The Profit Power of Corporate Culture

“I came to see, in my time at IBM, that culture isn’t just one aspect of the game, it is the game. In the end, an organization is nothing more than the collective capacity of its people to create value.” – Louis Gerstner, IBM

Corporate culture is widely recognized as an important contributor to profitable performance. Many CEOs will tell you that managing corporate culture is one of their most important activities, especially in larger companies. But corporate culture is notoriously difficult to define. What is it, exactly?

Culture has been conceptualized as a collection of key values, symbols, meanings, beliefs, assumptions and expectations that organizational members share (Sriramesh, Grunig, & Buffington, 1992). Culture is “how things get done, and it is created, sustained, and changed by its members and subcultures” (Berger, 2014).

While the definition may sound very qualitative, the quantitative link between positive corporate culture and business results is well established, for example, as shown in the book Corporate Culture and Performance, by John P. Kotter and James l Heskett. Over an eleven-year period, the authors tracked performance metrics for 32 firms (12 with strong corporate cultures, and 20 without) and found:

Average Performance of Firms with Strong Cultures Average Performance of Firms without Strong Cultures
Revenue Growth 682% 166%
Employment Growth 282% 36%
Stock Price Growth 901% 74%
Net Income Growth 756% 1%

According to Kotter, “These results are staggering. To consider that the difference between a 900% and a 75% appreciation in equity value is somewhat attributable to the strength of a company’s corporate culture highlights the significance of this often-overlooked issue.”

In his new book, The Culture Cycle: How to Shape the Unseen Force that Transforms Performance, Heskett continues this work by identifying the most important factors of corporate culture that lead to profitability. According to Heskett, “The culture cycle begins with the establishment and communication of shared values and behaviors, and includes:

  1. The careful selection of employees who are believers in these values and in establishing “how we do things around here”;
  2. The development of realistic expectations in the minds of new employees and meeting them in ways that establish trust, engagement, and “ownership,” which are the foundations for the successful implementation of whatever policies and practices are necessary to execute a given strategy;
  3. Policies and practices that lead to a learning, innovative organization;
  4. Measurement of the results in terms of things such as employee retention and referrals, returns to labor, and relationships with customers (producing loyalty and customer “ownership”) as well as innovation and financial performance.”

David Grossman, a Chicago-based leadership consultant, says one good reason to strive for a better company culture is that it can provide a unique competitive advantage. “Culture change today is at the heart of winning because it’s so difficult for competitors to copy,” he says.

And measurement is at the heart of understanding, changing, and maintaining a strong corporate culture. If you don’t understand what your employees believe, how those beliefs impact your operations, and how the entire ecosystem creates value for customers, you simply cannot take advantage of this powerful competitive weapon.

It may be ironic that a strong, unified corporate culture is a competitive weapon in a time of increasing diversity, fragmentation and globalization, or those factors may be the very reasons why corporate culture is so powerful in creating value and profit for employees and customers. And while changing corporate culture is not easy, it is clearly a business imperative for 2017 and beyond. Businesses that do not have strong, positive, performance-enhancing cultures will not thrive in the future.

Are you ready to tackle your Corporate Culture to Improve Profitability? Call Infosurv today at (888) 262-3186.

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