Simply defined, culture is the customs, beliefs and resulting ways of thinking and behaving adopted by a group of people.
If not intentionally designed, it is common for corporate culture to arise organically as either a “cult of personality” (e.g. the business leader has a style that others begin to emulate) or from the set of procedures and policies presented in the company’s Employee Manual (i.e. rules guide behavior and behavior is culture).
Today, though, the value of a strong positive corporate culture is widely accepted and most business owners, leadership teams and boards put serious thought and effort into designing and realizing the culture they think will lead to the best outcome for their companies.
Despite this deeper understanding of the critical nature of culture in ensuring a healthy organization, a large number of business leaders are not aware of the very direct connection between culture and their company’s financial health.
In fact, many still consider culture to be a “soft” asset, and culture-related initiatives as programs designed to make employees feel good about their work and the company but which fail to yield a measurable, lasting and positive impact on KPIs.
It’s no wonder so many business owners cringe when HR stops by to discuss the annual company picnic!
And they should cringe because efforts based solely on creating one-off, “warm fuzzies” are a waste of resources. However, a strong positive corporate culture, defined as mission-driven and guided by purpose, values-based, aligned with growth strategy and deeply embedded within a company, has a far more significant and far-reaching influence on your company’s financial health than you may realize.
According to Forbes,
data collected by Queen’s University Centre for Business Venturing over a
10-year period revealed that organizations with a strong positive culture (what
Forbes expressed as an
“engaged culture”) experienced 65% greater share-price increase, 15% greater productivity, 26% less employee turnover, 20% less absenteeism and 30% greater customer satisfaction.
Here are just a few ways that strong positive corporate culture greatly improves a company’s financial standing:
Strong Positive Culture Sets & Protects Reputation
Culture informs everything a company does and how it does it. As a result, corporate culture drives reputation.
A strong positive culture is, first and foremost, grounded in a company’s values and therefore it sets a higher standard that not only guides how everyone within the company will operate, but also informs outsiders of what they can expect from the company and holds the company accountable to delivering on its reputation.
The risk of reputation loss is thus greatly reduced thanks to the system of values-based checks and balances a strong positive culture brings to every decision point.
Strong Positive Culture Results in Innovation
Companies need to innovate for sustained growth and success, and innovation is even more crucial for surviving in today’s disruptive marketplace.
Data shows there is a direct correlation between a strong positive corporate culture and the ability to innovate. Rajesh Chandy, Professor of Marketing at the University of Minnesota’s Carlson School of Management and charter member of the U.S. Department of Commerce’s Advisory Committee on Measuring Innovation in the 21st Century Economy, states,
“Corporate culture is, above all, the most important factor in driving innovation.”
In What Drives Innovation in Firms Across Nations? A Culture of Innovation, Chandy and co-authors Gerard Tellis and Jaideep Prabhu of USC and Cambridge University tested this hypothesis through a study of 759 firms from 17 major world economies and found that among traditional innovation drivers such as access to capital, government policy, R&D, intellectual property and the overarching culture of the country in which a business is located:
“The internal culture of a firm is the strongest driver of radical innovations.
Its impact exceeds that of all other factors proposed in the literature.”
Strong Positive Culture Wins the War for Talent, Reduces HR Costs & Increases Company Profitability
With the high cost of finding and training new employees, reducing turnover is an imperative for most companies. After all, you don’t want to invest your company’s resources in training people who only quit to go work for your competitors.
But that’s not the worst of it. There are three states of employee engagement:
- Highly Engaged – these employees will grow your business
- Not Engaged – these employees work, but put in no extra effort
- Actively Disengaged – these employees block your company’s success (they not only underperform but spread negativity causing other employees to underperform)
Strong positive culture increases engagement and prevents active disengagement, as well as combats recruitment and retention losses in multiple ways:
First, today’s employees (especially Millennials and Gen Z – the generation just now entering the workforce) want to work for purpose-driven companies that desire to make a difference beyond selling products and services. A strong positive culture has purpose at its center and is a magnet for talented individuals who also want to make a difference. In short, it attracts individuals who are highly engaged already, gives the not engaged inspiration for upping their contribution and shines a spotlight on the actively disengaged, making them very uncomfortable and enabling their managers to more easily identify problem workers.
Second, companies that have a strong positive culture put more resources toward employee development, and have better systems and processes for educating employees throughout their careers (as opposed to only during initial on-boarding). Talented employees are attracted to companies that have programs to support their personal and professional growth and, perhaps more importantly, the investment in employee education and growth naturally produces highly engaged workers with more focus and direction.
Finally, a strong positive culture results in a workplace people don’t want to leave. Being part of a company where employees have a shared vision is exhilarating. It’s similar to being part of close-knit sports where your teammates want and expect you to do your best and support you in improving when you don’t. These types of companies are not easy to get into thanks to the sheer numbers of top players knocking at their door and the high standards for new hires. So once an employee does make it into your fold, they’re there to stay.
It boils down to a substantial difference in profitability. In August 2018, Gallup reported:
“Organizations and teams with higher employee engagement and lower active disengagement perform at higher levels. For example, organizations that are the best in engaging their employees achieve earnings-per-share growth that is more than four times that of their competitors. Compared with business units in the bottom quartile, those in the top quartile of engagement realize substantially better customer engagement, higher productivity, better retention, fewer accidents, and 21% higher profitability. Engaged workers also report better health outcomes.”
Strong Positive Culture Creates Long-Term High Performance
Creating strong positive culture is a long game. It doesn’t happen overnight, and it is not a “one and done, check off the box” initiative. Therefore, companies that invest in building a strong culture are making a long term commitment to excellence that will continue to pay dividends over time.
You will need to wait awhile to reap the full rewards from your efforts, but those rewards are worth waiting for because, once achieved, they are lasting.
This also speaks directly to the problem of one-off employee satisfaction initiatives – the summer hours program, the holiday party, the high-end coffee maker with barista installed in the break room.
These are all nice things to offer and can be part of your company’s culture if they align with your culture’s underlying vision and values. But they are superficial when absent a well thought out plan for your company’s culture in the long term.
In other words, to improve your company’s financial health through culture, you can’t start with a bunch of random “warm and fuzzy” programs. Rather, start with your company’s larger vision, goals and strategy, and then think through the type of environment that will most facilitate their execution and achieve the results you want.
The Bottom Line on Culture & Financial Health
The knowledge that a strong positive culture has proven positive impact on the bottom line should be enough to make intentional, thoughtful culture design a top priority this year.
Your competitors have this information too and, if they’re smart, they’re acting on it.