MANAGEMENT FRAUD AND ORGANISATIONAL CLIMATE

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CHAPTER 3: ORGANISATIONAL CLIMATE

INTRODUCTION

This chapter commences by examining the historical context of organisational climate, before conceptualising organisational climate. Due to the conceptual complexity of this construct, this study firstly examines the nature and formation of this multi-level and multi-dimensional construct, before distinguishing organisational climate from culture. Once the construct has been conceptualised specifically for this study, the different types and classification of climates are examined, before studying the factors affecting organisational climate.
The last section of this chapter examines the levels of climate and establishes the link between organisational climate and ethical climate. The focus of this chapter then shifts to a specific level of organisational climate, namely ethical climate. The difference between ethical climate and culture is examined, before discussing two models. The first model distinguishes the antecedents of an ethical climate, while the second model indicates the overall impact of having an ethical climate. The strengths and weaknesses of various approaches to ethical climate as well as the different types of ethical climates are studied. The section ends by examining previous research on ethical climate.

HISTORICAL CONTEXT OF ORGANISATIONAL CLIMATE

Organisational climate has proven to be useful in capturing perceptions of the work context (Adenike, 2011) and, according to Denisson and Ostroff; Kinicki and Tamkins as cited in Adenike (2011); McMurray (1994) and Srivastav (2009), the construct of organisational climate is one of the most frequently researched topics in the field of organisational psychology and has been studied extensively for the last 50 years or more (Landy & Conte, 2004).
The human relations movement in the 1930s led by Hawthorne, resulted in researchers moving from the “hard” physical environment to the “soft” psychological environment, thus the concept of organisational climate was born (Zhang & Liu, 2010). Research on organisational climate began in earnest during the 1960s and one of the first researchers to commence with studies in this field was the well-known founder of group dynamics, Kurt Lewin, with Lewin, Lippi and White applying three various leadership styles, namely democracy, autocracy and laissez-faire to create different group atmospheres of organisations and although they failed to define organisational climate, they were among of the first researchers to propose the concept of organisational climate in 1939 (Landy & Conte, 2004; Schneider, Ehrhart & Macey, 2011; Zhang & Liu, 2010). These researchers referred to a specific kind of climate, namely social climate (Schneider et al., 2011). By social climate, these researchers meant the nature of the relationship created between leaders and followers as a function of a leader’s behaviour (Schneider et al., 2011). Lewin, Lippi and White manipulated the leadership style of boys’ camp counsellors as the boys worked on a task and observed differences in the boy’s subsequent behaviour. They attributed those differences to the social climate created by the leaders; climate was the inferred, unmeasured, mediating mechanism (Schneider et al., 2011). Although the study conducted by Lewin, Lippit and White failed to define organisational climate, it demonstrated that climate has a more powerful influence on individuals than previously acquired behaviour tendencies, and importantly was able to alter the observed behaviour patterns of group members (Litwin & Stringer, 1968).
Similar research was conducted by Chris Argyris in 1957 and by Douglas McGregor in 1960 who both presented the thought that the fairness with which managers treated subordinates gave rise to a “managerial climate”. For both of the above researchers the climate was, as in Lewin and colleagues, inferred and unmeasured (Schneider et al., 2011). Following on the work of the above researchers, Forehand in 1964 described three features of organisational climate, namely that 1) organisational climate varies from one organisation to another, 2) it is enduring and 3) it can affect the behaviour of individual members (Landy & Conte, 2004).
As researchers became interested in the climate construct, they developed what they thought were measures of climate and somewhat inconsistently they focussed on the leadership and job attributes that were the hypothetical causes of climate, rather than on the measurement of climate itself (Schneider et al., 2011). This resulted in early climate measures having leadership behaviours as one of the facets measured, job attributes as another, social-interpersonal relationships as a third and characteristics of the reward system as a fourth, but the nature of the climate being assessed was left unspecified (Schneider et al., 2011).
Despite the inconsistencies in previous research, what is evident is that organisational climate has been identified as having an impact on employee attitudes and behaviours in the workplace and is a meaningful construct with significant implications for understanding human behaviour in organisations (Benjamin, 2012; Castro & Martins, 2010; Forte, 2004; Litwin & Stringer, 1968; Neal et al., 2000). As a description of employees’ perceptions of organisations, organisational climate was more similar to the real behaviour than the real environment, and on the conceptual level, the organisational climate construct has relatively well-defined boundaries and suggests considerable potential for describing and understanding individual behaviour in organisations (Hellriegel & Slocum, 1974; Zhang & Liu, 2010).
However, despite the fact that organisational climate has been studied considerably over the last few years, there is still a lack of consensus on the precise specification of the construct with the concept being complex, multi-level and multi-dimensional (Dawson, Gonzalez-Roma, Davis & West, 2008; Landy & Conte, 2010; Neal, Griffen & Hart, 2000). The large number of definitions stem, amongst others, from the predicament associated with understanding the concept of organisational climate, as this concept has been fraught with conceptual deficiencies and contradictory results (Truhon, 2008). The next section aims to address this lack of consensus and conceptualise this complex construct specifically for this study.

