Corporate Culture Definition, Characteristics, and Importance

What Is Corporate Culture?

Corporate culture refers to the values, beliefs, and behaviors that are common or understood at a company. These determine how a company's employees and management interact, perform, and handle business transactions. Often, corporate culture is implied, not expressly defined, and develops organically over time from the cumulative traits of the people that the company hires.

A company's culture will be reflected in elements such as its dress code, business hours, office setup, employee benefits, turnover, hiring decisions, treatment of employees and clients, client satisfaction, and every other aspect of operations.

Understanding Corporate Culture

Awareness of corporate or organizational culture in businesses and other organizations such as universities emerged in the 1960s. The term "corporate culture" developed in the early 1980s and became widely known by the 1990s. Corporate culture was used during those periods by managers, sociologists, and other academics to describe the character of a company.

Corporate culture develops from generalized beliefs and behaviors, company-wide value systems, management strategies, employee communications and relations, work environment, and attitude. As it became a more widely understood and embraced concept, it also came to include company origin stories put forth by charismatic chief executive officers (CEOs), as well as visual symbols such as logos and trademarks.

Corporate culture is created by the founders, management, and employees of a company, influencing how they act and who they hire. It then trickles down to the employees, both as characteristics of people the management team hires and as a set of unspoken expectations that employees learn to hire. Corporate culture can also be influenced by national cultures and traditions, economic trends, international trade, company size, and products.

There are a variety of terms that relate to companies affected by multiple cultures, especially in the wake of globalization and the increased international interaction of today's business environment.

• Cross-culture refers to people from different backgrounds interacting in the business environment.
• Culture shock refers to the confusion or anxiety people experience when conducting business in a society other than their own.
• Reverse culture shock is often experienced by people who spend lengthy time abroad for business and have difficulty readjusting upon their return.
  

Importance of Corporate Culture

A carefully considered, even innovative, corporate culture can elevate companies above their competitors, support long-term growth, and underpin a company's longevity. Benefits of a positive corporate culture that contribute to business success include:

• Building a positive workplace environment
• Creating an engaged, enthusiastic, and motivated workforce
• Attracting high-value employees
• Improving employee morale
• Improving performance quality and productivity
• Building favorable business results

When employees feel encouraged and motivated by a positive company culture, this can reduce burnout and provide a strategic competitive advantage by reducing turnover and increasing productivity. A positive corporate culture can clarify a company's goals at all levels and provide a strategic competitive advantage. A company with a corporate culture that is attractive to a variety of employees can also benefit from workforce diversification.

Corporate culture is not an inherently positive phenomenon, however. If managers or executives never take time off, for example, employees will follow their example, creating a culture of overwork. This can lead to demoralized employees who experience high levels of burnout, increasing turnover and decreasing overall company productivity.

Types of Corporate Culture

Clan Culture

Clan cultures are about teamwork and collaboration. In such a culture, those in management function as enthusiastic mentors who provide guidance to subordinates. Good relationships, encouragement, trust, and participation are key aspects. The contribution potential of every employee is a component of a clan culture. Clan culture can easily adapt to change and implement needed action quickly.

• Pros: Strong sense of belonging among employees; encourages career growth through mentorship
• Cons: Can feel hostile or exclusionary to new employees or those who aren't selected for mentoring

Adhocracy Culture

Adhocracy culture creates an entrepreneurial workplace in which executives and employees function as innovators and risk-takers. Employees are encouraged to pursue their aspirational ideas and take action to achieve results that can advance company goals. New and unconventional products and services are the main outcome of the adhocracy culture.

• Pros: Creates a flexible environment that rewards agile thinking; strong sense of innovation
• Cons: Risk of expensive projects that never become profitable; may encourage innovation for the sake of innovation, rather than tuning into actual customer needs

Market Culture

Market culture is focused on meeting specific targets and bottom-line goals. This culture creates a working environment that's competitive and demanding. Management is most interested in business results. Employees are encouraged to work hard and "get the job done" to enhance a company's market presence, profits, and stock price. While employees may feel stressed in such a workplace, they can also feel enthusiastic and excited about their work.

