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Organizational Culture

Updated on April 13, 2024
Article byRutan Bhattacharyya
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Organizational Culture Definition

Organizational culture refers to a system comprising attitudes, practices, shared beliefs, and values governing all employees’ actions. When this system is positive and strong, a company can attract top talent and hire the best people. Also, when it aligns with the employees, they feel more valued and comfortable.

Organizational Culture

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It is the culture of an organization that determines whether the work environment is healthy. Moreover, a favorable system can motivate all employees to deliver their best performance. Such a culture can be of various types. A few examples are adhocracy culture, market culture, and hierarchy culture. Appreciation, trust, resilience, and integrity are some qualities of a positive organizational culture. 

Key Takeaways

  • Organizational culture refers to the underlying assumptions, values, and beliefs shared by every member of a company. A strong culture is necessary to hire persons with the best abilities and potential easily. 
  • There are various qualities or features of organizational culture that are essential for a business’s success. Two of them are teamwork and innovation. 
  • The four types of culture developed by organizations are adhocracy, clan, market, and hierarchy. 
  • A key advantage of organizational culture is that it improves employee retention. 

Organizational Culture Explained

Organizational culture refers to the attributes, behaviors, values, rules, and beliefs contributing to and characterizing a business’s unique emotional and social work environment. Simply put, it defines how everyone functions and behaves when working together. This culture varies across companies. It is one of the most challenging things to change and includes unwritten and written rules created over time. 

Such a system affects all things related to a business, including how people perceive it and its performance. If the culture is strong, companies find it easier to recruit and retain top talent. Moreover, it helps the organization earn more money. That said, if the culture is toxic, it results in low employee morale, a high attrition rate, and poor performance. 

Generally, founders of a business create and maintain such a culture to ensure the organization progresses toward a specific direction. This system is extremely important for the development of traits required to be successful.   

Characteristics

Some key features of organizational culture are as follows: 

  • Integrity And Trust – A culture of integrity and trust affects corporate administration quality, creating a favorable work environment in which all team members express their viewpoints easily. The combination of the two components is crucial for teams that are interdependent concerning decision-making and interpretation of results. 
  • Innovation – A culture that promotes innovation enables organizations to make the most of the resources, markets, and technologies available to them. 
  • Teamwork – This component includes collaboration, respect, and communication between all team members. When every person in a team supports one another, employees tend to get more things done. Moreover, they feel happier when performing their tasks.  
  • Resilience – This quality is vital in dynamic business environments in which changes take place constantly. When a business’s culture encompasses this aspect, it teaches the leaders to anticipate changes and straightforwardly respond to them.
  • Appreciation – Appreciation may include a promotion, public acknowledgment, and more. When a business develops a culture with this element, every team member frequently thanks other employees for their contributions. 

Types

The different types of such a culture are as follows: 

#1 – Adhocracy Culture

Creativity and energy form the basis of this risk-taking culture. In other words, this type of culture establishes a dynamic, innovative, and creative environment in which employees take chances and experiment. Leaders in such a culture are inspirational innovators who take calculated risks. 

#2 – Hierarchy Culture 

Control and structure lay the foundation of such a culture. It features a formal work environment with strict institutional processes for guidance. Monitoring and coordination form the basis of leadership, with a culture focusing on predictability and efficiency. This type of culture is ideal for businesses in which safety is the topmost concern. 

#3 – Market Culture

This market-driven culture prioritizes profitability. Organizations with such a system have a focus on competition and achievement. They utilize competition to motivate employees and leaders. This type of culture is common in large corporations that have already become leaders in their respective industries. 

#4 – Clan Culture 

It is a people-focused system as the organization feels similar to an organization. In other words, the culture ensures a collaborative and friendly work environment. In this case, businesses value employees and prioritize communication. Such a system emphasizes that the employees within the business have a key role in decision-making. Moreover, traditions and commitments bind the organization. 

Examples

Let us look at a few organizational culture examples to understand the concept better: 

Example #1

Suppose ABC is a company that engages in automobile manufacturing. A key aspect related to its organizational culture is the wellness incentives offered to employees. It shows that the business cares about the physical and mental health of everyone who is part of the business. Such incentives include multiple perks, such as subsidized transportation, paid sabbaticals, etc. 

Another vital aspect of the company’s culture is the focus on innovation. In other words, managers within the organization give team members the freedom to experiment with different technologies and the available resources to come up with something new that can positively impact the business.  

These two aspects, along with other key elements like efficient teamwork and trust, have played a vital role in improving employee retention and maintaining a positive work environment. 

Example #2

Millennials have completely shifted discussions concerning organizational culture, especially with the increase in remote work. Flexibility and work-life balance have become increasingly crucial for millennials. According to a Delloite survey, 75% of millennials working in a hybrid or remote format would consider altering their roles if the employer required traditional office work. 

Moreover, per the survey, 50% of the millennials employed want their employer to take the following actions: 

  • Establish an organizational culture that values employee wellness
  • Provide constructive and constant feedback 
  • Offer flexible, clear, and family-friendly policies
  • Ensure a flexible working environment 
  • Promote diversity across the organization

How To Improve?

Let us look at the different ways to improve the culture within an organization.

  • Create positive experiences for employees
  • Focus on authenticity and transparency 
  • Schedule meaningful one-on-one meetings regularly 
  • Focus on frequent employee recognition 
  • Link the work of employees with a purpose

Importance

One can understand the importance of this concept by going through the points below.

  • It ensures effective onboarding, helping newly recruited employees become competent. Moreover, it helps employees comprehend the business’s values. 
  • A positive culture positively impacts employee retention. Moreover, when employees become comfortable, they give their best efforts
  • A positive culture within an organization leads to better employee engagement
  • It defines a company’s external and internal identity.  
  • A key advantage of organizational culture is that it plays a vital role in creating a healthy team environment through the communication of the organization’s core values. 

Organizational Culture vs Organizational Climate

The meaning and purpose of organizational culture can confuse people new to such concepts. That said, they can clear their doubts by knowing the following key differences:

Organizational CultureOrganizational Climate
It encompasses expectations and beliefs shared by all persons who are a part of a certain company. This concept refers to the perception of all employees of an organization regarding the business environment. 
The culture of an organization does not depend on the organizational climate. The organizational climate depends on the culture. 
In this case, appreciation, resilience, and teamwork are examples of key elements. A few key components of organizational climate can include management style, leadership structure type, conflict resolution, and appraisal or reward system.

Frequently Asked Questions (FAQs)

How do you measure organizational culture?

Businesses can measure it through the following tools and techniques:

– Employee surveys
– Third-party tools for culture measurement
– Focus groups
– Culture assessment instruments
– Exit surveys
– Behavioral observation scale
– Business needs scorecard

How organizational culture is created?

The creation of such a culture within an organization occurs through several factors, such as founders’ preferences and values, industry demands, and early goals, assumptions, and values. Moreover, the maintenance of culture takes place via attraction-selection-attrition, leadership, organizational reward systems, and new employee onboarding.

Why is organizational culture so difficult to change?

There can be various reasons behind the resistance against a business’s cultural change. Some of the reasons can be inadequate information, fear, especially of the unknown, and mistrust. These factors make it a challenge for businesses to execute change initiatives successfully and get the desired results.

Why did Apple’s organizational culture disrupt the company?

It disrupted the organization because the competition that developed among employees working in the company was not friendly. Steve Jobs failed to make the employees feel important and comfortable. Rather, he made them tense through his insults.

This article has been a guide to Organizational Culture & its definition. We explain its types, characteristics, & comparison with organizational climate. You may also find some useful articles here –

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