Organisational culture shapes how people behave and interact within a business, influencing everything from decisions to long-term success and innovation.
What Is Organisational Culture?
Organisational culture refers to the shared values, beliefs, norms, rituals, and behaviours that influence how employees interact with one another and approach their work within a business. It encompasses the unwritten rules of an organisation – the attitudes and assumptions that guide decision-making and shape the working environment. Often summarised as “the way we do things around here,” culture is deeply embedded in a company’s everyday practices.
Unlike formal systems such as organisational charts or rules, culture is informal and emergent. It may not be explicitly documented but is evident in how people speak, dress, collaborate, manage conflict, and respond to challenges.
Key Components of Organisational Culture:
Values: These are core principles that guide decision-making and prioritisation. For example, a company that values environmental sustainability might avoid suppliers who harm the environment.
Norms: Informal rules that govern behaviour, such as expectations to respond to emails quickly or attend meetings on time.
Beliefs: Shared understandings about what is considered ‘right’ or ‘wrong’ in the business. For instance, a belief that employees should challenge leadership openly may be common in innovative firms.
Symbols and rituals: These include logos, office layout, dress codes, annual events, or team traditions that reinforce culture.
Language and communication styles: This includes formal vs informal communication, jargon, tone, and openness across hierarchical levels.
Culture exists at every level: team, department, and organisation-wide. While top leadership strongly influences culture, it is also shaped organically through the interactions and shared experiences of employees over time.
Why Organisational Culture Matters
Organisational culture plays a central role in determining business effectiveness. It influences how people behave, how leaders lead, how teams work together, and how the business evolves over time. Below are key reasons why culture is critically important.
1. Guides Employee Behaviour
Culture serves as an invisible guide for how employees should behave. It helps answer questions such as:
Should I speak up in meetings?
How should I treat customers or colleagues?
Is it acceptable to challenge ideas or take initiative?
Employees look to cultural cues to decide how to act in different situations. When culture is strong and positive:
Employees behave in a consistent and predictable manner.
Decision-making is streamlined, as individuals understand the expected norms.
There is less reliance on micromanagement or formal rules.
Example: In a safety-oriented culture like that of an airline or oil company, employees are expected to follow strict procedures. In contrast, a creative agency might encourage informal collaboration and independent thought.
2. Influences Decision-Making and Leadership Style
Decision-making within an organisation is not solely based on logic or policy—it is shaped by cultural assumptions.
Different cultural types may influence decision-making in the following ways:
In a power-oriented culture, decisions may be centralised and made quickly by a few individuals.
In a role culture, decisions follow formal protocols, often resulting in slower processes.
In a task-based culture, decisions are made collaboratively by project teams.
In a person culture, decisions may be decentralised and focus on individual preferences.
Leaders operate within a culture but also shape it. Their actions, communication style, and priorities send strong signals about what is valued.
A leader who rewards risk-taking can foster a culture of innovation.
A leader who punishes dissent may breed fear and conformity.
In times of uncertainty, such as during economic downturns or restructuring, the alignment between leadership behaviour and cultural values becomes especially important.
3. Affects Motivation, Communication, and Innovation
Motivation
Organisational culture significantly affects how motivated employees feel in their roles. Motivation can be intrinsic (driven by internal satisfaction) or extrinsic (driven by external rewards), and culture plays a role in shaping both.
A recognition-focused culture boosts morale by celebrating individual contributions.
A competitive culture may motivate through performance comparisons and incentives.
A supportive culture may emphasise wellbeing, work-life balance, and career growth.
When employees feel that their personal values align with the organisation’s culture, they are more likely to feel committed and energised.
Communication
Culture defines how information is shared:
In an open culture, ideas flow freely across all levels, encouraging transparency and collaboration.
In a closed or hierarchical culture, information may be filtered through formal channels, limiting speed and responsiveness.
Effective communication depends on shared understanding. A culture that values feedback, listening, and honesty will foster stronger working relationships.
Innovation
Innovation is more likely to flourish in cultures that:
Encourage experimentation and accept failure as part of learning.
Support diverse perspectives and empower employees to question the status quo.
Provide time and space for creative thinking.
In contrast, a risk-averse or control-focused culture may discourage innovation and reduce responsiveness to changing market conditions.
