2.5 Organisational (corporate) culture

Learning objectives

• Define organisational culture and distinguish between strong and weak cultures.

• Describe how culture is shown through artefacts, values and basic assumptions.

• Explain Handy’s four types of organisational culture: power, role, task and person cultures.

• Analyse how individuals influence culture and how culture influences individuals.

• Explain why culture clashes happen when organisations grow, merge or change their leadership style.

• Evaluate methods of reducing culture clashes when organisations change.

Introduction

Every organisation has its own way of doing things: how people dress and speak, how decisions are made, whether mistakes are punished or discussed openly, and what counts as success. Organisational culture is this shared set of values, beliefs and habits. It shapes how employees behave when no rule tells them what to do, so it affects motivation, productivity, the quality of decisions and how the organisation responds to change.

Culture connects all four key concepts. It affects how easily an organisation can accept change, and whether new ideas and creativity are welcomed or resisted. An organisation’s culture also sets its everyday ethics: what employees believe is acceptable behaviour towards customers, colleagues and the environment. A healthy culture also supports sustainability, because it helps an organisation keep good employees and adapt over the long term.

What organisational culture is

Organisational culture is often summed up as “the way we do things around here”, a phrase made popular by Terrence Deal and Allan Kennedy in Corporate Cultures (1982). It is made up of the values that people in the organisation share (what they believe is important), the norms they follow (unwritten rules about how to behave) and the behaviours that result. New employees learn it by watching colleagues, listening to stories and seeing which actions are rewarded.

Culture differs from organisational structure. The structure is the formal arrangement of jobs, authority and reporting lines, drawn on an organisation chart. Culture is informal and mostly unwritten: two businesses with identical organisation charts can feel completely different to work in. The two are linked, though, because a tall, rule-bound structure tends to create a formal culture, while a flat structure tends to go with an informal one.

Culture matters for several reasons.

• It guides behaviour. No set of rules covers every situation. Culture guides employees in situations that no rule covers, for example whether to bend a policy to help a customer.

• It affects motivation. Employees who share the organisation’s values tend to be more committed and to stay longer, which lowers labour turnover.

• It affects recruitment. Organisations attract and select people who fit their culture, and people who do not fit often leave.

• It affects performance and image. A culture of quality, safety or customer service can be a source of competitive advantage; a culture that tolerates cutting corners can lead to scandals that damage the brand.

• It affects change. A culture that values learning adapts quickly; a culture that values tradition may resist change.

Organisational culture is also shaped by the national culture around it. Employees bring the values of their own society to work, such as attitudes to hierarchy, risk and individual achievement. Hofstede’s cultural dimensions compare these national differences, for example the extent to which people accept large differences in power between managers and staff. A multinational company therefore often has a shared corporate culture with local differences in each country.

How culture is shown

Culture cannot be seen directly, but it shows itself in many visible signs. Managers, new employees and outsiders read a culture from these signs, and leaders who want to change a culture usually change some of them.

Netflix publishes a long statement of its culture for employees and job applicants. One of its best-known features is the “keeper test”: managers are asked whether, if a team member wanted to leave, they would fight to keep them. The statement shows a culture that values high performance and candid feedback, and it is used in recruitment to attract people who share those values.

Three levels of culture

Edgar Schein, an American organisational psychologist, described culture as three levels, from the most visible to the most hidden. The model explains why culture is hard to change: the visible signs can change quickly, but the beliefs underneath them change slowly.

The iceberg shows the three levels. Artefacts are the visible signs from the table: dress, layout, logos, rituals and language. Espoused values are what the organisation says it stands for, in its mission statement, values and codes of conduct. Basic underlying assumptions are the beliefs people hold without thinking about them, for example that the customer is always right, that long hours prove commitment, or that bad news should not be passed upwards.

Problems arise when the levels do not match. If a bank states that it values customers (espoused value) but pays staff bonuses only for selling products (an artefact of the control system), the basic assumption employees learn is that sales come first. Real culture change means changing the deepest level, which takes years and requires leaders to act consistently with the new values.

Strong and weak cultures

Cultures differ in strength: how widely the values are shared and how deeply people hold them. In a strong culture, almost everyone knows and accepts the core values, and behaviour is consistent across the organisation. In a weak culture, values are unclear or not widely shared, so behaviour varies between departments and individuals, and employees rely more on rules and instructions.

