Organizational culture: Why it matters and how to improve

What comes to mind when you think about organizational culture? Team-building activities? An org chart? Meeting icebreaker questions?

Organizational culture is the core of every company. It shapes how businesses get work done, how employees interact, and how the organization presents itself.

A robust organizational culture can determine business success or failure. Effective company cultures built around values like communication and empathy tend to have happier, more productive employees. However, those with a weak or toxic culture may face employee dissatisfaction, leading to poor performance and churn.

In this article, learn more about organizational culture, what it is, and how a company’s beliefs, values, and attitudes impact employee success.

Organizational culture refers to the set of values, beliefs, and practices that shape work. Organizational culture shapes employee behavior, decision-making, and communication, whether codified or unwritten.

Crucially, organizational culture is formed through top-down and bottom-up processes. Leadership influences organizational culture by embodying the company's core values that form company culture. Even more, employees contribute to an organization's culture through their daily interactions.

Organizational culture varies from business to business. Some companies are small and scrappy, prioritizing agility and innovation. Others prioritize leadership structure; some are hierarchical, while others are flat, allowing anyone to own a decision-making process.

Building a strong company culture is vital for success. Organizational culture impacts everything: how employees treat each other, how they get work done, and how their approach to work aligns with the company’s goals.

Organizational culture influences factors like:

Clan culture prioritizes collaboration and teamwork. Businesses that adopt a clan culture emphasize employee relationships and shared goals. Leaders are hands-on, mentoring employees as needed. While some organizations thrive on the lack of structure, others might find it difficult to operate at scale.

In general, clan cultures:

Fast-paced and dynamic adhocracy cultures thrive on creativity and bold moves. Adhocracies encourage employees to think outside the box. They’re not afraid to change—and in fact, they change often. Businesses that adopt an adhocracy culture innovate fast. However, employees might find the pace overwhelming.

Adhocracy cultures have the following characteristics:

Market cultures are motivated by hard and fast goals. They focus on beating the competition and hitting key metrics. Leaders influence organizational culture, emphasizing the importance of achieving targets. This environment is ideal for high-achieving employees who value continuous learning. That said, the emphasis on results can lead to employee burnout.

Market cultures generally exhibit these traits:

Hierarchy cultures are structured and process-oriented. This organizational culture values clear rules and responsibilities. Procedures are often formalized and codified. Excelling at consistency and efficiency, this type of organization might struggle to pivot in response to market changes.

In general, hierarchy cultures:

Organizational culture impacts both employee and company success. It’s a feedback loop—the stronger the organizational culture, the happier your employees, and vice versa. Here are a few key elements that make up organizational culture.

A clear vision and mission provide a North Star for employees. This helps align employee objectives and behaviors with organizational goals.

Develop a clear and concise company mission statement. The mission statement should outline the company’s goals and long-term expectations. It should be tangible but inspiring.

Creating a mission statement isn’t a one-and-done deal, however. Leadership and management should reference the vision and mission during all-hands meetings, onboarding, and other internal events.

Engaged employees are happier and more productive. When employees are excited to show up for work, they foster a healthy culture. A highly engaged workforce is generally more productive and innovative than competitors.

To develop employee engagement, make your employees feel valued at the workplace. That means recognizing achievements—in the form of awards, thank-you notes, or shout-outs during team meetings or town halls. In tandem, conduct regular surveys to measure employee engagement and employee perceptions about culture.

A good leader embodies the company culture. They set the tone by emphasizing core values and inspiring employees.

Effective leadership relies on a few core principles. Chief among these is transparency. Employees trust leaders who share information honestly. That doesn’t always mean having all the answers. Admitting when you don’t know something is a great way to foster trust.

Company leaders should engage empathetically. Solicit feedback proactively, listen to employee feedback, and aim to understand their perspective.

Finally, strive for consistency. Demonstrate fairness and integrity, attend team meetings, and take action.

Transparent, consistent communication builds trust among employees. Communication reduces misunderstanding, and it builds trust.

