8.3 Organizational Culture
Learning Objectives
- Identify the fit between organizational cultures and the external environment.
- Define organizational culture.
- Describe why organizational culture is important.
- Identify the different levels of organizational culture.
Organizational culture is considered one of the most important internal dimensions of an organization’s effectiveness criteria. Peter Drucker, an influential management guru, once stated, “Culture eats strategy for breakfast” (Hyken, 2015). He meant that corporate culture is more influential than strategy in terms of motivating employees’ beliefs, behaviors, relationships, and ways they work since culture is based on values. Strategy and other internal dimensions of organization are also very important, but organizational culture serves two crucial purposes: first, culture helps an organization adapt to and integrate with its external environment by adopting the right values to respond to external threats and opportunities; and secondly, culture creates internal unity by bringing members together so they work more cohesively to achieve common goals (Schein, 2010 & Weiss, 2014). Culture is both the personality and glue that binds an organization. It is also important to note that organizational cultures are generally framed and influenced by the top-level leader or founder. This individual’s vision, values, and mission set the “tone at the top,” which influences both the ethics and legal foundations, modeling how other officers and employees work and behave.
What Is Organizational Culture?
Organizational culture refers to a system of shared assumptions, values, and beliefs that show people what is appropriate and inappropriate behavior (Chatman & Eunyoung, 2003; Kerr & Slocum, 2005). These values have a strong influence on employee behavior as well as organizational performance. In fact, the term organizational culture was made popular in the 1980s when Peters and Waterman’s best-selling book In Search of Excellence made the argument that company success could be attributed to an organizational culture that was decisive, customer-oriented, empowering, and people-oriented.
Culture is largely invisible to individuals just as the sea is invisible to the fish swimming in it. Even though it affects all employee behaviors, thinking, and behavioral patterns, individuals tend to become more aware of their organization’s culture when they have the opportunity to compare it to other organizations. The culture of the organization is closely linked to organizational design. For instance, a culture that empowers employees to make decisions could prove extremely resistant to a centralized organizational design, hampering the manager’s ability to enact such a design. However, a culture that supports the organizational structure (and vice versa) can be very powerful.
Why Does Organizational Culture Matter?
An organization’s culture may be one of its strongest assets or its biggest liability. In fact, it has been argued that organizations that have a rare and hard-to-imitate culture enjoy a competitive advantage (Barney, 1986). In a survey conducted by the management consulting firm Bain & Company in 2007, worldwide business leaders identified corporate culture to be as important as corporate strategy for business success (Hannaway, 1989). This comes as no surprise to leaders of successful businesses, who are quick to attribute their company’s success to their organization’s culture.
Culture, or shared values within the organization, may be related to increased performance. Researchers found a relationship between organizational cultures and company performance, with respect to success indicators such as revenues, sales volume, market share, and stock prices (Kotter & Heskett, 1992; Marcoulides & heck, 1993). At the same time, it is important to have a culture that fits with the demands of the company’s environment. To the extent that shared values are proper for the company in question, company performance may benefit from culture (Arogyaswamy & Byles, 1987). For example, if a company is in the high-tech industry, having a culture that encourages innovativeness and adaptability will support its performance. However, if a company in the same industry has a culture characterized by stability, a high respect for tradition, and a strong preference for upholding rules and procedures, the company may suffer because of its culture. In other words, just as having the “right” culture may be a competitive advantage for an organization, having the “wrong” culture may lead to performance difficulties, may be responsible for organizational failure, and may act as a barrier preventing the company from changing and taking risks.
In addition to having implications for organizational performance, organizational culture is an effective control mechanism dictating employee behavior. Culture is a more powerful way of controlling and managing employee behaviors than organizational rules and regulations. For example, when a company is trying to improve the quality of its customer service, rules may not be helpful, particularly when the problems customers present are unique. Instead, creating a culture of customer service may achieve better results by encouraging employees to think like customers, knowing that the company priorities in this case are clear: Keeping the customer happy is preferable to other concerns, such as saving the cost of a refund. The ability to understand and influence organizational culture is a key item for leaders to have in their tool kit.
Levels of Organizational Culture
Organizational culture consists of some aspects that are relatively more visible, as well as aspects that may lie below one’s conscious awareness. Organizational culture can be thought of as consisting of three interrelated levels (Schein, 1992).
At the deepest level, below our awareness, lie basic assumptions. These assumptions are taken for granted and reflect beliefs about human nature and reality. At the second level, values exist. Values are shared principles, standards, and goals. Finally, at the surface, we have artifacts, or visible, tangible aspects of organizational culture. For example, in an organization, a basic assumption employees and managers share might be that happy employees benefit their organizations. This might be translated into values such as egalitarianism, high-quality relationships, and having fun. The artifacts reflecting such values might be an executive “open door” policy, an office layout that includes open spaces and gathering areas equipped with pool tables, and frequent company picnics.
Understanding the organization’s culture may start from observing its artifacts: its physical environment, employee interactions, company policies, reward systems, and other observable characteristics. When you are interviewing for a position, observing the physical environment, how people dress, where they relax, and how they talk to others is definitely a good start to understanding the company’s culture. However, simply looking at these tangible aspects is unlikely to give a full picture of the organization, since an important chunk of what makes up culture exists below one’s degree of awareness. The values and, deeper, the assumptions that shape the organization’s culture can be uncovered by observing how employees interact and the choices they make, as well as by inquiring about their beliefs and perceptions regarding what is right and appropriate behavior.
Exercises
- Why do companies need culture?
- What does a company’s internal corporate culture have to do with its external environment?
- Give an example of a company culture being a strength and a weakness.
- In what ways does culture serve as a controlling mechanism?
- If assumptions are below the surface, why do they matter?
- Share examples of artifacts you have noticed at different organizations.
Key Takeaways
“Corporate Cultures” in Principles of Management by OpenStax and is licensed under Creative Commons Attribution 4.0 International License.
“Understanding Organizational Culture” in Principles of Management by University of Minnesota is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.
