The Importance of Good Organizational Culture

Arjun Ruparelia
Arjun Ruparelia
July 11, 2023

Organizational culture is an intangible but powerful lever for the company’s success.

A study published in the MIT Sloan Management Review studied the impact of over 170 cultural topics on employee attrition in Culture 500 companies between April and September 2021.

The study found that toxic organizational culture was 10.4 times more likely to contribute to attrition compared to compensation.

In this guide, we dive deep into what makes a good organizational culture, the types of organizational culture, the importance of culture, and more.

What does organizational culture include?

Organizational culture is defined as your company’s common values, principles, and practices. Your company culture has a great impact on how employees and customers experience your organization.

Most companies don’t explicitly define their corporate culture. It manifests in the attitudes, beliefs, and reactions of the people in the organization.

Organizational culture includes the following key elements:

  • Purpose: A strong mission statement informs your team why they do what they do. This gives employees a sense of solving a problem greater than themselves. In fact, 82% of employees believe purpose is important, and 72% believe it’s more important than profit.
  • Belonging: The sense of belonging to a group of people that share your goals, values, and principles is fulfilling for everyone involved.
  • Ownership: Allow your team to take ownership of the work. Preventing micromanagement and providing autonomy is a crucial element of organizational culture.
  • Effective communication: In the context of organizational culture, effective communication refers to helping team members learn each other’s personalities and communication dynamics.
  • Leadership: The leader is central to organizational culture and constantly sets examples for committing to the company’s mission, standards, and community.

What are the different types of organizational cultures?

You can model your organizational culture based on your goals. Modeling your culture may involve implementing one or more of the types of cultures explained below:

Clan culture

Clan culture promotes teamwork. Companies with a clan culture see each employee as a valued team member and place great emphasis on feedback.

These companies typically have a horizontal management structure. Leaders trust employees to work autonomously (which is especially important for remote work).

More companies are now allowing employees more autonomy — 70% of companies say creating worker autonomy is important for the future.

Clan culture is best suited for start-ups and small businesses. You can also implement clan culture to a certain extent if you’re a large company.

Adhocracy culture

Adhocracy cultures focus on innovation, adaptability, and calculated risk-taking. This culture is best for companies in a fast-moving space like technology.

These companies need to stay ahead of the competition. For that, they need to encourage risk-taking.

Adhocracy cultures inspire creative thinking by motivating employees to bring more ideas to the table.

LinkedIn is a great example of a company that encourages employees to take risks. Here’s a page from LinkedIn’s culture deck, which you can find here:

Market culture

Market culture centers around profitability. Most companies implement market culture to some extent to stress the importance of hitting targets and bottom-line growth.

All decisions made at companies with a market culture are made with profitability in mind. This shifts the company’s focus from employee satisfaction to financial success.

Hierarchy culture

Hierarchy culture (or control culture) applies to companies that are structure and process-oriented.

Leaders make decisions based on existing protocols and procedures instead of encouraging innovation and risk-taking. The leaders’ focus here is on stability, profitability, and reliability. These have been found to hurt innovation.

Coaching culture

Coaching culture refers to a culture where the senior leadership takes charge to mentor the team.

Senior leaders actively work towards helping employees develop their skill sets and grow professionally.

Leaders frequently hold one-on-ones to discuss the employees’ goals and expectations.

Accountability culture

A culture of accountability makes room for growth. Everyone at the company, including the senior leadership, should be held accountable for their actions and performance.

Acknowledging mistakes openly and seeking input from the team on how something could’ve been done better fast-tracks the company’s growth.

It also provides others with an opportunity to learn from one person’s mistakes.

Learning culture

Companies that focus on learning new skills, often ones that aren’t directly related to the job, create a culture that values personal development through constant learning.

You can offer employees training or workshops to help them explore areas related to their work. Encourage your best employees to take up educational opportunities with a stipend.

You might just be able to fill your next senior-level vacancy through one of the workshops or training sessions.

Why is organizational culture important?

Here are a few reasons why organizational culture is important:

Good organizational culture builds a strong brand

Culture reflects in your brand identity. When customers interact with your business, your culture will help you make a good impression.

“If your company culture is aligned and integrated with [your brand ] identity, your employees are more likely to make decisions and take actions that deliver on your brand promise.”

Source: HBR

If customers feel the business has a weak culture, they may be hesitant to do business with you.

The same applies to job applicants. Employees want to be part of a company with a strong culture. Building a culture can help improve the quality of hires and retention rates.

Good organizational culture creates a healthy workplace environment

Organizational culture aligns employee behavior and the company’s policies to achieve the organization’s objectives while ensuring employee well-being.