Building clear and transparent communication channels takes time. Leadership and management should establish open-door policies, so employees are encouraged to share ideas and feedback.

Make sure you’re accommodating various communication styles. Some people might prefer communicating over email, while others might prefer getting updates and sharing feedback in person. Many companies prefer to hold town hall meetings or Q&A sessions. These are an effective way to build team cohesion and make sure important updates get communicated to everyone.

Employees thrive on opportunities to learn, grow, and develop their skills. Learning and development also supports a growth-oriented workplace culture, where employees are awarded for advancing their skills and contributing to company success.

Organizations should offer training programs, workshops, mentorship, and certifications to grow. Additionally, consider providing tuition reimbursement for courses or degrees that align with organizational goals. Above all, ask your employees what they need to advance in their career, and take their feedback seriously.

A supportive work environment promotes employee well-being. This reduces burnout, decreases stress, and fosters productivity. It’s crucial for a happy, well-functioning workforce.

Perhaps counterintuitively, building a positive work environment starts at home. Empower employees to take time off. Encourage work-life balance by offering flexible, hybrid, or remote work options. Provide wellness programs like fitness classes or mental health resources to support emotional and physical well-being.

Diversity, equity, and inclusion (DEI) is a cornerstone of workplace culture. When employees feel included, they’re happier and more productive. An extensive pool of research has shown that diverse workplaces are more successful. Overall, they’re more creative and agile than workplaces that don’t prioritize diversity and inclusion.

Prioritizing DEI requires ongoing investment. Offer training on unconscious bias and inclusive communication. When developing a hiring strategy, consult with professionals who work in DEI to implement bias-free hiring. This ensures more diverse representation at all levels of the organization.

Create employee resource groups (ERGs) to support historically underrepresented communities. And celebrate cultural events for all groups, regardless of their background.

Related reading: The ultimate guide to diversity, equity, and inclusion (DEI)

Company leaders shape and maintain organizational culture, setting the tone for the company on everything from decision-making to employee engagement.

Effective leaders put organizational culture into practice. They model the attitudes and behaviors that drive a positive company culture. This includes practices like establishing clear expectations, listening to employee feedback, and creating an environment that prioritizes accountability and support.

However, poor leadership does the opposite. When leaders don’t embody the company values, employees are less likely to live cultural values and trust leadership on key decisions. They may also experience less satisfaction and happiness.

A positive organizational culture directly impacts employee performance. On average, businesses with a supportive and vibrant culture have happier and more loyal employees. According to Forbes, companies with strong cultures see 4x higher revenue growth than those without a defined culture.

By contrast, a toxic culture leads to disengagement, burnout, and churn. When employees don’t feel motivated or valued, the business is likely to suffer high turnover and poor performance. Researchers at the MIT Sloan Management Review have shown that employees in toxic workplaces are 48% less productive and experience significantly higher rates of burnout.

Organizational culture isn’t easy to build—or to change. It’s tantamount to changing a company’s identity. But when the business grows or the market evolves, adaptation can be crucial to success.

That said, change isn’t easy. It requires a thoughtful, inclusive, holistic approach. Here are some strategies for adapting organizational culture.

Don’t rush into any changes. Before you plan anything, it’s essential to understand the current culture. Take a step back and start by deciding whether it’s time for a change. Use culture pulse surveys to gather employee feedback to help leaders understand the current dynamics at play.

Surveys should capture sentiment about the current culture. Include questions about organizational values, workplace satisfaction, and areas for improvement. Consider following up with focus groups to get more in-depth qualitative data on what needs to change.

When building out a strategy, pay close attention to metrics like employee turnover rates, engagement scores, and performance outcomes.

Change management works when employees are involved. To ensure buy-in, get employees involved in the process.

Create cross-departmental committees to gather input on what needs to change. Use all-hands meetings or town halls to dig in on specific questions or concerns employees might have. Take the time to celebrate employees’ contributions to the ongoing change.

Related reading: How to deploy an employee engagement survey

Change and clarity go hand in hand. Without a clear roadmap, change can feel scary and unfocused. To combat this, articulate how exactly you want the culture to evolve.

