Organisational culture is shaped by multiple internal and external factors that influence how employees behave, how decisions are made, and how the business functions as a whole.
Leadership Style
Leadership style is one of the most significant internal influences on organisational culture. Leaders establish the tone for the workplace and often act as role models for behaviour and attitudes within the organisation.
Impact of Leadership on Culture
Leaders influence culture through their decisions, communication, strategic direction, and interaction with employees. Some examples of leadership styles and their impact include:
Autocratic leadership: In this style, decision-making is centralised, and leaders exert high levels of control. This often results in a power culture, where authority lies with a few individuals. Employees in such cultures may feel disengaged or undervalued but decisions are made quickly and efficiently. It’s common in start-ups where the founder exerts direct control.
Democratic leadership: This style encourages participation and collaboration. It typically fosters task or role cultures where individuals work in teams and decision-making is more decentralised. These cultures often promote higher morale and innovation due to the empowerment of employees.
Laissez-faire leadership: Leaders take a hands-off approach, giving employees the freedom to make decisions. This can result in a person culture, where individual goals and creativity are prioritised over organisational unity. This is often found in highly creative industries such as graphic design or research institutes.
Consistency and Leadership Behaviour
The consistency of leadership behaviour across time also shapes culture. For example, leaders who consistently reward teamwork, integrity, and openness foster a culture that reflects those values. In contrast, erratic or contradictory leadership can create confusion and misalignment.
Company History and Ownership
An organisation’s history, founding values, and ownership structure provide a foundational context for its culture. These factors often influence long-term behaviours and attitudes that become embedded in daily operations.
Historical Influence
Businesses often retain cultural characteristics established by founders. For instance, if a company was built on innovation and customer service, these principles may remain dominant even decades later.
Significant events in the company's past—such as past failures, legal issues, or breakthrough successes—can shape values like caution, resilience, or ambition.
Ownership Structure
The way a business is owned influences its goals and decision-making processes, which in turn impact culture:
Family-owned businesses tend to emphasise loyalty, tradition, and long-term planning. There’s often a sense of belonging and a preference for stability over rapid change.
Publicly listed companies may foster a culture of transparency, accountability, and performance-driven results, largely due to shareholder expectations.
Private equity-owned firms typically develop a culture focused on efficiency, profitability, and achieving return on investment within short time frames.
Ownership may also impact decision-making speed and openness to risk—important cultural dimensions that affect everyday working practices.
Size and Structure
The size of an organisation and its structural design heavily influence how culture is formed, communicated, and sustained.
Size of the Organisation
In small businesses, culture is often informal, flexible, and closely tied to the personality of the founder or senior leaders. Communication is direct, and values are transmitted through daily interactions.
In large organisations, culture may become more complex, often forming subcultures in different departments or regions. Formal communication and standardised procedures are necessary to maintain consistency.
As firms grow, informal systems give way to formalised structures and policies. This shift can lead to tensions if employees resist changes that affect how they work or relate to leadership.
Organisational Structure
Tall (hierarchical) structures: These involve multiple layers of management, with clear lines of authority and responsibility. Such structures support role cultures, where job descriptions are precise, and communication follows formal channels. Innovation may be slower due to bureaucratic processes.
Flat structures: These reduce the levels of hierarchy, encouraging greater empowerment and faster communication. They often support task cultures, especially in businesses that prioritise collaboration and project-based work.
Matrix structures: Employees report to more than one manager, often combining functional and project-based responsibilities. This requires flexibility and good communication, fostering a culture of cooperation but sometimes causing confusion or conflict over priorities.
The structure shapes how employees interact, the speed of decision-making, and the level of autonomy—key cultural attributes.
Industry Sector
The industry in which a business operates plays a crucial role in determining what behaviours, values, and norms are considered acceptable or ideal within the organisation.
Sector-Specific Cultures
Financial services: These industries tend to emphasise risk management, reliability, and regulation compliance, creating cultures that are cautious and rule-driven.
Tech companies: In contrast, the technology sector is associated with innovation, agility, and informality. These firms often value rapid decision-making and are open to failure as part of learning.
