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What is organizational culture, and why is it important?

Last updated

5 September 2023

Author

Dovetail Editorial Team

Reviewed by

Shawnna Johnson

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Peer inside any successful company and you’ll find the heartbeat driving its identity and purpose: organizational culture. This invisible force shapes values, fuels innovation, and determines whether employees work with enthusiasm and passion.

Explore the concept of organizational culture, the different types, and why it’s important.

What is organizational culture?

Organizational culture is the company’s underlying beliefs, norms, customs, values, attitudes, and practices. It’s the established framework that guides workplace behavior, shaping experiences in the work environment. For instance, it informs working hours, dress codes, future expectations, and policies such as employee benefits.

Organizational culture isn’t static—it evolves over time. When the current culture doesn’t yield results, it should evolve to stay relevant. Leaders must take the necessary steps to tailor their organizational culture to fit the company’s mission and values.

The importance of organizational culture

Having a healthy and productive organizational culture is important because it:

  • Boosts the organization’s long-term objectives

  • Unites members of the organization by instilling a sense of identity and belonging

  • Gives employees a sense of direction

  • Increases employee satisfaction and engagement levels

  • Guides decision-making processes and reduces disagreements and animosity between team members

  • Helps attract the right employees who are committed and productive

  • Increases the organization’s profits

  • Influences organizational effectiveness and success

  • Facilitates open communication, mutual trust, and shared understanding

  • Differentiates one company from another

  • Instructs the organization on how things are done

  • Influences innovation and opportunities to grow and expand the business

Types of organizational culture

There are four main types of organizational culture:

1. Clan culture

This type is people-centered, with a focus on mentoring and nurturing employees. It’s often seen in small organizations and startups.

Clan culture boasts a high rate of employee engagement because it emphasizes collaboration between team members. Communication is a top priority for a thriving clan culture, and employees are typically friendly and respectful. They feel valued, so they are comfortable giving honest and open feedback.

2. Adhocracy culture

This type of culture is entrepreneurial, focusing on innovation, risk-taking, and creativity.

Typically, organizations with this kind of culture encourage employees to experiment with new ideas that can improve the company and move it forward. They might share their ideas in brainstorming sessions. Successful ideas are reworded, so employees are motivated to be more innovative.

3. Market culture

This culture is results-oriented and focused on financial success. Each member of the organization is motivated by competition and outperforming competitors.

Market culture focuses on the importance of reaching targets and getting concrete results. Leaders in this type of culture are focused on holding employees accountable for objectives and goals.

4. Hierarchy culture

This culture is highly structured and focuses on efficiency, repeatability, and doing things right. There is a clear chain of command, and communication is typically top-down. Duties are clearly defined, procedures are written, and employees know who to report to. Leaders encourage employees to follow procedures in pursuit of results.

5. Purpose culture

The company’s core values are the main focus in this organizational culture. Leaders and employees have shared values of changing the world around them.

Initiatives, mission, vision, and goal setting have greater clarity in this type of culture. Employees have a heightened awareness of their role in the organization, and they develop pride in their work.

Individuals who share a common purpose and values are typically drawn to this type of culture.

6. Coaching culture

This culture leverages coaching practices to enable employees to maximize their full potential. Employees are mentored as they advance in their careers. They are equipped with the necessary knowledge and tools to fully develop themselves.

7. Accountability culture

In this type of culture, every member of the organization is held accountable for their actions. There are clear expectations and fixed goals. Leaders ensure employees are aware of the consequences of not meeting expectations. Everyone takes ownership of their work.

8. Learning culture

Members of an organization with a learning culture are encouraged to prioritize gaining and sharing knowledge for each other’s benefit. Individuals actively seek opportunities to improve themselves and the company. 

Failures are viewed as learning opportunities and shared with others to determine what can be done better next time.

How to identify your organizational culture

You can follow these steps to identify your company’s organizational culture:

  • Conduct one-on-one interviews with your current employees.

  • Critically analyze employee surveys and interviews to understand your employees’ attitudes toward certain topics.

  • Use cross-functional metrics such as turnover, productivity, innovation, and KPIs. Evaluating employee engagement and retention metrics is also useful. These metrics help assess the current state of your organizational culture and show what needs improvement.

  • Evaluate the employee onboarding process to see if the methods are repetitive and outdated or personalized and engaging.

  • Talk to customers and partners and ask them to describe their experience with the organization.

  • Review external sources such as employee review sites. Third-party feedback is valuable for knowing how employees feel about the organizational culture.

  • Observe how teams interact to reveal how they relate to each other on an interpersonal level, their respect for each other’s ideas, and whether ideas and opinions are freely exchanged.

Qualities of a healthy organizational culture

The following are some of the qualities that make an organizational culture healthy and desirable:

1. Open communication

Effective and open communication is one of the most desirable qualities of a positive organizational culture.

Strong organizational cultures make employees feel comfortable sharing their thoughts, whether informally, formally, or in whatever style they prefer. Leaders give employees regular feedback on performance and provide the proper tools for doing so.