• Pros: Encourages goal-oriented teamwork; strong productivity ethos
• Cons: Can create competition between employees, rather than cooperation; risk of overwork or burnout

Hierarchy Culture

A hierarchy culture is a traditional corporate culture that functions according to a company's executive, management, and staff organizational structure. There is a carefully followed chain of command from top down, where executives oversee employees and their work efforts to meet specific goals. The hierarchy culture prizes stability and conventional methods of operation. Employees may feel a sense of security because of the more conservative approach to running a company.

• Pros: Clear roles, responsibilities, and objectives at all levels; stable paths of advancement
• Cons: More rigid than other work environments; difficulty resolving conflict with managers

Examples of Contemporary Corporate Cultures

Just as national cultures can influence and shape corporate culture, so can a company’s management strategy. These different cultures can seem more or less appealing to employees depending on current events and industry trends, particularly changes in hiring trends.

For example, many 21st-century tech companies, such as Meta, formerly Facebook, and Alphabet, the parent company of Google, have prioritized a culture of less traditional management strategies. These companies defined themselves as employee-friendly by offering perks such as telecommuting and free employee lunches. Alphabet's corporate headquarters in Mountain View, California offers on-site services such as oil changes, car washes, and a hairstylist.

In return, employees were expected to be highly dedicated to their employer and willing to work long hours to achieve results. This culture was intended to foster creativity, collective problem-solving, and greater employee freedom to pursue long-shot innovations. Many tech companies maintained a start-up mentality of rapidly trying new things that were not necessarily sustainable, profitable, or successful—often characterized as "move fast and break things"—long after they were public companies and no longer startups.

Progressive policies such as comprehensive employee benefits and alternatives to hierarchical leadership (even doing away with closed offices and cubicles) were trends that reflected a more tech-conscious, modern, and agile generation of corporate culture.

When tech jobs were plentiful, this culture of non-traditional management, plentiful perks, long hours, and startup mentality was seen as a benefit of tech jobs. However, beginning in August 2022, a variety of factors such as pandemic-era overhiring, rising interest rates on corporate loans, and investor demand for profitability led to the start of massive layoffs.

In 2023, more than 260,000 tech jobs were eliminated, and in the first four weeks of 2024, more than 25,000 employees were fired from 100 tech companies, including Meta, Amazon, Microsoft, and Alphabet. Many employee perks, such as on-site fitness classes or restaurants, were reduced or eliminated as workforces were cut and remaining employees worked from home more often.

As these industry trends began to change, the innovative start-up culture of tech companies began to seem less desirable to some employees than stable, traditional jobs that prioritized employee retention and balanced hours over lifestyle perks.

Characteristics of Successful Corporate Cultures

Corporate cultures, whether shaped intentionally or grown organically, express the core of a company’s ideology and practice. They affect every aspect of a business, from each employee and customer to a company's public image.

The Harvard Business Review has identified six important characteristics of successful corporate cultures. All of these aspects are interconnected, shaping both internal workings and external perceptions of the company.

Vision

Whether communicated via a simple mission statement or a corporate manifesto, a company’s vision can be a powerful tool. This sets the tone of its private workings, letting employees know what the long-term goals and mission of the company are. Vision also shapes marketing and brand building, which define a company's public image in the eyes of consumers.

Values

Values, while a broad concept, can embody the thinking and perspectives necessary to achieve a company’s vision. They can serve as a beacon for behavior necessary to progress toward all manner of success. Examples of values include fairness, trustworthiness, integrity, performance excellence, teamwork, and a high-quality customer experience. For example, Google’s famous slogan “Don’t Be Evil” is an expression of values.

Practices

Practices are the tangible methods, guided by ethics, by which a company implements its values. For example, a company that emphasizes the importance of hiring expert, high-achieving employees would offer salaries at the top of their market range, rather than starting with low entry-level salaries and implementing an earn-your-way-to-the-top philosophy.

People

People come next, with companies employing and recruiting in a way that reflects and enhances their overall culture. The people hired by a company are key to bringing corporate culture to life and obtaining the high-value performances that can lead to favorable business outcomes.

For example, when an organization sets a goal of being multicultural, executives will promote managers from diverse backgrounds. These managers will in turn be more likely to hire employees from diverse backgrounds to work in every department, which can lead to a greater variety of perspectives and innovation within the business.

