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What is company culture and why is it important?

15 min read  |   29 November, 2021   By Aimee O'Callaghan

Colleagues fist bumping each other over a desk

Company culture is an HR buzzword with a difference. Originally hitting headlines in 2017, we’re pleased to see it jumping from the page (or screen) right into the heart of our offices.

Gaining momentum throughout the UK and spreading worldwide, company culture is changing the way we think about work and urges us to consider how we can conduct business for the better. 

So, let's delve into the basics of what company culture is and why it's important for SMEs.  

What is company culture?

SME company culture

Why is company culture important?

Toxic workplace culture

Is your workplace culture toxic?

How SMEs view company culture and business performance

What are the positive impacts of company culture?

What is company culture? 

Ask any business leader for a definition of what company culture is and they’ll all give you a different answer.

The fact is, company culture doesn’t have an exact definition.

As discussed in our Culture Economy Report, there are many definitions of company culture, which aren’t considered reducible to any of its component parts.  

It can, however, be narrowed down into 4 specific groups; hierarchy, agile, clan and adhoc. And each type comes with its own pros and cons. 

It’s not just the values plastered on the walls, nor is it the office fruit bowls, bean bags or table-tennis tables.

It isn’t even the leadership style. Company culture is all the above and more. It's how a company cultivates business growth by offering each employee a voice, while encouraging healthy day-to-day attitudes, behaviours and work ethics.  

Some say company culture refers to the mission statement of a business, along with the values and beliefs upheld by its founders.

Others refer to company culture as a collective force made up from employees, interactions and the environment in which they work. Many refer to company culture as the DNA, the soul or the personality of the business.

We know that good company culture involves trust, respect, and the opportunity for employees to participate in shared values and love what they do.

It’s something that develops organically from the top down. It isn’t something a business can buy in, though there are many means that can help, such as systems and consultants. In our opinion, company culture is like an ecosystem that needs to be nurtured in order to thrive.

Great company culture sets the foundations for real, tangible business growth. It’s based on honest, productive conversations and helps companies to identify issues and collectively form resolutions.

SME company culture

SMEs are at an advantage here. With less large corporate hierarchical systems and more millennial-led startups emerging each year, internet-led entrepreneurism encourages SMEs to work on their business from the inside out.  

Gifted with more opportunities for face-to-face communication and flexible working conditions, SMEs can respond quickly and adapt their company culture to gain a happy work-life balance for its employees from the start.  

On the flip-side, ignoring the needs of your employees and adopting what is known as a ‘toxic company culture’ heralds disastrous results for overall business performance.  

Why is company culture important? 

In a nutshell, cultivating a great company culture is important not only for employee engagement, happiness and retention, but also, plotting the blueprints for a thriving business; regardless of the economic climate 

Gaining significance and speed over the last decade, company culture encourages CEOs, HR consultants and company leaders to ask the right questions that lead to honest evaluation and pushes for change. 

After all, it is only when we identify and establish what could be changed that we can then set about resolving issues and conflicts to progress and grow above our own limitations and, indeed, business competitors.

Reputation-led results 

It’s no lie that reputation is everything. In a time where online publishing, blogging and company trolling is prolific, media scandals and recent headlines have given voice to large and small business malpractice. 

Thanks to the necessary exposure of misplaced company and employee welfare practices (such as BBC gender pay gapUber and not forgetting the Harvey Weinstein #Metoo campaign), HR consultants are urged to push past the ‘fluff’ and address what really matters; their people.  

If we can take anything from the pitfalls of these Big Players, it is that corrupt company cultures are toxic to productivity and profit. Offices that dismiss the importance of employee independence, flexibility and role fulfillment are at risk of increasing consumer distrust through reputation slamming. 

On the other side of the water cooler, we are now seeing the positive impact that company culture reviews have on not just individual employees but businesses as a whole. (Kudos to Uber and Netflix for learning from their mistakes.) 

small business culture breathe (1)

Employee and economic health 

Employee and economic health are important measures of company culture. 

Great company culture theories, such as the HBR Framework and Schein Culture Model clearly demonstrate that companies who measure profit and monetary incentives higher than human empathy and employee understanding are more likely to damage business performance.  

Findings from the culture economy report go further still; showing direct links between corrupt company cultures, employee satisfaction and tenure.  

Such fractured working communities not only jeopardise an employee’s mental and physical health but can also lead to an adverse effect on our society and UK economy. 

Business growth, longevity and results 

Great company culture positively impacts business growth, longevity and results 

Contrary to what some HR specialists are led to believe, studies demonstrate that the most profitable companies are not actually the most profit-focused. Through switching their target from profit to purpose, employees and employers alike gain greater role-fulfillment, which in turn increases productivity, efficiency and quality results. And what does quality lead to? Profit of course.  

So, by ensuring that all employees understand their company’s culture, objectives and targets, all team members can start on the right page.

