their ability and skills in running cooperatives. The level of education of cooperative’s human resources is mostly high school graduates at 46 percent, diploma III at 21 percent, bachelor at 33 percent. Based on the fact that most businesspeople are high school graduates, it is necessary to carry out learning process through education and training in order to improve their knowledge in conducting business activities so that cooperative performance can develop.

4.3 Validity Test and Intrument Reliability

Prior to analysis using partial least Square (PLS) is the validity test and reliability test of measurement tools or questionnaires.

Hence, the research instruments have been approved through validity and reliability tests. The results of the instruments’ validity and reliability tests are available in appendix. And the next step is conducting data analysis using SmartPLS program.

4.4 The Results of partial Least Square (PLS) Analysis

Next is the explanation of the results of Partial Least Square (PLS) analysis. This model of measurement shows specification of relations between latent variable with the indicators. There are seven latent variables in this research, as follows; process-oriented organization culture, employee-oriented organization culture, and pragmatic-oriented organization culture which belongs to exogen variable, as well as financial perspective performance, customer, internal business, and learning and growth which belong to endogent variable.

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Table 4.1

R2 Value Variabel Endogen Variable

Variabel Endogen Variable R-square

the aspect of internal business perspective 0,40

the aspect of customer perspective 0,43

the aspect of learning and Growth perspective 0,22

the aspect of Financial Perspect ive 0,54

Predictive-relevance Value:

Q2 = 1 – ( 1 – R12) ( 1 – R22 ) ( 1 – R32 ) ( 1 – R42 )

Q2 = 1 – ( 1 – 0,402) ( 1 – 0,432 ) ( 1 – 0,222 ) ( 1 – 0,542 ) Q2 = 0,465

According to Ghozali (2008:27), evaluation criteria, that is: a model is considered as having relevant predictive value of the value of Q2 is bigger than 0 (>0). The result of above calculation shows predictive-relevance value of 0.465 (> 0). That means the variation of 46.51% in the performance variable of balanced scorecard perspective (financial, customer, internal business, and learning and growth) is explained by the culture variables used. Therefore, the model is considered worthy of having relevant predictive value.

The results of Hypothesis Test and Dicussion

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appendix. The decision to accept or reject the hypothesis is reached through comparing t-table with t-statistics at the level of α 5% or t-statistics > from t-table that is t-calculation > 1.96. Therefore, the statistic test result can be described as follows: the process-orientated organization culture affects balanced scorecard performance from the perspective of financial, customer, internal business and learning and growth. Then, the employee-oriented organization culture affect only the balanced scorecard from the perspective of customer. And the last, pragmatic-oriented organization culture affects balanced scorecard performance from the perspective of financial, customer, and internal business. The ones that don’t show influence relation are, employee-oriented organization culture towards financial, internal business, and learning and growth perspectives, as well as pragmatic-oriented organization culture towards learning and growth perspective.

Since process-oriented organization culture has real influence towards balanced scorecard persprctive performance, the more process oriented a cooperative, the greater the cooperative’s performance will be in all aspects of balanced scorecard. Culture can be increace coorporative performance. According to Hofstede (1990), the process-oriented organization culture has the following characteristics: risk averting, limited business scope with clear job description, and monotonous job in daily basis that makes them more professional.

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characteristic that tends to avoiding risks. Agency theory also explains that humans have moral hazard that makes it impossible to improve cooperative’s performance if it is only oriented on employees without considering other strategies.

Pragmatic-oriented organization culture influences balanced scorecard performance from the perspective of financial, customer, and business internal. This type of organization culture which emphasizes on customer’s satisfaction and business ethics is more pragmatical than dogmatic. Using this characteristics, a cooperative can improve its performance. This finding is in accordance with Moeljono’s statement (2003) that customer service is very crucial in the effort of improving performance. In the middle of business competition, a cooperatice should improve service for customer. One of the main thing that need more attention is time as customers will be more satisfied with faster service.

CONCLUSION AND SUGGESTION

5.1 Conclusion

Based on the result of data analysis and discussion, a conclusion can drawn that, generally, the model proposed has relevant prediction power, that the organization culture which is oriented to process, employees, and pragmatism affect performance from the perspective of balanced scorecard at 46,5 percent. If we take a look, the influence of every culture towards the four aspects of balanced scorecard performance is as follows:

1. Process-oriented culture influences balanced scorecard performance in the perspective of financial, customer, business and internal, and learning and growth

2. Employee-oriented culture only influences balanced scorecard performance in the perspective of customer.

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4. The culture that has the most dominant influence towards balanced scorecard perspective performance is the process-oriented organiation culture.

5.2 Suggestion

Other researchs in the future can develop this reserach by adding samples and respondents in order to broaden the scope of research, for instance, the entire Bali. This research collected the data by spreading questionnaires. In the beginning, the questionnaires were sent through mailpost but the response rate was very low. In order to overcome the problems finally data collection was carried out by visiting the cooperatives that was ransomly chosen as samples.

There were some difficulties in trying to collect annual financial report from each cooperative so it was decided to assess the financial performance using questionnaires that was assumed to be able to represent the financial condition of the cooperatives. For next researches it would be better to add discussion from the aspect of financial analysis like cooperative’s liquidity level, solvability, and profitability.

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The results of Hypothesis Test

original sample

estimate mean of subsamples Standard deviation T-Statistic

BE -> PB -0.160 -0.128 0.231 0.692

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BP -> PB 0.418 0.398 0.158 2.650*

BE -> PC 0.405 0.403 0.339 1.995*

BF -> PC 0.320 0.342 0.138 2.320*

BP -> PC 0.370 0.223 0.171 2.161*

BE -> PL 0.235 0.160 0.418 0.563

BF -> PL 0.159 0.185 0.216 0.738

BP -> PL 0.360 0.138 0.241 1.998*

BE -> PF -0.158 -0.033 0.267 0.591

BF -> PF 0.534 0.204 0.452 1.982*

BP -> PF 0.302 0.138 0.223 1.965*

Keterangan:

BE : culture of employee orientation PF: Financial perspective

BF: culture of pragmatism orientation PC: Customer perspective

BP: culture of process orientation PB: internal business perspective

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