Organizational Culture

The concept of culture is introduced in your textbook on p. 65, and then developed in more detail in Chapter 4. Culture can be viewed from the perspective of a society or from the perspective of a single organization in society. Understanding organizational culture is important to managers because culture influences the behaviour of employees (p. 114). Managers who understand the organization's culture gain insights into why people behave the way they do, and they can use that knowledge to be more effective in leading and motivating employees. In the material below, additional information about corporate culture is presented to help you gain a more complete understanding of this important concept.

Consider these examples of corporate culture:

  • There are two key components of the culture at WestJet: (1) employees have a big stake in the company's success because of profit-sharing, and (2) employees contribute ideas about how to best run the airline. For example, a group has formed that calls itself the WestJesters. They do things like developing the cornball jokes that WestJet flight attendants tell.
  • Paul Godfrey, the CEO of the Toronto Blue Jays Baseball Club, says the culture of the club is to make employees feel like they are part of a family. To facilitate the culture, every two weeks Godfrey invites small groups of employees to have "snacks with the president" so they can talk about how the organization is operating. Godfrey encourages questions from employees on virtually any topic. He also asks questions of employees as he tries to determine how to make the organization a better place to work.
  • Rick George, the CEO of Suncor, says the company's culture is open and non-bureaucratic, and that it has a clear strategy that employees can relate to. As the company hires many new people, it must take steps to ensure that the new employees understand the "soul" of Suncor, because they have different experiences and different expectations.
  • The culture of Magna International, the large Canadian producer of auto parts, has been profoundly influenced by its founder Frank Stronach. His views about the free enterprise system, profit distribution, working conditions, daycare centres, and unions are well-known by employees.
  • At Four Seasons Hotels and Resorts, the culture means that managers are judged by deeds, not words, and are expected to act as role models for employees, who take their cues from their managers.
  • At Toyota's Cambridge, Ontario plant, the corporate culture stresses values, principles, trust, and continuous improvement.

Large companies with many different divisions and many different types of customers (for example, the Royal Bank of Canada) are likely to have several different subcultures because the various divisions pursue different goals and because different types of people are found in the different divisions. Even in smaller firms, there may be noticeable differences in the culture of, say, the marketing and finance departments. Companies that focus largely on one type of product (for example, Starbucks) may have a fairly homogeneous culture throughout the organization.

Culture Surveys

In 2005, Waterstone Human Capital conducted in-depth interviews with senior managers at 107 Canadian companies and asked them which corporate cultures they admired most. The top three companies named were WestJet, Tim Hortons, and the Royal Bank of Canada. The managers also offered the following interesting views:

  • 82 percent said corporate culture impacts corporate financial performance
  • 82 percent said corporate culture helped with recruiting
  • 72 percent said their culture was not what they wanted it to be in the future
  • 55 percent said the culture of their organization was "weak," while 36 percent said it was "strong"
  • 62 percent said they don't monitor their organization's culture through surveys

In 2006, Waterstone conducted another culture study and found very similar results (in this survey, the top three firms were WestJet, Royal Bank of Canada, and Canadian Tire). The survey also provided some evidence about the positive effect of culture on financial performance: annual revenue growth in the most highly rated firms was 38.9 percent, which was about three times larger than companies in the S&P/TSX 60 index during the same period.

The consulting firm DDI Canada conducted a study to determine the reasons managers fail in their jobs. The three most commonly cited reasons were (1) poor people skills, (2) personal qualities, and (3) a poor fit with the company culture. The authors of the study noted that in firms with cultures that stress getting ahead, some managers may feel pressure to take promotions even if the new job does not really fit them.

Individual companies also conduct culture surveys (but they are in the minority, as the above results show). Starbucks Coffee is one company that systematically assesses its corporate culture. Once every 18 months, employees fill out a Partner View Survey which contains questions that are designed to help the company determine if it is making progress toward one of its key values—providing a work environment where people treat one another with respect and dignity. The survey is voluntary, but about 90 percent of employees fill it out (they do so on company time). One reason the participation rate is so high is that the company actually pays attention to what employees say in the survey. For example, when one survey showed that employees were not clear about career progression in the company, Starbucks held career fairs in several Canadian cities where company managers spoke with employees about management opportunities at Starbucks.