Narrative and Place

Lastly, narrative and place are perhaps the most modern characteristics of corporate culture. Having a powerful narrative or origin story is important for growth and public image. For example, a company that produces organic baby products might share a narrative about how the founder's struggle to find similar products for their own children led directly to the creation of the products the company now sells.

Since many companies can now be headquartered anywhere in the world, a choice of location can communicate information about the lifestyle and values that employees can expect, as well as provide branding clues to consumers.

Office design and architecture can also communicate aspects of corporate culture. An open-plan office with industrial furniture, for example, communicates to employees that the company prioritizes modern innovation and collaboration between departments. An office space with executive offices and cubicles, on the other hand, signals a more hierarchical and traditional workplace culture.

Teamwork

A company that prioritizes teamwork will encourage a culture of training employees to work together toward common goals. This can include concrete actions, such as managers assigning work to teams of employees rather than individuals or creating mentorship programs. It can also include non-work activities that build trust and comeraderie, such as scheduling shared lunch breaks or volunteer activities that a whole division participates in.

Employees should be encouraged and trained to work together with camaraderie and trust toward common goals. The benefits of teamwork, such as problem-solving, the development of innovative ideas, and improved productivity, should be demonstrated to the workforce.

Training and Education

A company that requires entry-level employees to already have a master's degree has already limited its workforce and demonstrated that it doesn't prioritize training its employees. One that provides the means to improve their skills while on the job, however, demonstrates that it prioritizes a culture of education and advancement for its employees. This allows the vision and goals of the company can be more reliably reached.

A culture of training and education doesn't just improve the functioning of systems within the company. It can also provide employees with a concrete path to new opportunities, allowing them to advance their careers within the companies. This can motivate individuals to learn and do more, as well as improve employee retention.

Innovation

Innovation is exciting and can underscore the spirit of a company's vision. It can instill pride, confidence, and loyalty in the workforce.

There are multiple levels at which a company can prioritize a culture of innovation. There can be innovation within the products and services it produces, which encourages a culture in which employees listen to and value customer feedback on existing offerings. There can also be innovation of internal company systems, such as embracing new data management techniques or marketing platforms. These types of innovations signal a culture that responds to employee feedback and needs.

Leadership

Leadership is one of the most important aspects of corporate culture because leadership sets the tone for the entire company's practices and values. A company's management, including C-suite executives, should be accessible and open to providing assistance that supports all employees.

A company may say that it prioritizes mentorship and advancement, for example. But if none of its executives make time to mentor their direct reports, that aspect of corporate culture doesn't exist in practice.

If, however, executives make mentoring managers a regular and visible practice, this will encourage managers to mentor their direct reports in turn. This not only helps employees feel encouraged and valued, but it also creates a pipeline of employees who are trained and ready to rise into new management positions.

How to Develop a Corporate Culture

There is no single strategy for building a corporate culture because of the inherent differences between companies, industries, and people. However, the basic steps below may help you envision a corporate culture that spells success for your employees, clients, and company.

1. Define a company's vision, values, and behaviors.
2. Gather feedback from employees about your company's values, ideas, and work methods to improve the workplace environment and performance.
3. Use small discussion groups, surveys, brown bag lunch meetings, or town hall-type meetings to engage your employees and give them a voice.
4. Establish methods, such as training at regular intervals, to communicate company values/behaviors and determine how well they are understood.
5. Employ high-quality internal communications about company goals, the working environment, and employees' roles in the company's success.
6. Establish guidelines that reinforce company values, e.g., a rule that employees should not be disturbed by work phone calls, emails, or texts during vacations or other types of time off.
7. Recognize employees in a positive and public manner as a reward for their contributions to corporate success.
8. Ensure that management maintains a consistent behavioral approach to operations rather than cutting corners when convenient.
9. Prioritize approachable leadership so that all employees may address their concerns and feel connected and valued.
10. Foster teamwork rather than silos and isolation.
11. Set goals for diversity and inclusion; celebrate the differences among people as you encourage consistent behavior from all.
    

The Bottom Line

Corporate culture has become a vital, even essential, ingredient in the ongoing success of a business. It represents the values, beliefs, and goals of a company, as well as the consistent behavior expected from all employees, from top to bottom.

Corporate culture is an important key to attracting and retaining employees. It can also support high-quality employee performance, ongoing achievement, and the longevity of a company.