Organizational Culture

What Is Organizational Culture?

Organizational culture refers to a system of shared assumptions, values, and beliefs that shapes how employees perceive, think, and act within an organization. Organizational culture serves two crucial purposes: first, culture helps an organization adapt to and integrate with its external environment by adopting the values best suited to respond to external threats and opportunities; and second, culture creates internal unity by bringing members together so they work more cohesively to achieve common goals.[1] Organizational cultures are generally framed and influenced by the top-level founders and leaders. These individuals’ vision, values, and mission set the “tone at the top,” modeling how other officers and employees work and behave.

An organization’s culture can be one of its greatest assets, significantly impacting performance in areas such as revenue, sales volume, market share, and stock prices.[2],[3]. However, it’s essential for a company’s culture to align with the demands of its environment. For instance, a high-tech company benefits from a culture that promotes innovation and adaptability. By contrast, a high-tech company with a culture focused on stability, tradition, and strict adherence to rules may struggle to stay competitive. In other words, while the “right” culture can be a competitive advantage, the “wrong” culture can lead to performance challenges, hinder organizational success, and prevent necessary change and risk-taking.

Levels of Organizational Culture

Organizational culture consists of some aspects that are more visible, as well as aspects that may lie below one’s conscious awareness. Specifically, organizational culture can be thought of as consisting of three interrelated levels: artifacts, espoused values, and underlying assumptions (Figure 1).[4]
Figure 1: The layers of organizational culture.

At the deepest level, beyond our awareness or consciousness, lie underlying assumptions. Assumptions are unconscious, taken-for-granted beliefs and perceptions. At the second level are espoused values, which are shared principles, standards, and goals. Finally, at the surface are artifacts, which are visible, tangible aspects of organizational culture.

To illustrate, consider an organization in which one of the underlying assumptions shared by employees and managers is that a satisfied and engaged workforce drives positive outcomes for both individuals and organizations. This assumption might underpin espoused values like autonomy, accountability, and professional growth. Tangible artifacts that reflect these values might include flexible work hours and remote work options to support autonomy, an employee-driven performance review process to support accountability, and an annual personal development budget for each employee to support professional growth.

Click the interactive image below for more examples of visible artifacts.

Characteristics of Organizational Culture

Types of Organizational Culture

While organizational cultures can be shaped by a range of core values, researchers have identified several key values that frequently underpin distinct types of culture. Some of these common culture types are described below.

An innovative culture is flexible, adaptable, and open to experimenting with new ideas. In an organization with this type of culture, a flat hierarchy is common, where titles and status distinctions are minimized. Risk-taking is encouraged, and both successes and failures are celebrated as opportunities for learning and growth.

An outcome-oriented culture prioritizes achievement, results, and action. In an organization with this type of culture, both employees and managers are held accountable for performance, often through systems that reward individual and team output. Rewards are typically tied to performance indicators rather than seniority or loyalty. However, in environments where performance pressures foster unethical behavior and competition among peers, and where short-term results are prioritized, the workplace can become toxic. This unhealthy dynamic can undermine long-term success.[5]

A stable culture is predictable, rule-driven, and bureaucratic. In an organization with this type of culture, the aim is to align individual efforts to maximize efficiency. In stable and predictable environments, such a culture can ensure effective coordination and consistent output.[6] However, it may struggle in dynamic environments, where its resistance to rapid change becomes a barrier to adaptation.

A people-oriented culture emphasizes fairness, support, and respect for individual rights, reflecting the belief that “people are their greatest asset.” In an organization with this type of culture, there is a strong emphasis on fostering an environment where work is enjoyable, and employees do not have to choose between their job and personal life. This culture prioritizes treating everyone with dignity and respect, creating a supportive and inclusive workplace.[7]

A service culture focuses on customer satisfaction, with employees trained to serve customers effectively and cross-training being common. Empowering employees to resolve customer issues autonomously is crucial, as those with direct customer contact are best positioned to address concerns. In an organization with this type of culture, employees take a proactive approach to problem-solving: they are deeply engaged in their roles and take initiative to identify and resolve customer issues without needing explicit instructions.