Strong cultures are often built by founders and reinforced through careful recruitment, induction and rewards. They help employees act quickly and consistently without supervision, and they can be a source of identity and pride. A strong culture is not necessarily a good one. When employees widely share the belief that results matter more than how they are achieved, the culture is strong but can lead to unethical behaviour.

Large organisations usually contain subcultures: the culture of the sales department may differ from that of research, and the culture of a branch in one country may differ from head office. A strong organisation-wide culture leaves room for these differences without letting them undermine the core values.

Handy’s gods of management

Charles Handy, an Irish management writer, classified organisational cultures into four types in Understanding Organizations (1976) and Gods of Management (1978). He named each type after a god of ancient Greece whose character matched it. Handy’s gods of management remain a widely used way of describing types of culture.

Handy drew each culture as a symbol. The figure shows them together; the four types differ in where power lies, how decisions are made and what is valued.

Power culture (Zeus)

In a power culture, power is concentrated in one person or a small group at the centre, like a spider at the centre of a web. The central figure makes the key decisions, often quickly and intuitively, and influence depends on closeness to that person rather than on job titles or rules. Handy chose Zeus, the king of the gods, who ruled by personal power and could be generous or angry.

Power cultures are typical of small and medium-sized businesses run by their founders, family businesses and some large companies led by dominant founders or chief executives. They suit fast-moving markets because decisions are quick, and they can be exciting places to work for people who share the leader’s vision.

• Strengths: fast decisions; clear direction from the top; flexibility, because few rules slow things down; strong loyalty to the leader.

• Weaknesses: heavy dependence on the leader, whose mistakes or departure can harm the whole organisation; employees far from the centre feel powerless; competition for the leader’s favour can create politics and fear; does not scale well as the organisation grows.

Role culture (Apollo)

In a role culture, power comes from a person’s position (role) in the hierarchy, and work is governed by rules, procedures and job descriptions. Handy drew it as a Greek temple: the specialist departments (finance, production, marketing) are the pillars, and senior management is the roof that coordinates them. Apollo was the god of order and rules.

Role cultures are common in large, established organisations working in stable conditions: government departments, banks, insurance companies, utilities and large manufacturers. They are linked to bureaucracy and tall structures. Employees know exactly what their jobs involve, and the organisation does not depend on any single individual.

• Strengths: consistency, fairness and predictability; clear responsibilities; efficiency in routine work; security for employees; suits regulated industries where procedures must be followed.

• Weaknesses: slow to respond to change, because new situations do not fit the rules; little scope for creativity or initiative; communication can be slow through many levels; can frustrate ambitious or creative employees.

Task culture (Athena)

In a task culture, the focus is on getting a particular job or project done. Teams are formed around tasks, bringing together people with the expertise needed, and dissolved when the task is complete. Power comes from expertise rather than position. Handy drew it as a net: the strands are lines of communication and the knots are where teams and people meet. Athena was the goddess of wisdom and problem-solving.

Task cultures are found in consultancies, advertising and design agencies, film production, research and development teams, and technology firms. They are closely linked to the matrix structure and project-based organisation, in which employees work in teams that cut across departments.

• Strengths: flexibility and adaptability; encourages creativity and problem-solving; high motivation from interesting work and teamwork; uses the best expertise for each task.

• Weaknesses: expensive, because it needs highly skilled people and time for discussion; hard to control and coordinate many teams; conflict over resources between teams; may not suit routine work or very large organisations.

Person culture (Dionysus)

In a person culture, the individual comes first. The organisation exists to serve the people in it, who are usually highly skilled professionals with their own clients and goals. They share facilities, support staff or a name, but each works largely independently. Handy drew it as a loose cluster of individuals. Dionysus was the god of wine and freedom, who answered to no one.

Person cultures are typical of professional partnerships such as law firms, accountancy partnerships, architects’ practices, groups of doctors sharing a surgery and, in the United Kingdom, barristers’ chambers, where self-employed barristers share premises and clerks. Universities show elements of a person culture among academic staff, who choose much of their own research.

• Strengths: high motivation and freedom for skilled individuals; attracts top professionals; low management costs.

• Weaknesses: hard to manage or to pursue shared objectives, because individuals put their own interests first; little loyalty to the organisation; difficult to coordinate or to make collective decisions.

