Corporate Culture: What It Is and Why It Is Important

By Adrian Furnham

A functional corporate culture benefits both the company and its employees. In this article, the author provides an overview on the origin and concept of corporate culture and illustrates the change strategies organisations can deploy to move the current corporate culture to the desired one and achieve better organisational success.

As well as national culture there is also the powerful force called corporate culture. It is easiest defined as “the way we do things round here”. Many consultants will attest to the desire of senior managers to “change the corporate culture” which they perceive as causing poor productivity, engagement and turnover. How easy this is to do is another matter!

Anyone who has recently changed his or her job is acutely aware of the corporate culture whilst “old timers” have ceased to notice the oddities in the “usual behaviour around the office”. 

The culture dictates everything from dress code to timekeeping; email style to coffee-break etiquette; job titles to after-work behaviour. Corporate culture is often dramatically different from the pre- and pro-scribed behaviours in the mission statement or values declaration: what they say they believe and do is very different from what actually occurs. 

Dysfunction in organisational culture can erode a business from within, causing it to lose its commercial edge and making it difficult to retain or recruit talent.

More importantly, corporate culture has a direct and powerful effect on both productivity and satisfaction. Clearly, dysfunction in organisational culture can erode a business from within, causing it to lose its commercial edge and making it difficult to retain or recruit talent. 

An individual manager’s decision-making and success is a part function of the corporate culture. This is why researchers take an active interest in the “dynamics of the team”.

For the past 30 years in management circles, corporate culture has been “flavour of the month”. Books, articles and papers appearing on this topic have been numerous and it is now widely adopted in both professional and academic circles.

It has been used to predict and explain a great variety of behaviours in organisations, both successful and unsuccessful, and many large and small organisations have attempted what they call culture change programmes.

It has taken a long time for some managers and management scientists to realise that “soft” human resource issues may play such an important part in any organisation’s success (or failure).

How is it that so many individuals within an organisation share basic attitudes, behaviour patterns, expectations and values? In other words, how does a culture form and how is it maintained? What is the origin of corporate culture? 

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The Origin of Corporate Culture
Corporate culture is essentially based on the needs of individuals to reduce uncertainty and to have some reference to guide their actions. This uncertainty reducing need is resolved by the evolution of behaviour standards (do’s and don’ts) and norms of perceiving events.

Firstly, organisational culture may be traced, at least in part, to the founders of the company or those who strongly shaped it in the recent past. These individuals often possess dynamic personalities, strong values, and a clear vision of how the organisation should be. Since they are on the scene first, and/or play a key role in hiring initial staff, their attitudes and values are readily transmitted to new employees. 

The result is that these views become the accepted ones in the organisation, and persist as long as the founders are on the scene, or even longer.  Given the length of time over which cultures become established, the reasons why people do things may well be forgotten, yet they perpetuate the values and philosophies of the founder.

Secondly, organisational culture often develops out of, or is changed by, an organisation’s experience with external exigencies. Every organisation must find a niche and an image for itself in its sector and in the marketplace. As it struggles to do so, it may find that some values and practices work better for it than others – for example, one organisation may gradually acquire a deep, shared commitment to high quality, and another company may find that selling products of moderate quality, but at low prices, works best for it. The result: a dominant value centreing around price leadership takes shape. 

Hence, the pressure to change culture to “fit” the external environment is constant, particularly in turbulent times. Indeed, it is because the business environment changes more rapidly than the corporate culture that many managers see that adopting the right culture can be an important factor in business success, that is, of thinking and behaving differently to be aligned with the realpolitik of the commercial environment.

Thirdly, culture develops from the need to maintain effective working relationships among organisation members. Depending on the nature of its business, and the characteristics of the person it must employ, different expectations and values may develop. 

Just as groups go through a well-known sequence in their development, remembered as forming, storming, norming and performing, so do corporate cultures.

