Understanding and Developing Organizational Culture

Overview

The key to a successful organization is to have a culture based on a strongly held and widely shared set of beliefs that are supported by strategy and structure. When an organization has a strong culture, three things happen: Employees know how top management wants them to respond to any situation, employees believe that the expected response is the proper one, and employees know that they will be rewarded for demonstrating the organization's values.

Employers have a vital role in perpetuating a strong culture, starting with recruiting and selecting applicants who will share the organization's beliefs and thrive in that culture, developing orientation, training and performance management programs that outline and reinforce the organization's core values and ensuring that appropriate rewards and recognition go to employees who truly embody the values.

This toolkit covers the following topics:

• The importance of having a strong organizational culture.
• The employer's role in fostering a high-performance culture.
• Definitions of organizational culture.
• Factors that shape an organization's culture.
• Considerations in creating and managing organizational culture.
• Practices to ensure the continuity and success of an organization's culture.
• Communications, metrics, legal, technology and global issues pertaining to organizational culture.

See SHRM Resource Hub Page: Organizational Culture. 

Background

An organization's culture defines the proper way to behave within the organization. This culture consists of shared beliefs and values established by leaders and then communicated and reinforced through various methods, ultimately shaping employee perceptions, behaviors and understanding. Organizational culture sets the context for everything an enterprise does. Because industries and situations vary significantly, there is not a one-size-fits-all culture template that meets the needs of all organizations.

A strong culture is a common denominator among the most successful companies. All have consensus at the top regarding cultural priorities, and those values focus not on individuals but on the organization and its goals. Leaders in successful companies live their cultures every day and go out of their way to communicate their cultural identities to employees as well as prospective new hires. They are clear about their values and how those values define their organizations and determine how the organizations run. See What does it mean to be a values-based organization?

Conversely, an ineffective culture can bring down the organization and its leadership. Disengaged employees, high turnover, poor customer relations and lower profits are examples of how the wrong culture can negatively impact the bottom line. See Toxic Culture Top Reason People Quit.

Mergers and acquisitions are fraught with culture issues. Even organizational cultures that have worked well may develop into a dysfunctional culture after a merger. Research has shown that two out of three mergers fail because of cultural problems. Blending and redefining the cultures, and reconciling the differences between them, build a common platform for the future. In recent years, the fast pace of mergers and acquisitions has changed the way businesses now meld. The focus in mergers has shifted away from blending cultures and has moved toward meeting specific business objectives. Some experts believe that if the right business plan and agenda are in place during a merger, a strong corporate culture will develop naturally. See Managing Organizational Change and Managing Human Resources in Mergers and Acquisitions.

Business Case

If an organization's culture is going to improve the organization's overall performance, the culture must provide a strategic competitive advantage, and beliefs and values must be widely shared and firmly upheld. A strong culture can bring benefits such as enhanced trust and cooperation, fewer disagreements and more-efficient decision-making. Culture also provides an informal control mechanism, a strong sense of identification with the organization and shared understanding among employees about what is important. Employees whose organizations have strongly defined cultures can also justify their behaviors at work because those behaviors fit the culture. See Toxic Workplace Cultures Hurt Workers and Company Profits.

Company leaders play an instrumental role in shaping and sustaining organizational culture. If the executives themselves do not fit into an organization's culture, they often fail in their jobs or quit due to poor fit. Consequently, when organizations hire C-suite executives, these individuals should have both the requisite skills and the ability to fit into the company culture.

See SHRM Inclusive Workplace Culture Specialty Credential

What Is Organizational Culture?

An employer must begin with a thorough understanding of what culture is in a general sense and what their organization's specific culture is. At the deepest level, an organization's culture is based on values derived from basic assumptions about the following:

• Human nature. Are people inherently good or bad, mutable or immutable, proactive or reactive? These basic assumptions lead to beliefs about how employees, customers and suppliers should interact and how they should be managed.
• The organization's relationship to its environment. How does the organization define its business and its constituencies?
• Appropriate emotions. Which emotions should people be encouraged to express, and which ones should be suppressed?
• Effectiveness. What metrics show whether the organization and its individual components are doing well? An organization will be effective only when the culture is supported by an appropriate business strategy and a structure that is appropriate for both the business and the desired culture.

Culture is a nebulous concept and is often an undefined aspect of an organization. Although extensive academic literature exists relating to the topic of organizational culture, there is no generally accepted definition of culture. Instead, the literature expresses many different views as to what organizational culture is.