CONCEPTUALISATION OF ORGANISATIONAL CLIMATE

Although the focus of organisational climate research has evolved over the past twenty-five years, organisational climate remains a difficult concept to define, with a number of researchers defining the concept differently (Benjamin, 2012; Glick, 1985; Rentsch, 1990; Webber, 2007). Despite the progress that has been achieved in the study of climate with over forty years of intensive thinking and research, there remain several unresolved issues in the climate literature (Schneider et al., 2011).
Some of these issues around climate have been present from the earliest days of climate research, such as confusion about the definition of climate, the lack of integration between molar and focussed perspectives and the lack of resolution between the study of organisational climate and psychological climate. Other issues have developed more recently, such as the failure to articulate differences between strategic climates and process climates and the lack of integration of literatures on organisational climate and organisational culture (Schneider et al., 2011), with the consistent theme throughout organisational climate literature being a concern that researchers are overzealous to measure and analyse data about a concept that is not only ill-defined, but also lacking a consistent and comprehensively applied theoretical context (Fink & Chen, 1995; Tustin, 1993; Wallace et al., 1999).
Organisational climate will now be clarified and conceptualised by addressing the themes above. However, the “what” of organisational climate will firstly be examined as once the “what” of organisational climate has been distinguished, it will be easier to study the concept of organisational climate (Fink & Chen, 1995).

