Organizational Culture (Encyclopedia of Management)
As people work together to accomplish goals, groups develop into organizations. As goals become more specific and longer-term, and work more specialized, organizations become both more formal and institutionalized. Organizations tend to take on a life of their own and widely held beliefs, values, and practices develop, differentiating one organization from another and often affecting the organization's success or failure. In the early 1980s, management scholars began attempting to describe these belief systems, which they referred to as organizational or corporate cultures.
Interest in organizational cultures was further created by William Ouchi's 1981 best-seller, Theory Z: How American Business Can Meet the Japanese Challenge. Ouchi considered organizational culture to be a key determinant of organizational effectiveness. In 1982 two other best-sellers, Terrance Deal and Allan Kennedy's Corporate Cultures: The Rites and Rituals of Corporate Life and Thomas Peters and Robert Waterman's In Search of Excellence, supported the idea that excellent companies tended to have strong cultures.
An organizational culture is defined as the shared assumptions, values, and beliefs that guide the actions of its members. Organizational culture tends to be shaped by the founders' values, the industry and business environment, the national culture, and the senior leaders' vision and behavior. There are many dimensions or characteristics of organizational culture that have been defined. For example, a research study conducted by J.A. Chatman and K.A. Jehn in 1994, identified seven primary characteristics that define an organization's culture: innovation, stability (maintaining the status quo versus growth), people orientation, outcome orientation, easygoingness, detail orientation, and team orientation.
Large organizations usually have a dominant culture that is shared by the majority of the organization and subcultures represented by groups of individuals with unique values or beliefs that may or may not be consistent with the dominant culture. Subcultures that reject the dominant culture are called countercultures. Strong organizational cultures are those where the core values of the dominant culture are strongly believed by the great majority of organizational members. A strong culture tends to increase behavior consistency and reduce turnover. However, strong cultures may be less adaptive to change, may create barriers to diversity, and may create barriers to successful acquisitions and mergers.
CULTURAL FIT BETWEEN ORGANIZATION AND MEMBERS
There are many practices within an organization that tend to keep a culture alive and measure the cultural fit between the organization and its employees. Many of the human resource practices such as selection, performance appraisal, training, and career development reinforce the organization's culture. Organizational beliefs also tend to influence the work norms, communication practices, and philosophical stances of employees. Organizations use a process called socialization to adapt new employees to the organization's culture. If employees do not adapt well, they feel increasing pressure from supervisors and from coworkers who are better acculturated. They might stay and fight, stay and become isolated, or leave the organization, voluntarily or involuntarily, and look for a different organization whose culture they fit better.
In contrast, employees who understand and share the organization's values have a better basis for making choices that match the firm's goals. Many organizations compete through innovation. When most employees understand and support the organization's expectations, less time is spent explaining, instructing, and building consensus before trying something innovative. Moreover, the error level will be lower in most cases. Employees who are well acculturated also find their work more meaningful: They are part of, and contributing to, something larger than themselves. Thus, a good cultural fit between employees and the organization contributes to employee retention, organizational productivity, and profit.
MEANS OF CONVEYING CULTURE
Organizations often convey cultural values explicitly by means of mission statements or corporate credos, or to a lesser extent through slogans, logos, or advertising campaigns. Leaders and managers also show what the organization values by what they say and do, what they reward, who they make allies, and how they motivate compliance. Other elements of culture appear tacitly in symbols and symbolic behavior: For instance, meeting protocols, greeting behavior, allocation and use of space, and status symbols are a few areas where organizational norms often develop. Culture can regulate social norms as well as work or task norms.
The new-employee orientation typically offered by organizations conveys selected cultural elements of which management is both aware and proud. Some cultural elements might be initially unpalatable, however, and some others might be hard to put into words. For instance, an orientation would rarely say outright that the culture rewards neglect of one's personal life and demands a 60-hour work week, although these expectations are not unknown in corporate life. Perceptive new employees learn about tacit cultural elements through observation and through questioning trusted employees or mentors. This is not one-time learning; employees must continue to watch for signs that the rules are changing.
These organizational rules include explicit policy statements, but also a much larger and less evident set of unwritten organizational expectations. Attentive employees figure them out sooner than others. They listen to the metaphors, images, and sayings that are common in the organization. They watch, for example, the consequences of others' mistakes to reach conclusions about appropriate behavior.
Organizations also communicate values and rules through displayed artifacts. For example, in some organizations, the CEO's office displays many symbols of wealth, such as expensive original art or antiques. In others, the CEO's workspace is very Spartan and differs little from that of other executives and higher-level managers. In the former case, a manager with other sources of income might be able to afford similar status symbols but would be unwise to display them since this might be perceived as competing with the CEO. In the latter case, display of personal wealth by people in general would probably be counter to organizational values.
Even the way a physical plant is laid out communicates cultural messages: Is it an open area where everyone can see everyone? Are there cubicles? Are there private offices? Is it easy or difficult to move and communicate between functional areas? Have ergonomics and convenience been considered or ignored? Are there adequate neutral spaces for people to meet to make decisions and solve problems? Do the break rooms and lunch rooms invite or discourage use?
SOME COMPONENTS OF CULTURE
The idea that organizations have cultures came originally from ethnography, the study and description of human social cultures. Researchers in organizational culture have borrowed some of that language. Individuals in societies took on specific "roles," such as ruler, priest, historian, or teacher. In organizations, similar roles emerge. The historian or storyteller, for instance, is usually a longtime employee who narrates inspirational stories about the company's early years or its evolution. Embodied in the stories are many of the core values that permeate the organization. This "organizational folklore" includes oft-repeated stories about the founder, a long-term CEO, a dramatic firing, or an individual who rose through the ranks very quickly owing to some attribute highly valued by the firm. The stars of an organization are comparable to a social culture's heroes. An organization's success stories yield "role models" for the ambitious.
