Company Culture

Why Organizational Culture Matters

Every company has their own unique culture. Organizational culture is a set of norms, beliefs, values and vision that define how employees and managers interact within an organization. Whether you have a preset list of company values or not your company will naturally develop its own culture. However, companies have not been paying as much attention to organizational culture until now. A 2015 study by Deloitte University Press found that 87% of the organizations surveyed now cite culture and employee engagement as their top challenges. Here are several studies that show why organizational culture matters:

 

1. Motivation

 

After conducting a number of surveys, studies and experiments, authors Lindsay McGregor and Neel Doshi concluded that: why we work determines how well we work. When employees enjoy their work (play), identify with the values and goals of the job (purpose), or when it contributes to their own professional goals (potential), performance levels skyrocket. These three elements can only be achieved when a company has a strong culture and set of values in place. By combining these elements they came up with the ToMo (total motivation) formula to measure the worth of culture:

 

(10 x the score for play) + (5 x purpose) + (1 2/3 x potential) – (1 2/3 x emotional pressure) – (5 x economic pressure) – (10 x inertia)

 

Companies that maximize the first three elements - play, purpose, potential - are proven to have highly productive workforces.

 

2. Customer Satisfaction

 

Your employees are your company’s representatives. If they’re engaged at work and believe in your brand this will come across to the customer. Through their studies in the airline and grocery industries, McGregor and Doshi identified a distinct link between customer satisfaction and company culture. This correlation was so strong that the difference in revenue between salespeople in strong and weak company cultures was 30%. However, a Gallup poll showed that only 41% of employees actually know what their company stands for and how their brand differs from competitors.

 

3. Growth

 

Having a strong culture in place allows you to give more autonomy to your employees, allowing you to scale, while still holding on to what’s most important for your business. This was a chief concern of Zappos’ CEO Tony Hsieh. As the company began to grow he wanted a way to maintain its commitment to customer service and its motto of ‘keeping things weird’. To do this he institutionalized a set of company values that all employees live by and centered recruitment around culture fit, rather than simply skill set.

 

Deloitte found that employees who work for companies with a strong sense of purpose ingrained into their culture are more confident in their company’s ability to deliver top quality products and service (65%), focus on long-term sustainable growth (55%), and have a clear understanding of the company’s purpose and commitment to core values (48%). A further 83% of respondents working for companies with a strong sense of purpose believe their company is prepared to meet industry disruptions, compared to 42% in weak culture environments.

4. Attracting Top Talent

 

It also helps you to attract the best hires. Today potential hires are looking for more than just a good salary. Generating profit is not enough. Millennials in particular are motivated by working environments that have a strong sense of purpose and values. They're looking for employers who are concerned about the impact they have on customers, society and the environment. When Deloitte asked respondents what the most important aspects of their company culture were most responded: providing business services and products that have a meaningful impact on customers (89%) and on society (84%). For this reason more and more companies are offering their employees paid leave to work for the charity of their choice.

 

5. Employee Retention

 

Employees today are not just looking for a job, they’re looking for a community in which collaboration and knowledge-sharing are fostered. A Google survey found that 88% of respondents who strongly agreed that their company’s culture fostered collaboration and knowledge-sharing also agreed that employee morale and job satisfaction were high in their company. Columbia University found companies with rich cultures only have 13.9% probability of turnover, compared to 48.4% in those with a weak culture. According to a survey by Officevibe, 58% of men and 74% of women would refuse a job with higher pay if it meant not getting along with their colleagues.

 

6. Company Image

 

The information age has brought about increased transparency and scrutiny. Glassdoor, Linkedin, Indeed and Fortune’s ‘100 Best Companies to Work For’ all base their rankings on employee critiques of company culture. A recent combined study by Bersin by Deloitte and Glassdoor sought to identify the factors that drive current employees to recommend their employer to others. They found that an employee's rating of culture and values is 4.9 times more predictive of a positive recommendation than salary or benefits.

 

Employees and potential hires are not the only ones impacted by a company’s culture, customers and stakeholders also base their decisions on this information. In a survey, Deloitte found that 81% of respondents working for companies with a strong sense of purpose also said stakeholders trusted their leadership team. Seventy-four percent said investors were confident in their growth prospects over the next year. In fact, the companies included in Fortune’s ‘100 Best Companies to Work For’ list (based on employee reviews of company culture) experience a 14% average rise in stock prices per year, compared to 6% in the overall market. As Hsieh explained in a blogpost on the Zappos website: “Your culture is your brand”.

 

Finally, a combined Columbia and Duke University study of over 1400 CEOs and CFOs found:

 

  • More than 90% said that culture was important at their firms.

  • 92% said they believed improving their firm’s corporate culture would improve the value of the company.

  • 78% said culture was one of the top five things that make their company valuable

  • More than 50% said corporate culture influences productivity, creativity, profitability, firm value and growth rates.

  • Yet, only 15% said their firm’s corporate culture was where it needed to be.

  • When considering acquiring a new company, 46% would not make an offer to a company that did not align with their own company’s culture.


Now that you know why organizational culture is so important, read more about how you can shape it to fit your company's objectives by downloading our free white paper.

Photo by Verne Ho