types-of-organizational-culture

Types of Organizational Culture

Organizational culture is a strong determinant of whether a company is successful. Culture affects the ways in which employees are recruited, trained, and engaged.

It also determines the types of employees the company will attract, the nature of their relationships with colleagues and superiors, and whether they will commit themselves to company values over the long term. 

Four types of organizational culture were identified from extensive research in the 1980s by business professors Kim Cameron and Robert. E Quinn.

The pair noted that no culture should be labeled as either “good” or “bad” and found that 90% of organizations exhibit one or more of the four different types.

With that in mind, let’s describe these types below.

AspectExplanation
DefinitionOrganizational Culture refers to the shared values, beliefs, behaviors, and norms that characterize an organization. It is the social fabric that guides how individuals interact within the organization and influences decision-making, employee engagement, and overall organizational identity. A strong and positive culture can lead to improved employee morale, productivity, and alignment with organizational goals.
Key ConceptsShared Values: Culture is defined by the common values held by members of the organization. – Beliefs and Assumptions: It includes core beliefs and assumptions that shape how things are done. – Norms and Behaviors: Culture dictates the accepted norms and expected behaviors within the organization. – Socialization: New employees are socialized into the culture through onboarding and interactions. – Impact on Performance: Culture impacts performance, innovation, and decision-making. – Changeability: Culture can be changed over time but often requires significant effort.
CharacteristicsDistinct Identity: A unique culture gives an organization a distinct identity. – Alignment: A strong culture aligns employee behaviors with organizational goals. – Employee Engagement: Positive cultures often result in higher employee engagement and job satisfaction. – Stability: Cultures can be stable over time, persisting through changes in leadership or personnel.
AdvantagesEmployee Retention: Positive cultures often lead to higher employee retention rates. – Increased Productivity: Employees in a healthy culture tend to be more productive and motivated. – Enhanced Innovation: Culture can foster an environment of innovation and creativity. – Stronger Teams: Teams in organizations with a shared culture often work more cohesively. – Attracting Talent: A positive culture can help in attracting top talent. – Effective Decision-Making: A well-defined culture can lead to more effective decision-making.
ChallengesResistance to Change: Changing an established culture can be challenging and meet resistance. – Cultural Misalignment: Misalignment between individual and organizational values can lead to disengagement. – Inertia: Cultural inertia can hinder innovation and adaptability. – Cultural Conflicts: Differences in subcultures can lead to conflicts within the organization.
ApplicationsCultural Transformation: Organizations may initiate cultural transformation efforts to align culture with strategic goals. – Employee Onboarding: Culture is often integrated into employee onboarding programs. – Leadership Development: Leadership development often includes training on fostering and managing culture. – Mergers and Acquisitions: Culture plays a crucial role in mergers and acquisitions as two organizations come together.
Use CasesNetflix: Netflix has a unique culture that encourages employee autonomy and innovation. – Zappos: Zappos is known for its strong company culture centered around customer service. – Google: Google’s culture emphasizes creativity, collaboration, and a flexible work environment. – Southwest Airlines: Southwest’s culture is focused on employee satisfaction and delivering quality service.
ImplicationsEmployee Behavior: Culture shapes employee behavior and influences how they interact within the organization. – Decision-Making: Culture can impact decision-making processes and priorities. – Innovation: A culture that encourages risk-taking and innovation can lead to creative solutions. – Organizational Identity: Culture defines an organization’s identity and reputation. – Competitive Advantage: A unique culture can serve as a competitive advantage in attracting and retaining talent.

Clan culture

Clan culture is an organizational structure that can best be described as “one big happy family”.

These companies nurture and mentor their employees in a supportive, team-based environment where the opinions of each individual are valued. 

Communication is prioritized in the clan culture and for this reason, is often paired with a horizontal structure to remove barriers between employees and the C-Suite.

This culture is also action-oriented, welcoming of change, and supremely flexible in nature.

