Why Culture Matters

By Crystal Wiedemann, Ph.D.
Research & Development Manager, Barrett Values Centre

A thriving organizational culture is increasingly recognized by both scholars and business leaders alike as instrumental to a thriving business.  In fact, in a study conducted by Deloitte, 94% of executives viewed a distinct workplace culture as important to business success.  To support this emerging interest in culture, academic studies are beginning to compile evidence for the relationship between organizational culture and a myriad of business outcomes.

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 impacts its growth.  Academic researchers define organizational culture 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.  Culture, as an abstraction, usually operates outside of our awareness and yet, the forces of culture are very powerful in our decision-making, attitudes, and behavior.  Coincidentally, in line with its Latin root meaning, culture is often cited as the most decisive factor in the success or failure of change initiatives, ultimately determining the success or stagnation of the business (Weber & Camerer).

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 evidence.  Many academic studies have found a relationship between organizational culture and numerous business outcomes, including financial performance, net sales, employee engagement, customer satisfaction, and talent recruitment.

Financial Performance and Net Sales

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, Boyce and colleagues found organizational culture to predict short and long-term business outcomes, even after accounting for dealership size, location, and previous sales.

They 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.  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.

Employee engagement

In a study involving 900 organizations across 8 different industries, Hewitt Associates found both cultural alignment and employee engagement to also have a strong relationship with a company’s financial performance.  Cultural alignment was measured using the Barrett Seven Levels Model, where individual values were compared with the organization’s current values. Additionally, Hewitt associates found organizational culture to directly impact employee engagement scores.  Cultures that reflected high levels of employee fulfillment and challenge had the highest levels of employee engagement.  Conversely, organizations with the highest levels of Cultural Entropy®, or dysfunction, had the lowest engagement scores.

Several important findings came out of this study:

1) Culture affects engagement.

2) Both culture and engagement affect financial performance.

3) Culture and engagement work synergistically to affect business outcomes; their impact is greater when combined than when either is emphasized independently of the other.

Customer satisfaction

In addition to the Boyce study mentioned above that found positive culture transformation initiatives 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. Gregory and colleagues gathered data from 99 hospitals across the U.S. and 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.

Talent Recruitment

The influential reach of organizational culture seems to be growing.  There are indications from research, millennial generation surveys, and social media that organizational culture is becoming an important factor in the fiercely competitive talent market.  Recruits are starting to see culture and brand as two sides of the same coin – fundamentally connected by an organization’s underlying values (Cancialosi).  Organizations that tout a best-in-class culture, like Google, Whole Foods, and Netflix have become the most sought-after employers (Denning).  It is becoming apparent that when you create a culture that people want to be a part of, you are creating a sustainable competitive advantage.

A Thriving Organisational Culture

Insight from academic 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.  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.

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.