Nature of Organisational Climate

Organisational climate relates to the recognition of the organisation as a social system and the extent to which membership is a psychologically rewarding experience (Mullins, 1989). It can be seen as a state of mutual trust and understanding among employees of the organisation and is characterised by the nature of the employee-organisation relationship and the superior-subordinate relationship. These relationships are determined by the interactions among goals and objectives, formal structure, styles of leadership, the process of management and behaviour of employees (Mullins, 1989).
It can therefore be viewed as an organisational attribute that represents the equilibrium position toward which all the psychological climates are seen to tend. In other instances organisational climate can be viewed as a real organisational attribute (e.g. technology or structure) as opposed to something “psychological”. Treating organisational climate as a real thing to be encountered and experienced, means that individuals report climate not as subjects or respondents, but as informants, and therefore organisational climate reflects an insider’s orientation, as opposed to an outsider’s analytic categories (Cooper & Robertson, 1988). The construct is important because it provides a conceptual link between analysis at the organisational level and the individual level and can be seen as the individual’s descriptions of the social setting or context of which the individual is a part (Cooper & Robertson, 1988; Field & Abelson, 1982). Organisational climate is what the people inside the organisation say it is, rather than the people outside the organisation say or think it is, or wish it would be (Dickson, Smith, Grojean, Ehrhart, 2001).
Organisational climate is characterised by a set of attitudes and beliefs relating to the organisation that is shared and collectively held by employees as a whole (Fink & Chen, 1995) and be seen as the “personality” of the organisation; that is, organisational climate is to the organisation as personality is to the individual (Hoy, Tarter, Kottkamp, 1991). It is the atmosphere that employees perceive to be created in their organisations, through rewards, practices, policies and procedures (Schneider, 1975; Lewicki, Bowen, Hall & Hall, 1988). Employees sense particular climates as a function of the flow of everyday activities, practices, events and procedures in the organisation. No persons can remember everything that happens to them and around them, hence individuals tend to group perceptions into meaningful clusters (Lewicki et al., 1988). These clusters are made up of the perception of events, practices, activities and procedures that tend to connote a common theme in the organisation (Lewicki et al., 1988). These rewards, practices, policies and procedures, according to Rentsch (1990), exist in lasting patterns and are considered to be objective properties of the organisation. The perception of climate in an organisation is a result of organisational socialisation and is dependent on organisational policies and procedures (Hicks-Clarke & Iles, 2000; Jones, 1986). It comprises the experience and perceptions of the organisation, for example (Simpson & Taylor, 2007, p.47):
• Are the people friendly or are they ‘heads-down’, involved in their own work and rarely speak?
• Is it authoritarian- is everyone scared of the boss?
• Are the offices cold and impersonal or covered in plants, posters and fluffy toys?
• If employees have a problem or do not understand something do they feel they can approach co-workers without feeling disparaged?
• Does management encourage initiative and innovation or is communication only one way?
Although a precise and unitary definition of organisational climate does not exist, researchers agree that certain characteristics describe the construct and differentiate it from other concepts (Castro & Martins, 2011). Castro and Martins (2011, p.2) provide a list of these characteristics:
• generally organisational climate is considered a molar construct that can change over time;
• it is perceived by and shared among organisational members, which can result in consensus among individuals;
• it consists of global impressions of the organisation that members form through interacting with each other and organisational policies, structures and processes;
• organisational climate perceptions are descriptions of environmental events and conditions rather than evaluations of them;
• the climate concept is multi-dimensional;
• it refers to the “feeling of an organisation”;
• climate can potentially influence an individual’s behaviour.
Although the “what” of climate has been addressed, it is of interest to note that the recent interest in organisational climate developed in part from research on organisational culture conducted during the 1970s, in which additional ways of understanding organisational life were developed (Brown, 1995). Hence there is a close and somewhat ambiguous relationship between organisational culture and organisational climate that has often been overlooked in the literature (Brown, 1995).

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Difference Between Organisational Climate and Organisational Culture