Real-world example: Companies like Google and Spotify have built reputations for innovation by promoting a culture that supports creative thinking, autonomy, and continuous learning.
4. Links to Long-Term Business Performance
Culture has a direct impact on business outcomes such as profit, growth, efficiency, and market share. Strong, well-aligned cultures are associated with:
Higher employee retention and lower recruitment costs.
Increased productivity through aligned behaviour and shared vision.
Improved customer satisfaction, as culture influences frontline service quality.
According to research by Kotter and Heskett, companies with adaptive, positive cultures outperformed those with less flexible or toxic cultures in terms of revenue growth, stock price, and net income.
Conversely, a weak or negative culture can lead to:
Employee disengagement and absenteeism.
Poor collaboration across teams.
Reputational damage and loss of customer trust.
Equation for productivity impact (simplified):
Output per employee = Total output / Number of employees
A positive culture increases Total output, improving productivity without increasing headcount.
5. Shapes Customer Perception and External Brand Image
Culture isn’t just felt internally—it affects how the outside world sees the business.
Customers often pick up on cultural traits through interactions with staff.
Brands with a culture of excellence or care tend to deliver more consistent service.
Example: John Lewis is known for its customer-first culture, reinforced by its employee ownership model. Staff are referred to as ‘partners,’ promoting a sense of responsibility and service quality.
A mismatch between brand promises and internal culture can result in negative press or customer dissatisfaction. For example, a company that markets itself as ethical but treats employees poorly will face criticism and lose credibility.
Culture and brand are increasingly intertwined, especially with the rise of social media and employer review platforms like Glassdoor.
6. Enhances Adaptability and Change Readiness
Organisational culture can either support or hinder change. In a dynamic business environment—marked by technological change, globalisation, and new regulations—companies must adapt quickly.
A flexible culture:
Encourages continuous learning.
Embraces change as opportunity.
Involves employees in change processes, reducing resistance.
On the other hand, a rigid or bureaucratic culture may:
Resist change due to comfort with the status quo.
Rely heavily on outdated processes.
Experience low morale during transitions.
Example: Netflix shifted its business model from DVD rentals to streaming and later to original content. This was supported by a culture focused on innovation, agility, and talent empowerment.
Cultural adaptability = Change success / Resistance level
When adaptability is high and resistance is low, businesses are more likely to implement change effectively.
Strong vs Weak Organisational Culture
Characteristics of a Strong Culture
Clear values and behaviours shared across the workforce.
Employees understand what is expected and feel aligned with company goals.
Cultural norms are reinforced through actions, not just statements.
Stability and cohesion across departments and teams.
Advantages:
Strong employee identity and engagement.
Quick onboarding for new staff.
Higher performance consistency.
Risks:
Can become a barrier to change.
May suppress dissent or diverse perspectives.
Could lead to groupthink and poor decision-making.
Characteristics of a Weak Culture
Confusion or inconsistency in expected behaviours.
High variation in values across departments.
Lack of unity or team spirit.
Employees feel disconnected from leadership or strategic direction.
Effects:
Fragmented communication.
Low morale and high turnover.
Poor strategic alignment.
Weak cultures often emerge in businesses that grow too quickly, experience frequent leadership changes, or fail to invest in people and values.
Organisational Culture as a Source of Competitive Advantage
A strong, distinctive culture is difficult to replicate, making it a source of long-term competitive advantage. It creates internal alignment, reduces friction, and ensures that employees are working towards the same strategic goals.
Sustainable competitive advantage arises when:
The culture supports core competencies.
It is deeply embedded in processes and behaviours.
It provides value to customers and employees.
Example: Patagonia’s environmental culture not only attracts eco-conscious consumers but also engages employees around a shared mission, strengthening both internal and external loyalty.
Aligning Culture with Business Strategy
For culture to be effective, it must support the business’s chosen strategy. Misalignment can lead to:
Strategic goals being misunderstood or resisted.
Inconsistent customer experience.
Internal inefficiencies or conflict.
Examples of alignment:
A cost-leadership strategy (e.g. Aldi) requires a culture of efficiency, discipline, and minimal waste.
A differentiation strategy (e.g. Apple) needs a culture of creativity, customer insight, and product quality.
Senior leaders must therefore actively manage culture by:
Communicating vision and values.
