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Culture & Business Performance: What’s the relationship?

by Method Frameworks Staff

Why is it that culture seems to be linked to the good, the bad and the ugly in today’s business world? Perhaps the answer can be found in the mounting data suggesting that organizations with strong cultures rooted in shared core values tend to have much happier employees... and happier employees help businesses be more productive. In fact, there is newly released empirical evidence from the Strategy Institute For Thought Leadership that suggests that core values (read: culture) directly correlate with business financial performance. Like it or not, culture is indeed an integral ingredient to an improved bottom line. As such, business leaders cannot afford to look the other way and dismiss culture as some sort of “soft” or “fuzzy” element that does not have an impact on the Profit & Loss statement.

This article looks at culture from some perspectives you might not have thought about, then explores criteria to help identify business culture opportunities and how changes can be introduced to help improve performance.

Why Culture Is Important
Research shows that organizations with performance-centric cultures experience better financial growth. One such study, conducted in 2003 by Harvard Business School, reported that culture has a significant impact on an organization’s long-term economic performance. The study examined the management practices at 160 organizations over ten years and found that culture can enhance performance or prove detrimental to performance. Performance-centric organizations witnessed far better financial growth. Another study, conducted in 2002 by the Corporate Leadership Council, found that cultural traits such as risk taking, internal communications, and flexibility are some of the most important drivers of business performance.

A study conducted by the Strategy Institute For Thought Leadership produced findings that suggests core values and culture directly correlate with business performance. Indexed survey data from this study related to core value perceptions and employee satisfaction can be viewed relative to business financial performance - all indexed in relative terms on a scale of one to ten for five different companies.

As the graph indicates, businesses with higher core value index scores outperformed those with lower core value index scores. Likewise, employee satisfaction was noticeably higher in those same organizations.

How would your employees describe your organization’s culture?
Diagnosing a need for cultural change is among the most difficult of tasks to complete in the overall job of correcting sub-par business results. By defining culture in real-life terms, it can take on a more meaningful form that allows leaders to identify cultural characteristics and better determine if problems exists, then how to go about making change if it is required.

One group that matters a great deal in learning about the organization’s culture are the employees. It is important to pick and chip through the culture puzzle by surveying employees to find out what they really think. The organization’s employees have a direct relationship to the overall experience the business provides to its customers. In high-performing cultures, employees demonstrate a clear understanding of their organization’s strategic priorities and what management values in relation to achieving strategic objectives. That aspect has major implications to performance because it is difficult for employees to be supportive of the company’s vision and strategy if they do not know what is valued as an organization. Any lack of connection to strategy and “valued actions” in regard to achieving the strategic objectives is a clear indication of an opportunity for cultural correction. Employees must know what management values in order to help achieve desired results and strengthen the organization’s culture.

For example, in a software company, most employees may be focused on making better software through enhanced technical design, not on improving the end-customer’s overall experience. Technical improvements, while important, will likely not be appreciated by the customer as much as a focus on the customer’s overall experience. In this example, the cultural disconnect is with a system-wide misplaced focus on the technical instead of the qualitative aspects of the software.  Customers determine value on the larger overall experience, not just the software’s functions. Their perception of value is derived based on how they interact with the software and how they can get help when it is needed. Therefore, in this case, the culture is allowing for the focus to be misplaced on how the software is being built, not on improving the experience the product provides.

Identifying culture problems through the employee’s eyes is difficult. Surveys can certainly help uncover problems, but of course, no one likes to consider themselves to be a part of the problem. “Yes, there is a problem, but it is not with my department.” Be prepared to see blame placed everywhere but where you are asking the questions.

How would customers describe your organization's culture?
An important aspect of culture relative to business performance lies in understanding how the organization’s culture translates across to customers. Logically, the next recommendation is to find out how customers view the organization’s culture. Enthusiasm is palpable when you do business with an organization that is fanatical about making your experience the best it can be. You know that when dealing with that business, you will consistently experience that level of passion and excitement because it has become a part of the DNA of the organization. It is in the culture. Such experiences are the result of a business culture that cares about the customer and understands what priorities management values the highest. Surveying customers, like employees, can be telling. In an interview with McKinsey, Bombardier CEO Pierre Beaudoin proves the point. He said, “we had an organization that was very proud of being number one and had all kinds of metrics to measure why we were very good. But when we talked to our customers, they were saying we weren’t very good.”