YouTube

Comparing Handy’s four cultures

Evaluation of Handy’s model

Handy’s model is simple and memorable, and it links culture to structure and to the type of work. It helps managers recognise why a culture that suited a business at one stage may not suit it at another. Handy himself saw the four cultures as types that can be mixed, and argued that a healthy organisation often needs different cultures in different parts.

The model also has limits. Most real organisations combine elements of several cultures: a hospital may have a role culture in administration, a task culture in surgical teams and a person culture among senior consultants. The four types simplify a complex reality, and placing an organisation in one box can hide its subcultures. The model was developed in the 1970s, before the growth of remote work, platform businesses and very flat technology firms, which do not always fit neatly. Its value depends on using it as a starting point for analysis, not as a final label.

How individuals and culture influence each other

Culture is created by people, and it then shapes the people who join. Understanding this two-way relationship explains both how cultures form and why they are hard to change.

The influence of individuals on culture

• Founders. The values and personality of the founder usually shape the early culture: what is rewarded, how risks are taken, how people are treated. Many power cultures therefore reflect the founder’s personality closely.

• Leaders. Senior leaders influence culture through what they pay attention to, how they react to crises and mistakes, whom they promote and how they behave themselves. Employees tend to judge the culture by how leaders behave rather than by what they say.

• Recruitment. Each person hired brings their own values. Hiring people who share the culture strengthens it; hiring people with different backgrounds can gradually change it.

• Informal leaders and groups. Respected employees without formal authority, and groups such as long-serving staff or a strong department, can support or resist the official culture.

The influence of culture on individuals

• Socialisation. New employees learn the culture through induction training, by watching colleagues and by noticing what is praised and what is criticised.

• Conformity. Peer pressure encourages people to follow the norms of the group, even when these differ from their own values, which is why good people can behave badly in a harmful culture.

• Motivation and wellbeing. Employees whose values fit the culture tend to be more motivated and satisfied; those who do not fit may feel stressed or excluded, and often leave.

• Attraction and selection. People are attracted to organisations whose culture suits them, organisations select people who seem to fit, and those who do not fit tend to leave. The psychologist Benjamin Schneider called this the attraction–selection–attrition cycle; over time it makes a culture more uniform.

The cycle has a downside. An organisation that hires only people who fit risks losing diversity of thinking and becoming blind to its own problems. Many businesses therefore now aim to hire people who add something to the culture, rather than people who simply match it.

Culture clashes when organisations change

A culture clash happens when two or more groups with different cultures have to work together, or when an organisation’s existing culture conflicts with a new way of working. Clashes are most likely during major change, because change brings different values and norms into contact and threatens people’s established ways of working.

The flow diagram shows that the causes of culture clashes differ, but they all bring different values, norms and ways of working into contact. The consequences start with people (conflict, low morale, departures) and then appear in the organisation’s results.

Mergers and acquisitions

When two businesses join through a merger or an acquisition, their cultures rarely match. One may be formal and hierarchical, the other informal; one may reward individuals, the other teams; they may have different attitudes to risk, customers and time. Each side tends to see its own way as normal and the other’s as wrong, and employees of the acquired business often fear that their culture, and their jobs, will be swept away.

The merger of Daimler-Benz and Chrysler in 1998, valued at about US$38 billion, was presented as a “merger of equals”, although some investors later argued in court that it had in effect been a takeover of the American company by the German one. The two businesses, with different national cultures and management styles, were never fully integrated. As late as 2002 they still appeared to run two separate product lines, so few of the expected savings were achieved, and in 2007 Daimler sold an 80.1% stake in Chrysler to the investment firm Cerberus Capital Management.

Growth

Rapid internal growth can cause a clash between the culture that made a business successful and the culture it now needs. A start-up with a power culture or a task culture, where everyone knows the founder and decisions are informal, often needs more rules, layers of management and specialist departments as it grows, moving towards a role culture. Early employees may feel that the business is losing its spirit, while new managers find the informal ways chaotic.

A change of leader or leadership style

A new leader, especially one brought in from outside, often changes the leadership style. A shift from democratic to autocratic leadership can clash with a culture of participation, while a shift from autocratic to democratic leadership can confuse staff used to being told what to do. Employees loyal to the old leader may resist, and the new leader may misread the existing culture and lose the trust of staff.