Benefits

Unsurprisingly, clan cultures are associated with higher levels of employee engagement, motivation, fulfillment, and performance. Their flexibility also allows for market responsiveness.

Drawbacks

The “family-style” corporate culture can become difficult to maintain in large organizations.

This is exacerbated by the horizontal leadership structure which can cause daily operations to become unfocused and lacking in direction.

Market culture

Organizations with a market culture are primarily concerned with profit margin and staying ahead of the competition.

The culture is best exemplified by companies like Amazon and Tesla that are results-oriented and externally (customer) focused.

Central to the market culture is an ability to consistently develop innovative products and services before competitors.

Internal competition between employees is encouraged with individuals rewarded and celebrated for their accomplishments.

Benefits

Employees who demonstrate high performance are rewarded handsomely with financial bonuses or career advancement. This has obvious benefits for organizational success.

Drawbacks

However, the market culture can create an environment where employees become burned out, stressed, and adversarial. Many toxic workplace cultures arise from this variant.

Adhocracy culture

The adhocracy culture is based on the term ad hoc, a Latin phrase meaning “for this”. 

This culture can often be seen in start-ups that embody the “move fast and break things” philosophy. In other words, culture is invented and shaped as the company evolves.

The adhocracy culture creates an entrepreneurial work environment where employees are encouraged to be risk takers and pursue creative ideas.

Benefits

Adhocracies promote innovation, creativity, risk-taking, autonomy, and organizational growth. Employees who are encouraged to explore new avenues also feel safer and more contented within their roles.

Drawbacks

The flipside of increased employee autonomy is that the organization may lose stability and experience a low ROI on many initiatives. Employees who have never been encouraged to work with total freedom may also find this culture intimidating.

Hierarchy culture

The hierarchy culture is one most individuals have worked under at one point or another.

It is characterized by top-down control, structure, and process orientation where the objective is to streamline operations and ensure every employee is on the same page.

This means that employees under a hierarchical structure know where they fit in the chain of command.

This encompasses who they’re accountable for, who they report to, and any rules that govern these interactions.

Benefits

The hierarchy culture promotes clear and consistent communication. It also tends to be consistent and predictable which affords employees greater peace of mind.

Drawbacks

On the flip side, some employees feel suffocated by the structured and reliable nature of a hierarchy. This can result in low motivation and hinder innovative ideas that could potentially help the company grow.

Case Studies

Clan Culture:

  • Google: Google is well-known for its clan culture, emphasizing a supportive and collaborative environment. It encourages employees to work together in teams and values open communication. Google offers a range of employee perks, from flexible work hours to recreational facilities, to foster a sense of community.
  • Zappos: Zappos, an online retailer, has a strong clan culture that creates a family-like atmosphere. Employees are encouraged to express themselves and their unique personalities. The company has unique onboarding practices, including a cultural immersion program, to instill its values in new hires.
  • Southwest Airlines: Southwest Airlines promotes a clan culture with a focus on employee engagement. The company values teamwork and fun in the workplace, which is evident in its unique company culture events, like the annual Chili Cook-Off.

Market Culture:

  • Amazon: Amazon embodies a market culture, prioritizing results and customer-centricity. It’s intensely focused on achieving competitive advantages through innovations like Prime, Alexa, and its logistics network.
  • Apple: Apple is another example of a market culture. The company’s product launches and marketing strategies emphasize its competitive edge and commitment to delivering innovative and cutting-edge technology products.
  • Microsoft: Microsoft’s market culture revolves around its competitive nature in the software and technology industry. It has a strong emphasis on product development, especially its Windows and Office suites, to maintain a competitive edge.

Adhocracy Culture:

  • Facebook: Facebook thrives on an adhocracy culture that encourages employees to take risks and explore new ideas. The “move fast and break things” mentality encourages rapid innovation and experimentation.
  • Netflix: Netflix is known for its adhocracy culture, particularly in its approach to content creation. The company empowers employees to make decisions and take creative risks in developing and producing original content.
  • SpaceX: SpaceX, Elon Musk’s aerospace company, embraces an adhocracy culture in the space exploration industry. It encourages its employees to push the boundaries of space technology and take on ambitious projects like the development of the Starship rocket.

