On the Origin of Shared Beliefs (and Corporate Culture)

Eric J. Van den Steen

Article | RAND Journal of Economics

On the Origin of Shared Beliefs (and Corporate Culture)

Abstract

This article shows how corporate culture, in the sense of shared beliefs and values, originates (often unintentionally) through screening, self-sorting, and manager-directed joint learning. It shows that such culture will be stronger among more important employees and in older and more successful firms where employees make important decisions and the manager has strong beliefs. It further shows how a manager's beliefs influence culture, how culture persists despite turnover, and why the suggested link between culture and performance may be a case of inverse causality. It finally shows that, from an outsider's perspective, organizations may tend to over-invest in corporate culture.

Keywords: Organizational Culture; Learning; Values and Beliefs; Employees; Decisions; Power and Influence; Performance; Perspective;

Format: Print

32 pages

Find at Harvard Read Now

Citation:

Van den Steen, Eric J. "On the Origin of Shared Beliefs (and Corporate Culture)." RAND Journal of Economics 41, no. 4 (Winter 2010): 617–648.

Julie Rice and Elizabeth Cutler founded SoulCycle, an indoor cycling studio chain, in 2006 as more than a health club; they wanted it to become a lifestyle brand that would “empower riders in an immersive fitness experience.” By early 2015, SoulCycle had grown to 38 studios in seven metropolitan areas. In March 2015, Equinox, a luxury fitness company that had financed SoulCycle’s expansion in 2011, approached the co-founders with an offer to buy them out for $90 million each. It was an attractive offer but it would also likely circumscribe their responsibilities. Rice and Cutler had to decide whether to accept the Equinox offer as a prelude to smaller roles at the firm (even potential exit), or continue investing time, energy, and financial resources in growing the business.

Established in 2007, SoundCloud already boasted the second largest number of active music listeners among all streaming services and was recognized as the go-to platform for new artists by early 2014. Yet, its founders were questioning the robustness of the firm’s current focus on serving as a lab for emerging musical artists. They were wondering if the firm should instead enter the booming mainstream music streaming market.

This paper reviews, discusses, and expands the “core guidance” definition of strategy as “the smallest set of choices to optimally guide (or force) other choices.” It first discusses what this definition contributes to the existing proposed definitions. It then considers the extension of this definition to the context of competitive interactions: whether the definition makes sense in that context and what it implies for decisions to be strategic in such context. As part of this analysis, it also uses the definition to explore a new issue: why quantity-based competitive moves might be more strategic than price-based moves.

Faculty & Research

On the Origin of Shared Beliefs (and Corporate Culture)

Abstract

Citation:

About the Author

More from the Author