Context, Conditions, and Culture

Context matters when assessing a culture’s strategic effectiveness. Leaders must simultaneously consider culture styles and key organizational and market conditions if they want their culture to help drive performance. Region and industry are among the most germane external factors to keep in mind; critical internal considerations include alignment with strategy, leadership, and organizational design.

Region.

The values of the national and regional cultures in which a company is embedded can influence patterns of behavior within the organization. (This linkage has been explored in depth by Geert Hofstede and the authors of the GLOBE study.) We find, for example, that companies operating in countries characterized by a high degree of institutional collectivism (defined as valuing equity within groups and encouraging the collective distribution of resources), such as France and Brazil, have cultures that emphasize order and safety. Companies operating in countries with low levels of uncertainty avoidance (that is, they are open to ambiguity and future uncertainty), such as the United States and Australia, place a greater emphasis on learning, purpose, and enjoyment. Such external influences are important considerations when working across borders or designing an appropriate organizational culture.

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Industry.

Varying cultural attributes may be needed to address industry-specific regulations and customer needs. A comparison of organizations across industries reveals evidence that cultures might adapt to meet the demands of industry environments.

Organizational cultures in financial services are more likely to emphasize safety. Given the increasingly complex regulations enacted in response to the financial crisis, careful work and risk management are more critical than ever in this industry. In contrast, nonprofits are far more purpose-driven, which can reinforce their commitment to a mission by aligning employee behavior around a common goal.

Strategy.

For its full benefit to be realized, a culture must support the strategic goals and plans of the business. For example, we find differences between companies that adopt a differentiation strategy and companies that pursue a cost leadership strategy. Although results and caring are key cultural characteristics at both types of companies, enjoyment, learning, and purpose are more suited to differentiation, whereas order and authority are more suited to cost leadership. Flexible cultures—which emphasize enjoyment and learning—can spur product innovation in companies aiming to differentiate themselves, whereas stable and predictable cultures, which emphasize order and authority, can help maintain operational efficiency to keep costs low.

Strategic considerations related to a company’s life cycle are also linked to organizational culture. Companies with a strategy that seeks to stabilize or maintain their market position prioritize learning, whereas organizations operating with a turnaround strategy tend to prioritize order and safety in their efforts to redirect or reorganize unprofitable units.

Leadership.

It is hard to overestimate the importance of aligning culture and leadership. The character and behaviors of a CEO and top executives can have a profound effect on culture. Conversely, culture serves to either constrain or enhance the performance of leaders. Our own data from executive recruiting activities shows that a lack of cultural fit is responsible for up to 68% of new-hire failures at the senior leadership level. For individual leaders, cultural fit is as important as capabilities and experience.

Organizational design.

We see a two-way relationship between a company’s culture and its particular structure. In many cases, structure and systems follow culture. For example, companies that prioritize teamwork and collaboration might design incentive systems that include shared team and company goals along with rewards that recognize collective effort. However, a long-standing organizational design choice can lead to the formation of a culture. Because the latter is far more difficult to alter, we suggest that structural changes should be aligned with the desired culture.