Hierarchy Culture:

  • IBM: IBM has a strong hierarchy culture, characterized by clear processes, roles, and a well-defined chain of command. The company emphasizes order, predictability, and adherence to standardized procedures.
  • Walmart: Walmart is an example of a hierarchy culture in the retail sector. The company’s focus on operational efficiency, inventory management, and supply chain optimization relies on a structured and hierarchical approach.
  • General Electric (GE): GE has historically maintained a hierarchy culture. The company’s divisions and business units operate within a structured framework, emphasizing process control and performance metrics.

Key takeaways:

  • Four types of organizational culture were identified from extensive research in the 1980s by business professors Kim Cameron and Robert. E Quinn. These four types were embodied by 90% of all organizations in one form or another.
  • In a clan culture, the company nurtures and mentors its employees in a supportive, team-based environment where all opinions are valued. The opposite of a clan culture is the hierarchy structure, which is characterized by top-down control, predictability, rigidity, and structure.
  • Companies such as Amazon and Tesla embody the market culture with a core focus on results and customers. The adhocracy culture, on the other hand, creates an entrepreneurial work environment where employees are risk takers and free to pursue creative ideas.

Key Types of Organizational Culture:

Clan Culture:

  • Description: A supportive, team-based environment that values open communication, mentorship, and employee opinions.
  • Characteristics: Horizontal structure, flexibility, action-oriented, emphasis on collaboration.
  • Benefits: High employee engagement, motivation, fulfillment, and performance; market responsiveness.
  • Drawbacks: Difficult to maintain in large organizations, potential lack of focus and direction.

Market Culture:

  • Description: Profit-oriented culture focused on competition, results, and innovation.
  • Characteristics: External (customer) focus, internal competition, reward for high performance.
  • Benefits: High rewards for performance, innovation, competitive advantage.
  • Drawbacks: Employee burnout, stress, adversarial atmosphere, potential toxic culture.

Adhocracy Culture:

  • Description: Entrepreneurial culture that encourages risk-taking, innovation, and creativity.
  • Characteristics: Fast-paced, creative freedom, autonomy, fluidity.
  • Benefits: Innovation, creativity, risk-taking, autonomy, growth, employee satisfaction.
  • Drawbacks: Instability, low ROI on some initiatives, potential intimidation for employees unused to such freedom.

Hierarchy Culture:

  • Description: Structured, process-oriented culture with top-down control and clear chains of command.
  • Characteristics: Clear communication, predictability, structure.
  • Benefits: Clear communication, predictability, reliability, sense of order.
  • Drawbacks: Potential for stifling innovation, low motivation, resistance to change.
Type of Organizational CultureDescriptionKey Characteristics
1. Hierarchical CultureTraditional, top-down structure with a clear chain of command and strict rolesCentralized decision-making, formal procedures, limited employee empowerment.
2. Clan CultureFamily-like environment where employees are closely connected and collaborativeStrong sense of belonging, mentorship, teamwork, informal communication.
3. Adhocracy CultureDynamic and creative culture that encourages innovation, risk-taking, and agilityEmphasis on experimentation, flexibility, and adaptability, less formal structure.
4. Market CultureCompetitive and results-oriented culture focused on achieving business goalsDrive for achievement, customer-centric, emphasis on performance and results.
5. Bureaucratic CultureRigid and rule-driven culture with strict adherence to policies and proceduresEmphasis on stability, predictability, and consistency, resistance to change.
6. Collaborative CultureEmphasizes teamwork, cooperation, and consensus-building among employeesOpen communication, shared decision-making, collective responsibility.
7. Innovative CultureCulture that promotes creativity, experimentation, and the pursuit of new ideasEncouragement of out-of-the-box thinking, tolerance for failure, learning from mistakes.
8. Customer-Centric CultureFocus on understanding and meeting customer needs and delivering exceptional serviceCustomer empathy, responsiveness, customer feedback-driven improvement.
9. Results-Oriented CultureStrong emphasis on achieving measurable outcomes and meeting performance metricsClear goals, accountability, rewards for achieving results.
10. Learning CultureEncourages continuous learning, skill development, and knowledge sharing among employeesInvestment in training and development, openness to new information and perspectives.

