Organizational Culture And Its Impact On Employee Retention

 Emplyoee retention is a critical component in managing human resource flow

A Research Article on

"Organizational Culture And Its Impact On Employee Retention"


The concept of organizational culture has recently captured the interest of practicing managers as well as academic researchers. This appeal is based on the observation that a strong productive culture is associated with increased sales growth, profitability, employee satisfaction and overall organizational performance regardless of where the organization is physically located (Denison, Haaland & Goeber, 2004). Emplyoee retention is a critical component in managing human resource flow. In this era of unpredictable market and organizational changes, organizations must create an environment where today’s top talent can thrive. The intent of this paper is to present a comprehensive view of the organizational culture through literature survey and case study, uncovering the various aspects of employee retention and debating on the issue wheather organizational culture has its impact on employee retention. This would further help in establishing a linkage between organizational strategy and human resouce planning.

Key words:

Empowered, Employee engagement, Employee management, Employee retention, Organizational culture


We as a human being have grown-up with culture, it is entrenched in us and we can identify with it, in fact culture has become such a significant part of our day to day lives that the excessive familiarity of the term culture is what makes it strongly a different phenomenon to focus on precisely (Robert M, 2004). When culture is not in alignment with mission, core values and operational strategy, it can become a significant liability for the organization. .

The organizational culture becomes an end in itself rather than the means when it fails to evolve and change as rapidly as the social conditions in the community and society, and often loses sight of the commitment or purpose that brought people togather in the first place (Tamara J woodbury, 2006).

People are a key component of any company’s ability to execute its strategies and achieve its goals. Retention is the ability to hold on to employees where an organization finds that it is losing valuable staff (such as those with scarce skill or specialist knowledge) it may be said to have retention problem (Heery Edmund and Noon Mike, 2001). Assessing current human resource begins by developing a profile of the organization’s current employees. The initial analysis includes information about the workers and the skills they currently possess. Identifying these employees and their skills is important, but one must also recognize that keeping them in the organization is crucial.

Corporate culture is the focal point that affects employee commitment and engagement in an organization. It is considered easy to understand but most difficult to practice. There have been studies and researches both on Organizational culture and Employee retention, however; the construct of this paper is to respond to the lack of consistency in the literature linking Organizational culture with Employee retention. The study is concentrated on literature review supported by case study to elaborate the issue.

The superior performance of the firms with strong corporate cultures has been ascribed to their use of socialization and other techniques to emphesize specific core values that, when shared by employees (Barney, 1986; Tichy, 1983) are thought to perform certain crucial functions. As values are conceptualized as relatively stable individual charactarstics, the level of value congruence should not change much over time. Thus, the results described here should become more pronounced over the course of time. That is, because the negative effects of value differences are products of interpersonal interactions, one must the employee will experience comparitively less satisfaction and commitment as they encounter more of these unpleasent interactions overtime. On the other hand, interactions between employees with similar values should produce comparitively greater satisfaction and commitment with the passage of time.

Companies invest in their workforces when they pursue practices and develop programs that increase retention. By failing to make such investments, they incur the high cost of turnover. Coarse-gained estimates place the cost of turnover at 150 percet of exempt employees’ compensation and at 175 percent for nonexempt employees. The determinants of turnover are reasonably well understood as there has been a great deal of research on the topic. Accordingly, there are sound practices that employers can follow in order to retain their employees (Charles R Greer, 2008).

The concept of organizational culture:

Sociologists, Anthropologists and Behavioral scientists have extensively used the term culture. A single definition of organizational culture seems to be elusive as it is defined both in terms of its cause and effect.

Earlier thinkers have defined organization culture with a focus on distinguishing the levels into strong and weak cultures. Herkovitz, (1955) states that culture is the man made part of environment. Several anthropologists have a different viewpoint of culture as derived in context of organisation than for societies (Smircich 1983, Frost 1985, Louise 1985, Moore 1985).

Sinha (1990), indicates that the work culture means work related activities and meanings attached to such activities in the framework of norms and values regarding work. Organizaional culture consists of values and asumptions shared within an organization (Schein E H, 1990).

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Figure 1.1 Layers of Organizational Culture

Organizational culture refers to a system of shared meaning held by members that distinguishes the organizational from other organizations. The reserch suggest that there are seven primary charactarstics that, in aggregate, capture the essense of an organizational culture (Robbons S P, Judge T A and Sanghi Seema, 1995). A degree of innovation and risk taking, attention to details, outcome orientation, people orientation, team orientation, aggresiveness and stability are appraised as seven characterstics of organizational culture.

