The 4 Ways Culture Determines Your Organization's Success
A thriving organizational culture is increasingly being recognized as instrumental to business performance. In a study conducted by Deloitte, 94% of executives viewed a distinct workplace culture as important to business success. Supporting this emerging interest in culture, scholarly research is beginning to compile evidence for the relationship between organizational culture and a myriad of business outcomes.
According to Deloitte research, 94% of executives view a distinct workplace culture as important to business success.
What is “Organizational Culture?”
Culture stems from the Latin word meaning “to grow, tend, or cultivate.” Culture could be described as the social environment of an organization which nurtures its growth. Organizational culture is defined broadly as consisting of a set of shared values, beliefs, norms, and assumptions that influence behavior within an organization.
Organizational culture is intangible, but its effect on the behavior of its employees is undeniable. Usually operating outside of our awareness and yet, the forces of culture are very powerful influence in our decision-making, attitudes, and behavior. Culture is also often cited as the most decisive factor in the success or failure of change initiatives, ultimately determining the growth or stagnation of the business.
Culture’s Impact on Organizational Performance
Many of the early proponents of the study and measure of organizational culture could see its connection to business performance, but it has not been until recently that organizational researchers are actually starting to compile the evidence. Many studies have found a relationship between organizational culture and numerous business outcomes, to include financial performance, net sales, employee engagement, customer satisfaction, and talent recruitment.
1. Financial Performance
Recent research has revealed that positive culture change does in fact drive financial performance outcomes. In a longitudinal study of 95 automobile dealerships over the course of six years, researchers found organizational culture to predict short and long-term business outcomes, even after accounting for dealership size, location, and previous sales.
Not only did this study show a strong relationship between culture and business outcomes, it demonstrated the causal relationship of culture predicting organizational performance, and not the other way around.
The study found that within the first year, culture improvement initiatives increased customer satisfaction ratings, and within 2 to 4 years, culture improvement had a positive impact on net sales.
2. Employee Engagement
A study involving 900 organizations across 8 different industries, found both cultural alignment and employee engagement to have a strong relationship with a company’s financial performance. Cultures that reflected high levels of employee fulfillment and challenge had the highest levels of employee engagement, which impacted the following years' net profit margins.
Several important findings came out of this study, to include
1) Culture affects employee engagement.
2) Both culture and engagement affect financial performance.
3) Culture and engagement work synergistically to affect business outcomes.
3. Customer Satisfaction
In addition to the car dealership study, mentioned earlier, that found positive culture transformation initiatives to impact customer satisfaction within the first year, an expansive study conducted in the health care industry found organizational culture to be strongly associated with patient satisfaction.
Data gathered from 99 hospitals across the U.S. found both group cultures and balanced cultures to have the highest patient satisfaction scores. Group cultures were described as emphasizing collaboration, empowerment, employee development, and company morale, while balanced cultures were characterized by adaptability, mission, consistency, and employee involvement.
4. Talent Recruitment
The influential reach of organizational culture seems to be growing. There are indications from research, millennial and Gen Z generation surveys, and social media that organizational culture is becoming an important factor in the fiercely competitive talent market.
Organizations that tout a best-in-class culture, like Google, Whole Foods, and Netflix have become the most sought-after employers. It’s becoming apparent that when you create a culture that people want to be a part of, you’re creating a sustainable competitive advantage.
Recruits are starting to see culture and brand as two sides of the same coin – fundamentally connected by an organization’s underlying values - and making their employment decisions, accordingly.
A Thriving Organizational Culture Drives the Success of Your Business
Insight from research shows that a thriving organizational culture is no longer a nice-to-have, but is proving to be a necessity for a thriving business.
When you decide to invest in the culture of your organization, you simultaneously invest in the people who care about it (your employees, customers, and partners) and move one step closer to being in alignment with the fulfillment of your organization’s purpose and potential.
Ultimately, culture is driving the engagement of your workforce, the satisfaction of your customers, the level of attraction you have to talent, and your bottom-line numbers.
Boyce, A., Nieminen, L., Gillespie, M., Ryan, A., & Denison, D. (2015). Which comes first, organizational culture or performance? A longitudinal study of causal priority with automobile dealerships. Journal of Organizational Behavior, 36, 339–59.
Cancialosi, C. (2019). How blending brand and culture can impact the customer experience. Forbes Magazine. https://www.forbes.com/sites/chriscancialosi/2019/03/21/how-blending-brand-and-culture-can-impact-the-customer-experience/#56ed734f1f8c
Denning, S. (2018). Incubating culture: how Netflix is winning the war for talent. Forbes Magazine. https://www.forbes.com/sites/stephaniedenning/2018/04/30/incubating-culture-how-netflix-is-winning-the-war-for-talent/#6bba8b263a78
Gregory, B., Harris, S., Armenakis, A., & Shook, C. (2009). Organizational culture and effectiveness: A study of values, attitudes, and organizational outcomes. Journal of Business Research, 62, 673–679. https://doi.org/10.1016/j.jbusres.2008.05.021
Hewitt Associates (2009). Engagement and culture: Engaging talent in turbulent times. https://www.aon.com/attachments/thought-leadership/hewitt_pov_engagement_and_culture.pdf
Weber, R., & Camerer, C. (2003). Culture conflict and merger failure: An experimental approach. Management Science, 49(4), 400-415.