Organisational culture

The culture of an organisation consists of shared values, beliefs and assumptions about how people should behave and perform at work, and how decisions should be made. Key factors in an organisation’s culture include its corporate personality, history, environment and the people who lead and work for it.

“Culture eats strategy for breakfast” is a famous quote from renowned management consultant and writer Peter Drucker. He did not mean that strategy was unimportant, more that a strong and empowering culture is a more reliable way to achieve organisational success.

Different types of organisational culture

There are four main types of organisational culture. Some are a conscious choice by the organisation’s leadership while other cultures develop organically.

Although these culture types are different, one is not inherently better than the others. They are created or adapted to suit the individual needs of an organisation.

1. Collaborative culture

Also known as a clan culture, this is where employees view their fellow workers as an extended family. Much emphasis is placed on togetherness, supporting each other and teamwork.

2. Ad hoc culture

This type of culture is alternatively called the create culture or entrepreneurial culture. It fosters an entrepreneurial work environment with employees encouraged to be more creative in their exploration of unconventional ideas and to embody a higher risk appetite.

3. Market culture

This is a results culture where the emphasis is placed on the end result. People are encouraged to achieve what they set out to do in a very goal-focused environment led by demanding leaders determined to achieve organisational success.

4. Hierarchy culture

A hierarchy culture exists in more structured and process-driven work environments. Activities and decisions are made by tried and tested procedures in an environment where the focus is on reliability and stability.

How does organisational culture affect employees?

Organisational culture is important to employees for a range of reasons. It also delivers short and long-term benefits to an organisation or company and its leadership team.

Culture is known to have a direct impact on employee retention. For companies to achieve success, they need to attract and retain the best talent.

Studies have shown that employees are likely to turn down good jobs if the company culture is not right for them. Employees who say their company culture is poor are also likely to look for alternative posts within 12 months.

Positive company culture drives employee engagement and therefore positive results for a business. Engaged employees enjoy a positive work experience and are more productive. They also have low rates of absenteeism compared to fellow workers who are less engaged.

Furthermore, a positive company culture delivers fulfilment for its employees as well as work satisfaction and importantly, good mental health and well-being.

How is organisational culture developed?

The following steps can be used to develop organisational culture:

• Values – A company’s set of values dictates its culture from the outset. Values include respect, diversity and equality, or they could be innovation, agility, transparency, kindness and sustainability. Core values should be established first as they are the initial building bricks in creating a strong company culture.
• Goals – Goals enable companies to achieve success in business. They also enable companies to set goals around the culture they wish to develop. Examples include building a culture around diversity which means creating an inclusive culture. Goals here could be increasing the retention rates of diverse staff or increasing the number of employees who feel a sense of belonging. A company culture could focus on work-life balance. Goals here might include enabling staff to enjoy more flexible working or more paid time off in the year.
• Employee input – It is important to develop a company’s culture with the input of staff who are most affected by the culture. Asking staff what is important to them will help build or improve a company’s culture. Their feedback is crucial to developing a strong culture which works for them and the company.
• The work experience – Organisational culture is about how employees experience work every day. A diversity culture could mean giving staff paid time off for religious or cultural holidays. A work-life balance culture could establish that employees are not expected to work beyond a certain time or at weekends. Key to developing a culture is ensuring how to embed that culture in the daily work experience of employees.

How can the board of directors influence the organisational culture?

Culture is about creating a work environment that reflects an organisation’s values, traditionally set by the board of directors and implemented by management.

Employees want to be recognised for their hard work. According to research from Deloitte, more than half of employees prefer to be verbally thanked for their day’s work and achievements rather than receive a written communication.

Employees also like work flexibility. Directors can consider offering work flexibility which might include remote working options, hybrid working or flexibility around working days and hours.

Directors should ensure competitive rates of pay and benefits to retain employees. Research salary packages in your sector to make sure you are offering staff competitive rates and benefits.

Influencing company culture also involves taking the time to ask employees what needs to be improved. Regular checks with staff will reveal what would improve their work experience.

Common characteristics of a strong organisational culture

A strong company culture aligns with an organisation’s mission and values, promotes ethical conduct, diversity and inclusivity, contributing to effective governance and sustainable business performance.

The building of a strong organisational culture starts at the top with the leadership style of a board of directors and senior management.

Culture is what creates the day-to-day experience at an organisation and, in a strong culture, employees are engaged and committed. There are also clear expectations: employees know what is expected of them, believe the expected response is the proper one and that they will be rewarded appropriately.

Common biases putting organisational culture at risk

There are several key common biases that can put organisational culture at risk. These include:

Groupthink

Groupthink occurs when a group of individuals reaches a consensus without critical reasoning or evaluation of the alternatives. Groupthink is based on a common desire not to upset the balance of a group of people.

Authority Bias

This is a tendency to be more influenced by the opinions and judgments of authority figures. It can lead people to accept information or follow instructions without critically evaluating the content, simply because it comes from a perceived authority.

Confirmation Bias

Interpreting information in a way that confirms what we already believe to be true is known as confirmation bias. It is widespread and has significant implications for directors who need to make objective decisions based on available information.

Status Quo Bias

Boards often resist change due to fear and a preference for the familiar. This status quo bias can hinder innovation and development. Boards can take steps to challenge the status quo by seeking perspectives and advice from outside the organisation.

How to measure organisational culture

Boards should set aside time to develop indicators or metrics by which to measure their organisational culture. This way, the culture can be efficiently evaluated and reported within the company.

Tools to help measure organisational culture can include surveys or assessments in which employees at every level are encouraged to take part. Survey or assessment results should be communicated to see where the desired outcomes are or are not being achieved.

Employee focus groups are another good method of evaluating a company’s culture, providing feedback to make tangible changes where appropriate.

Accreditations are another good way of benchmarking against a company’s values and goals and demonstrating commitment to a strong organisational culture.

The IoD has achieved Great Place to Work certification – a programme which recognises employers who create an outstanding employee experience.

Related resources and courses

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