Organizational culture can manifest itself in a variety of ways, including leadership behaviors, communication styles, internally distributed messages and corporate celebrations. Given that culture comprises so many elements, it is not surprising that terms for describing specific cultures vary widely. Some commonly used terms for describing cultures include aggressive, customer-focused, innovative, fun, ethical, research-driven, technology-driven, process-oriented, hierarchical, family-friendly and risk-taking. See 6 Ways to Become a More Empathetic Organization.

Because culture is difficult to define, organizations may have trouble maintaining consistency in their messages about culture. Employees may also find it difficult to identify and communicate about perceived cultural inconsistencies. See Defining Organizational Culture and Culture Conversation Starters.

Factors That Shape an Organization's Culture

Organizational leaders often speak about the unusual natures of their company cultures, seeing their domains as special places to work. But organizations such as Disney and Nordstrom, which are well-known for their unique cultures, are rare.

Most company cultures are not that different from one another. Even organizations in disparate industries such as manufacturing and health care tend to share a common core of cultural values. For example, most private-sector companies want to grow and increase revenues. Most strive to be team-oriented and to demonstrate concern for others. Most are driven, rather than relaxed, because they are competing for dollars and market share. Some of the cultural characteristics that distinguish most organizations include the following.

Values

At the heart of organizations' cultures are commonly shared values. None is right or wrong, but organizations need to decide which values they will emphasize. These common values include:

• Outcome orientation. Emphasizing achievements and results.
• People orientation. Insisting on fairness, tolerance and respect for the individual.
• Team orientation. Emphasizing and rewarding collaboration.
• Attention to detail. Valuing precision and approaching situations and problems analytically.
• Stability. Providing security and following a predictable course.
• Innovation. Encouraging experimentation and risk-taking.
• Aggressiveness. Stimulating a fiercely competitive spirit.

Degree of hierarchy

The degree of hierarchy is the extent to which the organization values traditional channels of authority. The three distinct levels of hierarchy are "high"—having a well-defined organizational structure and an expectation that people will work through official channels; "moderate"—having a defined structure but an acceptance that people often work outside formal channels; and "low" —having loosely defined job descriptions and accepting that people challenge authority.

An organization with a high level of hierarchy tends to be more formal and moves more slowly than an organization with a low level of hierarchy.

Degree of urgency

The degree of urgency defines how quickly the organization wants or needs to drive decision-making and innovation. Some organizations choose their degree of urgency, but others have it thrust on them by the marketplace.

A culture with high levels of urgency has a need to push projects through quickly and a high need to respond to a changing marketplace. A moderate level of urgency moves projects at a reasonable pace. A low level of urgency means people work slowly and consistently, valuing quality over efficiency. An organization with high urgency tends to be fast-paced and supports a decisive management style. An organization with low urgency tends to be more methodical and supports a more considered management style.

People orientation or task orientation

Organizations usually have a dominant way of valuing people and tasks. An organization with a strong people orientation tends to put people first when making decisions and believes that people drive the organization's performance and productivity. An organization with a strong task orientation tends to put tasks and processes first when making decisions and believes that efficiency and quality drive organization performance and productivity.

Some organizations may get to choose their people and task orientations. But others may have to fit their orientation to the nature of their industry, historical issues or operational processes.

Functional orientation

Every organization puts an emphasis on certain functional areas. Examples of functional orientations may include marketing, operations, research and development, engineering or service. For example, an innovative organization known for its research and development may have at its core a functional orientation toward R&D. A hospitality company may focus on operations or service, depending on its historical choices and its definition in the marketplace.

Employees from different functions in the company may think that their functional areas are the ones that drive the organization. Organizational leaders must understand what most employees perceive to be the company's functional orientation. 

Organizational subcultures

Any organization can have a mix of subcultures in addition to the dominant culture. Subcultures exist among groups or individuals who may have their own rituals and traditions that, although not shared by the rest of the organization, can deepen and underscore the organization's core values. Subcultures can also cause serious problems.

For example, regional cultures often differ from the overall culture that top leadership tries to instill. Perhaps aggressiveness that is common in one area may not mesh with a culture emphasizing team building. Or an organization with a culture built around equality may have trouble if the national culture emphasizes hierarchy and expects people to bow to authority. Employers must recognize those differences and address them directly.

Creating and Managing Organizational Culture

An organizational culture tends to emerge over time, shaped by the organization's leadership and by actions and values perceived to have contributed to earlier successes. A company culture can be managed through the cultural awareness of organizational leaders and management. Managing a culture takes focused efforts to sustain elements of the culture that support organizational effectiveness. See Addressing the Six Sources of Workplace Cultural Conflicts.