Although organisational climate and culture have often been used interchangeably, with the definitions of climate and culture being applied synonymously, organisational climate and culture are two separate and distinct concepts (Cameron & Quinn, 2011; Cullen, Victor & Bronson, 1993; Hicks-Clarke & Iles, 2000; Hoy et al., 1991; Key, 1999; Landy & Conte, 2010; Schneider & Bowen, 1995; Simpson & Taylor, 2013; Wallace et al., 1999).
According to Glick (As cited in McMurray, 1994) and Hoy et al. (1991), climate and culture approaches emanate from different intellectual traditions. Organisational climate has its origins in the Lewinian social psychology, and hence a positivist paradigm, that uses questionnaires to directly assess member perceptions of organisational events but does not attempt to interpret the meaning of those events (Rentsch, 1990). McCarthy (1998) states that the culture concept has its origins in the anthropological theory, with psychologists working on both the conceptual and empirical work of anthropologists.
It was only in 1978 that the first major analysis of the informal dimensions, focussing on organisational culture and management, attracted attention in the mainstream literature of organisational theory (Wallace et al., 1999). In 1979 Pettigrew suggested that organisational cultures consist of cognitive systems explaining how individuals reason, think and make decisions (Pettigrew as cited in Wallace et al., 1999). Pieterson (1991) suggests that when distinguishing these two conceptual ideas, it is vital to realise that organisational culture is entrenched in an organisation on three levels:
• Level one (surface culture) refers to all tangible objects and phenomena such as records, physical assets, documents, technology, language, work procedures, rituals, methods of production, dress code and terms of address.
• Level two (intermediate culture) encompasses those phenomena which are partly observable and partly unobservable. Level two contains aspects of the culture such as motivation, socialised norms, attitudes and shared values. The phenomena characterising level two have a definite psychological existence. This existence lies in the fact that they guide and influence activities in the organisation.
• The last level (deep culture) encompasses those unconsciously held basic beliefs and assumptions about life.
Parumasar (2008) states that an organisation’s culture can be compared to an invisible web, which is spun by the employees of the organisation over a period of time. This net then creates bonds between groups of individuals based on values and expectations (Parumasar, 2008). This cultural web not only includes the structural and systems perspectives of organisations, but also the symbolic “soft” features (Brooks, 2009), with culture summarized by Cohen and Fink (2001) to include all aspects that indicate the way things are done or the prevailing atmosphere, general notions or how members are supposed to act and feel. Organisational culture can be perceived by studying the organisation’s history, ideologies, philosophy, symbols, myths, stories, and sayings. Organisational professionals state that the culture of an organisation cannot be managed, but the change of the culture can be managed (Critchley, 1993).
While organisational climate refers to organisational members’ perceptions, where behaviour patterns are shaped by the common values, beliefs and norms within the organisation, and can be perceived as a feature in the core of a circle that includes culture, ecology, individuals, organising and social systems which surround the organisation and as an institution effected by them (Güll, 2008; Tseng & Fan, 2011).
It appears as though organisational culture seems to be a more comprehensive concept than organisational climate, as organisational climate slots into the intermediate level of culture; consequently climate forms part of the less manifested and communicable aspects of an organisation (Pietersen, 1991). Coetzee (1991), in contrast, sees organisational climate as the employee’s perception of and attitude towards happenings in the organisation and the “temperature” prevailing among the employees within a given time frame. Organisational climate is seen as changeable, shorter term and relatively easy to change. Falcione and Kaplan as cited in McMurray (1994), concur with the above author by suggesting that organisational climate is an assessment of a number of elements at any given moment.
Moran and Volkwein (1992) list several differences between organisational climate and culture. Wallace et al. (1999) summarise the difference between organisational climate and culture by supporting the view of Ostroff and Schmitt that organisational culture is created from a broad range of internal and external influences, some of which are seemingly beyond managerial control, while organisational climate is held to be a summary perception of how an organisation deals with its members and environments, and thus develops specifically from internal factors primarily under managerial control and influence (Wallace et al., 1999). According to Landy and Conte (2010), climate refers to the context in which action occurs, while culture is about the meaning intended by and inferred from those actions. Hence an individual’s attitude towards climate evaluation is the individual’s reaction to the culture, not the description of the culture itself (Pietersen, 1991). A helpful distinction is that climate is defined by shared perceptions of behaviour, while culture consists of shared assumptions and ideologies (Hoy, Tarter & Kottkamp, 1991). An individual’s description of the organisation does not indicate whether the employee considers it a good place to work (Shockley-Zalabak, 1999).