Organizational culture reflects the values, belief and attitude of its members.Organisational culture evolves slowly over time. Unlike vision and mission statements, they are not usually written down, but are soul of an organization (Slocum, Hellriegal 2008). Organizational culture exists on several levels, which differ in terms of visibility and resistance to change. Just like peeling an onion, the least visible or deepest level of organization culture is that of shared assumptions.

The relationship, contribution and impact of organizational culture is well established over performance. Study after study have clearly highlighted that a salutary organizational culture helps organizations to enhance its financial performance. These studies together illustrated; how performance organizational culture is to be created (Champoux Joseph, 2000).Within accounting organizations with cultures emphasizing accuracy of work, predictability, and risk taking, poor performing employees quit at a higher rate than high performing employees.

Cultural framework is defined at different levels (Figure 1.1). Artifact is the most superficial level of culture. Cultural artifacts are visible, felt and easy to observe in the work environment such as organizational stucture processes, dress codes, etc. The next level of culture has behavioral patterns, commonly known as behavioral norms. Espoused values form the next level of culture and organization temporarily promotes it to suit business needs. Values that are unconscious, ‘taken for granted’ beliefs and assumptions at the heart of the organization’s culture are core values that form the next level.

The typology of employee retention:

Employee retention is a concern for many organizations. It is costly to replace personnel, and often the individuals who leave take proprietary knowledge that is impossible to replace. Why do employees leave? Employee retention concept is not just retaining a single or few employees but it’s the future of retaining competitive sustainability of most effective manpower-key asset of any organization.

Based on his review of the literature, Ryan (2000) concludes that an employee departs because the current employment proposition is unsatisfactory. Every employment proposition consists of some mixture of tangibles such as pay and benefits, and intangibles such as relationships with colleagues, work-life balance, and trust in management. When the current position is not meeting employee’s needs and an opportunity to join another organization is available.

Turnover predictor is primarily determined by the organization’s external environment and includes factors such as unemployment rate (Carsten & Spector, 1987) or alternative job opportunities (Gerhart, 1990). Thus, investigating turnover antecedents that are more readily within an organization’s immediate control (Morrell, Loan-Clarke, & Wilkinson, 2001). Accordingly, whether an organization manages to avoid turnover or not will largely depend on the availability of internal retention incentives as well as the organization’s propensity and ability to apply them (Maertz & Campion, 1998).

Intention to leave has been extensively researched; few studies have been published in the general business literature on employee’s intention to stay. Iverson and Roy (1994) found that attitudinal commitment (organizational commitment), physical conditions, and job security increased employees’ intention to stay while job hazards decreased the intention. Kuto et al. (2006) also found that working conditions increased intention to stay. Mayfield and Mayfield (2007) found that when leaders use motivating language with employees, the employees tend to stay longer.

Analysis of variance or regression are often used to assess the current state of turnover after a set period of time, to determine the effect of an intervention on retention, or even to predict which employee groups and individuals are at risk for leaving. These analytical techniques are useful, but another technique, survival analysis, provides additional information when considering retention or other employment data.

A longitudinal analysis examined the retention of 904 college graduates hired by public accounting firms over a six-year period. The study found a difference in retention related to the culture of the firms. For employees of the firm with cultures characterized by interpersonal relationship values (respect for people and a team orientation), the median for retention was 14 months longer than in firms with cultures reflecting task values (detail and stability). Interestingly, the effects of the culture emphasising interpersonal values appeared to be universaland were not contingent on employee characteristics (Sheridan, 1992).

Another longitudinal study examines how person–organization fit, operationalized as congruence between perceived and preferred organizational culture, relates to employees’ affective commitment and intention to stay with an organization during the early stages of a strategic organizational change (Meyer, Tracy, Gill and Toplonytsky, 2010).

Other research has found higher retention in “fearless cultures” in which employees can speak-up in order to challenge the status quo without being concerned about retribution. Retention improves with other related aspects of the culture such as positive relationship with the supriors, absence of conflict-laden relationships, having input into decisions, less emphasis on formal authority, information sharing, and support for employees (Greer, 1995) . Careful selection, equitable compensation, Job enrichment practices, offering work-life-balance are other parts of cultures that influence retention. When employees are confident about their organization’s future direction, they are more likely to stay. Thus setting a clear direction for the future and building confidence in the vision for the future should help improve retention.

Opportunities for training, new learning, growth, and promotion in culture also have positive impacts on retention. However the recruitment problem is further deepened by the emergence of a new culture of ‘job hopping’ amongst employers who can demonstrate their world class competencies. This phenomenon of turnover has seen a chain reaction in entry level salaries, and an increase in graduates has created significant social and economic disruption to the Indian labor market (Chatterjee S R, 2007).