How culture develops

An organization's customs, traditions, rituals, behavioral norms, symbols and general way of doing things are the visible manifestation of its culture; they are what one sees when walking into the organization. The current organizational culture is usually due to factors that have worked well for the organization in the past. See How to Create a Culture of Civility.

Founders typically have a significant impact on an organization's early culture. Over time, behavioral norms develop that are consistent with the organization's values. For example, in some organizations, resolution of conflicts is hashed out openly and noisily to create widespread consensus, whereas in other places disputes are settled hierarchically and quietly behind closed doors.

Though culture emerges naturally in most organizations, strong cultures often begin with a process called "values blueprinting," which involves a candid conversation with leaders from across the organization. Once the culture is framed, an organization may establish a values committee that has a direct link to leadership. This group makes sure the desired culture is alive and well. For values blueprinting to work, organizations must first hire people who live the values and have the competency needed to perform the job.

Sustaining a culture

The management of organizational culture starts with identifying a company's organizational culture traits or "artifacts." Artifacts are the core business activities, processes and philosophies that characterize how an organization does business day-to-day.

Identifying these traits—and assessing their importance in light of current business objectives—is a way to start managing culture. Three broad concepts help identify the traits specific to a culture:

• Social culture. This refers to group members' roles and responsibilities. It is the study of class distinctions and the distribution of power that exists in any group.
• Material culture. This involves examining everything that people in a group make or achieve and the ways people work with and support one another in exchanging required goods and services.
• Ideological culture. This is tied to a group's values, beliefs and ideals—the things people view as fundamental. It includes the emotional and intellectual guidelines that govern people's daily existence and interactions.

Leaders and managers within an organization should approach culture management by initially gaining an understanding of the common traits found in all businesses. Then, they should take the following steps to manage their organization's culture:

• Identify common artifacts or traits, including those from the standpoint of an organization's social, material and ideological culture.
• Convene groups of employees—representatives from all levels, functions and locations of the organization—to assess the validity, significance and currency of key artifacts.
• Subject those traits to a rigorous assessment of their underlying shared assumptions, values and beliefs.
• Summarize findings and share them with all participants to solicit additional insights.
• Create a culture management action plan. The plan should enhance traits that support corporate growth or organizational effectiveness and correct traits that might hinder a company's advancement.

Typically, shared assumptions and beliefs originate with an organization's founders and leaders. Because those beliefs proved successful (otherwise the company would not exist and the leaders would not be in their positions), often they go unchallenged; however, those assumptions and beliefs might be outdated and may hinder future success. See 6 Steps for Building an Inclusive Workplace and The Relationship Between Culture and DE&I.

Practices to Develop Culture

When an organization does a good job assessing its culture, it can then go on to establish policies, programs and strategies that support and strengthen its core purpose and values. In aligned organizations, the same core characteristics or beliefs motivate and unite everyone, cascading down from the C-suite to individual contributors.

There are many tools for developing and sustaining a high-performance organizational culture, including hiring practices, onboarding efforts, recognition programs and performance management programs. The biggest challenge is deciding how to use these tools and how to allocate resources appropriately.

Hiring practices

Effective hiring practices can help an organization capitalize on its culture. Traditionally, hiring focuses primarily on an applicant's skills, but when a hire's personality also fits with the organization's culture, the employee will be more likely to deliver superior performance.

On the other hand, ill-fitting hires and subsequent rapid departures cost approximately 50 percent to 150 percent of the position's annual salary. Unfortunately, nearly one in three newly hired employees' leaves voluntarily or involuntarily within a year of hiring, and this number has been increasing steadily in recent years.

Some hiring practices to ensure cultural fit include:

• Looking at each piece of the organization's vision, mission and values statements. Interview questions should hone in on behaviors that complement these areas. For example, if the organization works with a lot of intensity, then job applicants should display that natural intensity to be considered for hire.
• Conducting a cultural fit interview. Ask questions that elicit comments about organizational values such as honesty or integrity. If a candidate's description of the worst place he or she ever worked sounds just like the organization where he or she is interviewing, the candidate probably will not be successful.
• Leaving discussion of company culture for later. Do not tell candidates about culture up front. First, listen to what they have to say about their experiences and beliefs. This tactic will reveal more candid responses to help determine whether they are a fit for the organization.
• Making sure at least three people are involved in the hiring process. Different people will see and hear different things. These varied perspectives give a clearer understanding of the person being considered for hire.

Searching for employees who will fit in seamlessly can have drawbacks. The biggest mistake an organization can make is to paint an inaccurate picture of itself as it tries to attract candidates. If new hires discover they have been sold a bill of goods, they will not be happy; they will probably not stick around, and, while they are around, morale will decline.

