In this article, I will explain the key traits of the four many types of organizational culture, and their suitability for different business types. We begin by taking a look at the definition of culture, how it is defined within an organization.
What is organizational culture?
The culture of an organization is the set of beliefs, practices, expectations and social norms that are commonplace within that organization. For example, the standard operating procedures of a company are a part of its culture, as are the benefits package, the performance management system, and the way people treat each other interpersonally.
Clearly, there will be variations in all aspects of organizational culture. What really defines a culture is the hard boundaries that exist at each end of the variation (e.g. the company may have zero tolerance policies on disrespectful behavior or failure to adhere to safety standards). An organization that has a large distance between these boundaries is said to have a loose culture, whereas one that has low variation in beliefs, practices and social norms is said to have a tight culture.
There are four main types of organizational culture
Before I introduce the four main types of company culture, it is important to note that organizations do not neatly fall into one type. Each culture is unique and is typically a blend of all four, with one type dominating and sometimes a second type coming in as a close second.
The chart on this page shows the four types, plotted on a 2D chart. We can see that each culture type is related to two others (the one by its side and the one directly above or below) by its position on the axis. Culture types in diagonally opposite corners tend to have not much in common at all.
The x axis - Focus
The x-axis, running left to right, represents how internally versus externally focused a culture is. Clans and Hierarchies (more on these types in a moment) tend towards being internally focused, whereas Market and Adhocracy cultures are more outwardly-looking. Clans and hierarchies obsess over employees and internal processes respectively - but Market and Adhocracy cultures but more of an emphasis on external factors, such as market trends, competitors, and clients/customers.
The y axis - Flexibility
Not to be confused with how tight or loose a company culture is, the y axis, running top to bottom, represents how rigid or flexible an organization is. A loose company culture has a broad range of tolerable practices and behaviors, but is not necessarily changing over time. A flexible organization is agile - able to adapt quickly to its environment - often supporting, encouraging and celebrating innovation. A rigid organization has a high cost of change (time and effort), and innovation is unsupported and/or difficult.
Now we know a little more about how the culture types vary based on their position on the chart, let's dive into each type to uncover its key traits, the types of company and industry it can be found, and the associated pros and cons.
Clan Culture
In a Clan culture, employees feel like they belong to a family rather than just an organization. Employees find the culture more informal and supportive of individuals. The clan culture typically has a flat structure and decentralized decision-making, which makes it easier for employees to work in a way that suits them and ultimately be more productive in their job roles.
Flexible work hours, informal dress code, fewer rules, individual trust and an open door policy are some of the features that make up this type of workplace.
Often found in smaller business, the clan culture is common in creative industries such as marketing and PR. Many of these businesses describe themselves as self-serving - i.e. the business exists as a vehicle to enable its employees to do what they enjoy doing.
Although the Clan culture empowers individuals to make decisions and work in the way that suits them best, it can suffer from inconsistency - both in terms of how employees are treated in different parts of the business, and in the quality of the work produced (product or service). The culture is agile and adaptive, but difficult to control.
Adhocracy Culture
The Adhocracy culture shares many of the traits of the Clan culture, the main difference being the external focus. Whereas a clan culture exists to serve its employees, an adhocracy culture typically has its sight set on a strong external mission. The combination of lack of formality and process with strong external focus, makes this culture ideal for fostering creativity and innovation.
Technology companies focused on innovation in fast-paced industries typically have a strong adhocracy culture built into their DNA.
Hierarchy Culture
The Hierarchy culture is the exact opposite of the Adhocracy. Appearing on the bottom left quadrant of the chart, this culture is inwardly-focused and highly organized. Based around central command-and-control, this culture relies on layers of management and strict rules to get the job done.
The hierarchy culture is well suited to highly regulated industries (including safety critical), and large enterprise where being able to reliably achieve results with great precision and efficiency is key to survival. For example, commercial airplane producers (Boeing), or very high volume, very low margin manufacturing (Foxconn) rely on the Hierarchy for stability, control and repeatability.
The Hierarchy excels at perfecting a process and achieving efficient, repeatable outcomes. All of this comes at a cost, of course - employees lower down the food chain have no agency, and innovation is stifled. The cost of change is extremely high, and the huge inertia in these business means they struggle to adapt to a changing environment.
Market Culture
Lastly, we have the Market culture. Sometimes called the Aggressive culture, this one is driven by performance and results. It is outwardly focused, but has rigid rules and structure which are designed to maximize financial outcomes.
Organizations with the Market culture often have a 'sink or swim' approach - its employees either figure out how to become a high performer, or they are left to flounder. This often leads to a high pressure, high turnover environment with plenty of internal competition rather than collaboration. For those who make it, the Market culture can be a very rewarding experience. For everyone else, it can be miserable and stressful.
The Market culture shares the same formal, rigid structure and working environment of the Hierarchy, and the external focus of the Adhocracy. Leadership tends to focus on performance metrics above all else. The Market culture is typically found in industries such as investment banks, estate agencies, car dealerships, and even some consulting firms (McKinsey & Company is famous for it).
Getting the best of all worlds
If your organization feels like a blend between these different types, you are not alone. Much like individual personality types, an organization doesn't often fit decisively into one of the organizational culture types. You may find, for example, that your organization is a blend between two of the adjacent types.
It is rare, however, for an organization to successfully blend the diagonal opposites. They are in direct contradiction of each other. Any attempt to blend these in one organization are likely to be disastrous. Some organizations looking to overcome this challenge have found a few creative ways around it, however.
Johnson & Johnson's medical device business, for example, is a traditional hierarchy - and for good reason. This highly regulated industry needs tight controls and repeatable, reliable processes to produce market-worthy, safety critical devices. Realizing it needed to innovate, it invested in setting up its own Innovation Center - a culture within a culture - to give it the agility and external focus it needed to get and stay ahead of the competition. The Innovation Center runs as its own organization. It sets the rules and the culture. This approach allows J&J to accelerate its innovation efforts without losing any of the advantages of the Hierarchy in its existing business. Many larger Hierarchies are taking this approach to get a slice of the innovation action. However, it is not the only way to solve the problem. Other tactics include joint ventures with other firms, acquisitions which are permitted to operate independently, and other strategic partnerships.