Employee engagement as a part of culture to promote retention:

Engagement is the aggregate energised feeling; one has about one’s worth that emerges as product of the feeling of urgency, focus, intensity & enthusiasm (Macey & Schneider, 2009). Britt, (1999) discovered conceptual finding in a study, investigating the relationship between Job engagement, perception of job success, stress and depression. The relationship between the perception of succeeding verses failing at work & stress & depression were stronger when employees reported higher levels of engagement in their job, which promote high potential for employee retention..

Engaged employees enjoy their work and are proud to tell people that they work for the company. They go the extra mile to help their customers and collegues, and they want to stay and develop a career with the company. In long run they are the real contributors.

Management struggles with how to adopt the new realities of fully utilizing and energising or attempting to keep employees pacified or without angst. It is tapping into the core values and beliefs inherit in every individual, creating a passion to work, rather than just providing task, is the key. Culture is intangible for sure but it has a major impact on the feel or climate in any organization. Whilst there is no ‘right’ culture, there are certain environments which build engagement, whereas others do the opposite and leaders can play an important role in building a culture which draws employees in rather than pushes them away.

Employee can have a voice as an aspect of the normal working relationships between themselves and their managers and as such it is linked closely to other reward factors such as recognition, opportunities for achievement and risk sharing. But the organization through its policies for involvement can provide motivation and increased commitmentand engagement by putting people into situations where their views can be expressed, listened to and acted upon. This is central to Linda Gratton’s concept of Demographic entreprises

Case Study:

“Our assets walk out of the door each evening. We have to make sure that they come back the next morning,” is a famous quote attributed to N.R. Narayana Murthy*. Depending on the size of the organization, the industry, and the type of employee, turnover averages between 10 to 20 percent annually, with some industries- notably retail, hospitality, and healthcare- trending higher. Smart organizations make retention a priority, given the significant investments inherent in recruiting and training, not to mention the impact high turnover has on customer service, productivity and employee morale..

Let us consider BT survey of 8742 respondents in 1000 organizations across 800 cities in India. The following is the data of 5 companies among the top 10 “Best companies to Work for” surveyed in table: 1.1

The survey was on nine basic parameters. . The Infosys brand strongly resonates the Indian job market, staying number one on all the parameters– career and personal growth, Company prestige/ reputation, training/coaching/mentoring, financial compensation & benefits and Merit based performance evaluation. This shows that all these factors constitute the part of strong culture of Infosys. Infect, Infosys was the first Indian company to conceive and implement Employee Stock Option Plans (ESOPs). This has also enabled them to institute a culture of strong employee ownership within the organization.

The TCS culture has prominence of Job content (efficient & less stressful), Merit based performance and flexible working hours. A major culture difference that TCS has over other companies is its philosophy and commitment to employee development. Although there are several factors that influence the decision to leave an organization, one factor that is linked with the decision to stay is training (Doll, 2000). TCS matches employees strengths with the needs and provide over 230 hours of training for new hires their first year. TCS is also known for its unique culture as well as fun, high energy work environment.

No.CompanyNumber of EmployeesNumber of people hired in 2009-10Rate of retention(In %)Major HR Practices
1Infosys1,09,88218,00088.04Internal jobs postings, Role and career enhancement programs
2TCS1,40,000800088.06Men too can opt for flexible hours and work from home for family reasons, Cultural diversity.
3Microsoft5,11848289.1Flexible health benefits, Innovation
4Wipro99,53613,61388-91Training & Mentoring Autonomy to Managers
5HDFC Bank47,596450085Meritocracy culture, Art of integration

Table 1.1 Survey results of “Top Companies to Work For”

Microsoft culture has been profoundly influenced by its growth. The constant promotion and rotation of existing Microsoft personnel into new jobs gives the company an edge to make employees stay for long. Managers emphasize both values and business results to create a high performance culture, enabling the organization to consistently achieve solid business performance through the actions of motivated employees who are aligned with the goals and mission of the company. Work procedures, budgeting, decision making, reward systems, and other day to day activities are aligned with the cultural values. When properly handled, job rotation fosters a greater understanding of the organization and aids with employee retention by making individuals more versatile, strengthening their skills and reducing boredom (Mathis & Jackson, 2007)

At Wipro quality, Competitiveness, Customer Satisfaction and leadership are greatly emphasized. Wipro believed that leadership played a critical role in embedding a value-based culture that was in consonance with the company’s beliefs. Employee retention is a direct reflection of leadership (Walden, 2009)

Unlike many large public and private sector firms, HDFC has a flat structure. The driving force in HDFC has been that of its visionary founder chairman, H.T.Parekh. Here the individual employees are empowered to take actions that would satisfy the customer. Job rotation too gives the employees an opportunity to become complete service providers. HDFC has generally recruited young staff that has no previous experience. All middle and senior managers are individuals who have grown with the organization. Training and development is perceived as an investment with the objective of accelerating the pace at which people in the organization learn. While induction programs for new employees focus on ‘how things happen’ in the organization, post-promotion programs at the supervisory and middle management levels lay greater emphasis on role clarification, new responsibilities and subordinate development.

