Is Organizational Culture Important? - Principles of Management

Why would executives at Dell Inc. and other companies want to tamper with their culture? Does corporate culture really make a difference? The answer, in a word, is yes. Various studies indicate that companies with strong cultures are more likely to be successful, but only under a particular set of conditions. The explanation of how organizational culture influences corporate prosperity and employee well-being has a few twists and turns, which we walk through in this section.

To begin, the effect of organizational culture depends partly on its strength. Corporate culture strength refers to how widely and deeply employees hold the company’s dominant values and assumptions. In a strong organizational culture, most employees across all subunits hold the dominant values. These values are also institutionalized through well established artifacts, thereby making it difficult for those values to change.

Furthermore, strong cultures tend to be long-lasting; some can be traced back to the beliefs and values established by the company’s founder. In contrast, companies have weak cultures when the dominant values are short-lived and held mainly by a few people at the top of the organization. A strong corporate culture potentially increases the company’s success by serving three important functions:

  1. Control system: Organizational culture influences what managers and employees can and can’t do. Culture is a deeply embedded form of social control that influences employee decisions and behavior. As a control system, culture is pervasive and operates unconsciously. You might think of it as an automatic pilot, directing employees in ways that are consistent with organizational expectations.
  2. Social glue: Organizational culture is the “social glue” that bonds people together and makes them feel part of the organizational experience. Employees are motivated to internalize the organization’s dominant culture because it fulfills their need for social identity. This social glue is increasingly important as a way to attract new staff and retain top performers
  3. Sense making: Organizational culture assists the sense-making process. It helps employees understand what goes on and why things happen in the company. Corporate culture also makes it easier for them to understand what is expected of them and to interact with other employees who know the culture and believe in it.


Strong cultures are potentially good for business, as we just explained, but studies have found only a modestly positive relationship between culture strength and success. Why the weak relationship? One reason is that a strong culture increases organizational performance only when the cultural content is appropriate for the organization’s environment (see Figure below).

Organizational Culture and Performance

Organizational Culture and Performance

Recall from a few pages back that culture content refers to the relative ordering of values and assumptions. Trouble occurs when the relative ordering of cultural values is misaligned with the firm’s environment. This lack of fit causes employees to make decisions and engage in behaviors that are inconsistent with the company’s best interests. Strong cultures create a greater risk because culture strength indicates that a greater number of employees will be guided by those values and assumptions.

The corporate landscape is dotted with companies that suffered performance setbacks because their culture became dangerously misaligned with the external environment. Home Depot is a recent example. Founded in 1978, America’s second largest retailer (Wal-Mart is number one) grew and prospered through a culture of “entrepreneurial high-spiritedness,” a passionate commitment to customers, and an aversion to bureaucracy.

But when competition set in, Home Depot’s freewheeling culture became a liability. The company was an inefficient hodgepodge of fiefdoms representing different regions that practically ignored the head office. Each region even had its own supplier agreements, whereas one companywide agreement would have significantly increased Home Depot’s purchasing power. The company needed a culture that emphasized more structure and efficiency to squeeze out unnecessary costs.

Leading this transformation was former GE executive Robert Nardelli. Over the past five years Nardelli has introduced a much more efficiencyfocused, performance-oriented culture, similar to GE’s famous culture. Nardelli faced considerable resistance, but Home Depot’s culture is changing. “He saved the company,” claims Home Depot cofounder Ken Langone.

Kevin Rollins also started to notice a lack of cultural fit at Dell Inc., the stock-focused culture hurt employee morale and possibly performance whenever the stock dipped. The intense winning orientation further undermined employee loyalty when Dell, poised to double in size over the next few years, couldn’t afford to lose valuable talent. Although the existing culture was generally effective for driving Dell’s performance, it needed adjustment.

“We wanted our culture to be as rich and as well-defined as our operational model,” says Rollins. “And so we also launched the concept of the Soul of Dell.” To add substance and commitment to the “Soul of Dell,” employees were asked what they would expect to see in a great place to work.

That feedback, along with results from the cultural audit survey, became the foundation of five values: customer-focused, team-oriented, direct relationships, global citizenship, and a passion for winning. Rollins says this culture partly exists today and partly is a goal to which the company aspires. “I would like our employees to say, ‘That’s what I believe in, that’s what the company believes in, and that’s why I’m proud to be at Dell.’”


