Corporate Culture

What is Corporate Culture ?

Corporate culture is defined as the set of values, norms of behavior, modes of interactions, and ethical principles shared by the employees and owner of an organisation Corporate culture determines the character of an organisation. The vision and character of the founders of the organization are projected through the corporate culture of an organisation.

Corporate culture also determines the manner in which the people of an organisation interact with each other and deal with its stakeholders, like the customers and suppliers; and with the government and regulatory agencies. It is a subtle entity that cannot be seen but can be felt by those involved with the organisation's activities. Corporate culture also determines organisational functions. 
For example, a management that has the interest of its employees at heart gets from its employees the loyalty and commitment it deserves: or an organisation that encourages scientific inquiry through regular debates, discussions, and seminars reaps the benefits of innovation and originality. Other organisational functions like leadership, delegation of work, freedom of decision-making, etc., are also influenced by corporate culture.

Definition of Corporate Culture

According to Ember and Ember :
"Corporate culture is the set of learned behaviors, beliefs, attitudes, values, and ideals that are characteristic of a particular society or population".

According to Schein :
"Corporate culture is a pattern of basic assumptions invented, discovered, or developed by a given group as it learns to cope with its problems of external adaptation and internal integration that has worked well enough to be considered valid, and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems".

According to Murphy :
"Corporate culture means that total body of tradition borne by a society and transmitted from generation to generation. It thus refers to the norms, values and standards by which the people act, and it includes the way distinctive in each society of ordering the world and making it intelligible".

Functions of Corporate Culture 

Following are the functions of corporate culture :
  1. Corporate culture is the yardstick used to orient personnel of an organisation towards a common work culture. This commonality of work culture leads to camaraderie amongst the employees of an organisation. Since, corporate culture is aligned with the goals of the organisation, imbibing of corporate culture by employees brings about unity between the employees' goals and those of the organisation.
  2. Corporate culture provides the necessary incentive and encouragement to employees to proactively develop their talents and skills and use them to achieve their own growth and in the process benefiting the organisation.
  3. Ethical standards are constituents of corporate culture. Restraint is one ethical trait that has immense benefits; it restrains erratic, impulsive, and unpredictable actions of employees. Traits like sincerity, honesty, respectful behavior have great roles in creating a healthy work environment.
  4. A magnificent corporate culture enhances the reputation of an organisation. An organisation is not an isolated entity; it relates with outside entities like customers, suppliers, contractors. government, and regulatory bodies. The corporate culture of an organisation is expressed through dealings with these external entities and consequently creates reputation and goodwill for the organisation.
From a different perspective, the functions of corporate culture can be divided into three categories : 
  • Corporate objectives
  • Internal actions
  • External actions
All these three factors have a bearing on the efficiency of an organisation, Corporate objectives reveal how noble the company's intentions are. Actions reveal how serious a company is about giving vision to these objectives. Internal actions demonstrate whether or not the corporate culture of that company promotes productive interactions amongst employees. External actions throw light on whether the organisation has a healthy relationship with its external stakeholders. Both these actions greatly influence corporate efficiency.

Types of Corporate Culture

According to John Kotter and James Heskett, corporate culture can be categorized in two ways : 

1) Adaptive Cultures : 
Adaptive cultures are those in which an element of adaptability is ingrained. Such organisations can make cultural changes in response to changed situations and needs arising out of changed situations. Following are the features of businesses with adaptive culture :
  • Employees are encouraged to be enterprising and entrepreneurial. The managers have a very practical outlook, which enables them to change and accept change easily.
  • Such companies stick to the domain of their expertise; a company can make changes easily when it knows its business in and out.
  • An organisation with adaptive culture maintains excellent relations with its customers; this enables it to easily convince customers to accept changes in its values, traits, and attitude.
  • In such organisations, the personnel head count is small, and there is decentralization of decision-making authority - both factors conducive to flexibility in implementing changes. 

2) Inert Cultures :
There is little scope for changes and innovation in such organisations. For years and years, value systems remain the same, and there is little, if any, encouragement to employees to come up with new ideas in relation to corporate culture. If the business environment changes, even the top-level executives are reluctant to come out of their comfort zone.

