Ask most executives to define their organizational culture and they’ll recite values from a poster: “We’re innovative, collaborative, customer-focused, and results-driven.” Ask employees what behaviors actually get rewarded and you’ll get a different answer: “Don’t disagree with your manager in meetings, don’t miss deadlines even if quality suffers, don’t admit mistakes.”
The gap between these answers is the gap between aspirational culture and actual culture. Most organizational culture definitions describe the former while the latter determines what people actually do.
Culture isn’t what you say it is. Culture is what you tolerate, reward, and punish. It’s revealed through consequences, not stated through values.
What Most Definitions Get Wrong
The standard definition positions culture as shared values, beliefs, and assumptions that guide behavior. Edgar Schein’s influential model describes culture as operating at three levels: artifacts (visible structures and processes), espoused values (stated ideals), and basic underlying assumptions (unconscious beliefs).
This framework describes culture’s appearance, not its mechanics. It identifies what culture looks like without explaining what produces it. The result is that organizations focus on changing artifacts and values while the actual drivers of behavior remain untouched.
Companies spend resources on:
- Mission and values statements
- Cultural training programs
- Office redesigns to encourage collaboration
- Recognition programs celebrating desired behaviors
- Leadership communication about culture
These interventions assume culture flows from beliefs to behavior. If we change what people believe or say they believe, behavior follows.
This assumption is backwards. Behavior flows from incentives, consequences, and power structures. Beliefs follow behavior, not the other way around. People rationalize the behaviors their environment rewards.
Culture Is Revealed Through Consequences
Actual organizational culture is the set of behaviors that reliably lead to positive or negative outcomes for the individual. It’s learned through pattern recognition, not value statements.
A new employee learns culture by observing:
- Who gets promoted and why
- Which mistakes are career limiting and which are forgiven
- What behaviors draw criticism versus praise
- Which rules are enforced versus which are ignored
- Who has power to break norms without consequences
This learning happens quickly because it’s survival relevant. Understanding real culture determines success or failure in the organization. The stated values matter only to the extent they predict consequences.
Consider a company that claims to value “open communication” and “speaking truth to power.” If employees who raise concerns in meetings face subtle retaliation excluded from projects, passed over for promotion, labeled “not a culture fit” the actual culture is “stay quiet.” The poster value is irrelevant.
The employee who internalizes the poster value fails in that culture. The employee who observes consequences and adjusts behavior succeeds. Culture is what you need to understand to survive, not what the company says about itself.
The Incentive Architecture
Organizational culture emerges from incentive structures, often unintentionally.
Companies design explicit incentives: compensation, promotion criteria, performance reviews, recognition. These create obvious behavioral motivations. Sales compensation based on quarterly targets produces short-term thinking. Promotion systems favoring individual achievement produce internal competition.
But explicit incentives are often less powerful than implicit ones. Implicit incentives include:
Social reward and punishment. Status, inclusion, and peer approval motivate behavior. Teams develop norms about acceptable behavior and enforce them through social mechanisms. Belonging requires conformity.
Career preservation. People avoid behaviors that threaten job security or advancement, regardless of stated values. If challenging leadership decisions correlates with stalled careers, culture is “don’t challenge leadership.”
Cognitive load minimization. People default to behaviors that are easiest and safest. If following procedures requires less effort than solving problems creatively, culture becomes procedural compliance.
Risk asymmetry. When potential downsides of action outweigh potential upsides, culture becomes risk-averse. If mistakes are punished more severely than safe mediocrity, innovation stops.
Information asymmetry. People act on what they can observe. If promotions appear arbitrary because criteria aren’t transparent, culture becomes political. Success requires impression management, not performance.
These implicit incentives often contradict explicit ones. A company might claim to reward innovation while punishing failures, reward teamwork while promoting individual stars, or value quality while imposing impossible deadlines.
Employees respond to actual incentives, not stated ones. The resulting behavior is organizational culture.