Cultural Change

Companies sometimes decide that they need to change their culture. A realization of the need for change usually comes after top management sees that changes in the company's external environment are going to require some sort of response from the company. But just because someone or some group recognizes the need for change does not mean that the change will actually be implemented because changing an organization's culture can be very difficult. Consider what happened at Nortel Networks, which hired a new CEO and a new chief technology officer in an attempt to energize the company's employees and to resolve some of Nortel's other problems. Both of these new individuals had worked at Cisco Systems, and it was thought that they would be very helpful in turning Nortel around. But both executives quit after just three months on the job, citing "divergent management styles and different views of the future of Nortel's business" as the reason. But a more fundamental reason may have been the "culture clash" which occurred. Cisco has a very hard-driving sales culture and is more ruthless in its sales approach than Nortel is. Also, the culture at Cisco emphasized getting new products out in the marketplace, and then dealing with problems as they arose. By contrast, Nortel's culture was much more relaxed and deliberate, and it tried to solve most problems before new products were put on the market. Nortel may have needed what these executives could provide, but apparently the company wasn't ready to accept their approach.

Nortel is not the only company that has experienced difficulties with culture clashes. In April 2007, several RCMP officers alleged that senior management was covering up mismanagement of the RCMP's pension and insurance plans. As a result of these charges, attorney David Brown was appointed by the government to look into the matter. His report concluded that commissioner Giuliano Zaccardelli had exercised absolute power, that there was no one who could question his management style, and that there was a "tone" at the top of the organization that resulted in little respect for employees and put pressure on them not to challenge authority. The report concluded that the culture and management structure at the RCMP was "horribly broken." Brown also said that whistleblowers within the RCMP were punished when they pointed out that there were problems. These developments are discouraging since a few years earlier the RCMP had completed a "visioning" process that resulted in a new mission statement, a new set of core values, and a commitment to the communities where it worked. At that time, it was reported that the culture of the RCMP was quite different than it was in the days when military tradition dominated the organization, but subsequent events suggested that the culture had not actually changed.

A similar story can be told about the Canadian Imperial Bank of Commerce. In the 1990's, CIBC had an aggressive, deal-making culture that caused it to go head-to-head with large Wall Street companies in the U.S. But after several major failures, CIBC's culture had supposedly become much more conservative. For example, it was alone among Canadian banks in not having a foreign growth strategy. Former president John Hunkin said he was pleased that people thought the CIBC was the most conservative bank in Canada. But as the commercial paper crisis unfolded in 2007, it became clear that CIBC was going to incur billions of dollars of losses because of its exposure to subprime mortgages in the U.S. This somehow happened in spite of its supposed shift to having a low-risk culture.

Questions for Discussion

  1. What is corporate culture? How important is this concept to practising managers?
  2. What is the difference between "strong" and "weak" cultures? Why do you think the majority of the executives in the Waterstone Human Capital survey said their company's culture was "weak"?
  3. Why is changing an organization's culture so difficult? What strategies can managers use to create or change an organization's culture?
  4. Consider the following statement: "The notion of corporate culture isn't really very useful in large companies because they are involved in so many diverse activities that they are really just a collection of subcultures." Do you agree or disagree with the statement? Defend your answer.

Sources: Carrie Tait, "CIBC Shuffles the Deck," National Post, January 8, 2008,; Meagan Fitzpatrick, "RCMP 'Horribly Broken,' Need Fix Quickly: Report," Winnipeg Free Press, June 16, 2007, p. A9; Roma Luciw, "No. 1 Employee Not Always Your No. 1 Manager," The Globe and Mail, February 17, 2007, p. B10; Calvin Leung, "Culture Club," Canadian Business, October 9-22, 2006, pp. 115-120; Andrew Wahl, "Culture Shock," Canadian Business, October 10-23, 2005, pp. 115-116; Gordon Pitts, "It Boiled Down To A Culture Clash," The Globe and Mail, June 11, 2005, p. B5; Sinclair Stewart and Andrew Willis, "Hunkin Is De-Risking the Place," The Globe and Mail, December 11, 2004, p. B4; Doug Nairne, "Mounties Riding the Vision Thing," Winnipeg Free Press, September 16, 1996, p. A5.

Answers to Questions for Discussion

  1. What is corporate culture? How important is this concept to practising managers?

    On pp. 113-114 of the textbook, culture is defined as a ". . . learned set of assumptions, values, and behaviours that have been accepted as successful enough to be passed on to newcomers." An organization's culture is influenced by challenges that are faced (for example, when a firm is first started), and by the personalities of leaders of the organization. The concept can be applied to groups of almost any size, ranging from small social clubs to entire countries.

    The concept of culture seems to be important to practising managers, given their responses to surveys like the Waterstone Human Capital survey. This is particularly evident in their view that culture has a strong influence on a company's financial performance and on its recruiting efforts. What is interesting is the dissatisfaction these managers have expressed with regard to their company's current culture, and their concern that their company's culture is "weak." Whether this dissatisfaction represents some objective reality or whether it simply reflects the desire of most managers to do things better than they are currently doing them is unknown.