Specify what you wish to achieve by making changes. For example, are you looking to build a more diverse workforce? A more innovative company? A more transparent organization that priorities communication?

Identify measurable outcomes that help capture your progress toward these goals. Communicate these goals to the organization. That way, everyone will feel included and aligned.

Change can be intimidating. But it doesn’t have to be. Make sure leaders and employees are equipped to make the most of the changes to come.

Fortunately, weathering change is a skill—and like any skill, it can be taught. Offer workshops on topics like embracing innovation, fostering inclusivity, or using new digital tools. Provide leadership coaching for management. Develop online training modules to reinforce key principles as the change continues. For example, a company transitioning from in-person to remote might offer digital leadership workshops to managers.

Recognize and reward milestones. This boosts morale and encourages employees to reflect on how far they’ve come.

Highlight achievements through company-wide announcements or simple thank-you notes. Share success stories to inspire the organization. Acknowledge individual or team contributions to the organizational change.

Improving organizational culture can seem like a daunting prospect. To begin with, it’s abstract. How do you quantify something as nebulous as culture?

As counterintuitive as it might seem, it’s possible—and helpful!—to measure organizational culture. Here are a few tools you can use to better understand an organization’s cultural health.

Surveys allow employees to share their honest opinions about workplace culture. This enables the organization to uncover strengths and areas for improvement.

Surveys should focus on areas like trust, collaboration, leadership, work-life balance, and inclusivity.

Ask whether:

Consider making the survey anonymous to encourage transparency.

Open discussions and focus groups provide qualitative insights into employee experiences. Employees can share feedback in person that they won’t necessarily cover in a survey or expand on quantitative data gathered through surveys.

Some organizations use cultural audits to uncover current norms and processes. Audits are comprehensive deep-dives into what makes an organization’s culture tick: everything from policies to communication patterns to workplace dynamics.

Metrics like employee Net Promoter Score® (eNPS) and employee engagement can draw a direct line between culture and business outcomes. Analyze important indicators like productivity, absenteeism, and employee retention rates. Compare cultural metrics with industry benchmarks.

Improving organizational culture isn’t a one-and-done project. It’s a continuous process of evolution that requires collaboration and strategy. Use these actionable tips to improve culture over time.

Leaders should make sure they’re proactively championing cultural initiatives and modelling desired behaviors. They should communicate regularly and openly about the importance of the company’s values. Leaders should conduct regular all-hands meetings or town halls to orient the organization toward key goals. Visible commitment to organizational culture inspires employees to embody the company’s values.

Seek out employee feedback. Listen to employee concerns and suggestions to shape a culture that empowers them to thrive. Gather quantitative and qualitative feedback in the form of surveys and in-person workshops. Use digital platforms and tools to encourage employees to share their thoughts with their managers and with each other. Foster a culture where feedback isn’t just tolerated: it’s celebrated.

Perform regular assessments of the company culture. Use both quantitative and qualitative measures of progress. Refine practices and behaviors as necessary. Change management strategies should be data-driven and comprehensive. Don’t be afraid to iterate. Change takes time, and you don’t always get it totally right on the first try.

Create policies and programs that celebrate diversity and promote equity. Train employees on unconscious bias and inclusive communication. Build a workforce that values employees for who they are—as whole and complete individuals. Encourage collaboration across departments and backgrounds to strengthen relationships across the organization.

Employees are happier and more engaged when they have opportunities to learn. This is especially true for Gen Z, who is entering the workforce during a time of high growth and uncertainty.

Invest in training programs and other growth opportunities. Provide clear paths for career progression within the organization. Recognize and reward employees for their accomplishments. Learning and growth should be celebrated!

Organizational culture is foundational to your business’s success. It impacts everything from employee satisfaction to long-term success. Now is a great time to evaluate your company’s culture and take steps to improve it.

Ready to build a stronger organizational culture? Get started today!

Net Promoter, Net Promoter Score, and NPS are trademarks of Satmetrix Systems, Inc., Bain & Company, Inc., and Fred Reichheld.