How Culture Impacts Performance - Raine Digital (2024)

The culture within your company determines how well your employees perform, their engagement at work, and your company’s bottom line. Too often, our leaders are focused on quarterly earnings or making next week’s payroll. They believe that if everyone is paid, they will be satisfied, and culture will take care of itself. This is not true; company culture starts at the top and trickles down through the organization, not the other way around.

Successful organizations have a culture based on a firmly held and widely shared set of beliefs supported by strategy and structure. This causes three things to happen: Employees know how top management wants them to respond to any situation, employees believe the expected response is the proper one, and employees know they will be rewarded for demonstrating the organization’s values.

In a paper entitled “Which comes first, organizational culture or performance?,” published in the Journal of Organizational Behavior, researchers reported on the results of a six-year study on the culture and performance of 95 different automobile dealerships.

In their study, researchers looked at automobile dealerships that carried the same products. The dealers used the same performance metrics; however, each was owned and operated independently. As a result, there was consistency across multiple factors and data points.

Their hypothesis was simple–based on the review of various culture and performance literature (they looked at dozens of published papers), the researchers “expected that department culture would have an effect on both customer satisfaction and sales.” They also predicted that the overall culture and engagement of a dealership would be a more reliable predictor of subsequent performance than the other way around. Thus indicating: culture affects performance.

Gallup also conducts studies on employee engagement and identifies the relationship between culture and performance. A recent engagement report found that “Highly engaged business units achieve a 10% increase in customer metrics and a 20% increase in sales.” Gallup provides further evidence indicating that an engaged culture improves performance. Gallup describes, “The relationship between engagement and performance at the business/work unit level is substantial.”

Corporate culture is challenging to define and even harder to implement and sustain. Culture must be intentionally developed, nurtured, and maintained. It is the combination of purpose, values, vision, and mission in relation to the day-to-day aspects of communication, interaction, and operational-objectives that cultivate both the environment and the motivation for how people work. One thing is sure–culture is based on people and relationships rather than décor and amenities.

Corporate culture is made up of all the people within the organization. Leaders set and model expectations impacting all levels of the organization, from leaders and managers to the front-line employees. While each team can have a differing culture, the team still falls under the overarching corporate culture. Somehow, despite this reality, only 12% of executives believe their companies are driving the ‘right culture.’

How important is culture to an organization? Corporate culture drives innovation, employee development, and retention, ultimately driving the organization towards its goals. 94% of executives and 88% of employees believe a distinct workplace culture is vital to business success. Employees’ overall ratings of their company’s qualities — such as collaboration, work environment, and mission and value alignment—are 20% higher at companies with strong cultures. These qualities help winning cultures keep employees aligned and motivated.

There are three ways culture directly affects performance: productivity rises, business goals are supported, and business performance is improved.

People develop positive relationships with their workplace if they feel they are a part of the culture. There is a need for one to identify with an organization’s values, to be empowered to achieve their best work and to know they are listened to and cared for. This builds trust, which is the basis of all positive relationships.

Further, happy employees are 12% more productive, and highly engaged workplaces see a 10% increase in customer ratings with a 20% increase in sales. These statistics are supported by the fact that companies with more engaged workers grew revenue 2.5 times as much as companies with less involved workers over a period of seven years.

90% of employees within a winning company culture are confident in their company’s leadership team. Although fewer than one in three executives (28%) report they understand their organization’s culture (they know culture is influential, but don’t understand it), you are still in a good place as long as your employees are confident in your culture.

So, even if your strategy isn’t perfect, your strong culture will help keep everyone marching to the beat of the same drum. People will stay on track, striving towards overall company goals.

John Kotter discovered companies that empowered their people to live their culture significantly outperformed those that did not. In Kotter’s book, co-written with James Heskett, they examined 200 companies’ cultures and how that culture, in turn, affected performance. It was found, “Strong corporate cultures that facilitate adaptation to a changing world are associated with strong financial results.”

The impact of company culture extends far beyond the happiness of employees. Good company culture will improve productivity, performance, and customer experience. If your culture is not serving you, it’s time to do something about it. Changing organizational culture may even be easier than you think.