Another possible drawback is that people are more reluctant to take negative actions against people like themselves. As a result, mediocre workers are more likely to stay employed if they share the cultural values. Similarly, although an organization's comfort level is palpable when the culture is aligned, experts say, too much comfort can result in groupthink and complacency.

Onboarding programs

Onboarding teaches newcomers the employer's value system, norms and desired organizational behaviors. Employers must help newcomers become part of social networks in the organization and make sure that they have early job experiences that reinforce the culture. See Understanding Employee Onboarding.

Reward and recognition programs

These programs are key mechanisms employers can use to motivate employees to act in accordance with the organization's culture and values. For example, if teamwork is a core value, bonuses should value teamwork and not be based on individual performance. Employers should also put the spotlight on those who personify the company's values. See Employee Recognition Tech Must Align with Company Culture.

Performance management programs

Employees who share values and aspirations tend to outperform those in environments that lack cohesiveness and common purposes. Performance management programs can greatly affect corporate culture by clearly outlining what is expected from employees as well as by providing a feedback tool that informs employees about proper behavior. See Performance Management That Makes a Difference: An Evidence-Based Approach.

Communications

Conflicting messages regarding corporate culture may create distrust and cynicism, which can prompt, or help employees justify, actions as deleterious as embezzlement. Experts say that cultural inconsistencies may also cause workers to grow discouraged, to believe management is disingenuous, to doubt statements from higher-ups and to be less inclined to give their best effort.

Organizations may be investing significant time and money in creating a culture but may not be reaping the commensurate rewards—especially if executives, supervisors and rank-and-file employees have differing perceptions of the company's culture. Employers must therefore ensure that the organization clearly and consistently communicates its culture to all employees. See HR's Role in Creating a Culture of High Trust: Q&A with Richard Fagerlin.

Metrics

Assessing organizational culture is a crucial step in developing sound strategies that support enterprise objectives and goals. But how do you measure something as potentially tough to describe as culture? After identifying the key dimensions of culture such as values, degree of hierarchy, and people and task orientations, performing these next steps will help organizations assess culture:

1. Develop a cultural assessment instrument. This instrument should enable members of the organization to rate the organization on the key cultural dimensions, as well as on aspects of the organization not covered on the assessment.
2. Administer the assessment. Survey respondents should include individuals at all levels, functions, divisions and geographical units of the organization.
3. Analyze and communicate about assessment results. Leaders and managers should discuss areas of agreement and disagreement about the organization's culture.
4. Conduct employee focus groups. Just because top management leaders agree on organizational culture does not mean that all employees see things that way.
5. Discuss culture until consensus forms around key issues. Focus on "Who are we?" and "What makes us who we are?" Organizations that decide that where they are now is not where they want to be may need to look at moving the organization to embrace a different culture.

Cultural assessments, and other activities such as cultural audits and 360-degree feedback, may also help uncover cultural inconsistencies. Then leaders can eliminate the inconsistencies. For example, if customer service is a focus of the company's culture, evaluate how much time employees spend visiting customer sites, how much interaction they have with customers, what customer service training they receive and other indicators of a customer service focus. See The New Analytics of Workplace Culture and Building a Data-Driven Culture Health Index.

Legal Issues

Employers that emphasize cultural fit in their recruitment and selection process can be vulnerable to discrimination claims if they are not careful. Employers should ensure that hiring practices and selection decisions based on a cultural fit rationale do not result in discriminating against any applicants who may not be "just like" the selectors.

Employers should also be aware that certain types of organizational cultures (for example, cultures that are highly paternalistic or male-dominated) may tend to perpetuate disparities in promotions, compensation and other terms of employment. Those disparities may violate anti-discrimination laws. 

Global Issues

Research suggests that national culture has a greater effect on employees than the culture of their organization. Organizational leaders should understand the national cultural values in the countries in which the organization operates to ensure that management and company practices are appropriate and will be effective in operations in those countries. National cultural differences should be considered when implementing organizational culture management initiatives in global businesses.

Managers must be able to respond to nuances in communication styles, as well as deal with different expectations that employees have of their leaders across national cultures. Not meeting those expectations may doom the global organization's chance for success in particular countries.

These issues become even more complex in global business mergers. Success in international mergers depends on the merged organization's willingness to enable people with different cultural perspectives to engage in meaningful and valuable discussions about the new business.

See:

Helping Expatriate Employees Deal with Culture Shock

3 Steps in Aligning Culture Across the Globe