Denison (1990) believes that the debate about the differences between organisational climate and culture concerns the methodological differences that have managed to obscure basic substantive similarities. Güll (2008) and Turnipseed as cited in McMurray (1994) state that organisational climate is a quantifiable concept, while organisational culture is more qualitative by nature and therefore less measurable. Researchers of organisational climate are utilising quantitative techniques and multivariate analyses to identify patterns of perceived behaviour in organisations (Glick, 1985, Xenikou & Furnham, 1996). Organisational climate researchers assume that organisations are rational instruments to accomplish purpose, thus they search for rational patterns. The goal of studying climate is to determine effective strategies of change (Hunsaker & Cook, 1986). In contrast, scholars of organisational culture tend to make use of the qualitative and ethnographic techniques of anthropology and sociology to examine the character or atmosphere of organisations (Glick, 1985; Stapley, 1996). Culture researchers assume that the culture of an organisation is a natural outgrowth of a particular time and place and as such culture is not responsive to attempts at manipulation and change (Hoy, Tarter & Kottkamp, 1991). Tustin (1993) and Verwey (1990) allude to the fact that the normal way of studying organisational climate is to aggregate the measures of the individual’s perception of the organisational climate. However, this method does not reveal the individual perception of each of the individuals measured. Due to culture being such an abstract concept, organisational climate is a more practical way of representing individuals’ emotions about a specific organisation’s value, authority systems and motivation policies (Tseng & Fan, 2011). Through vicarious observation and interpersonal interaction of an organisation’s climate, organisational members learn appropriate and acceptable behaviour (Tseng & Fan, 2011).
The parallels between the two concepts are emphasised by Moran and Volkwein (1992) and Hicks-Clarke and Iles (2000) who contend that climate and culture are related terms, as the climate of an organisation is strongly influenced by the organisation’s culture and the perception of organisational practices by individuals within organisations. According to Brink (1996), an analysis of the literature on organisational climate and culture implies that the concepts cannot be viewed as mutually exclusive, as organisational climate and culture influence each other. Moran and Volkwein (1992) claim that while organisational climate and culture may be conceptually distinct, both constructs are related through the influence an organisation’s culture exerts on forming an organisation’s climate. Hughes, Ginnet and Curphy (2002) support the above stance, as they view organisational climate and culture as a function of or reaction to each other. Or, stated differently, organisational climate is concerned with the way in which employees perceive the characteristics of an organisational culture, while culture sets the boundaries of behaviour (Sherman, Bohlander & Chruden, 1988). Climate and culture appear to address common phenomena (Denison, 1996; Schein, 1988). Maxwell and Thomas propose peaceful co-existence between organisational climate and organisational culture, while O’Reilly, Chapman and Caldwell discovered evidence of variables within an organisation’s culture profile that were similiar to the work of Koys and DeCottis’s dimension of organisational climate in many respects (as cited in McMurray, 1994). Burke and Litwin (1992, p.526) summarise the above discussion by stating that “climate is, of course, affected by culture, and people’s perceptions define both, but at different levels”.
Denison (1990) stresses the point that only when individuals agree about the similarities of the two concepts, can they delineate the differences between the concepts. Denison (1990) postulates that argument for the similarities between organisational climate and culture is based on three premises.
• Both organisational climate and culture focus on organisational-level behaviour characteristics, which implies that organisational divisions are a viable level of analysis of behaviour.
• Collectively these concepts cover a wide range of phenomena which range from deeply held assumptions to behaviour that is rooted in these assumptions.
• Organisational climate and culture have a similar problem with explaining how the behavioural characteristics of a system influence the individual in an organisation and how individuals influence the behaviour of the organisation.
What is evident from this discussion, is that organisational climate and organisational culture reside on the same continuum, with organisational climate being grounded in individual consciousness, while culture is largely pre-conscious (McMurray, 1994). Climate is an individual construct that displays a point of reference based on personal values while culture is a shared phenomenon within a group (James, James & Asche, 1990; Schein, 1985; van Vianen & Prins, 1997). Further, it appears that organisational culture is a more implicit concept than organisational climate, while organisational climate consists of more empirically accessible elements, such as behavioural and attitudinal characteristics (Moran & Volkwein, 1992; Wallace, Hunt & Richards, 1999). Seen within this context, climate can be viewed as having a direct effect on behaviour in an organisation while culture entails the study of the meaning of events in an organisation (Tseng & Fan, 2011). Hence, if the aim of research is to describe behaviour, of the employees in the organisation, with the intent to manage and change the behaviour then a climate approach seems more desirable (Hoy et al., 1991; Moran & Volkwein, 1992). According to Field and Abelson (1982), the common element of the various definitions of organisational climate is that organisational climate has enduring qualities, which may be measured and which influence the behaviour of the individuals in the organisation. The complexity in understanding the multi-level organisational climate construct has been partially dealt with by focussing on the nature of organisational climate and emphasising the differences between climate and culture. This study will now proceed to conceptualise the construct specifically for this study.