Modelling the desired behaviours.
Rewarding behaviour that aligns with the strategy.
Without alignment, even the best strategies may fail due to internal resistance or confusion.
Understanding and Measuring Organisational Culture
Culture can be observed, analysed, and changed—but only if businesses make an effort to understand it.
Ways to Assess Culture:
Employee engagement surveys: Provide quantitative data on values, satisfaction, and perceptions.
Focus groups and interviews: Allow for qualitative insights into beliefs and emotions.
Behavioural observation: Looks at how decisions are made, how teams collaborate, and how leaders communicate.
Culture audits: Comprehensive reviews of processes, symbols, language, and values.
Cultural assessments help identify:
Strengths to reinforce.
Misalignments to address.
Toxic behaviours to eliminate.
Ultimately, understanding organisational culture is the first step towards using it as a strategic tool to drive growth, improve performance, and lead effective change.
FAQ
Organisational culture develops gradually through the actions, decisions, and shared experiences of employees and leaders. It often begins with the values of the founders or senior management, which are reinforced through hiring, communication, reward systems, and everyday behaviour. As businesses grow, informal norms and rituals form based on how people interact and what behaviours are encouraged or discouraged. Significant events—such as crises, leadership changes, or rapid growth—can also influence how the culture evolves. Over time, culture becomes embedded and difficult to change.
Yes, businesses can have multiple subcultures within different departments, teams, or locations. While there may be a dominant organisational culture set by leadership, variations naturally occur due to differences in team objectives, leadership styles, regional influences, or work environments. For example, a sales team may operate under a competitive, high-pressure culture, while a research team may value collaboration and innovation. Managing these subcultures is important to ensure overall alignment and minimise internal conflict or miscommunication.
Signs of cultural misalignment include low employee engagement, high staff turnover, unclear expectations, poor internal communication, and resistance to strategic changes. If a business prioritises innovation but its culture punishes mistakes, employees may avoid risk-taking, hindering creativity. Similarly, a company aiming for customer excellence but tolerating poor internal collaboration may struggle to meet service standards. Misalignment often leads to underperformance, frustration, and confusion, as the behaviours rewarded internally do not support the business’s stated aims.
Leaders influence culture through their behaviour, language, and visible priorities. By role-modelling desired values—such as openness, respect, or adaptability—they set informal expectations for others. How they handle conflict, respond to feedback, and recognise success also sends strong cultural signals. For example, if a leader consistently praises teamwork over individual achievement, this fosters a collaborative environment. Even small actions, such as how meetings are run or who is included in decision-making, contribute to shaping organisational culture over time.
Organisational culture plays a key role in shaping the onboarding experience. A clear, supportive culture helps new employees understand behavioural expectations, communication styles, and decision-making processes, allowing for faster integration. When cultural norms are well-communicated, newcomers can adapt more easily and feel included. In contrast, a weak or unclear culture may leave new hires confused, increasing the risk of poor performance or early resignation. Effective onboarding includes not just training but cultural immersion through mentoring, team activities, and observation.
Practice Questions
Explain the importance of organisational culture to the long-term performance of a business. (10 marks)
Organisational culture is crucial to long-term performance as it shapes employee behaviour, decision-making, and motivation. A strong, positive culture can increase productivity, reduce staff turnover, and enhance collaboration, leading to operational efficiency. It also influences innovation and adaptability, enabling businesses to respond to change effectively. For example, a tech company with a culture of innovation may be more agile in developing new products. Furthermore, a consistent culture supports strong customer service, enhancing brand loyalty and reputation. In contrast, a weak or toxic culture can lead to disengagement, inefficiency, and poor customer experiences, ultimately harming business performance.
Analyse how organisational culture can influence employee motivation. (10 marks)
Organisational culture directly affects how motivated employees feel by shaping their work environment, expectations, and recognition. In a supportive and inclusive culture, employees are more likely to feel valued, leading to higher levels of intrinsic motivation. Cultures that encourage autonomy, teamwork, and innovation foster a sense of ownership and purpose. For example, in a task culture, individuals may feel more engaged due to collaborative, results-focused work. On the other hand, a rigid or hierarchical culture may demotivate staff if they feel micromanaged or undervalued. Therefore, culture can either enhance or hinder motivation depending on the values and behaviours it promotes.
