What is Corporate Culture?

A firm’s corporate culture is kind of like a coach leading a team…

Think back to your childhood when you played on several sports teams. Each team had a different environment – Some coaches were positive and encouraged players to have fun, while others were more concerned with winning and reprimanded players when they lost. Like a coach can influence a team’s culture, a company’s management can impact the culture of an organization. If a leader treats his or her employees with kindness and respect, the employees will often follow suit, thereby creating a positive corporate culture.

Corporate culture – sometimes called organizational culture – refers to the environment and behaviors that a company embodies. It forms from the collective values, practices, and beliefs that characterize the employees and management.

An organization’s culture displays itself in many ways, including through employees’ treatment of one another, the physical environment, benefits, business hours, expectations, and branding. It also dictates the way that the organization will interact with clients (aka customers) and stakeholders, such as investors. Corporate culture can be influenced by factors like company size, industry, history, the broader economy, and geographic location.

Corporate culture is often defined either intentionally or unintentionally by an organization’s leadership – It then trickles down to all aspects of its operations. While corporate culture can partly be an intentional result of a company’s written manifesto (aka declaration of policies and goals), mission statement, or code of ethics, it really comes down to the shared values that those within the company hold. It’s more often a result of a leadership’s actions rather than words.

The concept of corporate culture first dates back to 1951 when a book, The Changing Culture of a Factory, detailed the shifting environment of a British industrial community. In his account, the author, Dr. Elliott Jaques, defined corporate culture as the shared goals and values of the workers in that organization.

Over the next several decades, Jaques and a cadre of experts went on to observe other corporate cultures. In doing so, they defined the different functions and components of a successful corporate culture. Among other characteristics, these included fair treatment of all employees, strong leadership, and a clear sense of accountability for workers at each level.

Research on corporate culture has continued to evolve since that time – Jacques wrote on the topic for nearly half a century, as have other experts. The modern definition of corporate culture looks quite similar to the one that Jacque first wrote about in the 1950s, with a focus on the values and behaviors that define a company. The biggest shift that has taken place since the first document of corporate culture is that this factor now plays a far more central role in building a successful company – Today, both employees and customers seek out organizations that pride themselves on a strong culture with clearly established values.

Many research frameworks and models have been developed over the years to assess and describe the various types of corporate cultures.

One of the most famous of these frameworks is the Organizational Culture Assessment Instrument (OCAI), which was developed by two business professors at the University of Michigan in 1999. According to the OCAI, there are four primary models of corporate cultures.

1. Clan culture refers to a type of work environment where the people within a company are like a family. The company’s leadership works to create a nurturing environment where team members have shared values and goals. Though it is a large international organization, Google adheres to many clan culture principles.
2. Adhocracy culture represents a business environment that encourages an entrepreneurial spirit in its employees. Companies with this type of corporate culture place a premium on innovation and individual thinking – They tend to encourage risk taking. Adhocracies may not clearly define the roles within the company, limiting the amount of specialization. Facebook is one such company.
3. Market culture refers to corporations that emphasize competition. Not only do firms that fit this model focus on competing against other companies in their market, but they also often encourage competition between employees. A market culture prioritizes results and achievement. Amazon and Apple are key examples of companies with a market culture.
4. Hierarchical culture represents a more formal and traditional model of an organizational structure. These types of businesses typically have a clear chain of command and well-defined roles. Hierarchies tend to run as bureaucracies with many layers of middle management. You’d likely find this type of culture in an industry that is subject to a lot of regulation, such as government, health care, or aviation organizations.

Corporate culture is critical when it comes to building a successful business – Along with a company’s business strategy (aka set of competitive moves and actions), it can help determine the success or failure of an organization. According to Harvard Business School Professor James Heskett, culture “can account for 20-30% of the differential in corporate performance when compared with ‘culturally unremarkable’ competitors.”

First, having a strong, easily identifiable culture helps attract high-quality employees who will be a good fit for the company. Employees who feel that their job aligns closely to their personal values are more likely to stay because they feel a connection to the company. Thus, a positive culture can help boost employee retention. Employee turnover costs employers hundreds of billions of dollars per year, making it financially prudent to keep good employees around.

Next, a company’s culture can also impact the way an employee feels about their employer. Employees who feel engaged will typically put in more effort, have lower stress, and take more pride in their results. This, in turn, can lead to good business outcomes, such as innovative new products and boosted revenue or profitability.

Lastly, a well-defined corporate culture can also help communicate a company’s values to stakeholders (aka those with an interest in the company) and solidify its brand. When a company becomes known for certain values, beliefs, and practices, it helps the firm create a strong public reputation, which may attract customers, clients, and investors who identify with it. This can engender brand loyalty.