A safety culture is critical in organizations where employees perform safety-sensitive tasks and involves emphasizing and prioritizing safety. In an organization with this type of culture, a strong safety culture provides a competitive advantage by reducing accidents, maintaining high employee morale, boosting retention, and lowering workers’ compensation costs. In contrast, organizations that fail to develop such a culture may face severe consequences, including increased risks and higher operational costs.

Strength of Organizational Culture

A strong culture is one that is shared by organizational members.[8],[9] In other words, if most employees in the organization show consensus regarding the values of the company, it is possible to talk about the existence of a strong culture. A culture’s content is more likely to affect the way employees think and behave when the culture in question is strong. For example, cultural values emphasizing customer service will lead to higher quality customer service if there is widespread agreement among employees on the importance of customer service-related values.[10]

A strong culture can serve as either an asset or a liability for an organization, depending on the values that are shared. For example, consider a company with a culture that is strongly outcome-oriented. If this value system aligns well with the organization’s context and environment, the company is likely to perform effectively and achieve its goals. However, when an outcome-oriented culture becomes overly focused on quantitative performance indicators and fosters unethical behaviors, it can negatively impact the organization’s success. This dynamic has been evident in well-known cases of corporate fraud, such as Enron and FTX, where short-term results were prioritized at the expense of long-term stability and ethical standards.

A limitation of a strong culture is the difficulty of changing the culture. If an organization with widely shared beliefs decides to adopt a different set of values, unlearning the old values and learning the new ones can be a challenge, because employees will need to adopt new ways of thinking and behaving.

A strong culture may also be a liability during a merger. During mergers and acquisitions, companies inevitably experience a clash of cultures, as well as a clash of structures and operating systems. Culture clash becomes more problematic if both parties have unique and strong cultures.

Multiple Cultures

While many organizations may have a dominant culture, multiple cultures can exist within any given organization. A culture that emerges within different departments, branches, or geographic locations is called a subculture. Subcultures may arise from the personal characteristics of employees and managers, as well as the different conditions under which work is performed. Research has shown that employee perceptions of subcultures are related to employee commitment to the organization.[11] In other words, subcultures have the potential to impact attitudes and behavior in both positive and negative ways, and is therefore important for individuals and managers alike to identify and understand.

Sometimes, a subculture may take the form of a counterculture. Defined as shared values and beliefs that are in direct opposition to the values of the broader organizational culture,[12] countercultures are often shaped around a charismatic leader. For example, within a large bureaucratic organization, an enclave of innovativeness and risk taking may emerge within a single department. A counterculture may be tolerated by the organization as long as it contributes positively to the effectiveness of the organization. However, its existence may be perceived as a threat to the broader organizational culture. In some cases, this may lead to actions that would take away the autonomy of those championing the counterculture in an effort to eliminate the counterculture.

Creating and Maintaining Culture

Where do cultures come from? How are they maintained? An organization’s culture is shaped as the organization faces external and internal challenges and learns how to deal with them. When the organization’s way of doing business provides a successful adaptation to environmental challenges and ensures success, those values are retained. These values and ways of doing business are taught to new members as the way to do business.[13] The sections that follow detail some of the most important factors in culture creation and maintenance (Figure 2).

Figure 2: Culture creation and maintenance.

How are Cultures Created?

Two factors that are particularly important in the creation of an organization’s culture are founder values and preferences, and industry demands.

Founder Values and Preferences

A company’s culture, particularly during its early years, is inevitably tied to the personality, background, and values of its founder or founders, as well as their vision for the future of the organization. This explains one reason why culture is so hard to change: It is shaped in the early days of a company’s history. When entrepreneurs establish their own businesses, the way they want to do business determines the organization’s rules, the structure set-up in the company, and the people they hire to work with them.

