Why Focus on Organizational Culture?

When operating a business, leaders naturally focus on the key indicator of business success: profitability. There may be other metrics that provide further clarity or context, but ultimately the business has to take in more money than it spends or else it will cease to exist. Creating a cash reserve or establishing a line of credit helps the business overcome seasonal or other cash flow variability, unforeseen events, or even helps the business respond quickly to market demands.

With that in mind, there’s another reserve fund that is equally important to the survival of your business: your company’s culture. The topic of culture sometimes triggers eye-rolls or audible groans. It’s a difficult subject since it is so hard to control and predict. At the same time, while most businesses would admit that it’s important, they tend to avoid thinking about it.

Here’s the deal: You have to.

What is culture, anyway?

Before we jump into why you have to focus on culture, let’s be perfectly clear about what culture is (and isn’t). The most common and accepted definition of organizational culture is: a system of shared assumptions, values, and beliefs, which governs how people behave in organizations. These shared values have a strong influence on the people in the organization and dictate how they dress, act, and perform their jobs. These shared values and behaviors are sometimes formalized in policy, but more often they are the ‘unwritten rules’ people follow. When it works well, people feel comfortable with the written and unwritten rules. It acts like a vessel holding a reservoir of good will and trust. When people’s personal values conflict with the organizational values, the reservoir develops leaks and culture suffers.

What are the business benefits of a strong culture?

The late management guru and MIT professor of organizational behavior Peter Drucker famously quipped, “Culture eats strategy for breakfast.”[1] In his research—since proven over and over again by contemporary researchers—he shows that the force of an organization’s culture is so strong that it can bend or break your strategy. The influence of the culture can literally alter the course of a business. When the senior leaders focus on strategy and don’t consider how/if the culture is capable and prepared to absorb the change, they are creating business risk.

Furthermore, profitability, productivity, low turnover, an excellent safety record, and customer satisfaction result from employee engagement created by a positive work environment. Engaged workers create a 20 percent increase in productivity and are nearly 90 percent more likely to stay with their employer, according to a Corporate Executive Board study cited in Scott Snell’s “Managing Human Resources” textbook.

Going deeper, recent research by Great Place to Work[2]—the company behind Fortune Magazine’s 100 Best Places to Work List—shows that companies that focus on both performance and culture out-perform their industry counterparts every time. Workplaces with great cultures have less turnover, more innovation, and higher shareholder returns. In fact, if you created an index fund of just Fortune 100 Best companies, you would notice that they have an 11.8 percent annualized rate of stock market returns compared to just 6.04 percent for S&P 500.

Additionally, companies with great cultures experience more cooperation and commitment to the company:

On the flip side

Problems stemming from a negative employment atmosphere feed upon each other to the detriment of the entire organization. Attendance issues—calling out, showing up late, leaving early—lower productivity and erode morale. Customer service suffers when unhappy workers cannot put on a happy face. Innovation and creativity lose their competitive advantage when disengaged staff and managers lose interest. As disillusioned employees leave, management loses credibility which tarnishes the organization’s reputation and causes recruitment trouble.

Researchers Christine Pearson and Christine Porath, authors of “The Cost of Bad Behavior,” show how one bully in an organization can create an army of silent saboteurs.

How do I know I have a good or bad culture?

Good cultures are full of good employee/manager relationships. According to Great Place to Work, the strength of the manager/employee relationship is the main indicator of a high-trust culture. Trust, of course, is one of the most important contributors to having an overall good culture. Two other reliable indicators of a good culture are alignment and consistency.

Most employees take their behavioral cues from their supervisors and company leadership. Thus, if a leader makes ethical decisions, employees tend to do the same. If a leader cuts corners, employees will feel that it’s OK to cut corners too. Most companies have pockets of strong and weak leadership, however. This creates mixed signals, which in turn creates frustration, second-guessing, and employee distrust in the competency of leaders. The best companies have leaders who are aligned. That is, each leader has a similar view on what’s important to the company, how to solve problems, and generally how to make employees feel part of the team.

Another hallmark of a great culture is consistency. When employees from different departments or divisions of the company share similar stories or use similar words about their experience working there, that is consistency. The alternative we see a lot is one or two departments feeling great about their workplace while others are suffering. This inconsistency could mean there is no singular or identifiable culture.

Think of companies whose culture is part of their brand: Amazon, Zappos, Netflix, Google, etc. Each employee of those companies is experiencing the same culture.

Where do I start if I want to do something?

1. Let’s say you’re convinced that focusing on your culture is a good idea for your business. Where do you start?

It’s important to recognize that changing human systems is inherently challenging. It requires a clear vision of the future and a lot of persistence. To get the ball rolling, start with yourself. All successful change efforts start with one person willing to change himself or herself. Start with a small experiment and see if it makes a difference. Afterwards, reflect on how it felt to you. Here are a few examples:

• Reduce the amount of talking you do in meetings by half.
• Ask open-ended questions instead of yes/no questions.
• Engage in a 10-minute ‘get to know you’ conversation with someone at work (challenge yourself not to reply with “I”).
• Give the benefit of the doubt to your most challenging employee today.
• Imagine what kind of leader you would want, and try to do what that person would do.

Another way to start the culture change process is to gather some data. Conduct an anonymous and confidential survey of your employees to find out how they truly feel about working in your company. If they tell you they’re not satisfied or happy, you will need to do something.

There are a number of great assessments out there. I happen to like the Trust Index by Great Place to Work because it measures the consistency of an employee’s experience (vs a snapshot) and it measures employees’ perceptions of the overall organization AND their immediate work group (which is helpful in understanding where those pockets of excellent leadership are).

As you think about the importance of culture, consider this final thought from Zappos CEO Tony Hseih:

“If you get the culture right, most of the other stuff will just take care of itself.”

[1] Well, that’s a bit of a legend. There’s no reference to him saying those words, but he researched and proved the premise. The quote has been attributed to him for decades. For more on the history of this quote, see: https://www.quora.com/Did-Peter-Drucker-actually-say-culture-eats-strategy-for-breakfast-and-if-so-where-when

[2] Full disclosure: that’s my employer

Want more specific ideas on creating a culture shift within your operation? Check out Paul’s previous installments of Insider Management.