Organizations develop "rites and rituals" comparable to traditional activities within an ethnic culture. Whereas some organizations might emphasize award ceremonies, others might de-emphasize explicit recognition and affiliation behaviors. Still others might foster "management by walking around," whereby managers spend frequent one-on-one time away from their desks giving praise or criticism to individuals. As another example, lunch with the president might be a longstanding tradition, although the amount of actual communication will vary from organization to organization according to unwritten rules about who talks to whom.
Although all organizations have both formal and informal communication networks, organizational culture strongly affects the content, reliability, and influence of the informal network or "grapevine." When information through formal channels is scarce, the grapevine carries heavier traffic. Leaders aware of culture's importance try to find ways to tap and monitor the grapevine and sometimes use the grapevine by adding information to it.
An organization's culture is composed of relatively stable characteristics that are based on deeply held values that are reinforced by many organizational practices. However, an organizational culture can be changed. Cultural changes are most likely to occur when there is a dramatic setback such as a financial crisis or when there is a turnover in top leadership. Also, younger and smaller organizations and organizations with a weak culture are more amenable to change.
Deliberate and major culture change occurs by executive fiat, by implementation of a plan, or a combination of these means. When leadership changes or when existing leadership commits to change, employees learn that the old assumptions which they were comfortable are no longer safe. After a merger or acquisition, for example, "how we do things here" will change, sometimes quickly and radically. A wise leadership team implements a planned culture-change process. The process usually consists of a series of two-way communications that elicit the prevailing assumptions, reassure employees that the changes can benefit them, introduce (sometimes gradually) the new vision, and work to gain employees' commitment and support. Leaders also must model the new culture for others and change the organization's structure and management practices to support the new culture. If the leaders skip the process or do an inadequate job, employees at all levels experience stress, confusion, and anger. When change is introduced so as not to arouse fear and resentment, however, transition may be relatively smooth.
A 1992 research study by J.P. Kotter and J.L. Heskett showed that long-term financial performance was highest for organizations with an adaptive culture. One example of when organizations must adapt their culture is when organizations become multinational. With the increase in global organizations, it has become clear that national cultures impinge on organizational cultures. Besides language differences, employees bring to the job many radically different assumptions about such aspects as the dignity of work, the proper relationship between employee and supervisor, the value of initiative, the treatment of unwelcome information, and the voicing of complaints. Organizations with international customers, and even more, those with global operations have needed to learn how to adapt to a multicultural environment. Failure to adapt jeopardizes an organization's chance of success abroad.
To summarize, organizational culture is the shared assumptions, beliefs and values held by most members of an organization. Culture is conveyed in both explicit and implicit ways. Newcomers to an organization must quickly assimilate a great deal about the culture. Veteran employees must remain aware of cultural change too, especially when the leadership changes. A strong culture that is aligned with the organization's strategic context and is adaptive to environmental changes can enhance an organization's long-term financial performance.
Chatman, J.A. and K.A. Jehn. "Assessing the relationship between industry characteristics and organizational culture: How different can you be?." Academy of Management Journal 37 (1994): 52253.
David, Stanley M. Managing Corporate Culture. Cambridge, MA: Ballinger Pub. Co., 1984.
Deal, Terrence E., and Allan A. Kennedy. Corporate Cultures: The Rites and Rituals of Corporate Life. Reading, MA: Addison-Wesley, 1982.
Frost, Peter J., Larry F. Moore, Meryl R. Louis, Craig C. Lundberg, and Joanne Martin, eds. Organizational Culture. Beverly Hills, CA: Sage, 1985.
Graf, Alan B. "Building Corporate Cultures." Chief Executive, March 2005, 18.
Hofstede, Geert. Cultures and Organizations: Software of the Mind. New York: McGraw-Hill, 1991.
Kilman, Ralph H., M.J. Saxton, and Roy Serpa, eds. Gaining Control of the Corporate Culture. San Francisco: Jossey-Bass, 1985.
Kotter, J.P. and J.L. Heskett. Corporate Culture and Performance. New York: Free Press, 1992.
LaRue, Bruce, and Robert R. Ivany. "Transform Your Culture." Executive Excellence, December 2004, 145.
LeFranc, Fred. "A Dynamic Culture Can Make a Franchise System Successful." Franchising World, February 2005, 757.
Oden, Howard W. Managing Corporate Culture, Innovation, and Intrapreneurship. Westport, CT: Quorum Books, 1997.
Ouchi, William G. "Theory Z: How American Business Can Meet the Japanese Challenge." Reading, MA: Addison-Wesley Publishing, 1982.
Panico, C. Richard. "Culture's Competitive Advantage." Global Cosmetic Industry 172, no. 12 (December 2004): 580.
Peters, Thomas J., and Robert H. Waterman, Jr. In Search of Excellence: Lessons from America's Best Run Companies. New York: Harper & Row, 1982.
Schein, Edgar H. Organizational Culture and Leadership: A Dynamic View. San Francisco: Jossey-Bass, 1995.
Schneider, Benjamin, ed. Organizational Climate and Culture. San Francisco: Jossey-Bass, 1990.
Weick, Karl E. Sensemaking in Organizations. Thousand Oaks, CA: Sage, 1995.
Wright, Gordon. "Realigning the Culture." Building Design & Construction 46, no. 1 (January 2005): 264.