Features of high-retention culture:

What do employees want? This discrepancy creates competitive challenges for companies struggling to retain and motivate an increasingly diverse workforce. Every person has different reasons for working. The reasons for working are as individual as the person. The following attributes are essential to a high-retention organization (Smith Gregory P, 2001):

    • Well defined organizational direction and purpose
      People want to work for an organization that has purpose and meaning. If you align employees with your mission, you can nurture a more dedicated and productive staff.
    • Management that care for employee
      It`s all about the relationship, yet organizations consistently undervalue the importance of soft skills in retention. The quality of an employee`s relationship.
    • Flexibility in work scheduling and benefits
      Employees demand flexibility in their jobs because their lives demand it. They will remain with an employer who guarantees that flexibility. Schedule changes, fixed shifts, time off for personal matters, and other work-life and family- friendly initiatives are effective retention strategies.
    • Open, straightforward communication
      High- retention work places provide a constant communication loop. Don`t be afraid to remind employees periodically about the advantages of working for you. Benchmark competitors and communicates advantages. Explore various communications as priority for all managers, and keep track of your progress in this area.
    • Energetic and enthusiastic work environment
      Do your employees enjoy their work? If you can make the work mentally engaging and physically energizing, employees are more likely to stay.
    • Effective performance appraisals
      Effective performance appraisals help align individual behaviors and performance with your organization`s goals. Stimulating and reinforcing behaviors that align with the company`s meaning and purpose creates a sense of belonging, along with higher productivity and more effective employees.
    • Training and development
      Workers want the opportunity to develop their skills and enhance their company contributions. Training and development give people greater control and ownership of their jobs and contribute to increased loyalty and retention
    • Competitive wages
      While decent pay is almost never sufficient, by itself, to keep employees around, it is a necessary baseline step for getting your foot in their retention door. Raising pay will not automatically lower turnover, but paying too little – especially during periods of low unemployment- will definitely contribute to it.

Organizational culture is wider and deeper concepts, something that an organization ‘is’ rather than what it ‘has’. The values of a corporate culture influence the ethical standards within a corporation, as well as managerial behavior. When new employees are appointed, one of the biggest obstacles in the way of the merging them in organization is organizational culture. Each organization has its own unique culture and most often, when brought together, these cultures clash. When there is no retention, employees point to issues such as identity, communication problems, human resources problems, ego clashes, and inter-group conflicts, which all fall under the category of “cultural differences”.

So, culture is a pattern of shared basic assumptions that the group learned as it solved its problems of external adaptation and internal integration that has worked well enough to be considered valid and therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems (Schein, 1993). As the factors of employee retention salary, career growth, supervision, interpersonal relationship and satisfaction at the work itself are related with external and internal adaptation; Organization culture seems to have an influence on employee retention. This is even confirmed through study that organizational culture values will have a significant influence on retention rates (Sheridan, 1992).

Retention strategies should not be isolated and culture of retention implies the length of holding your employees so far. Every decision has a Ripple Effect (Whitfield, 2008) and everything we do & think affects the people in our lives and their reactions in turn affect others. The choices one makes have far-reaching consequences. Most organizations have great people working for them – many are in the trenches and are rarely recognized for their efforts. On the other, a positive culture helps employees stay with the organization. The organization must ensure that its working environment and culture meet employee needs. Social support and leadership are part of the culture solutions, as well as ensuring that employees can maintain good work life balance. Top talented employees recognize that they represent a valued organizational asset. When their loyalty deteriorates, the tendency to switch organizations increases (Ware & Fern, 1997).

Employee engagement can serve as a great tool to retain talent. Engaged employees will stay with the company, be an advocate of the company and its products and services, and contribute to bottom line business success. Engaged employees also normally perform better and are more motivated. There is a significant link between employee engagement and retention.

As work environment plays pivotal role in inculcating culture of retention, organization should prioritize the following –

    • Introduce employees that their organization holds high degree of attachment towards them.
    • Engage employees in work so as to
    • Inculcate the culture in your employees saying-Retention of employee is not a segregated task anymore-not only H.R task its part of the whole family.
    • Involve employee more in planning retention strategies as coworkers understand better than supervisors.

Finally, organizations need to be possessive about the employees; as they are the most important assets for the company. Investigating these factors in more detail would provide a fruitful extension to the present framework.

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  • Nishant Saxena (HR Consultant)
  • Monika Kumari (Asst Professor)