Unit-3

Role of Corporate Culture in Business

What is Corporate Culture?

Definition: Corporate culture refers to the organizational culture that encompasses the vision,
values, behaviors, and practices of a company.

What Does Corporate Culture Mean?

Corporate culture starts with the company’s vision. Normally, a vision is a single phrase that
communicates exactly what the purpose of the company is. Then, corporate culture dictates how
people should behave when at work, what values should drive their performance, and what
practices should be implemented to achieve the vision.

Behaviors are directly related to what customers and co-workers see, and they include dress
codes, the physical environment of the company, do’s and don’ts as well as organizational rituals.

Values pertain to the unwritten laws of behavior when at the workplace. For instance, workers
should not gossip about each other; or they should all work for the good of the company, etc.
Values are manifested through behaviors but are not directly detectable.

Practices reflect a company’s values.

Let’s look at an example.

Example

Google is one of the companies that are renowned for their corporate culture. The company has
evolved into a mega corporation; however, it maintains a very friendly culture reflected in its
extremely clear vision and mission. By hiring the best of the best candidates in a meticulous
manner, Google fosters creativity and maximizes employee performance. People know what they
should do and why, and this motivates them to work harder and achieve the organizational goals.

Open-door policies allow the involvement of all levels of the workforce in the decision making
of the company, but more importantly they instill trust and commitment. In addition, employee
benefits, employee recognition, and democratic leadership make Google one of the best
companies to work for.

Today, Google employs about 70,000 full-time employees. Although there has been a lot of
criticism regarding the company’s employee turnover, the truth of the matter is that Google
employs too many people on the same day. This means that, if 200 employees were hired last
week, and one calculates employee tenure today, the tenure for these people will be one week,
but this doesn’t mean that they stay at the company for one week.

Functions of corporate culture

1. Cooperation - by providing shared values and assumptions, culture may enhance

goodwill and mutual trust, encouraging cooperation
2. Decision Making - shared beliefs gives members a consistent set of basic assumptions
which may lead to a more efficient decision-making process due to fewer disagreements
3. Control - control is provided by three mechanisms 1. Market control mechanism: relies
on price. If results fall short of goals, prices are adjusted to stimulate necessary change 2.
Bureaucratic control mechanism: relies on formal authority. The control process consists
of adjusting rules and regulations and issuing directives 3. Clan control mechanism: relies
on shared beliefs and values. Provide a map that members can rely on to choose
appropriate course of action.
4. Communication - culture reduces communication problems in two ways: 1. no need to
communicate in matters for which shared assumptions already exist (things go without
saying) 2. shared assumptions provide guidelines and cues to help interpret messages that
are received
5. Commitment - strong cultures foster strong identification which causes commitment
6. Perception - what an individual sees is conditioned by what others sharing the same
experience say they are seeing
7. Justification of behavior - culture helps organization members make sense of their
behavior by providing justification for it.
8. CULTURE PROMOTES CODE OF CONDUCT: A strong culture in an organization
explicitly communicates accepted modes of behaviour which make the people to be
conscious. Promotion of the culture of quality can help to achieve good business results.
9. CULTURE FACILITATES RECOGNITION: Every organization is recognised by its
culture. It is a known fact when ever we name an organization we immediately
remembers the culture attached to the organization. Organizational culture sets the
boundary beyond which employees are not permitted to go. Employees of an organization
automatically adopt the cultural limit of their organization. A number of organization are
well recognized by the culture.
 10. CULTURE PROVIDES SELF SATISFACTION: Organizational culture enables
employee to be satisfied internally. They get internal satisfaction with an esteemed
culture..

11. CULTURE PROVIDES OPPORTUNITY TO SET THE STANDARDS OF

PERFORMANCE: Organizational culture provides employees to get an opportunity to
set the standards of performance. They try to achieve the standards. It becomes a self
control mechanism which helps the organisation to grow and flourish..

12. CULTURE GUIDES AND CONTROLS THE EMPLOYEES: Organizational culture

acts as a motivator that guides and controls the employees..

13. CULTURE DIRECTS EMPLOYEE BEHAVIOUR TOWARDS GOAL

ACHIEVEMENT: A sound culture directs the attitude and behaviour of the employees
towards the achievement of goals.