Power Determines Whose Behavior Matters
Culture isn’t democratically determined. It’s shaped by those with power to reward and punish.
Leadership behavior disproportionately affects culture because leadership controls consequences. When a CEO publicly berates someone for missing a deadline, that single incident teaches everyone that missing deadlines is career-threatening. When a senior executive takes credit for others’ work without consequences, that teaches everyone that credit theft is acceptable if you’re senior enough.
The phrase “culture flows from the top” captures this dynamic, but understates it. Culture isn’t what leaders say. It’s what leaders do and what they permit others to do.
Leadership creates culture through:
What they model. Leaders who stay late create pressure for others to stay late. Leaders who interrupt create cultures where interrupting is normal. Leaders who admit mistakes create cultures where others can admit mistakes.
What they reward. Promoting someone who hit targets through unethical means teaches ethics don’t matter. Promoting someone who builds strong teams teaches team-building matters.
What they tolerate. Allowing a high performer to be abusive teaches performance outweighs behavior. Tolerating mediocrity in someone politically connected teaches politics matter more than performance.
What they punish. Punishing honest mistakes creates risk aversion. Punishing dissent creates yes-men. Punishing boundary-setting creates burnout.
The pattern matters more than individual instances. One leader’s behavior might be an anomaly. Consistent patterns across leadership become culture.
Middle management amplifies or dampens these patterns. A toxic executive can be buffered by good middle managers who protect their teams. An excellent executive’s culture can be undermined by middle managers who operate differently. Culture is what employees experience from their direct environment, not what exists at the top.
Culture as Evolved Behavior
Organizations don’t usually design their culture deliberately. Culture emerges from accumulated decisions, historical accidents, and adapted behaviors.
Early patterns become norms. A startup where founders worked extreme hours creates expectation that everyone works extreme hours. That expectation persists even after the crisis that created it passes. New employees learn this is “how we work here.”
Survival of the fittest applies. Behaviors that are rewarded proliferate. Behaviors that are punished disappear. If political maneuvering leads to advancement more reliably than competence, the culture evolves toward politics. If competence is reliably rewarded, culture evolves toward performance.
This evolution is path-dependent. Early decisions constrain later options. A company that hired for culture fit in early stages becomes homogeneous, which reinforces existing culture, which leads to continued culture-fit hiring. Breaking this cycle becomes difficult because the culture selects for people who perpetuate it.
External shocks can shift culture rapidly. A near-failure might create paranoia or extreme risk-aversion. Rapid growth might dilute original culture. Acquisition introduces competing cultures. These shocks reveal that culture wasn’t about values but about stable equilibrium behaviors. When equilibrium disrupts, new behaviors emerge.
The Cultural Debt Problem
Organizations accumulate cultural debt the same way they accumulate technical debt: through expedient short-term decisions that create long-term costs.
Tolerating one bad actor because they’re productive creates culture where productivity excuses bad behavior. Other bad actors join. Good people leave. The culture shifts.
Making an exception to a policy once creates expectation of exceptions. Soon the policy is unenforced, but still officially exists, creating confusion about what rules actually matter.
Promoting someone unqualified because they’re connected creates culture where connections matter more than competence. Competent people stop trying. Connected people invest in relationships over performance.
Each decision seems minor in isolation. Accumulated, they define culture. Reversing them is expensive because people adapted their behavior to the incentives these decisions created.
Cultural debt compounds. A culture where people don’t speak up means problems aren’t identified early. Problems grow larger and more expensive to fix. The failures reinforce risk aversion and silence. The culture becomes more dysfunctional.
Why Culture Change Initiatives Fail
Most culture change initiatives focus on changing stated values and beliefs. They fail because they don’t change incentive structures or power dynamics.
The typical approach:
- Leadership identifies desired culture
- Values and behaviors are articulated
- Communication campaigns promote new values
- Training programs teach new behaviors
- Recognition programs celebrate examples of desired culture
This assumes culture is belief-driven. If employees understand and believe in new values, behavior will change.
