Does Company Culture Affect your Profitability? The Research Says Yes!

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?

• Adapted from Your Company Culture: Growing Vibrant Business by Kristin E. Robertson, 2017.  To read more about or purchase the book, visit our website here.
  
  1. Sisodia, Rajendra, Jagdish N Sheth, and David B Wolfe. Firms of Endearment: How World-Class Companies Profit from Passion and Purpose. 1st ed. Upper Saddle River, New Jersey: Pearson FT Press, 2014. Print.
  2. Ibid.
  3. Kotter, John P, and James L. Heskett. Corporate Culture and Performance. 1st ed. New York: Free Press, 1992. Print.
  4. Denison, Daniel R. "Bringing Corporate Culture to The Bottom Line". Organizational Dynamics 13.2 (1984): 5-22. Web. 12 Apr. 2017.
  5. Sørensen, Jesper B. "The Strength of Corporate Culture and The Reliability Of Firm Performance". Administrative Science Quarterly 47.1 (2002): 70. Web. 12 Apr. 2017.
  6. Backman, Melvin. "Best Companies to Work for Have The Best Performing Stocks". CNN Money, 2014. Web. 12 Apr. 2017.
  
  

---

Kristin Robertson, CEO of Brio Leadership, is dedicated to increasing the number of employees who are excited to go to work on Monday mornings.  Services include executive coaching, leadership development classes and company culture consulting.  Don’t forget to get a copy of Kristin Robertson’s new book, Your Company Culture Ecosystem, available on Amazon.