Organisational culture: what is it and how does it affect organisational effectiveness?

An organisation’s culture can play a significant role in determining the organisation’s success – or its failure. This is because organisational culture determines everything from how decisions are made to how employees feel and behave within the organisation.

Built on a foundation of organisational values, and reflecting the behaviours of its leaders, an organisation’s culture is effectively the personality of the organisation or business. How does it treat people? What sorts of practices, processes, and policies does it prioritise? These are important questions, because the culture an organisation develops can help to deliver on performance and organisational goals, strategic objectives, and can even influence employee recruitment and retention. In short: a strong culture is a powerful asset within any business – and a dysfunctional organisational culture can significantly stunt its success. 

So what exactly is organisational culture? A commonly used definition comes from Daniel R. Denison, a professor of organisation and management who co-wrote a paper called Toward a Theory of Organisational Culture and Effectiveness with Aneil K. Mishra. Denison says that organisational culture is “the underlying values, beliefs, and principles that serve as the foundation for an organisation’s management system, as well as the set of management practices and behaviours that both exemplify and reinforce those basic principles.” 

According to the Chartered Institute of Personnel and Development (CIPD), the UK association for human resource management professionals, organisational culture “matters because it offers a way for employees to understand their organisation, to voice their views, and to develop connections and common purpose.”

What are the different types of organisational cultures?

Organisational cultures can be broken down into several different categories. For example, the Competing Values Framework outlines four classifications for organisational culture and leadership.

1. Adhocracy culture. Also known as the create culture, adhocracy culture is commonly seen in entrepreneurial businesses. A blend of ad hoc and bureaucracy, adhocracy is focused on flexibility and innovation.
2. Clan culture. Also known as the collaborative culture, this organisational culture is focused on people first.
3. Hierarchy culture. Hierarchy culture is also known as control culture, and is process-oriented, with clear structures and procedures in place for everyone from entry level employees to high-level stakeholders.
4. Market culture. Market culture is driven by results, and is also known as compete culture. It’s driven by profitability, a competitive advantage, and the organisation’s bottom line.

The Harvard Business Review, meanwhile, identifies eight different types of corporate cultures.

1. Caring cultures, which are focused on collaborative relationships, teamwork, a good work-life balance, and mutual trust. 
2. Purpose cultures, which are focused on idealism and altruism. 
3. Learning cultures, which are characterised by creativity and innovation among team members.
4. Enjoyment cultures, which feature lighthearted working environments.
5. Results cultures, which are driven by achievements, and are focused on outcomes and business performance.
6. Authority cultures, which are defined by strength and decisiveness in decision-making as well as competitive work environments.
7. Safety cultures, which are risk-conscious and focused on planning and preparedness.
8. Order cultures, which are focused on respect, structure, and shared norms. 

What are the main factors that influence organisational culture?

There are several schools of thought when it comes to organisation culture, what shapes it, and what influences it.

For example, Edgar Schein, Professor Emeritus at the MIT Sloan School of Management, argued that organisational culture had three levels:

1. artefacts, which are the organisational attributes that can be seen and heard by anyone. For example, the appearance of offices and décor, how employees dress, and how they interact with others.
2. values, which are cultural elements that are explicitly stated: mission statements, slogans, corporate values and behaviours, and so on. 
3. basic assumptions, which are the common beliefs that evolve within the organisation and form a pattern while never being explicitly articulated or challenged.

Others, such as Professor Geert Hofstede – a social psychologist – developed an organisational culture model with six factors:

1. Organisational effectiveness. Is the organisation means-oriented or goal-oriented? Is it primarily focused on what it achieves, or how it achieves it?
2. Customer orientation. Is the organisation internally driven or externally driven?  
3. Level of control. Is the organisation easygoing or strict in terms of work discipline?
4. Focus. Are employees within the organisation locally focused on their immediate boss or team, or professionally focused?
5. Approachability. Does the organisation operate as an open system or a closed system? 
6. Management philosophy. Is the organisation employee-oriented or work-oriented? 

Understanding the impact of organisational culture

How does the culture of an organisation impact organisational change?

An organisation’s culture can directly influence its response to organisational change. This is significant, with the CIPD pointing out that an “effective approach to managing change is vital because evidence indicates that few change initiatives are successful. This failure can have a great impact on an organisation, both in their market position and the engagement and retention of employees.”

With people and culture being the single biggest drivers of organisational change success, it’s obvious that a dynamic, change-receptive culture is key to ensuring the success of any organisational change programmes.

How does the culture of an organisation impact individual and organisational performance?

It’s clear that organisational culture has a large part to play in driving the effectiveness of the organisation – and the individual – however, research to establish firmer links between culture and organisational performance, or employee performance outcomes, is still ongoing.

“There’s speculation that culture affects organisational performance, and some organisations have put great effort into changing their culture and structure to improve this,” reports the CIPD. “However, while managing organisational culture is increasingly seen as a necessary part of governance and management practice, research evidence on the link between organisational culture and performance is weak.”

That said, in his recently published book Win from Within: Build Organisational Culture for Competitive Advantage, James Heskett highlights the correlations between organisational culture and employee loyalty, productivity, and creativity.

And according to Tom Peters, who co-wrote the 1980s strategic management book In Search of Excellence, says that culture drives in behaviour, and that in turn, organisational behaviour “has direct impact on the bottom line, costs, revenue streams, level of productivity, customer satisfaction, even the brand – every aspect of the business is affected.”

Additionally, Jennifer A. Chatman and other academics have written extensively on the topic of leadership, its impact on organisational culture – and the impact on performance. For example, in a publication titled The Promise and Problems of Organisational Culture: CEO Personality, Culture, and Firm Performance, Chatman and others found that “CEO personality affects a firm’s culture and that culture is subsequently related to a broad set of organisational outcomes including a firm’s financial performance, reputation, analysts’ stock recommendations, and employee attitudes.”

How does the culture of an organisation impact the organisation’s ability to innovate?

There are a number of organisational culture styles that encourage – or inhibit – innovation. For example, both the adhocracy and learning cultures place a strong emphasis on innovative behaviours and outcomes, while a hierarchy culture or order company culture are more likely to favour tried-and-true processes and procedures that restrict innovation and new ideas.

How does the culture of an organisation impact the organisation’s ability to compete?

Much like innovation, organisational competitiveness can be directly influenced by the organisation’s culture and its core values. Market culture, for example, is often referred to as compete culture, and is focused primarily on market competitiveness.

Models for improving corporate culture and organisational effectiveness

Regardless of whether a leader is focused on corporate culture and performance, or the culture and performance within a health care setting – or anything in between – there are a number of different models, methods, and leadership styles that can be used to create a set of shared values and a strong organisational culture.

One example is Dr. John Kotter’s eight-step process for leading change. Another is the McKinsey 7-S framework.

Help shape the culture of your organisation

You could advance your career in management and leadership with the 100% online MBA Leadership from Lincoln International Business School at the University of Lincoln. This degree has been created for ambitious professionals who want to fast-track their career progression, and because it’s studied part-time and fully online, you can learn around your current work and personal commitments.

Through one of your core modules, you’ll have the opportunity to learn about leading and developing individuals and high-performance teams within an organisational culture. This degree also explores other areas of leadership, such as talent management, learning organisations, workforce design, succession planning, and diversity and inclusion. Another key module on this programme is in leading organisational change, so you could examine organisational change theories, models, and frameworks, as well as different approaches for managing change, and new ways of working across infrastructure, processes, people, and culture to promote the effective leading of organisational change.