Impact of Corporate Culture

Corporate culture has a decisive impact on the performance of an organisation. Following factors influence the impact or importance of corporate culture on businesses :

1) Risk : 
Every business has risk areas, and corporate culture is instrumental in deciding the risk-taking behavior of a company. In which areas of operation will a company take risk and in which areas it will not and how much risk may be influenced by corporate culture of that company. 
For example, a company may decide to take risk by investing in research and development but either no risk or minimum risk when comes to extending credit to customers. An organisation that is environment-conscious will strictly adhere to regulations and not take risks by relaxing standards of adherence. Thus risk management is influenced by corporate culture, and risk-taking behavior does impact a company's performance.

2) Employee Retention : 
Employee retention is dependent on employee loyalty, and loyalty is dependent on the trust a company can gain from its employees. Employees will trust a company if it has the following traits woven in its corporate culture :
  • Transparency in dealings with the employees
  • A good past record of fulfillment of promises
  • Sound ethical dealings with customers
  • Employee-friendly policies
A company that can retain employees can perform much better than a company that cannot. A company is a loser if it cannot retain an experienced and trained employee.

3) Incentive Bonus : 
Corporate culture of sharing profits in the form of incentive bonus with performing employees is motivational for the employees to perform to the best of their abilities. However, an organisation with such culture needs to distinguish between employees who have performed so as to touch the target to qualify for the incentive and those who have not. Such an incentive programme cannot be a generalized one that would reward all employees. Thus, a company that judiciously weaves incentive bonus into its culture reaps the benefits thereof.

4) Focus : 
When the same values, beliefs, ideas, ethical standards, behavioral patterns - all these constitute corporate culture-are adhered to by every individual in an organisation, there is focus on one goal, one strategy, uniform behavior, uniform guidelines, and uniform code of conduct, which results in enhanced efficiency and commendable results for the organisation.

5) Reputation : 
Corporate culture projects a picture of the organisation to the external stakeholders and the general public in accordance with the characteristics the culture possesses. Hence a healthy, noble, efficient corporate culture builds up an admirable reputation of the organisation. It gives a strong message to the customers, suppliers, contractors, and all other stakeholders that the organisation is reliable and it practices what it believes in.

6) Competitive Advantage : 
Corporate culture can become a tool to obtain competitive advantage in the market. This is so because corporate culture has an impact on result-influencing parameters in an organisation. These parameters are strong motivation, prompt decision-making, freedom to innovate, fearless feedback mechanism, etc. The more these behavioral patterns are encouraged, better are the results in terms of productivity and profitability and higher are the chances to beat competition.

Corporate Culture and Strategy 

A culture of an organisation has a huge impact on how the strategy of the organisation should be formulated and implemented. Therefore, it can be said that the corporate culture and the strategy are inter-connected. The relation between the two is evaluated so as to determine how the corporate culture can help in strategy implementation. While analyzing culture and strategy, there are four options, each of these options has different implication on the strategic management activities of the entire organisation.

1) Ignore the Corporate Culture : 
The first alternative is that the strategist can completely ignore the corporate culture while executing the strategy. In case it is not possible to modify the culture to match the strategy. Concept of culture is ignored by the companies as the corporate culture is developed over a long period of time and it is not possible to immediately modify it according to the company's requirements. If the culture is ignored it may result in lack of coordination between the strategy and structure of the organisation.

2) Adapt the Strategy Implementation to Suit the Corporate Culture : 
Next option before the strategists is to modify the implementation process in accordance with the corporate culture. This alternative can by adopted making changes in the processes, designs and systems of the organisation while keeping in mind the elements of the corporate culture. While adopting this alternative the organisation has to come up with creative and innovative solutions for each diverse business situation.

3) Change the Strategy to Fit the Corporate Culture :
In the next alternative the strategists can choose a different strategy in order to match, the corporate culture. However, this is not a feasible option as changing the entire strategy is quite time consuming. Hence, the corporate culture should be considered while selecting a particular strategy.

4) Change Corporate Culture to Suit Strategic Requirements : 
The last and the most popular alternative is to modify the corporate culture according to the strategy requirements. This option is most beneficial due to the ever changing competitive business environment. This alternative is best suited to India's business environment.