Setting the stage for success, when a company begins with solid foundations, their employee engagement, staff retention, business longevity and growth targets are more likely to sync, leading to results the whole company can be proud of. 

Already nailing culture? Top job.
If you're part of a SME that's driving business by putting people first, we want to hear from you for our Culture Leader's List. Find out more. 

Toxic workplace culture

Organisational politics and a toxic workplace culture could be harming your business more than you think.

In our recent culture economy report, we found that poor company culture is costing UK businesses a massive £20.2 billion per year.

So, if you’ve been operating with your focus purely on the bottom line, then chances are you’re also growing a toxic culture.

Don't worry, that means you are now in the right place. We're shining a light on the typical toxic pitfalls that can occur in the workplace.

Check it out and start implementing change. 

Learn to level up. Download the Culture Economy Report 2021 and understand how to put your people first. 

Is your workplace culture toxic?

In most cases, a toxic company culture evolves insidiously. Typically, this falls into two categories:

  • results-focused leadership (i.e. culture wasn't deemed as an important investment strategy from the offset), or
  • company culture immaturity (i.e. culture is being looked at but implementing a healthy one is still very much 'in progress').

So, what are the signs that your company culture is turning toxic?

Communication is non-existent

Poor communication in any business leads to a general feeling of nervousness and fear among employees. A lack of clear communication also accelerates gossip. Taboos against speaking up have a further negative influence.

Disrespectful or weak leadership

Incivility and bullying from the boss are sure signs that your company has a negative culture. Creating a fearful environment, it's true that disrespect breeds disrespect. Bullying and a culture of blame doesn’t encourage accountability, respect or collaboration.

Even weak leadership can be the cause of a toxic company culture. With no sense of direction, enthusiasm across the board wanes. This leads to apathy and poor performance.


When employees get treated differently in terms of pay, opportunities and promotions, or are on the receiving end of discrimination, sexual harassment and unprofessional behaviour, you can be sure your company culture is toxic.


A lack of trust by leadership leads to inflexible working practices. If employers lack empathy and offer no flexibility, employees stop caring as well.

Micro-management and zero praise

People are disempowered when they aren’t trusted to do their job. Micromanagement kills the concept of opportunity because staff are too afraid to take risks, even though those risks could be advantageous or present mistakes that instigate a change for the better.

People at work need a certain level of autonomy. Employees need genuine praise. A disregard of feedback and ideas is another clear sign of a bad company culture.

A broken culture isn't good for anyone. A good company culture is good for business, employees and the community. And it's a powerful vehicle for social change.

If you need HR support, our partners are listed by region in this UK directory.

How SMEs view company culture and business performance

In our recent research on The Culture Economy we asked 500 SME senior decision makers in the UK if they believed workplace culture impacts positively on company performance. Of the 500 participants, 72 per cent believed company culture does have a positive impact on business performance; 9 per cent reported that company culture had no effect on performance and 19 per cent said they didn’t know.

Interestingly the percentage figures change as the company gets bigger. In small businesses with between 10 and 49 employees, 77 per cent agreed that culture has a positive effect on performance within the business; while 10 per cent disagreed and 13 per cent didn’t know.

For correspondents in medium sized businesses (50-249 employees), 88 per cent believed company culture has a positive effect on business outcomes, while only 7 per cent disagreed, and 6 per cent said they didn’t know.

Medium-size businesses seem to understand better than small businesses that even the best strategic plans can fall short without the right people in the right roles, and they seem more committed to the idea of improving employee engagement. That is not to say there aren’t many small businesses out there getting company culture right.

The difficulties in maintaining culture seem to hit small businesses at around the third of fourth year of their growth phase. Andy Haldane, Chief Economist at the Bank of England emphasised in a speech that “Small firms (<50 employees) are on average 7% less productive than large firms and there is a larger and lower tail of small firm laggards.”

For many small businesses, so much time is spent on the immediately pressing day-to-day challenges, it can be rare for leaders to find the time to learn about best practice when it comes to growing a good company culture. Recognising the impacts company culture has on business performance is the first step to engagement. Let’s take a look at what those impacts are.

What are the positive impacts of company culture?

In the research for our report on The Culture Economy, 360 correspondents agreed company culture did have a positive impact on company performance.

The positive impacts were cited as:

  • Increased morale, atmosphere and relationships (69 per cent)
  • Employees willing to go the extra mile (61 per cent)
  • Better customer service, customer satisfaction and customer retention (60 per cent)
  • Improved individual performance and productivity (55 per cent)
  • Reduced employee turnover (49 per cent)
  • More people contribute ideas and support innovation (49 per cent)
  • Reduced absenteeism (45 per cent)

Practicing what we preach: Breathe 

We like to practice what we preach. Thanks to our easy-to-use cloud-based HR software, we’ve ditched the clunky spreadsheets and use SaaS technology to our advantage. Less time in Excel leaves more time to establish and communicate our own great company culture.

So, if you haven’t already, head over to sign our Culture Pledge and just remember to Breathe.

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