Culture Crash Course Lesson 2: The Importance of Corporate Culture

Why Company Culture is Important to Business

 

Company culture is on every leader’s mind. But once you’ve answered the question, “What is company culture?” the next step is to understand what other factors it’s affecting in your company. Yes, company culture is how things get done in your organization– but what is the true importance of corporate culture, and why does it deserve a seat at the C-suite table?

As it turns out, corporate culture is an integral driver of your company’s performance and is deeply embedded in every company process, from recruitment and retention to employee engagement and mission success. A positive company culture leads to lower turnover and higher performance, and employee satisfaction is directly linked to customer satisfaction. Even if you know this, you might need to nudge others along in understanding that corporate culture is more important than ever for businesses that want to thrive. 

 

Here’s a brief look at the most relevant and recent studies on the importance of corporate culture:

 

Great Places to Work and Glassdoor: Culture is strongly connected to financial performance

A study by Great Places to Work reveals that the 13 companies that have appeared on Fortune’s annual 100 Best Companies to Work For list every year have also seen higher average annual returns, with cumulative returns as high as 495%, instead of 170% (Russell 3000) and 156% (S&P 500). This confirms further research from Glassdoor that found that being named a Best Place to Work is associated with a modest .75% stock jump.

 

Culture is a potential competitive advantage

In the 2016 Global Human Capital Trends survey, 82% of respondents believe that culture is a potential competitive advantage. The report concludes that company culture is decidedly a business issue, not just an HR issue. Human resources professionals have a clear invitation to step into shaping and implementing a company culture that will positively impact business processes.

 

Journal of Organizational Behavior: Culture is strongly connected to employee performance

In a longitudinal study by the Journal of Organizational Behavior, researchers found that in the give and take between positive company culture and positive company performance, “culture comes first.” A company’s positive culture can help boost productivity and sales, but simply being productive and successful won’t boost culture by itself. The importance of corporate culture, then, is that it represents a powerful and nuanced way to influence company performance.

 

Bain & Company and International Journal of Hospitality Management: Engaged cultures service customers better

Bain & Company surveys show that customer service is more important to customers than price, brand, or product features; furthermore, over a period of 7 years, companies with more engaged workers grew revenue 2.5X as much as companies with less engaged workers. The International Journal of Hospitality Management reached a similar conclusion when it found that employee satisfaction directly impacts customer satisfaction and therefore indirectly impacts financial performance.

 

Limeade, Quantum Workforce, SHRM, and Deloitte: Positive company cultures increase employee retention and decrease turnover

A study by Limeade and Quantum Workplace shows 72% of employees surveyed find their support within an organization from the company culture. When that company culture supports the wellbeing of its employees, it also sees increased loyalty and engagement: 88% percent of employees with higher wellbeing feel engaged at work, 83% enjoy their work, and 84% would describe themselves as very loyal to their teams.

SHRM considers these linking factors to be key reasons employees become “embedded” in their jobs and communities and choose to stay with a company. And in an environment in which 44% of Millennials would like to leave their current employers within the next two years, a positive company culture plays a vital role in encouraging current employees to lean in and build their career where they are.

 

SHRM and LinkedIn: Positive company cultures make recruiting easier

Because company culture influences how your organization is perceived from the outside, or your employer brand, a positive company culture can also make your recruiting efforts more effective.

According to a LinkedIn study, compared to companies with poor or no employer brands, companies with strong employer brands cut their cost per hire by as much as half.  SHRM also shares a report in which 74% of surveyed HR professionals say that a company’s reputation is critical for successful recruiting, and that “being known as an employer of choice” and “the organization’s culture” are the #2 and #3 factors that best attract talent, following compensation and benefits. Furthermore, respondents felt that building an employer brand and company culture helped them hire the right people (55%), get a greater number of qualified candidates (49%), increase employee referrals (41%), and have more diverse candidates (32%).

 

Gallup and Deloitte: Culture enables or disables engagement

A recent Gallup poll showed that only 13% of employees are considered “highly engaged,” and almost a third of employees, 26%, are “actively disengaged.” When the results stack up like this, it’s no surprise that Bersin by Deloitte reports that culture and engagement are the top five priorities for today’s business leaders. When employees are checked out of the work they do, the quality of the work they do suffers, as do the relationships they have with other team members and a company’s ability to function as a whole. Culture is the root cause that supports engagement and enables employees to feel connected and supported by the work they do.

 

When it affects every part of your organization, it’s easy to recognize the importance of company culture. It’s less easy to implement a plan to change your culture for the better. If you’re ready to learn more about how you can make your business case for company culture, download our e-guide here.

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