Expansion into other countries

When a business expands abroad, for example by becoming a multinational company or forming a joint venture, its corporate culture meets different national cultures. Practices that work at home, such as informal use of first names, open disagreement with managers or long working hours, may clash with local expectations about hierarchy, communication and work–life balance.

Consequences of culture clashes

Reducing culture clashes

Culture clashes cannot always be avoided, but managers can reduce them by recognising cultural differences early and managing the change deliberately. The main methods, which work best in combination, are these.

• A cultural audit. Before or soon after the change, managers carry out a cultural audit to assess the culture of each organisation or group: its values, norms, leadership style, decision-making and rewards, using surveys, interviews, focus groups and observation.

• Integration planning. Managers decide what the combined culture should be: whether one culture will be adopted, the two kept separate, or a new culture built from the best of both, and how fast to move.

• Communication. Explaining the reasons for the change, what will stay the same and what will change reduces uncertainty and rumours. Two-way communication lets managers hear concerns early.

• Involvement. Involving employees from both sides in designing the new ways of working builds commitment and uses their knowledge of what works.

• Training and team-building. Joint training, mixed project teams and exchanges help people understand each other and build personal relationships across the old boundaries.

• Aligning HR practices. Pay, promotion, appraisal and rewards must support the target culture; if the old reward system stays, the old behaviour stays too.

• Leadership by example. Leaders who behave consistently with the new values, and who are seen to treat both groups fairly, are the strongest signal of the new culture.

• Allowing time. Cultures change slowly, so managers set realistic timescales and monitor progress.

The cycle brings the methods together. It starts with understanding each culture through an audit, identifies the gaps, decides the target culture and then uses communication, involvement and HR practices to move towards it, with monitoring feeding back into the process. The same tools of change management used to reduce resistance to change apply here, and force field analysis can help managers weigh the forces for and against a new culture.

When Disney bought Pixar in 2006 for about US$7.4 billion, it chose to protect the smaller company’s culture rather than absorb it. Pixar stayed a separate entity in Emeryville, kept its name and its own HR policies, and its leaders, Ed Catmull and John Lasseter, were also put in charge of Disney’s own animation studio. Each studio stayed responsible for its own films and could not borrow the other’s staff, which preserved Pixar’s creative task culture.

Evaluation: how to integrate cultures

After a merger or acquisition, managers broadly choose between three approaches to culture. Which is best depends on why the businesses combined.

The success of any method depends on several factors: how different the cultures are; how much the business needs the two groups to work together (a merger made to cut costs needs deep integration, one made to buy creative talent may not); the balance of power between the two sides; the resources and time available; and, above all, whether leaders act consistently with what they say. In the short term, attention to culture adds cost and can slow the expected savings; in the long term, ignoring it is often what destroys the value of the deal.

Culture and the key concepts

Case study: culture change at Uber

Uber, the ride-hailing and delivery platform founded in San Francisco in 2009, grew extremely fast under its co-founder and chief executive Travis Kalanick. Its culture was set out in fourteen values, including “Always be hustlin’”, “Let builders build”, “Meritocracy and toe-stepping” and “Principled confrontation”. These values rewarded aggressive competition, speed and results, and they suited a start-up fighting taxi regulators and rivals city by city.

In terms of Handy’s model, Uber combined a power culture, with influence concentrated around the chief executive, and an intensely competitive internal environment in which “high performers” were protected. On 19 February 2017, Susan Fowler, a former site reliability engineer, published a blog post describing sexual harassment by her manager and an HR department that took no serious action because he was “a high performer”. She described her part of the organisation as a “game-of-thrones political war” and reported that the share of women among its engineers had fallen from over 25% when she joined to 3% of more than 150 engineers by her last day.

The post was followed by other damaging events, including a video, published by Bloomberg on 28 February 2017, of Kalanick arguing with an Uber driver about falling fares. Uber appointed the law firm Perkins Coie to investigate 215 employee complaints, which led to 20 people being fired, and the former US Attorney General Eric Holder to review the culture. Holder’s recommendations, adopted unanimously by the board and published on 13 June 2017, included rewriting the values to remove those used to justify poor behaviour, reducing Kalanick’s responsibilities, appointing an independent chair, and improving HR record-keeping and management training.

