Find out why company culture matters, what it means, and how to change it for the better.
The study of culture is not new. In a classic book, anthropologists A. L. Kroeber and Clyde Kluckhohn identified 164 definitions of culture…in 1952!
The study of organizational culture has also received enormous attention with the classic maxim: “Culture eats strategy for breakfast.” Although Peter Drucker didn't actually say this, he and many others have clearly supported this notion, with over 100 books[1] published in recent years that attempt to redefine culture—for example, Culture Code, Culture Wins, Culture Decoded, Culture is King…and so forth.
With so many recent ideas about culture, let me offer a simple playbook for today’s company culture agenda to help business and HR leaders navigate the culture issue: Why culture matters, what culture means, and—perhaps most importantly—how to create or change a culture.
Why culture matters
Research shows that corporate directors, investors, business executives, and HR leaders believe that culture matters and is an increasing challenge for today’s organizations, particularly with hybrid work structures when people may not be routinely meeting face-to-face.[2]
In the post-COVID world—after many employees switched to working from home, often isolated from each other—cultural and social cohesion has declined, often leading to lower employee experience scores and increased mental health challenges.[3]
Everyone readily accepts that organization culture exists and has an impact. Toxic culture dysfunctions include hostility, mistrust, selfishness, scarcity thinking, and insensitive leaders who decrease productivity, employee retention, strategic reinvention, investor confidence, and customer satisfaction.
Abundant cultures have the opposite positive effect.[4] Creating the right culture enables organizations to flourish and win in the marketplace.
What culture means
Culture has many definitions, even in organization settings. Let me suggest three historical waves of looking at organization culture, and an emerging fourth wave:
An evolving view of organizational culture (Credit: Dave Ulrich)
Wave 1: Culture as values and behaviors. Individuals and organizations have values that shape behavior. These values can be identified as an organization’s culture, and the behaviors may be tracked to determine the culture.
Wave 2: Culture as systems or climate. A company culture shows up in how information, decisions, diversity, accountability, and other processes are managed. These systems determine the climate of an organization.
Wave 3: Culture as patterns or norms. Anyone entering a company recognizes certain unspoken rules or expectations of how work is done. These patterns become accepted ways of working.
These three waves of culture (values, systems, and patterns) focus on what happens inside an organization. In some nomenclatures, they are the roots of the tree and are embedded in stories, history, and rituals, both spoken and unspoken.
These internal definitions of culture thrive when employees are together to share values, work processes, and experience common norms.
Wave 4: Culture as identity in the marketplace. An emerging view of culture is to ensure that it is the “right” culture, which means that the culture inside an organization creates value for external stakeholders (customers, investors, and communities).
In this outside-in view, culture is about the value of an organization’s values to a customer or investor and the extent to which internal systems and norms increase customer adoption, investor confidence, and brand reputation. This outside-in view of culture is less about the underlying roots of a tree (which are often difficult to change) and more about the leaves of the tree, which metaphorically change in different seasons.
This outside-in view of culture integrates purpose, values, and brand to create the “right” culture, the one that creates value for all stakeholders. In this cultural focus, employees creating value for external stakeholders matters more than just how employees experience work.
Culture change begins by identifying what an organization wants to be known for in the marketplace. Then, we make that external identity real to employees inside the organization.
A representation of culture from the outside-in (Credit: Dave Ulrich)
How to create or change a culture
My colleagues and I have been involved with numerous culture change transformations. More often than not, they start with laudatory rhetoric but then fizzle with few sustainable changes.
When we have seen culture transformation succeed, it starts with the business case for culture (why culture matters), then uses the outside-in definition of culture (what culture means) before being implemented in five steps.
The five steps needed to implement culture transformation (Credit: Dave Ulrich)
Step 1: Define the desired culture. Ask internal leaders and external customers what your organization should be known for to be effective. This identity becomes synonymous with the desired brand that encourages customers to buy and investors to invest.
Step 2: Build an intellectual, top-down agenda. The desired culture needs to be communicated over and over and over again. This shared cultural message may appear in internal speeches, town hall meetings, social media, and other communication mechanisms. Simple and redundant messages shape an intellectual agenda of the desired culture.
Step 3: Encourage a behavioral, bottom-up agenda. Cultural ideas and messages flow down—behaviors and actions flow up. Ask employee groups throughout your organization what they can do more or less of to make the desired culture real in their day-to-day activities. Cultural messages change employee behaviors.
Step 4: Design and deliver a process, side-to-side agenda. Culture gets woven into an organization’s process around people (hiring, training, paying), strategic decision making, resource allocation, and other governance choices. Organization processes should reinforce the desired culture.
Step 5: Create a leadership brand. The right leadership competencies should be aligned to promises made to customers, creating a leadership brand. Employees often do what leaders model, and when leaders think and act consistent with customer expectations, their work reinforces the desired culture. We have encouraged firms creating advertising programs to allocate a percentage of their external marketing budget to internal leadership training on the same issues.
These five steps are not a perfect script for culture change, but they suggest a simple (not simplistic) playbook to approach culture change that creates value for customers and turns cultural aspirations into daily actions.
Culture matters and is an agenda worth pursuing
So what does this culture playbook suggest?
Don’t just talk about culture ideals, tie them to customer and investor value so that culture has marketplace impact.
Don’t just diagnose what is happening with culture but offer guidance about what should happen to create the right culture.
Don’t measure culture with rhetoric but with results from employees, strategy, customers, and investors.
Don’t let culture become an abstraction but a set of concrete and integrated activities built around intellectual, behavioral, and process actions.
Don’t hesitate to ensure leaders at all levels think, act, and feel consistent with the desired culture.