What is Corporate Culture? 4 Types of Corporate Culture (2024)

Fostering a healthy company culture has become a focus area for many small business owners, startup founders, and corporate CEOs. But for many, the term “company culture” conjures up images of bureaucracy, conformity, and false enthusiasm for the job.

When starting a business, it's not a question of whether you have a company culture, but what your company culture will be. With the right care and attention, culture can be an asset that benefits employees, drives growth, and improves the bottom line.

What is company culture?

Company culture refers to the shared values, attitudes, and practices that define and guide how a company operates. Think of it as your brand's personality — it encompasses how employees interact with each other, customers, and other stakeholders.

Company culture can be a factor in a company's success. A strong, positive company culture makes employees feel safe and allows them to link their career success to the success of the company. According to PwC's 2021 Global Culture Survey, business leaders at companies with distinctive cultures are 80% more likely to report employee satisfaction than business leaders at companies without distinctive cultures.

Types of Company Culture

1. hierarchy
2. market
3. Adhocracy
4. Clans

In their 1999 book, The Competing Values ​​Framework, University of Michigan scholars Kim S. Cameron and Robert E. Quinn write: Diagnosis and transformation of organizational cultureWe categorize corporate culture into four general types, each of which represents a different configuration of company values, business environment, and general workplace culture.

Here is a brief overview of these four types of company culture.

1. Hierarchy

Hierarchical company cultures value stability over flexibility. In hierarchical cultures, order and efficiency are core values. The business structure emphasizes clearly defined responsibilities and obligations and relies on top-down leadership. Employees follow well-known rules and formal procedures. Employees report to a single manager, who reports up to the CEO at the top of the pyramid.

Hierarchical cultures tend to focus on long-term goals, such as becoming dominant in a particular industry. Standardization and systematization are key. This increases efficiency and ensures low costs and reliable performance. Historically, many large companies have been hierarchical. On the other hand, a hierarchical culture can stifle the creativity of individual employees and limit innovation.

One of the most successful and transformative companies in history, the Ford Motor Company, is a good example of a hierarchical corporate culture. The company's founder, Henry Ford, made most of the key decisions, which were passed down through a hierarchical management team and up the chain of command. Ford's factory assembly lines were designed to be as efficient as possible, with each worker's role precisely defined.

2. Market

A market culture, as the name suggests, is all about competition: Productive employees get promoted for outperforming their peers, and the leadership team rewards employees for their accomplishments.

In a market culture, getting things done is more important than how you get things done. This type of culture is often demanding and fast-paced, and the performance expectations can be stressful for some employees. Others may find it exhilarating and thrive.

Many companies in the financial industry, such as hedge funds and private equity firms, have a market culture. Employees are encouraged to be competitive and agile, with a survive-or-sink approach to succeeding at the company. Their compensation often reflects this, with performance-based end-of-year bonuses making up a large portion of their salary. Similarly, Netflix relies on a market culture that encourages employees to make decisions and ensures that only the most effective workers are hired.

3. Adhocracy

Adhocracy culture values ​​flexibility. Some adhocracy companies have an open management philosophy, meaning job titles aren't strictly defined and leadership teams can encourage team members to be self-motivated and think outside the box. An adhocracy culture increases employee engagement and generates new, market-changing ideas.

However, this type of company culture can also lead to a disfocused and inefficient business. Adhocracy works best when applied to small or medium-sized teams working on specific projects within a larger organization.

Spotify, the world's largest music streaming service, is an example of an adhocracy culture. Spotify engineers are organized into small teams of eight people, called squads, whose leaders are determined by the members. These small groups allow them to be agile and flexible while still being aligned with the overall task of growing subscribers and improving user experience.

4. Clans

A clan culture is one that is cohesive, caring, and close-knit. In organizations with this culture, communication tends to be informal and employee relationships take priority. These companies often have a deep culture of collaboration, which leads to mutual respect and trust.

Unlike a hierarchical culture where directives are given, a clan culture may require buy-in or agreement from all shareholders when making decisions. This may make employees feel engaged in their work, but it can also significantly slow down the process of adapting to change.

In family businesses, managers often mentor their direct reports and there is an emphasis on employees' professional growth as well as market success. A family company culture ensures employees feel supported and empowered to make positive decisions for themselves and the company. A Certified B Corporation, Tom's of Maine is known for having a family culture that permeates care for employees, customers and the environment. Tom's offers paid volunteer hours, ongoing job and life skills training, a policy of internal promotion, and continuing education reimbursement.

How to develop a healthy company culture

1. Define your company values
2. Laying the foundations
3. Ask for feedback
4. Grow with the company

As your business grows, pay attention to your company culture. While there is no one-size-fits-all formula for creating a positive company culture, some trends can help point you in the right direction.

Here are four steps to building a strong company culture:

1. Define your company values

Cultural values ​​are an extension of your brand. They often emerge naturally from the corporate vision you build when starting your business – who you serve, how you want to be seen, and what you want to accomplish. For example, if creativity and inclusion are important to your company, an adhocracy culture might be a natural expression of those values. If your goal is to produce consumer goods as efficiently and cheaply as possible, a hierarchical culture might make sense.

As you evaluate your values, ask yourself these questions: What do you want to enable people to do their best work? Do you want to be known as a company that moves quickly and innovates things, or do you want to be known for sticking to quality you can trust? Do you want to create a fast-paced, competitive environment, or take a more supportive approach that fosters teamwork and professional growth?

These considerations help shape your company's core values, which in turn influence your company culture.

2. Lay the foundations

As your company grows, you may want to formalize your company culture to make communication and accountability easier and more transparent. One way to do this is to create a company culture deck to share with your employees and include in new hire training. This deck can provide details about your company's history, your founding values ​​and goals, and how your workplace culture manifests in relationships.

Another way to lay the foundation is to model the culture yourself. As a business owner, your company's culture starts with you. Remember, it's your responsibility to be a role model for a positive company culture. Look for ways to mentor your direct reports and encourage them to share their wisdom and organizational knowledge with their own teams. This will help the desired culture take root naturally.

3. Ask for feedback

Put in place mechanisms for employees to give feedback about their experience of the company culture. For example, if your company has a clan culture, you could ask employees if they feel mentored, accepted, and cared for.

Feedback can come in the form of anonymous surveys, informal discussions, all-hands meetings, etc., depending on the type of company culture you choose. This will give you valuable information about how your company culture is developing and how your employees feel about it. Once you receive feedback from your employees, you can adjust your work processes to ensure a strong company culture.

4. Grow with the company

As a company grows, its culture will inevitably change. For example, a company culture that was close-knit, very open, and collaborative may need to become more streamlined and efficient as the company becomes larger and more complex. Don't be afraid to change when you feel the need, but remember to be patient. Cultures take time to develop and evolve. Embracing change will better prepare you to lead your company to financial success.