Corporate Culture Definition, Characteristics, and Importance

Corporate Culture

Investopedia / Paige McLaughlin

What Is Corporate Culture?

Corporate culture refers to the values, beliefs, and behaviors that determine how a company's employees and management interact, perform, and handle business transactions. Often, corporate culture is implied, not expressly defined, and develops organically over time from the cumulative traits of the people that 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 employees and clients, client satisfaction, and every other aspect of operations.

Key Takeaways

  • Corporate culture refers to the beliefs and behaviors that determine how a company's employees and management should interact and perform.
  • It can affect employee hiring and retention, performance and productivity, business results, and company longevity.
  • Corporate culture is influenced by national cultures and traditions, economic trends, international trade, company size, and products.
  • Corporate culture represents the core values of a company’s ideology and practice.
  • The four types of corporate culture are clan culture, adhocracy culture, market culture, and hierarchy culture.
1:17

Corporate Culture

Understanding Corporate Culture

Awareness of corporate or organizational culture in businesses and other organizations such as universities emerged in the 1960s. The term "corporate culture" developed in the early 1980s and became widely known by the 1990s. Corporate culture was used during those periods by managers, sociologists, and other academics to describe the character of a company.

Corporate culture emanated from generalized beliefs and behaviors, company-wide value systems, management strategies, employee communications and relations, work environment, and attitude. It would go on to include company origin stories put forth by charismatic chief executive officers (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 was also influenced by national cultures and traditions, economic trends, international trade, company size, and products.

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. These include:

  • Cross-culture refers to people from different backgrounds interacting in the business environment.
  • Culture shock refers to the confusion or anxiety people experience when conducting business in a society other than their own.
  • Reverse culture shock is often experienced by people who spend lengthy time abroad for business and have difficulty readjusting upon their return.

Companies often devote substantial resources and effort to create positive cross-culture experiences and to facilitate a more cohesive and productive corporate culture.

The awareness and importance of corporate culture is more acute now than ever. Big Four consulting firm Deloitte found that over 90% of executives believed that strong corporate culture is imperative for business success.

Importance of Corporate Culture

A carefully considered, even innovative, corporate culture can elevate companies above their competitors and support long-lasting success. Such a culture can:

  • Provide for a positive workplace environment
  • Create an engaged, enthusiastic, and motivated workforce
  • Attract high-value employees
  • Reduce turnover
  • Drive and improve performance quality and productivity
  • Result in favorable business results
  • Underpin a company's longevity
  • Strengthen return on investment (ROI)
  • Provide an implacable competitive advantage
  • Clarify for employees the goals of their positions, departments, and a company overall
  • Contribute to the diversification of the workforce

Types of Corporate Culture

Clan Culture

Clan cultures are about teamwork and collaboration. In such a culture, those in management function as enthusiastic mentors who provide guidance to subordinates. Good relationships, encouragement, trust, and participation are key aspects. The contribution potential of every employee is a component of a clan culture. Also, clan culture can easily adapt to change and implement needed action quickly.

Adhocracy Culture

Adhocracy culture creates an entrepreneurial workplace in which executives and employees function as innovators and risk-takers. In this flexible environment, agile thinking is nurtured. Employees are encouraged to pursue their aspirational ideas and take action to achieve results that can advance company goals. New and unconventional products and services are the main outcome of the adhocracy culture.

Market Culture

Market culture is focused on meeting specific targets and bottom line goals. This culture creates a working environment that's competitive and demanding. Management is most interested in business results. Employees are encouraged to work hard and "get the job done" to enhance a company's market presence, profits, and stock price. While employees may feel stressed in such a workplace, they can also feel enthusiastic and excited about their work.

Hierarchy Culture

A hierarchy culture is a traditional corporate culture that functions according to a company's executive, management, and staff organizational structure. That is, it follows the chain of command from top down, where executives oversee employees and their work efforts to meet specific goals. The hierarchy culture prizes stability and conventional methods of operation The work environment can be seen as more rigid than some other cultures but employees can clearly understand their roles and objectives. They may also feel a sense of security because of the more conservative approach to running a company.

Examples of Contemporary Corporate Cultures

Just as national cultures can influence and shape corporate culture, so can a company’s management strategy. In top companies of the 21st century, such as Google, Apple Inc. (AAPL), and Netflix Inc. (NFLX), less traditional management strategies that foster creativity, collective problem solving, and greater employee freedom have been the norm. They are thought to contribute to business success.

Alphabet (GOOGL), the parent of Google, 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, and on-site doctors.

At its corporate headquarters in Mountain View, Calif., the company offers on-site services such as oil changes, car washes, massages, fitness classes, and a hairstylist. Its corporate culture helped it to consistently earn a high ranking on Fortune magazine's list of "100 Best Companies to Work For."

Progressive policies such as comprehensive employee benefits and alternatives to hierarchical leadership (even doing away with closed offices and cubicles) have been trends that reflect a more tech-conscious, modern generation of corporate culture. These trends mark a change from earlier aggressive, individualistic, and high-risk corporate cultures, such as that of former energy company Enron.

High-profile examples of alternative management strategies that significantly affect corporate culture include holacracy. This has been put to use at shoe company Zappos, owned by Amazon (AMZN), and agile management techniques applied at music streaming company Spotify.

