Organizational culture and why it matters.

Research has highlighted the importance of organizational culture as a driver of organizational success and employee performance. It has a strong influence on the work environment and business strategy of the company. Several companies in the industry are known for their unique and excellent cultures and have gained faster success in the market driven by their cultures.

 Culture is defined as a system of shared assumptions, values, and beliefs that show people what is appropriate and inappropriate behavior.  Organizational values strongly influence employee behavior and organizational performance. However, organizational culture is not a very old term. Its popularity grew in the 1980s when Peters and Waterman argued in their best selling book ‘In Search of Excellence’ that having a decisive, customer-oriented, empowering, and people-oriented organizational culture brought higher success for an organization.

 Since the publication of the book, the term has gained immense popularity and a lot of research has been carried out in this area that highlights the relevance of culture in terms of organizational productivity, employee performance, and marketing. Leadership is a relatively older topic. However, interest in this area has surged in the last few decades and a lot of research has accumulated highlighting the importance of culture and its benefits in terms of employee performance. Culture despite being a major driver of performance inside the organization remains invisible. While its influence on employee behavior is strong, the employees become aware of what their organizational culture is like when they compare it to the others. 

Why does organizational culture matter?

Organizational culture is an asset and in some cases a liability. If not given proper attention, it can become a liability. The case of Uber‘s organizational culture became an example for other startups. For many organizations around the world, their cultures are a source of competitive advantage and have helped them grow and build a distinct and strong image in the market. However, it is also true that cultural changes can be brought about inside a mature organization. If you think that your organizational culture does not suit the current market environment, you can always revamp it. You do not need to remain stuck with the organizational culture you had adopted when you founded your company.

Several organizations have benefitted from such cultural changes that have helped them overcome major obstacles in the market. For example, Microsoft has undergone a cultural change. Satya Nadella, Microsoft CEO, when he joined the organization brought about some cultural changes that helped the company find a new direction and grow faster. Now, it is among the companies with the highest market capitalization and has achieved a lot of growth since then. 

Research has also highlighted that culture is as important as the corporate strategy for business executives. Several leaders have attributed the success of their organizations to their organizational culture. Steve Jobs liked to keep things simple inside Apple. He had said in an interview that Apple was organized like a startup and they did not have too many layers of management. Its main benefit was lower politics and no operational complexities. Another important benefit of a simple organizational structure and culture was fast-paced technological innovation.

For a company to benefit from its culture, it is important that the leaders establish a culture that suits the company and the market environment. If the shared values suit the company, the organization’s performance will benefit from the culture. Suppose, there is a company in the tech industry. For that company to benefit from its organizational culture, it should establish a culture that drives innovation and adaptability. In recent years, the importance of human resource management has grown as people have come to be recognized as a strong source of competitive advantage. 

Most high-tech organizations including Apple, Google, and Microsoft adopted organizational cultures that had people at the center. Apple’s culture has shared values including diversity and inclusion. Emi, a retail market leader at Apple, says that the organization has a very accepting culture where individuality is valued. Apple’s shared values include diversity and inclusion. While the company hires people from different backgrounds, everyone is free to be himself. Another important cultural value at Apple is accessibility which implies the use of technology for empowering people. 

importance of organizational culture.
Apple’s organizational culture is also a source of competitive advantage. img src: Apple newsroom.

Another technology leader Microsoft has also adopted a culture that has people and technology at its core. The shared values at Microsoft include innovation as well as diversity and inclusion. The company focuses on the empowerment of people as well as technological growth that benefits society and businesses. This shows that high-tech organizations should have an organizational culture that fits with the current industry environment.

Google is also a  tech leader and has seen a lot of growth in a decade. In its case also, organizational culture has remained a fundamental driver of business growth and success. Google has also focused on building a culture that values diversity and inclusion as well as technological innovation. The company also trains its employees to value diversity and to overcome the unconscious bias that may hinder collaboration.