    Some managers (not those surveyed here) may think that culture is not important. But managers who hold that view would almost surely not see the important implications of the attitudes and behaviours of subordinates. They would not be likely to pay attention to things like how deeply values are held or how widely those values are shared. But failure to pay attention to ideas like those will lead to problems. Managers who are insensitive to these issues will almost surely have "people problems" that will reduce their effectiveness. As well, they will not be able to motivate employees to work together toward desired goals. (The material on pp. 114-117 of the textbook provides additional reasons why managers should pay attention to culture.)

  2. What is the difference between "strong" and "weak" cultures? Why do you think the majority of the executives in the Waterstone Human Capital survey said their company's culture was "weak"?

    The difference between "strong" and "weak" cultures is described on pp. 127-128 of the textbook. The 2 x 2 matrix on p. 128 uses two variables to help clarify the difference between strong and weak cultures: the extent to which values are shared, and the extent to which values are held. A company has a very strong culture if values are widely shared and deeply held. A company has a weak culture if values are narrowly shared and shallowly held. Companies occupying the "off-diagonal" quadrants have cultures that are somewhere between weak and strong.

    We cannot know for sure why a majority of the executives in the Waterstone survey said their company's culture was "weak." There are probably several reasons, but one plausible one is that executives see quite a bit of variation in the attitudes and behaviours of subordinates, and this may lead them to conclude that all employees are not on the same wavelength, that is, the employees don't have a clear idea of what the company's culture really is. While there is a lot of normal variation in employee attitudes and behaviours, in a strong culture this variation would be reduced and employee behaviour more highly focused on what the culture says is important. Another possible explanation, as noted in the answer to Question #1, is that managers are always striving to be more effective in what they do, and they therefore perceive shortfalls in goal achievement in various areas of their work. A weak culture may be just one area where they perceive shortfalls. Although the data were not provided in the summary of the Waterstone survey, it would be interesting to do a detailed comparison of the responses of executives who said their company had a strong culture with the responses of executives who said their company had a weak culture.

  3. Why is changing an organization's culture so difficult? What strategies can managers use to create or change an organization's culture?

    Changing culture is difficult because trying to change anything can easily cause people to resist. Changing culture is just one specific example of trying to introduce change. Changing culture is particularly difficult because it deals with values that people hold. For example, a person whose deeply held values include a commitment to materialism, individualism, competitiveness, efficiency, and profitability is not going to be very receptive to a proposed cultural change that will reduce the emphasis on these values. Even if a change in values is not the issue, people may simply be unable or unwilling to admit that their organization needs to change its culture.

    Managers have a variety of strategies they can use to create or change an organization's culture. These are discussed on pp. 131-134 of the textbook and include the following: selection (select individuals whose assumptions, values, and behaviours already match those the organization desires); socialization (orientation and training of new hires); performance appraisal (evaluating employees on dimensions that are important to the organization); rewards and compensation (base rewards and compensation on the things that are important to the organization); and stories and symbols (these describe behaviours that are consistent with the organization's culture and explain symbols that reflect the culture).

  4. Consider the following statement: "The notion of corporate culture isn't really very useful in large companies because they are involved in so many diverse activities that they are really just a collection of subcultures." Do you agree or disagree with the statement? Defend your answer.

    It is true that large companies are involved in diverse activities and this diversity may very well lead to the development of various subcultures which may emphasize quite different values. But that does not mean that the concept of corporate culture is not useful in large organizations. The basic point here is that each of the subcultures should have a clear understanding of what their culture is. Without a strong culture, each of the subcultures will have identity problems that will reduce their effectiveness. The issue of whether certain subcultures adopt values that are far out of line with the overall corporate values is clearly an issue that needs to be addressed, but that does not reduce the importance of the idea of culture and the benefits it can bring to an organization.

    Some students may conclude that the implication of the italicized statement above is that the corporate culture idea is useful only in small organizations. It is important to point out that while it may be more likely that a single culture will be evident in smaller companies, that fact does not mean that the idea of culture is not useful in larger companies. It simply means that somewhat different (and perhaps more complicated) assessments of culture will be necessary. For example, in a small firm with 20 employees, there may be a very strong and easily recognizable culture because the founder still works in the firm and is able to influence all employees. By contrast, in a large firm with 10,000 employees and 5 major divisions, several subcultures may exist. Each of these divisions can be strong in its own right, but care must be taken to ensure that the values in the various divisions are at least generally consistent with the overall values that top management thinks are important for the company as a whole. Thus, it may be more difficult to grapple with cultural variations in a large firm, but that doesn't make the idea of culture any less important or useful.