Corporate Culture

AAA

DEFINITION of 'Corporate Culture'

Corporate culture refers to the beliefs and behaviors that determine how a company's employees and management interact and handle outside business transactions. Often, corporate culture is implied, not expressly defined, and develops organically over time from the cumulative traits of the people the company hires. A company's culture will be reflected in its dress code, business hours, office setup, employee benefits, turnover, hiring decisions, treatment of clients, client satisfaction and every other aspect of operations.

BREAKING DOWN 'Corporate Culture'

Google Inc. (GOOGL) is a company that is well-known for its employee-friendly corporate culture. It explicitly defines itself as unconventional and offers perks such as telecommuting, flextime, tuition reimbursement, free employee lunches, on-site doctors and, at its corporate headquarters in Moutain View, Calif., on-site services like oil changes, massages, fitness classes, car washes and a hair stylist. Google's corporate culture has helped it to consistently earn a high ranking on Fortune magazine's list of 100 Best Companies to Work For.

History of 'Corporate Culture'

While awareness of corporate or organizational culture in businesses and other organizations such as universities emerged in the 1960s, the term “corporate culture” was developed in the early 1980s and widely known by the 1990s. Corporate culture was used at this time by managers, sociologists and other academics to describe the character of a company, not only through generalized beliefs and behaviors, but also through company-wide value systems, management strategies, employee communication and relations, work environment, attitude, and even company origin myths via charismatic CEOs, as well as visual symbols such as logos and trademarks.

By 2015, corporate culture was not only created by the founders, management and employees of a company, but also influenced by national cultures and traditions, economic trends, international trade, company size and products produced. A well-cited historical example of distinctions between corporate cultures are the traditional business practices of the Japanese, and the American individualistic and entrepreneurial corporate culture of the 1960s.

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. As such, cross culture refers to “the interaction of people from different backgrounds in the business world”; culture shock refers to the confusion or anxiety people experience when conducting business in a society other than their own; and reverse culture shock is often experienced by people who spend lengthy times abroad for business and have difficulty readjusting upon their return. To create positive cross-culture experiences and facilitate a more cohesive and productive corporate culture, companies often devote in-depth resources to combating the occurrence of the above, including specialized training that improves cross-culture business interactions.

Examples of Contemporary Corporate Cultures

Just as national cultures can influence and shape a corporate culture, so does a company’s management strategy. In top companies of the 21st century, such as Google, Apple  (AAPL) and Netflix (NFLX), less traditional management strategies that include fostering creativity, collective problem solving, and greater employee freedom have been the norm. It has been argued that this is also the key to these companies’ success. Progressive policies such as comprehensive employee benefits and alternatives to hierarchical leadership – even doing away with closed offices and cubicles – are a trend that reflect a more tech-conscious and modern generation. This trend marks a turning away from aggressive, individualistic and high-risk corporate cultures such as that of former energy company Enron.

Some recent, high-profile examples of alternative management strategies that significantly affect corporate culture include holacracy and the shoe company Zappos (AMZN), and agile management and the music streaming company Spotify. Holacracy is an open management philosophy that, amongst other traits, eliminates job titles and other such traditional hierarchies. Employees have flexible roles, and self-organization and collaboration is highly valued. Zappos instituted this new program in 2014 and has met the challenge of the transition with varying success and criticism. Similarly Spotify, a relatively young but very successful company, uses the principles of agile management as part of its unique corporate culture. Agile management in essence focuses on deliverables with a flexible, trial-and-error strategy that often groups employees in a start-up environment approach to creatively tackle the company’s issues at hand.

Characteristics of Successful Corporate Cultures

Corporate cultures, whether shaped intentionally or grown organically, reach to the core of a company’s ideology and practice, as well as affect every aspect of business from each employee to customer to public image. The current awareness of corporate culture is more acute than ever. The Harvard Business Review identifies six important characteristics of successful corporate cultures in 2015. First and foremost is "vision": from a simple mission statement to a corporate manifesto, a company’s vision is a powerful tool, for example, Google’s modern and infamous slogan: “Don’t Be Evil.” Secondly, "values," while a broad concept, embody the mentalities and perspectives that endeavor to achieve a company’s vision.

