Market factors are competitive advantages which are desirable because they are known to enable companies to have above-normal profit returns. For example, high costs (barriers) to enter an industry, competitors with low bargaining power, or buyers being dependent on a specific product that isn’t easily substituted. However, some of the most successful companies outperform industry rivals even though they lack a competitive advantage. This indicates that success can be based on intangible factors that are more powerful than market factors. Research shows that one of the most impactful non-market factors is organisational culture.
What’s Organisational Culture?
Organisational culture is also known as company culture. At its essence, organisational culture can be defined as the personality of an organisation. It thus encompasses shared values, attitudes, and practices. Company culture can be set out and then consciously developed by management teams. Or it can be created by the person who formed a company and is entrenched from the start.
Organisational culture comprises at least seven different characteristics. Each one of these can have an impact on the functional ability and effectiveness of a company. Thereby emphasising how important company culture can be and why establishing and nurturing it should be a priority.
Seven Characteristics of Organisational Culture
- Innovation.
- Detail orientation.
- Importance of outcome and results.
- Stance on people and relationships.
- Collaboration and cooperation.
- Aggressive or competitive approach.
- Stability (ability to withstand challenges and changes).
Why does Organisational Culture Matter?
An organisational culture is important because it can have a profound impact on a company’s immediate and future functionality. There are numerous reasons for this.
Studies show that most prospective employees evaluate a company’s culture ahead of submitting their job applications. Essentially, organisational culture matters because it attracts or deters potential employees. After that, it can determine how long an employee is willing to work at a company. Thus, organisational culture can, for example, influence staff retention, institutional memory, return on investment in training of staff and thereby operational effectiveness.
Company culture has been shown to affect at an individual level. Such as shaping employee morale, commitment, and productivity. It can also influence employees’ emotional and physical health and thus, their well-being and happiness. In this way, organisational culture can determine how effective an employee could become within their job.
Research shows that even when good strategic policies are well implemented, without a defined and accepted company culture, success is highly unlikely. Therefore, if company leadership doesn’t consider the prevailing internal culture, even the best policies won’t yield the intended results. Thus, inadvertently, profit margins can be determined by company culture because of its ramifications on things like employee performance.
What are the Organisational Culture Types?
There are four primary types of organisational culture. None are regarded as better than the other, but rather each falls into a values framework that helps style company leadership. Each of the culture types has different appeals and usually a company has a blend of them. This is why an organisation’s unique cultural combination will attract a certain type of person. And why employees will emphasise and entrench a specific company culture. An organisation’s culture can be assessed using the Organisational Culture Assessment Instrument (OCAI). It was developed by Robert Quinn and Kim Cameron from the University of Michigan.
4 Types of Organisational Culture
-
- Clan Culture: Operates as a horizontal structure with an emphasis on collaboration across teams. It is friendly and people-orientated, accordingly also known as a Collaborate Culture.
- Adhocracy Culture: Encourages risk-taking and individuals to share ideas. It tends to be dynamic and entrepreneurial; it’s also known as a Create Culture.
- Market Culture: Focuses on financial success and individual’s contribution to revenue. As a result, it is competitive and results-orientated, consequently also known as a Compete Culture.
- Hierarchy Culture: Has a clear managerial progression and encourages career paths. It is thus a process-orientated approach with a defined structure, it is also known as a Control Culture.
Culture types drive a company’s values and therefore the practical realisation of priorities. Priorities are impacted by two focuses, each with a competing dimension (Internal vs External and Stability vs Flexibility). This is also known as a company’s Effectiveness Criteria. These four types of culture have their roots in Cameron and Quinn’s Competing Values Framework. the organisation’s effectiveness criteria.
Effectiveness Criteria of an Organisation
Effectiveness criteria can be understood by looking at a company’s internal vs external and stability vs flexibility focuses. These two focuses determine a company’s operational approach and therefore its efficiencies, quality, continuity, reliability, risk inclinations and uniqueness.
Internal vs External Focus
For a company to succeed in the long run it needs to balance external and internal focuses. An internal focus fosters development, collaboration, coordination, and integration. Whereas an external focus looks at the marketplace. It can lead to an incorporation of technology and innovation to diversify activities. Thereby meeting customer demands and creating advantages over competitors.
However, companies tend to have a prevailing focus. This is because while both are needed, they are competing focuses and consequently only one at a time can be properly prioritised. The company’s inherent culture largely determines the dominant focus. For example, a strong clan culture will tend towards policies with an inward focus.
Stability vs Flexibility Focus
Organisations cannot have a focus on both stability and flexibility. This is because when an organisation is focused on stability, it prioritises a defined company structure. It gives attention to planning, for example, detailed budgets and values reliability. Underpinning this focus is the belief that a company’s context can be forecast, known, and controlled.
In contrast, organisations operating with a flexible focus, prioritise people and activities over processes, planning and establishing a defined structure. The underlying expectation with a flexible focus is that the company will be able to easily adapt to its context. A context which is assumed to be constantly evolving and largely unpredictable.
Competing Values Framework
The competing values framework has four different values. Each of the four types of culture is a combination of two of the values.
4 Values of the Competing Values Framework
- Internal focus and integration.
- External focus and differentiation.
- Flexibility and discretion.
- Stability and control.
Clan culture has an internal focus and tends towards integration. It is also flexible and discretion is emphasised. Hierarchy culture is also internally focused, tending towards integration. However, it’s stability and control inclined. Both market and adhocracy cultures are externally focused with a differentiation stance. Where they differ is that adhocracy culture is flexible and discretionary motivated. Whereas market culture is stability and predisposed to control.
Why Know Your Company’s Organisational Culture?
Culture is an underlying driver and definer within a company. It sets expectations on how people are expected to behave. Cultural type defines what they are required to do and why they need to do it. Knowing which type of company culture an organisation has allows employees (and managers) to understand the internal forces driving their company. Thereby, enabling them to better align their behaviour and approaches with the organisation’s expectations, values and focuses. Usually, the result of this is that a company will tend to be more successful.