14. CULTURE MAKES PEOPLE DEVELOPMENT ORIENTED: Organizational

culture develops implicit rules which make people oriented. These rules are more
effective than explicit rules. Conformity of implicit rules makes the employees developed
and self disciplined.

15. CULTURE DEVELOPS POSITIVE ATTITUDE: Culture develops a positive attitude

and behaviour of employees.. Culture leads to develop a good behaviour and good
behaviour makes a good culture..

The Impact of Corporate Culture on Business Strategy

Corporate culture represents the professional values a company adopts that dictate how it
interacts with employees, vendors, partners and clients. The mission strategy of an organization
is a summary of how the company perceives its role and the beliefs it uses to achieve its goals.
Because the corporate culture is a driving force in how the company does business, it has an
impact on developing business strategy.

Risk

The corporate culture dictates how much risk an organization is willing to take when it comes to
research and development, client interaction, investing in equipment and any other activity that
involves risk. If the corporate culture is one that promotes environmental responsibility, that will
impact the risks that the company will take when developing new products. Assessing risk based
on boundaries established by the company's beliefs and sense of responsibility has an impact on
corporate planning.
Employee Retention

When the company develops a policy of withholding information from employees, that can start
to develop a culture of distrust among the staff. The ability to retain employees can be weakened
when the promises made by the company in regards to company growth and employee
opportunity are compromised by a lack of trust. Allowing the atmosphere of mistrust to become a
part of corporate culture makes it difficult to execute employee retention plans as employees tend
to not believe what the company tells them.

Incentive Pay

Incentive pay is something that employers use to improve productivity and maintain employee
morale. But incentive programs need to be monitored and administered carefully to avoid
creating a culture of expectation. If an incentive pay program is set up to reward employees that
do not perform, that creates a dangerous culture precedent. For example, a profit-sharing
program where every employee gets a bonus check regardless of performance will diminish the
motivating effect of the program and cause employees to expect the bonus without having to
perform even at baseline expectations. By instituting a system of checks that forces employee to
reach certain performance levels before being able to take part in an incentive program, you help
to create a culture of performance expectations. This makes the investment of a profit-sharing
program viable and makes it into a motivational tool.

Focus

A corporate culture that each employee subscribes to helps to create focus among the staff. When
employees abide by the company's beliefs and values, it gives a unified impression to vendors,
clients and partners. The company can then create a business strategy knowing that the entire
organization will apply the guidelines in a uniform manner and improve the chances that a
strategy will succeed.

3 ways healthy company culture impacts business performance

Productivity rises:
If people feel represented by your company culture, they’ll be able to establish a positive
relationship with your workplace. If they identify with your values, are enabled to do their best
work and are listened to and respected, then they’ll be able to establish trust in your organization
(and not just from a strategy standpoint).

This trust and alignment are key building blocks for engaged and happy employees. And we all
know that engaged and happy employees are more productive. Research from the University of
Warwick shows that a happy employee is 12% more productive, while unhappy employees are
10% less productive.

In short: a good culture is imperative for high levels of productivity. However, don’t expect to
see the results immediately. After researching the company culture of 95 auto dealerships over a
period of six years, researcher Dr. Gillespie emphasized that the impact of company culture on
bottom-line results takes time:

“The culture of a sales department right now is going to influence the customer satisfaction from
that department two years from now, and that customer satisfaction is going to drive vehicle sales
two years from that point.” - Wall Street Journal

Business goals are supported

Academics at Duke University and Columbia University interviewed 1,348 North American
leaders for their research paper “Corporate Culture: Evidence from the Field”. Here are some of
their findings:

“Executives highlight that culture can circumvent mistakes in a way that other executive actions,
formal institutions, or corporate assets cannot. Many executives believe culture contributes more
to firm value than strategy does. For example, a company performs better with a strong culture
and weak strategy than the other way around.”

This is because even if your strategy isn’t perfect, your strong culture will help to keep everyone
marching to the beat of the same drum. People will stay on track, striving towards overall
company goals.

