Company culture is trending news in all industries. Recently, both Uber and United Airlines have been cited in the news as having culture problems. Why is culture so important? The bottom line is that culture affects a company’s bottom line!
Many studies have proven that a strong, positive company culture produces beneficial financial results. Even exacting academics who cannot bring themselves to proclaim culture as the “cure-all for what ails you” nevertheless admit that it matters. For every CFO who might be skeptical about the benefit of focusing on company culture, here are four impressive research studies that prove that culture affects your financial success:
Research finding #1: Raj Sisodia, professor of marketing at Babson University and a founder of the Conscious Capitalism movement, and his team of authors studied companies that they designated as “firms of endearment.” Firms of endearment actively align all stakeholders’ interests and consider corporate culture their most important asset. Sisodia reports that the public companies on his firms of endearment list returned “1,026 percent for investors over the 10 years ending June 30, 2006, compared to 122 percent for the S&P 500, that’s more than an 8-to-1 ratio!”.
Research finding #2: In another study, Harvard Business School professors john Kotter and James Keskett conducted an eleven-year study of 207 companies and concluded those with cultures that focus on the key constituencies of customers, stockholders, and employees outperformed their competition by large margins.
Research finding #3: A 2008 American Management Association study equated a “positive corporate culture” with higher performance. Denison finds that a “participative culture” has measurable effects on a company’s performance. He used two financial measures, Return on Sales and Return on Investment, to compare results among companies that he rated along the dimensions of cultural characteristics, management practices, and key precepts. Sørensen’s research finds that companies with strong, that is, consistent cultures perform better than their peers during stable market environments, but the benefits disappear in volatile environments.
Research finding #4: Some experts use indirect measures of a good company culture to prove benefits. Some indirect measures are employee engagement or satisfaction and ethical business practices. For example, the companies on Fortune’s “100 Best Companies to Work For” list (a measure of employee satisfaction and engagement) post stock-market returns that beat their peers by 2-3% per year.
Company culture affects productivity, retention of your best employees, customer satisfaction and loyalty and ultimately, profitability. Put it through the lens of your own experience: Have you performed better at companies that value your contribution and treated you well? Human beings flourish in positive environments, and companies are no exception.
Have you examined your company culture lately?
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