Types of Organizational Structures

organizational-structure-types
Organizational Structures

Siloed Organizational Structures

Functional

functional-organizational-structure
In a functional organizational structure, groups and teams are organized based on function. Therefore, this organization follows a top-down structure, where most decision flows from top management to bottom. Thus, the bottom of the organization mostly follows the strategy detailed by the top of the organization.

Divisional

divisional-organizational-structure

Open Organizational Structures

Matrix

matrix-organizational-structure

Flat

flat-organizational-structure
In a flat organizational structure, there is little to no middle management between employees and executives. Therefore it reduces the space between employees and executives to enable an effective communication flow within the organization, thus being faster and leaner.

Connected Business Frameworks

Portfolio Management

project-portfolio-matrix
Project portfolio management (PPM) is a systematic approach to selecting and managing a collection of projects aligned with organizational objectives. That is a business process of managing multiple projects which can be identified, prioritized, and managed within the organization. PPM helps organizations optimize their investments by allocating resources efficiently across all initiatives.

Kotter’s 8-Step Change Model

kotters-8-step-change-model
Harvard Business School professor Dr. John Kotter has been a thought-leader on organizational change, and he developed Kotter’s 8-step change model, which helps business managers deal with organizational change. Kotter created the 8-step model to drive organizational transformation.

Nadler-Tushman Congruence Model

nadler-tushman-congruence-model
The Nadler-Tushman Congruence Model was created by David Nadler and Michael Tushman at Columbia University. The Nadler-Tushman Congruence Model is a diagnostic tool that identifies problem areas within a company. In the context of business, congruence occurs when the goals of different people or interest groups coincide.

McKinsey’s Seven Degrees of Freedom

mckinseys-seven-degrees
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.

Mintzberg’s 5Ps

5ps-of-strategy
Mintzberg’s 5Ps of Strategy is a strategy development model that examines five different perspectives (plan, ploy, pattern, position, perspective) to develop a successful business strategy. A sixth perspective has been developed over the years, called Practice, which was created to help businesses execute their strategies.

COSO Framework

coso-framework
The COSO framework is a means of designing, implementing, and evaluating control within an organization. The COSO framework’s five components are control environment, risk assessment, control activities, information and communication, and monitoring activities. As a fraud risk management tool, businesses can design, implement, and evaluate internal control procedures.

TOWS Matrix

tows-matrix
The TOWS Matrix is an acronym for Threats, Opportunities, Weaknesses, and Strengths. The matrix is a variation on the SWOT Analysis, and it seeks to address criticisms of the SWOT Analysis regarding its inability to show relationships between the various categories.

Lewin’s Change Management

lewins-change-management-model
Lewin’s change management model helps businesses manage the uncertainty and resistance associated with change. Kurt Lewin, one of the first academics to focus his research on group dynamics, developed a three-stage model. He proposed that the behavior of individuals happened as a function of group behavior.

Organizational Structure Case Studies

Airbnb Organizational Structure

airbnb-organizational-structure
Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

ebay-organizational-structure
eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

IBM Organizational Structure

ibm-organizational-structure
IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

Sony Organizational Structure

sony-organizational-structure
Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Facebook Organizational Structure

facebook-organizational-structure
Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

google-organizational-structure
Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

Tesla Organizational Structure

tesla-organizational-structure
Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

McDonald’s Organizational Structure

mcdonald-organizational-structure
McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

Walmart Organizational Structure

walmart-organizational-structure
Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

Microsoft Organizational Structure

microsoft-organizational-structure
Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

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