A second reason why companies with strong cultures aren’t necessarily more effective is that they become corporate cults that lock decision makers into mental models and blind them to new opportunities or unique problems. Thus strong cultures might cause decision makers to overlook or incorrectly define subtle misalignments between the organization’s activities and the changing environment.

Several bankrupt steel manufacturers apparently suffered from this problem. “It was 100 years of integrated culture,” recalls Mittal Steel vice president John Mang III, who worked at one of the now-bankrupt firms for three decades.

“People in the organization are inbreds, including myself. You grew up in the culture; you didn’t see anything else. … It is a culture from within, so you have these rose-colored glasses that everything’s fine.”

A third consideration is that very strong cultures tend to suppress dissenting subcultural values. As we noted earlier, subcultures encourage constructive conflict, which improves creative thinking and offers some level of ethical vigilance over the dominant culture. In the long run, a subculture’s nascent values could become important dominant values as the environment changes. Strong cultures suppress subcultures, thereby undermining these benefits.


So far we have learned that strong cultures are more effective when the cultural values are aligned with the organization’s environment. Also, no corporate culture should be so strong that it blinds employees to alternative viewpoints or completely suppresses dissenting subcultures. Research from various sources adds one more recommendation to this list— namely that organizations are more likely to succeed when they have an adaptive culture.

An adaptive culture exists when employees focus on the changing needs of customers and other stakeholders and support initiatives to keep pace with these changes. Adaptive cultures have an external focus, and employees assume responsibility for the organization’s performance. As a result, they are proactive and quick. Employees seek opportunities rather than waiting for them to arrive. They act quickly to learn through discovery rather than engaging in “paralysis by analysis.”

Organizational culture experts are starting to piece together the elements of adaptive cultures. First and foremost, adaptive cultures have an external focus. Employees hold a common mental model that change is both necessary and inevitable to keep pace with a dynamic external environment. Second, employees in adaptive cultures pay as much attention to organizational processes as they do to organizational goals.

They continuously improve internal processes (production, customer service, and so on) to serve external stakeholders. Third, employees in adaptive cultures have a strong sense of ownership. They assume responsibility for the organization’s performance. In other words, they believe “It’s our job” rather than “It’s not my job.” Fourth, adaptive cultures are proactive and quick. Employees seek out opportunities, rather than wait for them to arrive. They act quickly to learn through discovery rather than engage in “paralysis by analysis.”


An organization’s culture influences more than just the bottom line; it can also potentially influence its ethical conduct. This makes sense because good behavior is driven by ethical values. An organization can guide the conduct of its employees by embedding ethical values in its dominant culture.

Dell executives saw this connection when they developed the “soul of Dell” initiative. CEO Kevin Rollins was concerned that the obsession with profits and stock price among many Dell employees increased the risk of unethical conduct. Such a focus on stock price led Enron, the Texas-based energy company, and Worldcom, the Louisiana-based telecommunications giant, into bankruptcy.

So Dell’s new set of cultural values include clear linkages to ethical conduct. Its “direct relationships” value includes “behaving ethically in every interaction and in every aspect of how we conduct business.” Its “global citizenship” value refers to participating responsibly in the global marketplace.

When discussing the company’s passion for winning, Rollins emphasizes that it is really about “winning with integrity.” All of these principles are connected to the company’s code of conduct, called “the higher standard.” Unfortunately it seems that companies make headlines every day for failing to incorporate ethics into their culture. Citibank illustrates this in its serious ethical lapse in Japan.

In just six years Citibank Japan’s business increased tenfold and delivered profits that outscored all other private banks in the company’s huge network. Unfortunately the Japanese government’s financial watchdog recently concluded that Citibank Japan’s culture supported “a lawevading sales system,” citing infractions ranging from grossly overcharging clients to helping them falsify profit and manipulate stock.

With 83 infractions, Citigroup was told to close some of its Japanese operations. “It’s our fault, because all we talk about is delivering the numbers. We’ve done this forever,” admits Citigroup chief executive Charles Prince. Prince fired several top executives in Tokyo and New York and is now on a mission to change Citibank’s culture. He has a major challenge ahead of him. Dow Jones news service reports that Citigroup’s culture has an “established reputation for pushing the limits of acceptable banking behavior.”

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