But employees already understand that actual behavior is incentive-driven. The new values matter only if consequences change.
If the incentive structure still rewards old behaviors, employees face a choice: follow stated values and suffer negative consequences, or maintain old behaviors and succeed. Rational employees maintain old behaviors. The culture change fails.
Real culture change requires changing consequences:
Changing what gets rewarded in promotion decisions. If collaboration is desired culture but individual achievement still determines promotion, culture won’t change. Promotion criteria must shift.
Changing what leadership tolerates. If psychological safety is desired but leaders still punish bad news, culture won’t change. Leaders must demonstrate they want to hear problems.
Changing resource allocation. If innovation is desired but all resources go to maintaining current business, culture won’t change. Investment patterns must shift.
Changing decision rights. If empowerment is desired but all decisions still require executive approval, culture won’t change. Authority must be redistributed.
Changing who has power. If the people who embody old culture retain power, culture won’t change. Personnel changes might be necessary.
These changes are expensive, disruptive, and threaten existing power structures. That’s why most organizations prefer values-based initiatives. They create the appearance of culture change without the cost or disruption of actual change.
Subcultures and Cultural Fragmentation
Organizations don’t have singular cultures. They have collections of subcultures that coexist, compete, or conflict.
Engineering might have norms around technical excellence and direct communication. Sales might have norms around optimism and client relationship management. Finance might have norms around caution and documentation. These subcultures developed because they’re adaptive for each function’s specific work and incentives.
Subcultures become problematic when they prevent coordination. If engineering culture values technical perfection and sales culture values speed-to-market, product launches become conflicts between cultures rather than collaborative processes.
Geographic distribution creates subcultures. A company’s headquarters culture differs from field office culture differs from remote worker culture. Each group adapts to their local environment and constraints.
Hierarchical layers create subcultures. Executive culture differs from middle management culture differs from individual contributor culture. Each layer faces different incentives and develops different norms.
Acquisitions create cultural collision. Two companies with different cultures merge. The stated goal is cultural integration. The actual result is often cultural fragmentation, with legacy-company-A employees and legacy-company-B employees maintaining their original cultures and viewing each other as outsiders.
Leadership typically wants cultural uniformity. They see fragmentation as a problem to solve. But subcultures often exist because uniform culture would be maladaptive. Sales needs different norms than engineering. Trying to impose engineering’s culture on sales makes sales less effective, not more aligned.
The question isn’t whether subcultures exist but whether they’re compatible enough to enable coordination. Some cultural variation is healthy. Too much prevents the organization from functioning as a unit.
Cultural Assessment: What to Actually Measure
If culture is about consequences and incentives, cultural assessment requires measuring those, not asking about values.
Standard culture surveys ask: “Do you feel the organization values innovation?” or “Do you believe leadership is trustworthy?” These measure perception of stated culture, not actual culture.
Better questions focus on behavior and consequences:
- “What behaviors have you observed leading to promotion in the past year?”
- “Describe a time someone on your team made a mistake. What happened to them?”
- “If you disagree with your manager’s decision, what do you typically do?”
- “What work do you avoid because it’s not rewarded, even if it’s important?”
Even better is observing actual behavior:
Promotion pattern analysis. Who actually gets promoted? What behaviors or characteristics do they share? This reveals what the organization truly values.
Meeting behavior. Who speaks? Who gets interrupted? Whose ideas get credited? This reveals power dynamics and psychological safety.
Decision analysis. How are decisions actually made? Who has real input? How long do decisions take? This reveals whether the organization is actually empowered, collaborative, or bureaucratic.
Failure analysis. What happens after failures? Who gets blamed? What changes? This reveals whether the culture is learning-oriented or blame-oriented.
Resource allocation. What gets funded? What projects get staffed with top talent? This reveals strategic priorities regardless of stated priorities.
Exit interview patterns. Why do people actually leave? If there’s a pattern of people leaving because of specific managers or problems, that’s cultural data.