Kalanick took leave on 13 June and resigned as chief executive on 20 June 2017, after five major investors, including Benchmark Capital, demanded it. In August the board appointed Dara Khosrowshahi, who had led the travel company Expedia since 2005. His approach was more consultative: instead of writing new values himself, he asked employees for ideas, and more than 1,200 employees submitted ideas that received over 22,000 votes, followed by more than 20 focus groups.

The result, announced in November 2017, was eight “cultural norms”, including “We do the right thing. Period.”, “We celebrate differences” and “We value ideas over hierarchy”. Khosrowshahi explained that values such as “toe-stepping” had been meant to let people share ideas regardless of seniority, but in practice had too often been used as an excuse for rude behaviour. Calling them norms, rather than values, signalled that they described how people should actually behave.

We do the right thing. Period.

— Uber cultural norms, announced by Dara Khosrowshahi, November 2017

The case shows a culture clash caused by a change of leadership style, and Schein’s levels help explain why it took years. The new norms changed the espoused values quickly, and the board and HR changes altered the control systems. Changing the basic assumption that results excuse behaviour required consistent leadership, new rewards and the departure of some managers. Uber went on to list its shares in May 2019 and reported its first full-year operating profit, US$1.1 billion, in 2023, rising to US$5.6 billion on revenue of US$52.0 billion in 2025.

The case has limits as evidence. Uber’s later profits owe much to cost cutting, growth in delivery and higher prices, so they cannot be credited to the culture change alone. Most public information comes from the crisis period; it is harder to know how far everyday behaviour changed. Culture change is also never finished: new norms must be reinforced every time a manager decides whom to promote or how to respond to a complaint.

• Explain, using Handy’s model, the type of culture Uber had under Travis Kalanick.

• Analyse why replacing the fourteen values with eight norms was not enough on its own to change Uber’s culture.

• Evaluate the methods Uber used to reduce the culture clash after its change of leadership.

Sources: Susan Fowler, “Reflecting on one very, very strange year at Uber”, 19 February 2017; Associated Press, “Uber recommendations show company was ‘out of control’”, 13 June 2017; TechCrunch, “These are Uber’s new ‘cultural norms’”, 7 November 2017; Uber Newsroom (Japan), cultural norms, 2018; Uber Technologies, full-year results releases 2023 and 2025.

Exam practice

Organisational culture is HL only, so it appears in Paper 2 (HL) and Paper 3, never in Paper 1. Short questions ask you to define culture or one of Handy’s types, or to explain a type of culture in the case. Culture clashes can be evaluated in extended responses, often linked to growth, mergers and acquisitions, leadership styles or change management. In Paper 3, culture matters when a social enterprise grows, takes on paid staff or merges with another organisation.

Questions that ask you to explain a type of culture reward the features of the culture linked to evidence from the case, and its effect on the business.

Paper 3 questions set culture in a social enterprise. Explain challenges in terms of the people involved (volunteers, paid staff, beneficiaries, donors) and their effect on the enterprise’s social purpose.

Summary

• Organisational culture is the shared values, beliefs and norms that shape how people in an organisation behave: “the way we do things around here”.

• Culture is shown through artefacts such as symbols, stories, rituals, dress, layout and language; Schein adds espoused values and hidden basic assumptions.

• A strong culture gives consistency and commitment but can resist change; a weak culture is more open but less consistent.

• Handy’s four cultures are power (Zeus, a web), role (Apollo, a temple), task (Athena, a net) and person (Dionysus, a cluster), each suited to different organisations.

• Individuals, especially founders and leaders, shape culture, and culture shapes individuals through socialisation and conformity.

• Culture clashes happen when organisations merge, grow, change leader or expand abroad, and cause conflict, low motivation, labour turnover and lost synergies.

• Clashes can be reduced by cultural audits, integration planning, communication, involvement, training and aligned HR practices; the best approach depends on why the change happened.

Self-check

• To do:

  I can define organisational culture and give examples of how it is shown.

• To do:

  I can describe Schein’s three levels of culture.

• To do:

  I can distinguish between strong and weak cultures.

• To do:

  I can explain Handy’s power, role, task and person cultures and identify them in a case.

• To do:

  I can analyse how individuals influence culture and how culture influences individuals.

• To do:

  I can explain why culture clashes happen after mergers, growth and changes of leadership style.

• To do:

  I can evaluate methods of reducing a culture clash and explain what their success depends on.