Similarly, "practices" are the tangible methods, as well as ethics, in which a company carries out its values. For example, Netflix emphasizes the importance of knowledge-based, high-achieving employees and, as such, Netflix pays its employees at the top of their market salary range, rather than an earn-your-way-to-the-top philosophy. "People" come next, with companies employing and recruiting in a way that reflects and enhances their overall culture. Lastly, "narrative" and "place" are perhaps the most modern iterations of corporate culture. Having a powerful narrative or origin story, such as that of Steve Jobs and Apple, is important for growth and public image. The "place" of business, such as the city of choice and also office design and architecture, is also one of the most cutting-edge advents of contemporary corporate cultures.

 

RELATED TERMS
  1. Cross Culture

    The interaction of people from different backgrounds in the business ...
  2. Power-Distance Index - PDI

    An index developed by Dutch sociologist Geert Hofstede that measures ...
  3. Culture Shock

    A feeling of uncertainty, confusion or anxiety that people experience ...
  4. Forrester Research Customer Experience ...

    Forrester Research, a technology and market research company, ...
  5. Chairman

    An executive elected by a company's board of directors that is ...
  6. Organizational Structure

    Explicit and implicit institutional rules and policies designed ...
Related Articles
  1. Investing Basics

    Toshiba's Accounting Scandal: How It Happened

    Learn how Toshiba's corporate culture and lax internal controls led to an accounting scandal that ended with the resignation of the company's CEO.
  2. Bonds & Fixed Income

    Evaluating A Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  3. Investing Basics

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  4. Investing Basics

    The Merger - What To Do When Companies Converge

    Learn how to invest in companies before, during and after they join together.
  5. Investing News

    Employee Or Contractor? An On-Demand Economy Problem

    Several on-demand economy startups classify, or classified, their workers as contractors rather than employees. It is an unconventional approach to hiring and has been a hit with venture capitalists ...
  6. Investing Basics

    What is a Public Company?

    A public company has sold stock to the public through an initial public offering (IPO) and that stock is currently traded on a public stock exchange.
  7. Investing

    3 Ways to Monetize Your Expertise

    Anyone can make money from sharing their knowledge with others.
  8. Economics

    What Does Human Resources Do?

    Human resources (HR) is the department within a company that handles all matters relating to employment.
  9. Stock Analysis

    Are You Ready for Uber's IPO? 2 Things to Consider

    Learn why ongoing litigation from drivers along with state and local governments could put a damper on what is likely an impending Uber IPO.
  10. Personal Finance

    Why You Shouldn't Bet on Defined Benefit Plans

    Defined benefit plans were once a easy, safe way for workers to save for retirement. Too bad their massive obligations have made them expendable.
RELATED FAQS
  1. What are the major differences between investment banking and private equity?

    Private equity and investment banking both raise capital for investing purposes but tend to do so in very different ways. ... Read Full Answer >>
  2. How did Howard Schultz build Starbucks from a small business into an empire?

    Howard Schultz, the billionaire coffee tycoon who single-handedly built the Starbucks Coffee brand, is a master of reinvention. ... Read Full Answer >>
  3. How do interpersonal skills influence a business culture?

    Interpersonal skills influence business cultures because they affect job performance, which in turn helps to decide the outcome ... Read Full Answer >>
  4. What protections are in place for a whistleblower?

    Whistleblowers can play a critical role in ensuring the compliance, safety, honesty and legal fairness of governments and ... Read Full Answer >>
  5. How do modern companies assess business risk?

    Before a business can assess or mitigate business risk, it must first identify probable or likely risks to its bottom line. ... Read Full Answer >>
  6. Why has emphasis on corporate governance grown in the 21st century?

    Corporate governance refers to operational practices, management protocols, and other governing rules or principles by which ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  2. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  3. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  4. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
  5. Widow's Exemption

    In general terms, a widow's exemption refers to the amount that can be deducted from taxable income by a widow, thereby reducing ...
  6. Wedding Warrant

    A warrant that can only be exercised if the host asset, typically a bond or preferred stock, is surrendered. Until the call ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!