As a society, we are bombarded with financial news. We know about the ups and downs of Wall Street; we hear how quarterly earnings, based on revenue and profit, affect the value of any given business. As a result, we begin to believe that the primary purpose of any organization is to maximize revenue. Don’t get me wrong–revenue is essential; without it, there is no organization. However, I posit that when leaders focus on their organizational culture, the income and profits will follow.
Companies solely focused on financial outcomes tend to overlook more sustainable strategies for maintaining steady growth. Leadership that focuses on the bottom line makes sense, particularly for startups and small companies who face immense pressure from investors to hit revenue goals and face a future uncertain. Ignoring a company’s culture while raising profits is counterproductive, especially when considering that about half of all new small businesses last five years.
But what, exactly, is organizational culture? How important is it, really? Entrepreneur.com defines company culture as “a blend of the values, beliefs, taboos, symbols, rituals, and myths all companies develop over time.” In other words, company culture is the personality of an organization, from every stakeholder’s perspective, and includes the company’s mission, expectations, and work atmosphere. Whether it’s written down, symbolized in the business logo, or simply an unspoken but understood definition–culture determines a company’s environment.
It may seem hard to invest time and resources into something as tenuous as “company culture” when the survival of your company itself is at stake. What is vital is to recognize culture is far more than an abstraction; it’s a set of shared values and goals that unite every employee, regardless of background or department. Leaders must define and clearly communicate these principles early in the companies life so that new hires understand the environment they are entering and how they can assimilate.
Cultural factors have a clear relationship with growth for business. “Executives who say their culture is extremely healthy are 1.5 times more likely to report average revenue growth of more than 15 percent over three years.” This quote comes from a recent study entitled Return on Culture, conducted by Grant Thornton LLP and Oxford Economic, focused on organizational culture and its correlation to business outcomes and financial performance. The study was based on survey data of 1,000 professionals from U.S. companies with revenues between $200 million and $5 billion.
What Is the Effect of Not Focusing on Culture?
According to the Return on Culture study, seven out of every ten companies (69%) are not measuring culture, despite 93% of executives saying they are attuned to company culture and have taken steps to strengthen it.
Part of the issue is the management and workers do not always see eye-to-eye on what defines their organizational culture, according to the study. Executives tend to prioritize workplace design (e.g., aesthetics) and onsite amenities, while employees prioritize the nature of their work, job security, collegiality and trust among coworkers, and work-life balance.
According to the Return on Culture study, executives also overestimate employee engagement and satisfaction, while underestimating the growing importance of corporate ethics and employees’ abilities to do their jobs without working long hours.
- Among executives, 57% say that the workplace environment is essential to culture, but only 36% of employees agree. What’s more, workplace design was determined to be the lowest weighted cultural factor, meaning the office décor has little to no bearing on the factors that drive revenue growth.
- Results indicate a significant disconnect between how executives and employees view company culture: 76% of executives say their organization has a defined value system that is understood and well-communicated. In contrast, just 31% of employees believe this to be true.
“Leaders tend to see their efforts at embedding values into their corporate culture as successful, but employees are somewhat less inclined to say so,” says Erica O’Malley, Managing Partner of Organizational Strategy at Grant Horton. “Most organizations need to rethink their approach to organizational culture—and work harder to understand what their employees want and need.”
Cultural factors such as collaboration, employee engagement, employee retention, and customer satisfaction have a clear relationship with revenue growth for businesses. “Companies clearly care about revenue and their people but are likely not looking at culture to grow both. This is short-sighted,” says O’Malley. “Our study shows that, in fact, investing in culture can help companies grow and thrive financially, and keep employees for a longer time period.”
Statistics from New Century Financial Corporation show employees who are engaged in their work, i.e., happy, produce better results. For instance, account executives at a banking company who were actively disengaged generated 28% less revenue than those engaged. On the other hand, companies with satisfied employees outperform the competition by 20%, earn 1.2-1.7% more than their peer firms, and are 2.1% above industry benchmarks. Engaged workers are also more likely to solve difficult problems faster.
A 142-country Gallup report on the “State of the Global Workplace” shows that 63% of employees are not engaged at work, and 24% are actively disengaged, leaving a mere 13% of workers involved in the work that they do. Another way of saying this is that 900 million employees are not engaged, and 340 million are actively disengaged worldwide. That is a considerable revenue–and profit–impact.
More importantly, this indicates that most people working for you lack motivation and enthusiasm and are not performing at their full potential. This makes a fertile environment for negativity. Just as happiness is infectious (have you ever been able to suppress laughter when someone around you is in stitches?), so is unhappiness. Employee engagement goes beyond making your staff happy; it separates the great companies from the mediocre ones.
Low-level engagement within companies results in a 33% decrease in operating income and an 11% decrease in earnings growth. In contrast, companies with high-level engagement have a 19% increase in operating income and a 28% increase in earnings growth.
How Does Focusing on Culture Help?
In addition to revenue growth, Return on Culture also correlates culture to decreased employee turnover. Survey respondents who describe their organization’s culture as extremely healthy are more likely to retain employees for more than six years, on average (45% versus 29% overall). Half (49%) of employees would leave their jobs for a lower-paying job in exchange for a better organizational culture.
“Organizational culture has been vitally important to employees and executives for years, but the focus of the conversation has been on how culture makes people feel,” says Chris Smith, Grant Thornton’s Director of Strategy & Transformation services. “Now we have hard facts showing significant savings–-more than $150 million on average for some companies-–meaning we’re able to evolve the conversation. Those who’ve doubted the importance of culture and those who needed more arsenal in their arguments for resources to grow, will now have it,” says Smith.