Industry Demands

While founders exert a powerful influence over corporate cultures, industry characteristics also play a role. Industry characteristics and demands act as a force to create similarities among organizational cultures. For example, despite some differences, many companies in the insurance and banking industries are stable and rule oriented, while many companies in the tech industry have innovative cultures. If the industry is one with a large number of regulatory requirements—for example, banking or health care—then we might expect the presence of a large number of rules and regulations, a bureaucratic company structure, and a stable culture. Similarly, the tech industry requires agility, taking quick action, and low concern for rules and authority, which may create a relatively more innovative culture.[14],[15]

How Are Cultures Maintained?

As a company matures, its cultural values are refined and strengthened. Four factors that are particular important to maintaining culture are the attraction-selection-attrition process, the onboarding of new employees, leaders, and reward systems.

Attraction-Selection-Attrition (ASA)

Organizational culture is maintained in part through a process known as attraction-selection-attrition (ASA). First, employees are attracted to organizations where they will fit in. In other words, different job applicants will find different cultures to be attractive. Someone who has a competitive nature may feel comfortable and prefer to work in a company where interpersonal competition is the norm. Others may prefer to work in a team-oriented workplace. Research shows that employees with different personality traits find different cultures attractive. For example, out of the Big Five personality traits, employees who demonstrate neurotic personalities were less likely to be attracted to innovative cultures, whereas those who had openness to experience were more likely to be attracted to innovative cultures.[16] As a result, individuals often self-select into the companies they work for and may stay away from companies that have core values that are radically different from their own.

Of course this process is imperfect, and value similarity is only one reason a candidate might be attracted to a company. There may be other, more powerful attractions such as good benefits. For example, candidates who are potential misfits may still be attracted to Google because of the perks associated with being a Google employee. At this point in the process, the second component of the ASA framework prevents them from getting in: selection. Just as candidates are looking for places where they will fit in, companies are also looking for people who will fit into their current corporate culture. Many companies are hiring people for fit with their culture (i.e., person-organization fit), as opposed to fit with a certain job (i.e., person-job fit) This is important for job applicants to know, because in addition to highlighting your job-relevant skills, you should also highlight how your personality and values match those of the company.

Even after a company selects people for cultural fit, there may be new employees who do not fit in. Some candidates may be skillful in impressing recruiters and signal high levels of cultural fit even though they do not necessarily share the company’s values. And recruiters may suffer from perceptual biases and hire some candidates thinking that they fit with the culture even though the actual fit is low. Eventually, the organization is going to eliminate candidates who do not fit in through attrition. Attrition refers to the natural processes through which employees who do not fit in will leave an organization. Research indicates that person-organization misfit is one of the important reasons for employee turnover.[17],[18]

As a result of the ASA process, an organization attracts, selects, and retains people who share its core values. On the other hand, those people who are different in core values will be excluded from the organization during the hiring process or later eliminated through naturally occurring turnover. Thus, organizational culture acts as a self-defending organism where intrusive elements are kept out. Supporting the existence of such self-protective mechanisms, research shows that organizations demonstrate a certain level of homogeneity regarding personalities and values of organizational members.[19]

Onboarding

Another way in which an organization’s values, norms, and behavioral patterns are transmitted to employees is through the onboarding of new employees (also referred to as the socialization process). Onboarding refers to the process through which new employees learn the attitudes, knowledge, skills, and behaviors required to function effectively within an organization. There are many factors that play a role in the successful adjustment of new employees. New employees can engage in several activities to help increase their own chances of success at a new organization. Organizations also engage in different activities, such as implementing orientation programs or matching new employees with mentors, which may facilitate onboarding.

Leadership

Leaders are instrumental in creating and changing an organization’s culture. Part of a leader’s influence over culture is through role modeling. The leader’s own behaviors signal to employees what is acceptable behavior and what is unacceptable. Leaders also shape culture by their reactions to the actions of others around them. For example, do they praise a job well done, or do they praise a favored employee regardless of what was accomplished? How do they react when someone admits to making an honest mistake? What are their priorities? In meetings, what types of questions do they ask? Do they want to know what caused accidents so that they can be prevented, or do they seem more concerned about how much money was lost as a result of an accident? Through their day-to-day actions, leaders shape and maintain an organization’s culture.