2. Employee well-being

Organizations with healthy cultures are often committed to helping their employees perform exceptionally, even outside of the workplace. Emotional and physical health is paramount.

Therefore, they tend to offer more flexibility. This might involve hybrid work arrangements and remote options that ensure employees have a good work–life balance.

There may also be programs available to employees to foster health and well-being.

3. Inclusivity

Inclusivity and diversity are crucial factors in a strong organizational culture. The workplace is inclusive, and employees feel welcome, valued, comfortable, and safe. It fosters authenticity and accepts employees for who they are. There are policies and practices that prevent harassment and discrimination.

4. Mutual trust and respect

Trust and respect are the cornerstones of a high-performance organizational culture. Employees feel they are listened to and supported and that their ideas and viewpoints are valued. All employees are recognized and treated fairly regardless of their differences.

5. Emphasizes learning and development

A positive organizational culture fosters an environment where employees are often learning and developing their skills. Training programs are readily available that allow employees to advance their careers. This expands their skillset and pushes them to reach their full potential.

Failures are considered learning opportunities, and everyone works to make positive changes.

6. Flexibility and adaptability

Organizations with strong cultures are always adapting to change and improving. They actively listen to feedback from employees and act on them. Organizations focused on flexibility and adaptability can pivot quickly in response to market changes and other challenges.

7. Encourages collaboration

Every successful organization has a culture of collaborative teamwork at its heart. Employees thrive when they work together as a team. Collaboration creates a sense of unity where employees feel they are working toward a common goal. It also boosts idea-sharing and employee engagement.

Steps to building a high-performing organizational culture

Building a strong organizational culture takes comprehensive planning. Here are five steps that can help you build a culture that yields great results:

Step 1:  Establish your values and expected behaviors

After establishing your company’s core values—the foundation of your culture—set realistic goals that align with them. Ensure members of the organization understand acceptable behaviors and live by the core values. This will attract committed employees, provide clarity on future expectations, and differentiate the business from competitors.

Here are some questions to help you get started:

  • Which behaviors are acceptable? Which are not?

  • What unifies the company?

  • How do we treat our employees?

  • Do our practices align with our mission, vision, and values?

  • Are we rewarding the right behaviors and addressing the wrong behaviors?

  • What do we value in how we work together and communicate with our customers?

  • Which aspects of our product or service are we proud of?

Step 2:  Prioritize open communication

Transparent and efficient two-way communication is helpful. Employees are motivated when they are given a platform where they can voice their opinions. Conduct regular check-ins and create anonymous feedback channels where employees can comfortably share their ideas and concerns.

Step 3: Recognize your employees’ contributions

Recognizing and celebrating your employees’ contributions to your company is crucial for building a positive organizational culture. It will significantly boost their morale and productivity levels. Reward and highlight the right behaviors that move the organization’s culture forward.

Step 4: Create a dialogue with employees

A back-and-forth dialogue builds a foundation of trust. Employees will be more willing to participate in culture-shaping initiatives when you conduct open dialogues with them.

Since employees are the most impacted by organizational culture, ask them what they want to see in the company. Ask them what their ideal organizational culture looks like and what they think could be improved in your current culture.

Step 5:  Lead the change

Employees tend to believe in the credibility of the organizational culture when management sets a positive example and advocates for change. They look to leaders for inspiration and guidance. When leaders lead by their company values, employees are motivated to do the same.

Step 6: Plan for change and benchmark

Monitor your culture, plan for change, and act on employee feedback. This ensures that the organizational culture remains relevant and responsive.

Continuous benchmarking is essential for checking progress over time. This assessment tool helps keep management updated on gaps that need filling. When an opportunity arises, they take the necessary steps to make the changes needed.

FAQs

Can an organization change its culture?

Although organizational culture may seem fixed, it changes over time. Organizations can change their cultures depending on several factors that are not limited to industry demands and changes in company values and goals.

But changing an organization’s culture isn’t a quick fix. It often involves a long-term strategy aimed at shifting values, behaviors, and norms to align with new goals, values, and circumstances.

How does leadership influence organizational culture?

Leadership is crucial for building a strong organizational culture. Leaders are responsible for reinforcing and implementing core values and giving the company a sense of direction. Leaders are also expected to lead by example.

Why do different organizations have different cultures?

Organizational culture is a business’s personality. Therefore, each has its unique share of challenges, routines, values, and practices that distinguish the company from others.

How does organizational culture drive performance and profit?

Organizational culture is pivotal in supporting engaged and productive employees. This results in greater innovation, better employee retention, and a better bottom line for the company.

The right organizational culture is also important for promoting a company’s financial success.

How do you improve organizational culture?

First, you must understand your current culture and compare how it is now to how you want it to be. Then, you should continuously revisit the culture and ensure it aligns with company values. If not, identify any gaps and potential improvements. Perform pulse checks on employees and act on survey results.

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