A work environment that prioritizes employee well-being helps attract and retain top talent. According to a Glassdoor survey, 77% of respondents consider a company’s culture before applying.

It unifies employees that come from various backgrounds with a common moral and ideological philosophy.

For example, when employees and senior leadership are required to check in at the same time, it builds a culture of punctuality. It ensures the employees don’t feel any less valued than the senior staff.

Good organizational culture connects everything to the company’s mission

McKinsey researched over 1,000 companies. The research found that companies within the top quartile cultures (as measured by McKinsey’s Organizational Health Index) post a shareholder return:

  • 60% higher than median companies, and
  • 200% higher than companies in the bottom quartile.

Organizational culture channels efforts and actions toward achieving the company’s goals.

Suppose your company’s goal is to build an excellent employer brand. In that case, build a culture that focuses on employee satisfaction and encourages autonomy.

If you’re a small business, you could adopt a clan culture to help employees grow through teamwork.

How your organizational culture affects employees

Here are three key ways in which organizational culture changes your employee experience:

  • Engagement: Culture is key to keeping employees engaged. Disengaged employees are 3.8x more likely to cite organizational culture as a reason to leave than engaged employees.
  • Performance: A strong culture makes employees feel valued, which improves performance.
  • Happiness: A supportive culture that promotes flexibility and career development keeps employees happy and reduces turnover.

How Do Employees Learn the Culture?

New hires need time to learn the company’s culture, but here are some ways you can help speed things up:

  • Discuss culture during training or onboarding: Discussing culture during training or onboarding gives the employees a preview of the company’s culture. It doesn’t have to be an in-depth discussion. Just something to get them started on the right foot.
  • Spaced repetition: Spaced repetition involves periodically communicating the company’s values and principles. This helps refresh the team’s memory and gets them thinking about your company culture.
  • Stories: Stories are past events related to the founders, the company’s successes and failures, and how these events influenced the company’s culture. Stories are engaging and easy to remember.
  • Role models: Having employees who are great performers and a reflection of the company’s culture helps other team members learn from them.
  • Team-building activities: Bring teams together to give them a better sense of the community they belong to and bond with people who share the same culture. Employees learn from each other, discuss problems, and share experiences while absorbing the company’s culture.

What are Organizational Culture Best Practices? 5 Points

Developing a strong culture can be tricky because it’s intangible.

Starting a conversation about culture is a great first step once you’ve identified the right questions to ask about workplace culture.

Organizational inertia might be one of your biggest challenges, but patience is key.

Here are some best practices that make developing a culture easier:

1. Good communication

Communicate the importance and benefits of culture right off the bat. Reveal the results of your first cultural survey — both the positive and negative findings.

Don’t limit this communication to one-way, top-down circulars.

Sure, top-level involvement is important. But communication should be the start of a dialogue that invites input from employees at all levels.

2. Use employee strengths

Instead of defaulting to looking for candidates externally, look for talent inside the organization.

Offering existing employees opportunities based on their strengths is an intrinsic part of a culture that focuses on helping employees grow.

For example, the copywriter might want to take up the marketing executive role you’re currently hiring for.

According to a Deloitte survey, 42% of employees seek new opportunities because they think their current employer doesn’t make good use of their skills and abilities. 27% of employees are encouraged to look for new employment because of a lack of career progress.

Promoting deserving employees helps retain them and reduces hiring costs.

3. Encourage creativity and innovation

Modern companies need risk-takers and creative thinkers who can innovate.

Just one great innovation can transform your company’s future. But to find that innovation, you and your team need to take risks.

Employees are often nervous about sharing ideas because of the embarrassment that follows a failed idea.

Encourage employees to take risks. Explain that it’s okay to fail.

4. Hire employees with similar values to your core values

Employees with contrasting beliefs and principles won’t fit well into the organization and won’t help sustain your efforts toward developing a strong culture.

For example, if you want to build a customer-centric culture, you’ll need team members to respond politely even when they’re being unreasonable.

Some employees might lack the patience to do so, and that could be bad for business and reputation.

“There is a fundamental difference between hiring people to do what you want and hiring people who already want what you want. The value of any particular skill is likely to degrade over time. On the other hand, people who share your mission and values can acquire the skills needed to achieve your shared objectives.”

Source: HBR

5. Evaluate regularly

Evaluate the team’s response to these best practices as you implement them. Initiate a dialogue, be open to suggestions, and optimize based on feedback.

It’s a gradual process. But over time, you’ll pick up on patterns that give you a clearer idea of your team’s likes and dislikes.

Take control of organizational culture

A culture will develop with or without your efforts. Building a culture that improves employee retention requires proactive efforts.

Start by creating a culture deck using knowledge management software like Tettra to give employees an overview of the culture, values, mission, and your idea of success.