Business performance is improved

After years of research, John Kotter found that companies that empowered their people to live
their culture significantly outperformed those that didn’t. In his book, co-written with James
Heskett, he assessed the cultures of 200 companies and how their cultures affected their
performance.

“Strong corporate cultures that facilitate adaptation to a changing world are associated with
strong financial results.”

Affordable luxury hotel chain, YOTEL, is a great example of this in practice. YOTEL has a rich
company culture, and believe it’s important to live the company values at work every day.
They’ve been very deliberate in making this happen, and continue to successfully grow around
the world.

What does this look like in practice? Internally, they’ve developed a service brand that was
collaboratively created by 150 staff members. It includes 31 very simple practices—one for each
day of the month—that employees are encouraged to put into practice.

By reinforcing these 31 practices, YOTEL staff members are remaining true to the values of the
brand and delivering this to their hotel guests. The expanding hotel chain provides a consistent
and excellent level of service to their customers internationally.
The impact of company culture extends far beyond the happiness of employees. A good company
culture will improve productivity, performance and customer experience. If your culture is not
serving you, it’s time to do something about it. Changing organizational culture may be easier
than you think.

I’ll leave you with this powerful finding from Corporate Culture: Evidence from the Field:

“Over half of senior executives believe that corporate culture is a top-three driver of firm value
and 92% believe that improving their culture would increase their firm’s value. Surprisingly,
only 16% believe their culture is where it should be.”

CROSS-CULTURAL ISSUES

 21 Century propelled by globalization and multiculturalism.

 Implications for international marketing .
 Cultural diversity and cross-cultural issues present different challenges to all marketers.
 Some cultures view certain ethical practices with different levels of condemnation The
more serious problem concerns two different ethical standards meeting in a business
transaction.
 Different cultures have different rules of conduct.

Based on comparative cultural advantage :

Much more than “outsourcing.” Many countries have cheap labor. Only a few have become
economic powerhouses. Such as…

• Japanese quality.

• Korean manufacturing.

• Indian information technology.

• Chinese entrepreneurship.

• Rule-based cultures A new economic order

1. Japanese quality Continuous improvement :

• Group-oriented, rather than requiring individual reward.
• Long time horizon.
• No need for cause-and-effect manipulation.
• Maintain group harmony by honoring everyone’s ideas.
• Nemawashi. Superior operations management : • Just-in-time inventory management •
Kanban systems minimize rework, maximize flexibility. • Lean manufacturing, reduced
setup times.
2. Korean Manufacturing : Cozy relationship between leading industrial families and
the government
• Allowed Korea to build major private corporations in a relationship-based culture. Loyalty to
the boss :
• Paternal relationship. Highly disciplined, hierarchical groups:
• Organized by age. Highly competitive, masculine culture:
• Strong national solidarity. Focus on loyalty to boss :
• Bottom line and short-term profitability are secondary.
3. Indian IT : Pantheism vs. secularism :
• No need to maintain & manipulate nature.
• Other coping mechanisms . Inner discipline :
• Get control of one’s mind rather than the environment.
• Modern form: intellectual discipline, academic competition. Networking:
• Efficient way to absorb technical knowledge. Indians see themselves as Westernizing
• There is a common reliance on rationality.
• But Indians are leveraging their own cultural traits.
4. Chinese entrepreneurship A cultural trait of coastal Chinese:
• Particularly, speakers of Yuè (Cantonese), Mĭn (Fujianese), and Wú (Shanghaiese) dialects.
Uncertainty tolerant culture: Self esteem tied to wealth and status:
• “To be rich is glorious” (Deng Xiaoping). Masculine culture, competitive. Relationship-based
business:
• Guānxì is a time-tested mechanism.
• World’s largest economy for 8 of last 10 centuries, soon to be again. Making inroads into South
America, Africa, Middle East:
• These countries are more comfortable with Chinese relationship-based business style than
Western rule- based transparency.

5. Rule-based cultures Autonomous, rational individuals must have equal status:

• Ethic of justice, equality, human rights.

• Grounded in rationality (e.g., Kant). …and equal authority.

• Allegiance is to rules rather than persons.

• The rules must be self-evident and therefore universal.