Leaders need to be intentional about the culture they want to create for their business. They need to be able to relate corporate goals to allow each employee to identify with and internalize those goals; they also need to be a role model for those goals. This can be done by reinforcing organizational values and ensuring organizational ethics are defined, understood, and practiced.

Leaders should promote diverse thinking. They need to share knowledge to create a sense of collaboration within the organization. Doing so pushes forward a positive culture, allowing employees to work more efficiently, creatively solve problems, and be more productive.

Leaders must enable two-way communications and feedback channels. This will assist with clearly defining roles, responsibilities, and accountabilities. It allows the leader to sustain reward and recognition systems while simultaneously encouraging and empowering teams.

All of these lead to more robust performance. Consider, 13 companies that have appeared on Fortune’s annual 100 Best Companies to Work For list every year also see higher average annual returns with cumulative returns as high as 495% instead of 170% (Russel 3000) and 156% (S&P 500). But how then do you know if you are moving in the right direction? The answer is to measure your culture.

Now, consider that 64% of organizations still only measure employee engagement annually. This is despite the emergence of tools allowing more frequent measuring, and with the understanding, it’s more effective to do so. There are multiple factors you can consider when measuring culture. Here are just a few:

Formality: How formal is your culture? Is there a dress code? Are your people more concerned with working to support their job titles, or are they working towards organizational goals as a team?

Analytics: How does your organization treat data and analysis? Does everyone focus on spreadsheets and making decisions based on what the data says? How would your team react to the phrase, “We don’t make decisions without data–ever” Conversely, are decisions made more based-on ‘gut feelings’ and intuition?

Transparency: Some companies like to hold onto their data tightly—especially things concerning revenue and finances. It may even be that only the executives and their inner circle get access to this information. Is your organization run with a high degree of transparency, where everyone is given access to financial information and taught how it flows throughout the organization, as you might see in a company that practices The Great Game of Business or open-book management?

Teams or Individuals: Some organizations are highly collaborative where all the work is done in teams; everything is about motivating and celebrating the performance of the group. Other organizations work at the other end of the spectrum by rewarding individual contributions and performance, such as paying bonuses based on meeting personal goals or quotas. This isn’t a value judgment–it’s a measure of what your culture looks like.

Performance Tracking: Speaking of performance, some organizations measure how they perform in an exact and minute manner; everything is measured and optimized. At the same time, there are plenty of organizations that don’t measure their performance to that same degree. Think about something like the DMV, where people are very capable of doing their jobs. Yet, they aren’t as focused on elevating their performance by delivering exceptional and speedy customer service.

Innovation: Some organizations are super innovative, where everyone is focused on coming up with the next great game-changing idea. Part of the culture is based on a competitive idea of beating their competition by creating the next great innovation. On the other hand, organizations could be less worried about what comes next as they focus more on optimizing the market opportunities they have right in front of them.

Frugality: Some companies have adopted a strategy of being the low-cost operator in their market. To do that, they have taken on a culture of frugality where they watch their pennies and make decisions on things like travel where even their executives might fly coach to save money.

Humor: Humor can be an essential tool in some organizations to help alleviate stress and assist in cultivating teamwork and camaraderie. In other cultures, perhaps the actuarial division of an insurance company where tough decisions about catastrophic events are made, you shouldn’t expect to hear many laughs.

Conformity: An interesting aspect of an organization’s culture is understanding how it tolerates outliers or makes people conform to its standards. There are some organizations open to allowing their employees to get work done in whatever way they like. But there are also organizations where there is a strict expectation people will conform to a specific standard, perhaps even to the point where people look very similar based on how they dress and even how they cut their hair. The implication is that if you don’t conform, it might not be the right organization for you.

These are just a few of the metrics you can use to measure culture. You can develop the criteria to measure your organizational culture and boost employee performance.

Are you ready to elevate your company to the next level through culture?

For further statistics, check out: https://peoplemanagingpeople.com/general/employee-engagement-statistics/.