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Can corporate culture drive performance and profitability?
It is said that culture is the root cause of success or failure at any company
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t is said that culture is the root cause of success or failure at any company. However, the reality is that the world is full of bankrupt companies with world-class culture such as Lehman Brothers, Woolworths Group, Citi Group and Borders Group. So, why bother with culture, really?
Culture matters to the extent that it can help you achieve your goals. After you build a successful company, it would be a tragedy if your company culture is such that even you don’t want to work there.
Fiascos like those of Enron, WorldCom and Satyam did not happen by accident. They were facilitated by a corporate culture that encouraged greed and fraud. Similarly, the Boeing’s 787 Dream liner project became less about an airplane and more about the cultural failures at MNCs.
Is there something common to the DNA of the current corporate culture (from manufacturing to services) that allowed major banks worldwide to consolidate the reality that subprime bonds were the downstream consequences of giving housing loans to people unable to afford the repayments? The collapse of Barings is another example of a company that failed to define its culture.
Since 2001, Marianne Jennings, professor of management at the W P Carey School of Business at Arizona State University, has kept a list of companies that have succumbed to ethical collapse, some for the second time. According to her, these great organizations are in this list “because for one or other reason — they crossed an ethical line”.
At the very core of any organization lies corporate culture or DNA. The corporate DNA essentially shows the way things ought to be done — the fundamental values and ethics by which an organization operates and the perception and commitment of the staff. The DNA is the thread woven throughout all company actions and decisions. Every member of an organization recognizes the values in action by observing business interactions both internally and externally. This culture of excellence can center on clients, employees, business processes, communications and ethics.
A culture needs not be static. If you change the beliefs, you can change the culture. The culture of a company is the building block of its employees’ work ethic. This can only be employed by leading by
example.
Leaders have to live by the culture, set the tone and be the role models. For example, if a leader forgives you for missing your sales targets because you had a great alibi, people will value the quality of their excuse and not the quality of their work.
Leaders need to view culture as a distinctive value proposition that fulfills the demands of the market. Shaping culture is about defining the essential human qualities that are consistent with market leadership demands. Only such a culture will be sustainable if you continue to encourage and build momentum.
A company culture has to change with time, technology and generation of its stakeholders. Various researches point out that the majority of corporate bankruptcy has happened because of this culture gap. The best example of this is IBM and Microsoft. In the late 1980s, Microsoft was top dollar earner, while IBM had the largest market share of over 80 percent.
IBM spent much time and money on a software system that was supposed to “take over everything called OS/2”, while Microsoft’s only focus was on delivering a better product every now and then to meet the demands of the customer. Microsoft spent less time on bureaucracy and more time on actual work output. That was the organizational culture that worked for the company.
Behind each leader is an organizational culture that propels people to work hard and stay with the business. Setting such an example were Bill Gates (Microsoft), Jack Welch (GE), Larry Page (Google) and Steve Jobs (Apple), among many other founder leaders. They nurtured culture into something that bred loyalty and motivated their employees.
James L. Heskett, Professor at Harvard Business School, finds that as much as half of the difference in operating profits between organizations can be attributed to effective cultures.
Engaged managers and employees are much more likely to remain in an organization, fueling growth and cutting attrition levels. According to Heskett, this leads to lower wage costs for talent — lower recruiting, hiring and training costs — and higher productivity (fewer lost sales and higher sales per employee).
“Higher employee continuity leads to better customer relationships that contribute to greater customer loyalty, lower marketing costs, and enhanced sales,” he says.
Once the values are set, they need to be practiced and communicated. Effective transmission of these shared values and behaviors will lead to more fine-tuned recruitment of employees who will work the way you want them to. This is the way to establish trust, engagement and ownership.
This leads to an innovative organization that is willing to learn and evolve all the time to ensure its survival and growth. This also means that a company culture needs to be revisited if it cannot sustain growth over an extended period. Therefore, setting high goals and meeting them might require a review of the shared values and behaviors that defined the company before.
When a culture can change, so can leadership. But the new leadership is guided by the old culture. Sometimes, the new leadership might want to tweak the old culture. Take Apple as an example. After Steve Jobs, when Timothy Cook took over as the CEO, what helped him was the work culture set by Jobs. Apple was driven by a passion for new products and the work environment was relaxed and casual, but with a strong commitment to deadlines. The question today is whether Jobs’ definition of culture needs to change to remain competitive in the long run?
On the other hand, it is the people who make up Google. The company prefers hiring determined, smart fresher’s rather than those with some years of experience. The best part is its open culture where everyone can be a hands-on contributor and freely share their ideas and opinions about sustaining and growing the company.
The upshot: A culture can kill a company as much as sustain it. It all depends on what side you are on. If your company lacks one, don’t worry, you are not alone. There are many companies that have lost their culture or never had it to begin with. If you are a leader, you can take this as less of a threat and more of an opportunity to turn this ship around. Good luck!
The writer is a business and economic analyst.