Thus, if a company needs rapid and open communication between its employees, and informal working relationships, an open expression of views will probably come to be valued within it. In contrast, very different values and styles of communication may develop in other organisations working in other industries with different types of personnel. Just as groups go through a well-known sequence in their development, remembered as forming, storming, norming and performing, so do corporate cultures. Indeed, it is the development of behavioural norms that is at the very heart of culture.

 

12 Types of Corporate Culture
Culture is created through two main factors. Firstly, there is norm formation around critical incidents, particularly where mistakes have occurred; that is, the lessons learnt from important corporate events (often crises) are crucially important factors in the formation (or change) of culture. 

Understanding the factors that lead to the establishment of corporate culture are important because they also serve to highlight the factors that need to be concentrated on when changing that culture.

Secondly, there is identification with leaders and what leaders pay attention to, measure and control; how leaders react to critical incidents and organisational crises; deliberate role modelling and coaching; operational criteria for the allocation of rewards and status; operational criteria for recruitment selection, promotion retirement and ex-communication. 

The role of unique visionary leaders cannot be understated. Understanding the factors that lead to the establishment of corporate culture are important because they also serve to highlight the factors that need to be concentrated on when changing that culture.

One easy way to get an idea on the concept and its measurement is to look at the measure below devised by Cooke & Lafferty (1989). People are required to complete a relatively short questionnaire, which yields scores on the dimensions below. The sentence in brackets is a typical question from the test that measures that particular culture:

1. A Humanistic–helpful culture characterises organisations managed in a participative and person-centered way. Members are expected to be supportive, constructive and open to influence in their dealings with one another. (Helping others to grow and develop; taking time with people.)

2. An Affiliative culture characterises organisations that place a high priority on constructive interpersonal relationships. Members are expected to be friendly, open and sensitive to the satisfaction of their workgroup. (Dealing with others in a friendly way; sharing feelings and thoughts.)

3. An Approval culture describes organisations in which conflicts are avoided and interpersonal relationships are pleasant – at least superficially. Members feel that they should agree with, gain the approval of and be liked by others. (Making sure people accept you; “going along” with others.)

4. A Conventional culture is descriptive of organisations that are conservative, traditional, and bureaucratically controlled. Members are expected to conform, follow the rules and make a good impression. (Always following policies and practices; fitting into “the mould”.)

5. A Dependent culture is descriptive of organisations that are hierarchically controlled and non-participative. Centralised decision-making in such organisations leads members to do only what they are told and to clear decisions with superiors. (Pleasing those in positions of authority; doing what is expected.)

6. An Avoidance culture characterises organisations that fail to reward success but nevertheless punish mistakes. This negative reward system leads members to shift responsibilities to others and avoid any possibility of being blamed for a mistake. (Waiting for others to act first; taking few chances.)

7. An Oppositional culture describes organisations in which confrontation prevails and negativism is rewarded. Members gain status and influence by being critical and, thus, are reinforced to oppose the ideas of others and to make safe (but ineffectual) decisions. (Pointing out flaws; being hard to impress.)

8. A Power culture is descriptive of non-participative organisations structured on the basis of the authority inherent in members’ positions. Members believe they will be rewarded for taking charge, controlling subordinates and, at the same time, being responsive to the demands of superiors. (Building upon one’s power base; motivating others in any way necessary.)

9. A Competitive culture is one in which winning is valued and members are rewarded for outperforming one another. People in such organisations operate in a “win/lose” framework and believe they must work against (rather than with) their peers to be noticed. (Turning the job into a contest; never appearing to lose.)

10. A Competence/perfectionistic culture characterises organisations in which perfectionism, persistence, and hard work are valued. Members feel they must avoid all mistakes, keep track of everything, and work long hours to attain narrowly defined objectives. (Doing things perfectly; keeping on top of everything.)

11. An Achievement culture characterises organisations that do things well and value members who set and accomplish their own goals. Members of these organisations set challenging but realistic goals, establish plans to reach these goals, and pursue them with enthusiasm. (Pursuing a standard of excellence; openly showing enthusiasm.)