Creative industries: These industries (e.g. advertising, design, media) often support cultures that encourage autonomy, self-expression, and experimentation.
Manufacturing: This sector may rely on efficiency, precision, and consistency, encouraging a culture of discipline, standardisation, and problem-solving.
Regulatory Influence
Highly regulated sectors (e.g. pharmaceuticals, aviation, healthcare) are more likely to have conservative, compliance-focused cultures due to legal obligations and safety concerns. Unregulated or emerging industries may adopt a looser, entrepreneurial culture.
National Culture and Geography
Geographical location and the national culture of the country in which a business operates influence communication, leadership styles, and expectations around work.
Influence of National Culture
Using Hofstede’s cultural dimensions as a guide:
Power Distance: In countries with high power distance (e.g. China, India), people are more accepting of hierarchy and centralised authority. In contrast, in countries with low power distance (e.g. Sweden, the Netherlands), employees expect equality and participatory decision-making.
Individualism vs Collectivism: Western countries like the UK or the US value individualism, promoting autonomy and personal initiative. Collectivist cultures (e.g. Japan, South Korea) value group harmony, loyalty, and collective success.
Geography and Local Practices
In multinational firms, headquarters may promote one culture while overseas subsidiaries adopt elements of the local culture. This can lead to a blend of global and local practices, often referred to as a glocal approach.
Cultural misunderstandings may arise in cross-border operations, making cultural training and local adaptation essential.
Strategic Priorities
A company’s strategic objectives can significantly shape or transform its organisational culture over time.
Examples of Strategy Shaping Culture
Growth strategy: Aiming for rapid expansion may foster a culture focused on performance, speed, and flexibility.
Cost-leadership strategy: A focus on reducing costs may create a culture of frugality, efficiency, and tight control.
Differentiation strategy: Seeking to stand out in the market may lead to a culture valuing creativity, innovation, and customer service.
Sustainability-focused strategy: Organisations prioritising environmental or social responsibility may develop values of ethics, transparency, and long-term thinking.
Aligning Culture with Strategy
When strategic goals conflict with the prevailing culture, performance may suffer. For example, a bureaucratic culture may resist innovation if the strategy requires agility. Successful companies often ensure that culture and strategy are aligned, either by adapting cultural elements or gradually shifting behaviours through leadership initiatives, internal campaigns, and revised performance measures.
Internal Events and Cultural Shifts
Internal events can rapidly or gradually influence organisational culture by altering relationships, behaviours, and strategic direction.
Mergers and Acquisitions
When two organisations merge, they often have different cultures. Integrating them presents major challenges:
Culture clash: Differences in values, communication, and leadership can lead to conflict and reduced morale.
Leadership dominance: One culture may dominate if its leaders take control, which can alienate employees from the other firm.
Integration planning: Successful mergers involve clear plans for cultural integration, including communication strategies, team-building, and leadership development.
Leadership Change
A change in senior leadership can bring new values, priorities, and expectations:
A new CEO may push for innovation, flattening the hierarchy and encouraging open communication.
If not handled sensitively, leadership change can create resistance, especially if long-standing norms are challenged too quickly.
Internal Crises
Events such as ethical breaches, financial losses, or IT failures can force an organisation to reconsider its culture:
These crises often expose weaknesses in accountability or communication.
Recovery requires trust-building, a renewed mission, and clear leadership.
Workforce Turnover
High turnover can weaken cultural consistency and morale. A rapid influx of new employees—such as during scaling or after layoffs—may lead to cultural drift if onboarding isn’t aligned with company values.
External Events and Cultural Shifts
Businesses are also shaped by external forces that may demand adaptation or transformation of organisational culture.
Technological Advancements
Digital transformation (e.g. adoption of cloud computing, automation, AI) may require employees to embrace new tools and working methods.
Resistance may arise from fear of change or lack of training.
A shift to remote working due to technology requires adapting to new communication styles and time management norms.
Economic Conditions
During a recession, a culture of caution and cost-cutting may emerge, impacting risk-taking and employee benefits.
During a boom, organisations may adopt a more optimistic and growth-oriented culture, focusing on innovation and expansion.
