How does organization culture impact on business performance?

Answer 1

The short answer is YES. Kotter and Heskett's landmark study Corporate Culture and Performance documented results for 207 large U.S. companies in 22 different industries over an eleven‐year period. Kotter and Heskett reported that companies that managed their cultures well saw revenue increases of 682% versus 166% for the companies that did not manage their cultures well; stock price increases of 901% versus 74%; and net income increases of 756% versus 1%.

How important is a constructive culture to the short‐ and long‐term performance and results of a company? Consider this example. A high‐tech, Fortune 50 manufacturing company was losing $11 million annually. A cultural assessment identified a non‐constructive culture that encouraged worker boredom, dissatisfaction and work avoidance. To turn around this situation, the plant simultaneously worked on both their processes and culture. After 12 to 24 months of process and culture changes where expectations of management shifted from an aggressive/defensive style to a more healthy, effective and constructive style, cycle times reduced by 68%, work‐in‐progress reduced by 38%, orders that were behind schedule reduced from 2,100 to 91, and the $11 million loss became a $24 million annual profit. Culture change was the foundation that helped this site return to profitability. It is the same culture that will raise productivity, profitability, morale.

What is culture?

Company culture describes the company, how it is managed, how it reacts to external challenges and how workers respond to their work environment. Company culture can be divided into three general categories: constructive, passive defensive and aggressive defensive. The constructive culture is the most desirable-and the least found. It is typified by an achievement motive in which individuals believe their efforts make a difference. It is an environment where creativity is rewarded, and employees continually learn, grow and develop. It has a social base in which individuals genuinely enjoy working with each other.

What can you do?

Determine the culture ‐ The first step is to conduct an assessment that provides a profile of your organization's operating culture in terms of the behaviors that members believe are required to "fit in and meet expectations" within the organization. It measures "how things are done around here." It should be completed by a representative cross section of the company that defines the corporate culture. If the culture is found to be non‐constructive, a second assessment measuring Organizational Effectiveness should be

conducted. This assessment measures virtually all internal factors and conditions that are likely to impact the organization's performance.

Together these assessments determine norms and expectations, measure the structures, systems, technologies, and skills and qualities of those in leadership that are the causal factors of culture.

Role clarity is just one of several outcomes that determine a company's culture. Levers for changing the culture should include goal setting, job design, motivation, inter‐unit coordination, downward and upward communication, and quality. Taking these factors into account will change the negative culture into a constructive culture.

For example, in an aggressive‐defensive culture, satisfaction is typically low. Changing employee satisfaction levels requires work on certain factors such as goal setting. Individual workers that help to jointly set goals can affect a change in the norms and expectations in the culture that in turn affects the outcome - in this case a higher level of satisfaction. Satisfaction increases because employees are involved in setting goals and feel their individual efforts are making a difference. This change helps shift the aggressive‐defensive culture to a constructive culture.

Similar changes, such as improving customer service commitment, need to be addressed in a passive‐defensive culture. Moving from the old, non‐constructive culture to the desirable, new culture is a process that will take several months or more. It will take even longer if the assessment reveals a passive culture because a passive culture is more difficult to work with and transform. But take heart. As the company culture is changing, the company can simultaneously begin implementing other initiatives such as continual improvement, LEAN, 6‐Sigma, ISO registration, etc.,.

In the end, many benefits will surface. The company will implement new initiatives and it will embrace a new culture in which management and employees feel positive, processes will have improved, and net income will increase according to Kotter and Heskett. That is a win‐win in any manager's book.

by Shafi Adam

Answer 2

Absolutely, organization culture has a huge impact on business performance! Think of it like this: it's the personality of your company.

A positive and strong company culture can lead to:

Employee Engagement: When your team feels connected to the company's values and mission, they're more engaged, motivated, and likely to perform at their best.

Retention: Happy employees tend to stick around. A great culture reduces turnover, which can save you money and time on hiring and training.

Innovation: A culture that encourages creativity and open communication can foster innovation and new ideas.

Customer Satisfaction: Happy employees often lead to happy customers. When your team enjoys their work, it often shows in the way they interact with clients.

Adaptability: In today's fast-paced business world, being able to adapt to change is crucial. A strong culture can help your company stay agile and flexible.

On the flip side, a negative or toxic culture can be incredibly damaging. It can lead to high turnover, poor performance, and even legal issues.

So, it's not just about the numbers; it's about the people. A healthy culture can be a competitive advantage that boosts your business's performance and reputation.

See our culture here.