Glassdoor and similar platforms. What do people say when they’re not accountable to the organization? This often provides more honest cultural assessment than internal surveys.
The gap between stated culture and observed behavior is itself a cultural indicator. Large gaps suggest either leadership self-deception or deliberate misrepresentation. Both are cultural problems.
Culture and Performance
The relationship between culture and performance is complicated. Strong culture correlates with performance in some contexts and anti-correlates in others.
Strong culture means behavioral convergence. Everyone knows what’s expected and behaves accordingly. This creates efficiency when the environment is stable and the culture is well-adapted to that environment.
Strong culture becomes a liability when the environment changes. The behavioral convergence that created efficiency becomes rigidity. The organization can’t adapt because the culture won’t permit it.
This is why successful companies often fail when their markets shift. Their strong culture was optimized for previous success. The same cultural attributes that drove success prevent adaptation.
Weak culture means behavioral diversity. Less convergence, more experimentation, more conflict. This creates inefficiency in stable environments but adaptability in changing ones.
Organizations need different cultural strength at different stages. Startups often benefit from weak culture. More diversity in approach, more experimentation, more tolerance for chaos. As they scale, they need stronger culture for coordination and efficiency. As markets mature, they need to maintain some cultural weakness for continued adaptation.
The mistake is treating strong culture as universally positive. Strong culture is adaptive for specific contexts. Outside those contexts, it’s maladaptive.
Toxic Culture: When Incentives Produce Dysfunction
Some cultures are systematically destructive. They produce short-term results while creating long-term damage.
Fear-based cultures use punishment and job insecurity as primary motivators. People work hard to avoid negative consequences. This produces compliance and short-term performance but prevents innovation, honesty about problems, and long-term retention of talented people.
Political cultures reward networking and impression management over competence. People invest in relationships with powerful individuals rather than performance. Work quality declines. The most political, not most competent, advance.
Blame cultures punish mistakes harshly. People hide problems, avoid accountability, and focus on documenting that failures aren’t their fault. Error rates increase because problems aren’t addressed early. Trust disappears.
Burnout cultures reward extreme hours and constant availability. People compete to signal commitment through unsustainable work patterns. Productivity actually declines due to fatigue. Health suffers. People burn out and leave.
Ethical compromise cultures reward results regardless of methods. People cut corners, manipulate metrics, or engage in unethical behavior. Short-term numbers look good. Long-term reputation, legal, and regulatory risks accumulate.
These cultures emerge when leadership focuses exclusively on short-term results without considering second-order effects. The behaviors that produce quarterly numbers aren’t the behaviors that produce sustainable performance.
Toxic cultures have high turnover, low trust, risk aversion, and accumulating problems that eventually create crisis. But they can persist for years because they produce results that satisfy leadership or investors focused on short time horizons.
Culture as Competitive Advantage or Disadvantage
Culture can be a sustainable competitive advantage if it’s valuable, rare, difficult to imitate, and well-executed.
Netflix’s culture of freedom and responsibility allows them to attract and retain talent that values autonomy, enabling faster decision-making and innovation than more hierarchical competitors.
Toyota’s culture of continuous improvement created manufacturing efficiency that competitors couldn’t replicate because the culture was embedded in daily behaviors, not just documented processes.
Amazon’s culture of customer obsession and bias for action enables speed and customer focus that competitors with more consensus-driven cultures can’t match.
These advantages are sustainable because culture is hard to copy. A competitor can’t just decide to adopt Netflix’s culture. The behaviors are supported by specific incentive structures, hiring practices, and leadership behaviors that took years to develop.
Culture can also be a competitive disadvantage if it’s maladapted to the environment.
Kodak’s culture of protecting the film business prevented them from adapting to digital photography even though they invented it.
Nokia’s culture of consensus and hierarchy made them too slow to respond to iPhone’s disruption.
Wells Fargo’s culture of aggressive sales targets led to widespread fraud and regulatory crisis.
The same cultural attributes that created success in one context became liabilities in another. This is why successful companies struggle with disruption. Their culture is optimized for their previous success model.