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TABLE OF CONTENTS
DECLARATION
ABSTRACT
OPSOMMING
ACKNOWLEDGEMENTS
LIST OF FIGURES
LIST OF TABLES
CHAPTER 1: INTRODUCTION AND OVERVIEW
1.1. INTRODUCTION
1.2. BACKGROUND TO AND MOTIVATION FOR THE RESEARCH
1.3. THE RESEARCH PROBLEM
1.4. AIMS
1.5. THE PARADIGM PERSPECTIVE
1.6. SCIENTIFIC BUILDING BLOCKS USED IN STUDY
1.7. MY RESEARCH APPROACH
1.8. UNIT OF ANALYSIS
1.9. ENSURING QUALITY OF THE RESEARCH
1.10. ETHICS
1.11. RESEARCH METHOD
1.12. OVERVIEW OF THE PROPOSED STUDY
1.13. SUMMARY
CHAPTER 2: MANAGEMENT FRAUD
2.1. INTRODUCTION
2.2. HISTORICAL CONTEXT OF FRAUD
2.3. CONCEPTUALISATION OF FRAUD
2.4. TYPES OF FRAUD
2.5. CLASSIFICATION OF FRAUD
2.6. CONDITIONS UNDER WHICH FRAUD MAY OCCUR
2.7. FACTORS AFFECTING AN INDIVIDUALS’S DECISION TO COMMIT FRAUD
2.8. MANAGEMENT FRAUD
2.9. PREVENTION AND DETECTION OF MANAGEMENT FRAUD
2.10. MANAGEMENT FRAUD AND ORGANISATIONAL CLIMATE
2.11. SUMMARY
CHAPTER 3: ORGANISATIONAL CLIMATE
3.1. INTRODUCTION
3.2. HISTORICAL CONTEXT OF ORGANISATIONAL CLIMATE
3.3. CONCEPTUALISATION OF ORGANISATIONAL CLIMATE
3.4. TYPES OF ORGANISATIONAL CLIMATES
3.5. CLASSIFICATION OF ORGANISATIONAL CLIMATE
3.6. FACTORS AFFECTING ORGANISATIONAL CLIMATE
3.7. DIMENSIONS OF ORGANISATIONAL CLIMATE
3.8. LEVELS OF CLIMATE
3.9. ETHICAL CLIMATE
3.10. SUMMARY
CHAPTER 4: COMPILING A CONCEPTUAL MANAGEMENT FRAUD CLIMATE MODEL
4.1. INTRODUCTION
4.2. APPLYING DUBIN’S METHODOLOGY TO THIS STUDY
4.3. SUMMARY
CHAPTER 5: EMPIRICAL INVESTIGATION
5.1. INTRODUCTION
5.2. PARTICIPANTS
5.3. MEASURING INSTRUMENTS
5.4. DATA COLLECTION AND STORAGE
5.5. DATA ANALYSIS
5.6. REPORTING
5.7. SUMMARY
CHAPTER 6: FINDINGS
6.1. INTRODUCTION
6.2. EXAMINATION OF CASES
6.3. SUPPORTIVE EVIDENCE FROM INTERVIEWS CONDUCTED
6.4. SUMMARY
CHAPTER 7: CONCLUSIONS, SHORTCOMINGS AND RECOMMENDATIONS
7.1. INTRODUCTION
7.2. OVERVIEW OF THE STUDY
7.3. IMPLICATIONS OF THE STUDY
7.4. SHORTCOMINGS OF THIS STUDY
7.5. RECOMMENDATIONS FOR FUTURE RESEARCH
7.6. HAVE THE STUDY AIMS BEEN MET?
7.7. CONCLUSION
7.8. SUMMARY
BIBLIOGRAPHY
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