Starbucks is an example of a company who has made their corporate culture a strong part of their brand. Starbucks is open with their customers about their dedication to buying fair trade coffee from around the world. As a result, customers who appreciate a commitment to corporate social responsibility may be more likely to shop at Starbucks over another coffee shop. This, among other things, has helped the company to build a loyal following.

Each organization has its own unique corporate culture, though the cultures from one company to the next often have some characteristics in common.

A Harvard Business Review article outlines six primary components that help to create a successful corporate culture:

1. Vision: Each company, including both for-profit and nonprofit organizations, has its own vision — It’s often the reason why the organization began. Typically, it is defined in a short vision or mission statement. A company vision is a way of unifying all of the company’s stakeholders under a common goal. The more compelling the vision, the more unified the stakeholders might feel.
2. Values: The values and beliefs that a company adheres to have a strong impact on its corporate culture. Companies often broadcast these values through a corporate code of ethics, which is a written set of ethical guidelines that the firm follows. Not having any sort of code of ethics or corporate values may negatively impact an organization, as there may be ambiguity around expectations and company beliefs.
3. Practices: The values a company puts into practice are just as, if not more, important than the ones it writes down. A company might claim to be family friendly, but act in a way that’s harmful to its employees who are parents. The practices that often most impact corporate culture are the ways that a company’s leadership treats other employees. For practices to stick, they must be consistently reinforced in all daily operations, including review criteria and promotion policies.
4. People: Companies can typically only be as successful as the individual employees within the business. Leaders can create a strong corporate culture by hiring employees with the skills, knowledge, and values that match the company’s goals. That way, their employees will be willing and enthusiastic about embodying the culture every day.
5. Narrative: A company’s narrative is the unique story it has to tell. For many companies, their narrative might include a story about how their founder came up with the idea for the business and the obstacles they had to overcome to build it. For example, Sara Blakely, the founder of Spanx, developed a strong narrative about how she came up with the idea for her company and gained traction – This story is an important part of the Spanx brand.
6. Place: The physical environment where a company does business makes more of a difference than you might think. A traditional, hierarchical company might put its staff in cubicles, while a company with an innovative, adhocracy culture might prefer an open workspace where employees can collaborate openly. Even having no physical location, as with fully remote companies, influences the corporate culture.

The corporate culture that a company implements can have a direct influence on the job performance of its employees. When employees feel happier at work and genuinely care about the company and the work they’re doing, they often are more productive. The productivity of employees can have a significant impact on a company’s bottom line (aka profits).

A Gallup report from 2022 estimates that low employee productivity costs companies up to $7.8T each year globally. The same report found that most employees are unengaged at work. This is a current concern in the US too. In the second quarter of 2022, US nonfarm business sector labor productivity experienced the largest decline since 1948. Creating a positive corporate culture is one way that companies can create a competitive advantage over others in their market.

Creating a positive corporate culture is one of the primary actions that companies can do to increase productivity, employee satisfaction, and company performance. But it’s a bigger and more complex job than just writing the desired characteristics of a company culture in an employee handbook and expecting it to stick. Instead, company leaders have to instill the corporate culture constantly through their actions.

Employee engagement is a critical part of the corporate culture. Companies can invest in their employees in many ways, such as through the benefits they provide and the training and educational opportunities they offer. They may also work on strengthening the relationship between the firm and its employees through activities like volunteering and social events.

Ultimately, a corporate culture is built from action, not words. If employers want to create a certain kind of environment, management must practice what they preach both inside and outside the company.

Many employees today place a premium on a corporate culture that allows for a flexible workplace. According to a 2019 Glassdoor survey, the majority of job seekers said they prioritize company culture over salary. Technology now makes this type of work environment easier to create.

GitLab, a software company, successfully implemented this type of flexible corporate culture. GitLab is a 100% remote company that allows for flexible hours so employees can prioritize the moments most important to them during the day. They can work at the time that works best for them. Even with the remote culture the company has built, it has prioritized creating a collaborative workplace. The company pays for team members to visit one another and hosts virtual coffee chats for staff.

Software developer Adobe is also famous for its corporate culture. While plenty of companies struggle with low employee satisfaction, 96% of Adobe employees are happy with their job. Because they know how much time their people spend at work, the company makes efforts to make the place seem a bit more like home – They offer meditation and exercise options and local and organically sourced meals for employees to enjoy at the cafeteria. In addition, most Adobe employees receive a paid sabbatical every five years.