Reward Systems

Finally, an organization’s culture is shaped by its rewards system. One relevant element of the reward system is whether the organization rewards behaviors or results. In companies that assess behaviors, more people- and team-oriented cultures are likely, whereas in companies that purely reward goal achievement, outcome-oriented and competitive cultures are more common.

Another relevant characteristic of reward systems with respect to culture is whether an organization uses rankings or ratings. For example, in a company where employees are ranked against each other and lower performers are punished, a competitive culture is likely to emerge. Additionally, whether an organization rewards performance or seniority would also make a difference in culture. For a company in which promotions are based on seniority, it would be difficult to establish a culture of outcome orientation. Finally, the types of behaviors that are rewarded or ignored set the tone for the culture. For example, an organization is more likely to have a strong service culture to the extent that it rewards, recognizes, and publicizes exceptional customer service.

How Do Cultures Change?

Culture is part of a company’s DNA and is resistant to change efforts. Unfortunately, many organizations may not even realize that their current culture constitutes a barrier against organizational productivity and performance. Changing company culture may be the key to the company turnaround when there is a mismatch between an organization’s values and the demands of its environment.

Certain conditions may help with culture change. For example, if an organization is experiencing failure in the short run or is under threat of bankruptcy or an imminent loss of market share, it would be easier to convince managers and employees that culture change is necessary. A company can use such downturns to generate employee commitment to the change effort. However, if the organization has been successful in the past, and if employees do not perceive an urgency necessitating culture change, the change effort will be more challenging. Sometimes the external environment may force an organization to undergo culture change. Mergers and acquisitions are another example of an event that changes a company’s culture. In fact, the ability of the two merging companies to harmonize their corporate cultures is often what makes or breaks a merger effort. Achieving culture change is challenging, and many companies ultimately fail in this mission. Research and case studies of companies that successfully changed their culture indicate that the following six steps increase the chances of success.[20]

Figure 2: Six steps to culture change.
  1. Creating a Sense of Urgency: Leaders can initiate culture change by clearly communicating why it is essential, creating a sense of urgency to motivate employees. This can involve highlighting internal or external pressures the organization faces and explaining how change will lead to long-term success.
  2. Changing Leaders and Key Players: Culture change often requires changes at the highest levels of the organization to ensure that leaders support the new direction. Replacing managers or influential employees who resist change with those who actively promote it can reduce internal barriers and help the organization shift more effectively.
  3. Role Modeling: When leaders visibly demonstrate the desired behaviors and values, it sets an example for employees to follow. This modeling helps reinforce the new culture, creating a trickle-down effect that encourages similar behavior across all levels of the organization.
  4. Training: Structured training programs help employees learn and internalize new norms, behaviors, and skills required by the culture change. For example, training may focus on collaboration skills or customer service excellence to align with new organizational priorities.
  5. Changing the Reward System: Aligning rewards and incentives with the new cultural values can reinforce desired behaviors and establish lasting change. For example, a shift from individual to team-based rewards may support a new emphasis on teamwork.
  6. Creating New Symbols and Stories: Introducing new symbols, rituals, and stories replaces old ones and reinforces the values of the new culture. Simple changes, such as a redesigned logo or celebrating new employee achievements, help communicate and embed the new cultural direction.

Chapter Review

Video 1: Organizational Culture Explained. Closed captioning is available.

Note: the second half of this video is optional. It discusses the Competing Values Framework, which is not discussed in this chapter.

Optional Resources to Learn More

Articles
Gartner: Organizational Culture Done Right
Harvard Business Review: Build a Corporate Culture That Works
Harvard Business Review: Why Great Employees Leave “Great Cultures”
Books
Organizational Culture and Leadership by Edgar H. Schein and Peter A. Schein
Podcasts
WorkLife with Adam Grant: The 4 Deadly Sins of Work Culture | Apple Spotify Transcript
WorkLife with Adam Grant: The Wrong Way to Think About Culture Fit | Apple Spotify Transcript
Videos
Harvard Business Review: The 8 Types of Company Culture
Management Courses – Mike Clayton: A Thorough Introduction to Organizational Culture
Organizational Communication Channel: Organizational Culture Edgar Schein

Chapter Attribution

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Media Attributions

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