Can Culture Be Designed?
Organizations can influence culture but not control it. Culture emerges from the interaction of incentives, power structures, personnel, and environment.
Founders have outsized ability to shape initial culture because they control hiring, set early norms, and model behavior. Early employees are selected for cultural fit (whether explicitly or implicitly), creating a relatively homogeneous group that reinforces founding culture.
As organizations scale, cultural control decreases. More people means more diverse interpretations of norms. More hierarchy means more layers between leadership and culture-experience. More subcultures emerge. The culture becomes what it becomes through evolution, not design.
Leadership can still influence culture through:
Hiring for cultural addition, not just cultural fit. Bringing in people who share core values but add diverse perspectives prevents stagnation while maintaining coherence.
Ruthless consistency between stated values and consequences. If you say you value something, you must reward it in promotion, resource allocation, and attention. Inconsistency destroys credibility.
Making cultural violations expensive for powerful people. If rules only apply to junior employees, culture becomes “hierarchy matters more than values.”
Designing incentive systems for desired long-term outcomes, not just short-term metrics. If you measure and reward only what’s easily quantifiable, culture optimizes for those metrics at the expense of everything else.
Creating transparency about decisions, especially promotion and compensation. When people understand how consequences work, they can adapt behavior rationally. Opacity creates politics.
Accepting that not everyone fits and that’s okay. Some people thrive in your culture. Others won’t. Pretending everyone can succeed creates frustration. Honest assessment enables better matching.
But even with these interventions, culture will diverge from design. Unintended consequences emerge. People adapt in unexpected ways. External pressures force changes. Culture is a complex adaptive system, not a machine that operates according to design specifications.
What Leaders Actually Control
Leaders can’t control culture directly. They control inputs that influence culture:
Hiring decisions. Who you bring in shapes culture. Hiring people who embody desired behaviors is more effective than trying to change people’s behaviors after hiring.
Firing decisions. Who you keep and who you remove signals what’s tolerable. Tolerating toxic high performers teaches that performance outweighs behavior. Removing them teaches the opposite.
Promotion decisions. This is the most powerful cultural signal. Promotion reveals what the organization truly values. People observe who advances and adapt accordingly.
Resource allocation. What gets funded demonstrates real priorities. Stated priorities that don’t get resources are recognized as rhetoric.
Personal behavior. Leaders are watched constantly. Their behavior is interpreted as guidance about what’s acceptable. They can’t delegate cultural leadership.
Structural decisions. Organization design, reporting relationships, and decision rights shape who has power and how work gets coordinated. These structures create incentives that drive behavior.
Consequences for cultural violations. When someone violates cultural norms, leadership response defines whether the norm is real or aspirational.
These are levers, not switches. Pulling them influences culture but doesn’t determine it. The relationship between inputs and cultural outcomes is complex, lagged, and often counterintuitive.
The Real Definition
Organizational culture is the pattern of behaviors that emerge from the incentive structures, power dynamics, and historical evolution of an organization. It’s what people do to succeed, avoid failure, and navigate their environment.
Culture is revealed through:
- Which behaviors get rewarded in promotions and recognition
- Which mistakes are career-limiting and which are forgiven
- Who has power to break norms without consequences
- What happens when values conflict with incentives
- How decisions actually get made versus how they’re supposed to be made
Culture isn’t what leadership says or what posters display. It’s what consequences teach.
Understanding actual culture requires observing behavior and consequences, not reading values statements. Changing culture requires changing incentive structures and power dynamics, not launching communication campaigns.
Most culture definitions are wrong because they confuse aspiration with reality, cause with effect, and beliefs with behaviors. They describe what organizations wish their culture was, not what it actually is.
The culture that matters is the one employees experience through daily interactions, observation of who succeeds and fails, and the gap between stated values and actual consequences.
That’s the culture that determines whether people speak up or stay silent, take risks or play it safe, collaborate or compete, stay or leave. That’s the culture worth understanding.