What is Organizational Culture? (&NYC Happy Hour)

What do these words have in common?

[Culture, Vibes, Charisma, Chemistry, Presence, Flow]

One answer is that they are all linguistic equivalents of "residual error" - the unexplained variance that remains after accounting for all the measured variables.

You build your best possible model using every factor you can identify and quantify. You run the regression. But your predictions still don't perfectly match reality - there's always some unexplained variance left over. That's the residual.

These words like "vibes" and "chemistry" are pointing to that same phenomenon in human experience. It's not that we're holding measurable factors constant to isolate the "vibe" effect. Rather, we've considered all the legible factors we can think of (salary, location, job responsibilities, etc.) and there's still something additional that we can sense or feel is decision relevant - something we can only gesture toward with words like "culture" or "fit."

When our conceptual understanding of something is near perfect, "residual" may well be a synonym for noise. But in a whole host of domains, the residual error is in fact a reminder of how little we know conceptually. But other times, it's a reminder that we can know more than we can quickly define, and certainly more than we can reasonably measure.

This general realization has changed my attitude towards topics I used to dismiss. For most of my life, I'd eye-roll whenever someone brought up "culture" or other concepts I associated with management guru platitudes. Now I'm convinced that almost everything interesting falls into this category of illegible-but-consequential phenomena.

Which is why I'm hosting a happy hour next week on unpacking “Organizational Culture”

Join Us at the Winslow near Union Square on Jul 31 (Thursday).

What is Organizational Culture?

Whether for organizations or countries, culture somewhat encapsulates the feeling of “the way we do things around here”. There’s a lot tangled up in that but it seems important.

(Some of you may not like this) but one way to make progress on this problem is to do what Jordan Peterson does in arguably the funniest videos of all time and try to get specific about each word in that sentence. What do you mean by “the”, “way”, “we”, “do”, “things”, “around”, “here”.

In this context, “we” refers to an organization, a for-profit company, to be specific. The raison d'êtreis for any such organization is maximizing shareholder return by allocating capital in areas where “it” is to earn the highest expected return. What “it” is best suited to do at least partially depends on the actual people who are part of the organization. This “it” is not a static set of specific people, but a group that’s always in flux, based on where the organization is currently positioned and where it intends to go.

We know that the market, the org structure, financial performance, and human capital of that organization can all impact and be impacted by what we intuit as “culture”. Yet, we perceive culture as capturing something additional even if not independent from these other concrete concepts.

To allocate capital where it is best positioned to do so, organizations need to understand both the market and itself, and then make a series of decisions, including decisions about who gets to make what decisions and who gets in and out of the company.

Any one decision or function can fall into the bucket of “strategy”, “hiring” or something else, but how it coordinates across people, functions and actions to move forward - that touches almost everything - seems like the core of what we intuit as “culture”.

I think this comes down to four key questions:

(1) Who are we, why are we doing “this", and what is “this” (Identity/Meta-Cognition)?

(2) How should information flow within the organization? (Communication Norms and Information Flow)

(3) How should decisions be made, by whom, and on what basis? (Decision Making Processes and Norms)

(4) What gets rewarded and punished, and why?

Even if you break each of these down to more granular factors (which LLMs are great at doing), it won't eliminate the 'residual error' quality of culture - you can still walk into an office and immediately sense something is off without being able to articulate why. One reason, beyond the problems of measurability, is the interdependence between these dimensions. How decisions get made shapes what information flows where, which affects who gets status, which reinforces the organization's sense of identity. The 'vibe' you're sensing is often emerging from these complex web of interactions, and thus hard to pin down.

Observations about Stated and Actual Corporate Culture

Culture should but does not often capture tradeoffs. If your cultural description is something everyone would agree with - "we make decisions responsibly" or "we value both innovation and execution" - you're not describing culture, you're stating platitudes. Real culture lives in the tensions: for example, how willing are we to risk discomfort or hurt feelings in the pursuit of truth? This is why firms like Netflix and Bridgewater stand out. By biting bullets and broadcasting their culture, they aid self-selection in and out of the organization.

Most cultural dimensions are emergent properties - You can't just decree that your organization will now be more truth-seeking or meritocratic. But there are specific leverage points where leadership has direct control, mainly: compensation, promotions, hiring, and firing. When you promote someone, you're broadcasting to the entire organization what actually gets rewarded here, regardless of what the handbook says. People reverse-engineer the real rules from status hierarchies and the accordance of status.

Hypocrisy is common. Organizations routinely claim to value one thing while systematically rewarding another. They say they want candid feedback but promote the diplomatic consensus-builders. This isn't usually deception; it's that the stated values represent aspirations while the actual culture reflect the accumulated weight of thousands of small decisions and inherited patterns.