Not understanding your culture means not understanding how it affects your customers. Good or bad, culture represents the predominant attitude within the organization. “That’s the way we’ve always done things around here” can become a thematic tide that is hard to swim against.

What is the management culture?
While it may not be the most important factor in determining if an overall culture problem exists across the organization, it is worth pointing out that there can be cultural problems at the management level and that those can be very damaging. Such problems may even be fairly benign on the surface, making them hard to spot. One such example is “happy talk”; a condition where the culture is one of avoiding putting facts on the table, accountability is ill-defined and management spends time convincing itself how good the business is doing. This goes hand-in-hand with complacency; where goals are defined in such a way so that management can surpass them and feel good about its performance. Another very common cultural issue is silos, where people are focused on their own tasks and there is very little teamwork.

In the article, "A Fish Rots From the Head," it was asserted that the executive leader’s personality, traits and beliefs collectively form a signature that is stamped into the organization’s social fabric. The conduct of the organization’s leader truly sets the tone.

To illustrate through a couple of examples, let’s examine two very different companies and cultures. In one client organization, the focus of leadership was intently honed on improving financial performance, service and employee culture. Yet in the environment, many inconsistencies existed. For instance, executive-level floors had the restrooms cleaned at a ratio of 6:1 times more frequently than others in the headquarters building. This did not go unnoticed by employees on non-executive floors. The policy was intended to save dollars in facilities management costs, but it backfired. Unclean employee and public restrooms caused consternation and anger with workers, not to mention embarrassment it caused the company as visitors witnessed the untidy conditions and complained. The mis-guided policy sent a signal that executives were “above” others in the company and would be treated differently. The negative impacts of the policy to employee satisfaction and a healthy culture were immense.

Conversely, in another organization, the CEO moved all executives into interior offices to allow employee cubicles to get better natural lighting. In this same company, the CEO was known to help an employee carry heavy boxes containing copies of an important proposal at the down to the parking garage and help load them into the employee’s car. Two simple gestures, but those types of actions clearly send a very different signal to workers and have an equally strong impact of culture. The actions of the CEO said volumes, indicating, “I want you to be happy in your work, to succeed with this organization and to help us achieve our goals by being a valued member of the team, therefore I will do everything I can to help you.”

Introducing Changes To The Culture
Changing an organization’s culture is a daunting feat. That’s because the culture of an organization is comprised of many intricate and interconnected parts, including corporate strategy and related strategic goals, job roles, business processes, core values, communications practices, corporate attitudes and business policies. These component parts are woven together into the cultural fabric and cannot be changed in isolation. Instead, they must be addressed holistically.

Consider the culture that exists in the current day environment of any organization. Just as water running for ages over rock will cut a path that channels swifter currents, culture wears its own path through the business, manifested in policies, business processes, job roles, communication practices and corporate bureaucracies. It is a part of the organization to the extent that any small attempts to introduce change will be swept away by the stronger current of institutionalized cultural rituals learned and practiced for so long. That’s not to say that culture transformation cannot be successful, only that it won’t be successful without disruption to the normal course of things. Change must be introduced to all of the elements affecting culture. There is no single action to be taken, but instead, an orchestrated regimen of small and large steps that will help break the rut and allow new flows to open.

Aiming for performance excellence
Culture does affect performance, therefore the goal of tampering with culture in the first place is to influence the organizational ethos towards one of performance and excellence. Most executives would submit that we want the associates in our business, among other things, to be:

  • highly ethical - focused on creating value for our customers
  • conscientious about avoiding waste
  • dedicated to providing fanatical customer service
  • involved, responsible and giving citizens in the communities where they live

Corporate leaders must model this behavior themselves. If cultural change is sought, executives must do more the talk the talk...they must also walk the walk.

In addition to leadership committing to championing culture change, many areas of the business likely will face makeovers - such as job role changes, business processes that must be altered or realigned and communications practices that must be improved to help cultural change take hold. Based on organizational model changes and related process impacts - communication will be effected, as will decision processes and process latency expansions or constrictions. These must be well understood, expected and planned. Most importantly, employees will be impacted by change. Communicate the goals of change to employees and include them in the process by connecting goals to each person’s day-to-day work.

Lastly, expect that changes will be disruptive. The good news is that disruption will help the organization break free from the well-worn patterns that currently hold it in place and increase the speed of transition to the future-state culture.


This article originally appeared on the Method Frameworks website.

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