Holacracy is an open management philosophy that, among other things, eliminates job titles and other such traditional hierarchies. Employees have flexible roles and self-organization, and collaboration is highly valued. Zappos instituted this program in 2014 and has met the challenge of transition with varying success and criticism.

Similarly, Spotify, a music-streaming service, 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, express the core of a company’s ideology and practice. They affect every aspect of a business, from each employee and customer to a company's public image.

The Harvard Business Review identified six important characteristics of successful corporate cultures in 2015. 

Vision

First and foremost is vision. Whether communicated via a simple mission statement or a corporate manifesto, a company’s vision can be a powerful tool. For example, Google’s famous slogan “Don’t Be Evil” is a compelling corporate vision.

Values

Values, while a broad concept, can embody the thinking and perspectives necessary to achieve a company’s vision. They can serve as a beacon for behavior necessary to progress toward all manner of success. Examples of values include fairness, trustworthiness, integrity, performance excellence, teamwork, and a high-quality customer experience.

Practices

Practices are the tangible methods, guided by ethics, by which a company implements 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 through an earn-your-way-to-the-top philosophy.

People

People come next, with companies employing and recruiting in a way that reflects and enhances their overall culture. Plus, people are the key to bringing corporate culture to life and obtaining the high-value performances that can lead to favorable business outcomes.

Narrative and Place

Lastly, narrative and place are perhaps the most modern characteristics of corporate culture. Having a powerful narrative or origin story, such as that involving Steve Jobs and Apple, is important for growth and public image. The place of business, such as the city of choice and also the office design and architecture, is one of the most cutting-edge advents in contemporary corporate culture.

Other characteristics of corporate culture can include:

Teamwork

Employees should be encouraged and trained to work together with camaraderie and trust toward common goals. The benefits of teamwork, such as problem-solving, the development of innovative ideas, and improved productivity, should be demonstrated to the workforce.

Training and Education

Companies should provide the means for employees to improve their skills and enhance their knowledge so that the vision and goals of the company can be more reliably reached. Training and education can also provide employees with a path to new opportunities within their companies. This can motivate individuals to learn and do more.

Innovation

Innovation is exciting and can underscore the spirit of a company's vision. It can instill pride, confidence, and loyalty in the workforce.

Leadership

A company's management, including C-suite executives, should be accessible and open to providing assistance that supports all employees.

How to Develop a Corporate Culture

There is no single strategy for building a corporate culture because companies, industries, and people can be so different. However, the basic steps below may help you envision a corporate culture that spells success for your employees, clients, and company.

  1. Define a company vision, values, and behaviors.
  2. Gather feedback from employees about your company's values, ideas, and work methods to improve the workplace environment and performance.
  3. Use small discussion groups, surveys, or town hall-type meetings to engage your employees and give them a voice.
  4. Establish methods, such as training at regular intervals, to communicate company values/behaviors and determine how well they are understood.
  5. Employ high-quality internal communications to maintain consistent contact with employees about company goals, the working environment, and employees' roles in the company's success.
  6. Establish guidelines that reinforce company values; e.g., a rule that employees should not be disturbed by work phone calls, emails, or texts during vacations or other types of time off.
  7. Recognize employees in a positive and public manner as a reward for their contributions to corporate success.
  8. Practice what you preach—ensure that management maintains a consistent behavioral approach to operations rather than cutting corners when convenient.
  9. Be approachable so that all employees may address their concerns and feel connected/of value.
  10. Foster teamwork rather than silos and isolation.
  11. Set goals for diversity and inclusion; celebrate the differences among people as you encourage consistent behavior from all.

What's Meant By "Corporate Culture"?

The term “corporate culture” refers to the values, beliefs, and practices associated with a particular corporation. For instance, corporate culture might be reflected in the way a corporation hires and promotes employees, or in its corporate mission statement. Some companies seek to associate themselves with a specific set of values, such as by defining themselves as an innovative or environmentally-conscious organization.

What Are Some Examples of Corporate Culture?

There are many examples of companies with well-defined corporate cultures. Alphabet Inc., for example, is known for its employee-centric culture and its emphasis on working in a creative and flexible environment, whereas Amazon is known for its relentless pursuit of customer service and operational efficiencies. Often, national cultures will play a role in determining the kind of corporate culture that is prevalent in society. For example, Japanese corporations are known for having markedly different corporate cultures as compared to those of American or European companies.

Why Is Corporate Culture Important?

Corporate culture is important because it can support important business objectives. Employees, for example, might be attracted to companies whose cultures they identify with, which in turn can drive employee retention and new talent acquisition. Fostering a culture of innovation can be critical to maintaining a competitive edge with respect to patents or other forms of intellectual property. Similarly, corporate culture can also play a role in marketing the company to customers and to society at large, thereby doubling as a form of public relations.

The Bottom Line

Corporate culture has become a vital, even essential, ingredient in the ongoing success of a business. It represents the values, beliefs, and goals of a company, as well as the consistent behavior expected from all employees, from top to bottom.

Not only is corporate culture an important key to attracting and retaining employees. It can also support high-quality employee performance, ongoing achievement, and the longevity of a company.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. Deloitte. "Core belief and culture; Chairman's survey findings."

  2. Harvard Business Review. "Six Components of a Great Corporate Culture."