12. A Self-actualisation culture characterises organisations that value creativity, quality over quantity, and both task accomplishment and individual growth. Members of these organisations are encouraged to gain enjoyment from their work, develop themselves, and take on new and interesting activities. (Thinking in unique and independent ways; doing even simple tasks well.)

These cultures were in turn grouped into three categories: Types 1–4 were described as satisfactory, 5–8 as security and 9–12 dependent cultures. Research by colleagues and myself indicates that this can be a useful tool to describe the current culture but also the culture that is required.

 

The Change Strategy

The change strategy usually involves thinking about what is the ideal corporate culture, assessing the current corporate culture in terms of the same concepts and then doing the classic gap analysis. The next, more important step, is trying to devise ways of moving the current to the desired culture.

Classically, organisations try different strategies to change their culture. Some try more than one at the same time or in different orders depending on various factors like who is in charge, how successful the strategy has appeared to be and the corporate culture itself. The classic five are:

1. The fellowship strategy. The fellowship strategy relies heavily on various events to announce and discuss what needs to be changed and how. People at all levels are listened to; however, this ‘warm and fuzzy’ approach emphasises personal commitment over ideas. This strategy is averse to conflict; it can miss crucial issues and waste time. 

2. The political strategy. The strategy seeks to identify and persuade those most respected with influence and power and who have large constituencies and who therefore shape the culture. The idea is to flatter, bargain and compromise to achieve their ends, which is usually the introduction of new methods that reflects different values. But this can destabilise the organisation and maintaining credibility can be difficult because the strategy is devious.

3. The economic strategy. This strategy believes that money is the best persuader. This is the approach that assumes people act more or less logically, but that their logic is based on entirely economic motives. But ‘buying people off’ can be costly and the effects short term. The strategy also ignores emotional issues and all questions besides bottom-line profit. 

4. The academic strategy. This strategy assumes that if you present people with enough information and the correct facts, they will accept the need to change and how to do it. The academic strategist commissions studies and reports from employees, experts and consultants.  ‘Analysis paralysis’ often results because the study phase lasts too long and the results and recommendations are often out of date when they are published. 

5. The engineering strategy. This technocratic approach assumes that, if the physical nature of a job is changed, enough people will be forced to change. It is a method of re-engineering. Such change can also break up happy and efficient teams. The strategy is limited because only high-level managers can really understand it, it is impersonal and it ignores the question: ‘What is in it for me?’

Culture-change strategists divide on a number of issues. Should you attempt to change the attitudes, beliefs and values or more simply the work-related behaviours of people? Should you use carrot and stick (reward and punishment) or just one or the other for most effect? Should one start the change process at the top or the bottom in organisations? Should one ‘engineer a crisis’ to really get people to come on board?

Academic and practitioner interest in Corporate Culture has continued for half a century. Although somewhat illusive nearly every recognises its role in determining business success and failure. 

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About the Author 

Adrian Furnham is Principal Behaviour Psychologist at Stamford Associates in London. He was Professor of Psychology at University College London 1981 to 2018, and now also Adjunct Professor of Management at the Norwegian School of Management in Oslo. He has written over 1200 scientific papers and 90 books.

References
1. Cooke, R. A., & Lafferty, J. C. (1989). Organisational Culture Inventory. Plymouth, MI: Human Synergistics.
2. Cooke, R. A., & Rousseau, D. M. (1988). Behavioural norms and expectations: A quantitative approach to the assessment of organisational culture. Group & Organisation Studies, 13(3), 245-273.
3. Furnham, A. (2005). The Psychology of Behaviour at Work. London: Taylor and Francis
4. Furnham, A. (2014). Corporate Culture or Cult: What is the difference? Sunday Times, January 7th
5. Xenikou, A., & Furnham, A. (1996). A correlational and factor analytic study of four questionnaire measures of organisational culture. Human Relations, 49(3), 349- 371.
6. Xenikou, A., & Furnham, A. (2013). Group dynamics and organisational culture: effective work groups and organisations. Basingstoke: Palgrave Macmillan

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