Strong company culture doesn’t just make for happier employees; it makes for more productive, efficient, and committed employees. When your people are spending more time driving company goals and less time browsing social media (or worse–fielding calls from recruiters), you can bet your bottom dollar it will have an impact on your bottom dollar.
Several research findings from the past several years corroborate these claims:
- The likelihood of turnover at companies with an influential culture is only 13.9%, compared with much higher turnover at companies with a poor culture.
- Happy employees are, on average, 12% more productive.
- Companies with high levels of employee engagement are 22% more profitable than companies with low engagement.
According to “Culture Wins By Getting the Most Out of People,” by Nate Dvorak and Ryan Pendall, engagement is the performance dimension of culture. It should be considered part of your culture data dashboard. Engaged employees bring their full-selves to their jobs every day. They are excited to be at work and actively look to improve the organization. High engagement has been correlated with nearly every important measure of organizational health–productivity, retention, safety, customer satisfaction, and profit. A highly engaged organization can see 18% higher revenue per employee compared with the average.
Many things people call “company culture” today, free food in the cafeteria, for example, is irrelevant to employees’ fundamental psychological needs. Fundamental needs are much deeper; examples of meeting those needs look like: having a manager who listens, having opportunities for meaningful feedback that lead to personal growth, and getting recognition for good work.
Any culture-change strategy should address these basic needs for one crucial reason: Highly engaged employees respond most positively to change initiatives, which are a constant in today’s workplace.
How Can You Shape Your Company Culture to Impact Revenue and Profits?
According to Karri Bishop, in her article “4 Ways Leaders Can Shape Company Culture to Impact Revenue & Profits,” it is essential to set clear and transparent goals. Be values and purpose-driven. Manage performance through feedback. And finally, develop a company culture through developing your employees.
No matter what your company’s mission is, getting your team rallied behind the” why” of their work makes for more committed, passionate employees. Setting clear goals at the company, team, and individual levels encourage hard work by giving everyone something to get behind with measurable steps to celebrate along the way.
There are several techniques you can use here. These range from less than ideal basic goal checklists in a spreadsheet, to hierarchical purpose-based objectives and key results (OKR) models tracked in a performance management system. It’s important to set goals and outline specific metrics that will help you measure the success of your efforts at the company, department, and individual levels.
Values and Purpose
When done right, company culture helps set the tone for employee attitudes and work ethic. It starts with crafting core values that explicitly articulate the principles under which every employee is expected to operate. The right values inspire self-governance—driving employees to work harder, smarter, and more closely as a team.
When these values are in place, team members will start to hold themselves and their peers accountable for meeting them. Written values also create a common language through which you can celebrate successes or point out shortcomings.
Here are nine values I consider to be important in any organizational culture (intentionally in order because all are equally important):
- Agility: Everyone (employees and leadership) can respond quickly and effectively to changes in the marketplace and seize new opportunities.
- Collaboration: Employees work well together within their team and across different parts of the organization.
- Diversity: The company promotes a diverse and inclusive workplace where nobody is disadvantaged because of race, gender, sexual orientation, faith, or nationality.
- Execution: Employees are empowered to act, have the resources they need, adhere to process discipline, and are held accountable for results.
- Innovation: The organization uses a risk and iterate method to allow for learning experiences through failure when developing new technology, products, or services.
- Integrity: Everyone constantly works honestly and ethically.
- Performance: The company rewards results through compensation, informal recognition, and promotions. It deals effectively with underperformers by providing training and other opportunities to improve their performance.
- Respect: Everyone acts with courtesy and consideration towards others and treats each other with dignity.
- Stakeholder: Everyone puts the stakeholders (in order: peers, customers, vendors, community, investors) at the center of everything they do.
Performance management seems more procedural than related to company culture. However, as Gallup has studied for years, the most engaged employees receive consistent feedback on what they do well and where they need to improve. As it turns out, engaged employees outperform the least engaged employees by 22% in terms of profitability.
Employee engagement platforms help improve employee attitudes toward work. Additionally, they also make it possible to measure important personnel metrics that impact your bottom line—things like employee satisfaction, goal completion rates, or even qualitative factors like challenges/pain points.
Crafting regularly scheduled and open channels of feedback allow managers to push their employees to fulfill their responsibilities and challenge themselves to grow professionally. That could mean taking on new responsibilities, getting a relevant certification, or expanding their existing role by adding new skills.
Simultaneously, two-way feedback gives all team members a comfortable channel for raising concerns and ideas, which may affect your company’s success. Doing this requires leaders to listen to their employees when they bring up concerns.
Your company culture should value employee development and furnish team members with plenty of opportunities to expand their skill sets. As skills and competencies increase, you’ll see higher performance levels, efficiency, and innovation across the organization.
Here are three examples of employee development opportunities you can offer your team:
- In-person conferences/seminars. There are educational events in nearly every industry for those who want to learn from experts and build relationships with new potential partners. You can encourage employees to attend these events and share their findings. Depending on how your budget looks, you can even offer to cover registration fees, travel expenses, or both.
- Skills-based development. One of the best ways to break a glass ceiling is to learn new skills. Employees looking for new ways to contribute value to your company should be rewarded with financial and logistical support. That could mean paying for an online web analytics certification or sending one of your designers to software school to learn UX coding.
- Mentorship programs. Sometimes, all it takes to kindle ambition is a little guidance from someone with more knowledge and experience in your field. Mentorship programs can provide exactly that—an avenue for veteran employees or managers to coach new starters toward success. This method takes a little more planning than the rest, but it will pay dividends in employee performance and retention.
Everyone knows that revenue and profit are what keep an organization healthy and growing. But it is the people who create and thrive in your organizational culture, that truly drive that revenue and profit.
So, what are you doing for your company culture?
If you’re looking for some additional inspiration, feel free to reach out to our coaching team.