Regulatory Changes
New regulations (e.g. GDPR, environmental rules) may force organisations to adopt more responsible or transparent practices.
Compliance becomes a key value, especially in industries under public scrutiny.
Social Expectations
Rising social awareness around diversity, inclusion, mental health, and climate change influences culture.
Firms may adopt initiatives like inclusive hiring practices, flexible working, or ethical sourcing to align with societal values.
These influences on organisational culture demonstrate that culture is not static. It is shaped over time by leadership, history, size, external pressures, and strategic aims. Understanding these factors helps A-Level students critically analyse why cultures differ between organisations and how they adapt to new challenges.
FAQ
Organisational culture significantly influences whether employees feel valued, supported, and aligned with a business’s values. A positive culture—marked by open communication, recognition, and shared purpose—encourages loyalty and long-term commitment. Conversely, toxic or misaligned cultures lead to dissatisfaction, disengagement, and high turnover. For example, if employees experience poor management, lack of respect, or unclear expectations, they are more likely to leave. Strong, inclusive cultures help retain top talent by fostering trust, development opportunities, and emotional connection to the business.
Yes, subcultures can be beneficial if they reflect the needs of specific departments or regional branches while aligning with the organisation’s core values. For instance, a creative subculture within a marketing department may encourage innovation, while a compliance-driven subculture in finance ensures regulatory adherence. These differences can enhance performance by tailoring behaviour to function-specific demands. However, if subcultures become too distinct or contradictory, they can lead to conflict, communication breakdown, and a fragmented overall culture, requiring active management.
Start-up cultures are usually informal, flexible, and innovation-driven. They often feature flat hierarchies, high autonomy, and a strong influence from founders. Start-ups tend to encourage risk-taking, rapid experimentation, and close collaboration. In contrast, established corporations usually have more formal structures, defined processes, and risk-averse behaviours. Decision-making may be slower and more bureaucratic. While start-up cultures promote agility and responsiveness, they may struggle with consistency and scalability, unlike corporate cultures that offer stability and clear governance.
Internal communication is central to reinforcing and transmitting organisational values, expectations, and behaviours. It shapes how employees perceive leadership credibility, change initiatives, and strategic goals. Clear, consistent communication builds trust and transparency, helping embed culture into daily activities. For example, regular updates, feedback channels, and recognition programmes all signal what is valued. Poor communication can lead to misunderstandings, resistance to change, and cultural misalignment. Effective communication also supports cultural adaptation during events like restructuring or digital transformation.
National culture affects how employees interpret and respond to company policies. For instance, in high power-distance countries, hierarchical policies may be accepted without question, whereas in low power-distance countries, employees may expect consultation and explanation. Similarly, collectivist cultures may support teamwork-focused policies, while individualist cultures value autonomy and personal achievement. Understanding these cultural nuances is essential when rolling out global policies, ensuring they are adapted appropriately to local contexts. Failing to consider national culture can lead to resistance, confusion, or policy non-compliance.
Practice Questions
Analyse how leadership style can influence the culture of a business. (10 marks)
Leadership style plays a significant role in shaping organisational culture. For example, an autocratic leader may foster a power culture, where authority is centralised, and decisions are made quickly by a few individuals. This may lead to efficiency but can also reduce employee motivation. In contrast, a democratic leader might encourage a task culture, promoting teamwork and innovation through employee involvement. Leadership also influences communication style, risk tolerance, and openness to change. Over time, consistent leadership behaviours shape employee expectations and values, embedding them into the daily practices and norms of the business.
Evaluate the impact of a merger on organisational culture. (12 marks)
A merger can significantly disrupt organisational culture, especially if the merging firms have different values and working practices. For example, if one business has a hierarchical, formal structure while the other is flat and innovative, a culture clash may occur. This can lead to reduced morale, increased staff turnover, and internal conflict. However, if managed well, a merger may also provide an opportunity to build a stronger, unified culture by selecting the best aspects of each organisation. Success depends on strong leadership, clear communication, and involving employees in the cultural integration process to reduce resistance and confusion.