Hightech organizations cannot take a traditional path since the industry is characterized by a very high level of competition. They cannot remain held by traditions or a strong set of rules since companies need to be flexible and innovative. Imagine an organization in the high-tech industry that lacks flexibility and tries to remain bound by its traditions or a fixed set of rules; it will not take the organization too long to start losing its growth momentum and then fail at last. The company will suffer because of its indifference to the changing industry environment. It proves that while having the right culture accelerates growth, having the wrong culture can negatively affect employee performance and cause organizational failure. Take the example of Kodak. Its organizational failure was a result of the lack of innovativeness. However, the real cause was that innovation was not a shared value at Kodak. The company was the market leader but its culture lacked the right components. It failed to embrace change because its culture was bound by a set of rules and traditions that did not allow the executives to respond fast to industry changes. Managers failed to see the hidden opportunities and challenges of digital technology. The slow rate of innovation, lack of adaptability, and the complete inability of managers to make the right strategic moves also indicated the failure of Kodak’s culture as a driver of innovativeness and business growth. Having the wrong culture prevents the company from taking risks and changing course when the need arises. It happened to Kodak and it has happened to several other startups that failed to create appropriate cultures. However, the companies that successfully established cultures that suited their work environment, and empowered employees to perform found faster and higher success in the market.

One of the key cultural values at Netflix is to avoid rigidity or being bound by rules. Another important cultural value that the organization has adopted is that of being candid with each other. Other shared values at Netflix include innovation, inclusion, and integrity.  Netflix is more of a tech organization than it is an online entertainment brand. The company has established a unique organizational culture that differentiates it from several other brands in the industry. In recent years, it has also seen outstanding success and enormous growth in its subscriber base. A unique organizational culture is also a source of competitive advantage for the brand and has helped it achieve an edge over its competitors.

At Netflix, the employees are required to be candid to each other and avoid any kind of politics. Organizational culture, apart from being the driver of organizational performance and having important implications for business success, is also an effective control mechanism that dictates employee behavior. While rules and regulations also work to control employee behavior at the workplace, culture is a more powerful mechanism to manage how employees interact with colleagues, customers, and other stakeholders. Rules will not always help at achieving the type of results you want. Suppose a company is trying to improve the quality of customer service it offers, then instead of framing new rules related to customer service, it should try to establish a culture of customer service that will be more effective at driving employee performance across all the customer-facing functions. It will help set clear cut expectations for employees in customer service and enable employees to think like customers and set their priorities. Keeping the customer happy is the most important concern but it cannot be achieved by setting rules only. Instead, the company must be interested in establishing a system that favors the customers which can be made possible by establishing a culture of customer service.

What are the levels of organizational culture?

Organizational culture has both visible and invisible aspects. An outsider mostly sees the visible aspects of organizational culture like how the people inside the offices behave, how they dress, what they do, and what type of furniture or equipment the office has. However, to understand an organization’s culture, people need to look deeper. Edgar Schein, a psychologist from Sloan School of Management developed a model to understand and analyze organizational culture during the 1980s. In his model, Schein divided organizational culture into three distinct levels – artifacts, values, and assumptions. 

Artifacts:

Artifacts are the most obvious aspect of organizational culture. It is something that even an outsider can easily observe. Office layout, furniture, and dressing norms count as artifacts. However, while artifacts are the most obvious aspect of organizational culture, to gain a fuller picture you need to do a deeper analysis. It is because while artifacts may be easy to observe, they are also difficult to understand unless you gain an understanding of the other aspects of organizational culture as well. 

Values: 

Values imply shared principles, standards, and goals. They form the second layer of organizational culture. They affect employee interaction inside the organization and their representation of the organization before the outside world. Most often these values are reinforced in public communications and also in the phrases and jargon commonly repeated inside the organization.

Assumptions:

David Burkus, an Associate Professor of Leadership and Innovation at Oral Roberts University and best-selling author, notes in his HBR article “How to tell if your company has a creative culture”, that “shared basic assumptions are the bedrock of organizational culture. They are the beliefs and behaviors so deeply embedded that they can sometimes go unnoticed. But basic assumptions are the essence of culture, and the plumb line that espoused values and artifacts square themselves against.” Basic assumptions are manifested in various ways and while sometimes they manifest themselves through the artifacts and espoused values, it’s not always the case. However, assumptions must align with organizational values because if they do not there may be some trouble. The Enron scandal left behind several lessons in organizational culture. David Brukus notes that while Enron had a 64-page manual that outlined its mission and espoused values, the scandal brought to light that these things did not hold any meaning for the Enron managers.

These three interrelated layers of organizational culture help us gain an understanding of how organizational culture supports organizational productivity and employee performance. However, a critical thing that Schein’s model highlights is that to gain a complete understanding of organizational culture is not possible without considering all the three elements together. Understanding organizational culture needs a lot of digging below the surface. The basic assumptions may be the most difficult to understand because they are the hardest to see. Moreover, of all the three elements in Schein’s model, it is the assumptions that have the deepest impact on organizational creativity. While it is easy to recognize a creative culture by just seeing the things at the surface, to recognize and understand it fully, you should dig below the surface.

Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.