“Culture eats strategy for breakfast.”
– Peter Drucker, Management consultant
Why culture affects your bottom line
As Peter Drucker famously said, culture eats strategy for breakfast. This also means your culture has a significant effect on your bottom line.
Conversations around corporate culture often focus on employee engagement, well-being, and general workplace atmosphere. While these are essential, executives and business owners should not overlook the direct impact that culture can have on their company’s bottom line. From employee retention to customer satisfaction and innovation, your organizational culture influences virtually every aspect of business performance.
Every company has a distinct corporate culture, which invariably impacts its operations for better or worse. Dismissing the presence of culture simply because it operates beneath conscious awareness is a fallacy. As a leader, you are responsible for cultivating a deliberate culture that fosters positive outcomes rather than allowing an unconscious culture to undermine your strategic efforts.
We are all fuelled by our core values and beliefs. If we find ourselves dissatisfied with how our organization implements strategies or addresses challenges, it’s essential to re-evaluate whether our work aligns with our core values. This examination applies to the values we formally declare and the ones we embody in our daily actions. There can be a mismatch between the beliefs we say that we hold and how we act. This can be true for individuals, teams, and even entire organizations.
What distinguishes successful organisations from others
isn’t merely the beliefs they state that they have,
but rather the beliefs they consistently manifest in their day-to-day actions.
Reflection:
What are your core values?
The Chain Reaction: From Culture to Profitability
Imagine your corporate culture as a complex ecosystem. Like in nature, every component interacts and relies upon the others to sustain a balanced environment. If the culture is healthy, so too are its elements: employee engagement, teamwork, leadership, and, inevitably, financial performance. However, if the culture is unhealthy, a negative chain reaction happens, which is often characterized by low trust and demotivated employees, which in turn leads to a lower commitment to customers, negatively influencing the overall financial performance with consequences such as decreasing sales and low profits.
Culture affects your bottom line. Here are some examples of how:
Talent Attraction and Retention
A solid corporate culture attracts top talent and significantly reduces turnover rates. The costs associated with hiring and onboarding new employees can be astronomical. A Center for American Progress study found that replacing an employee can cost up to 20% of that employee’s annual salary. Hence, a strong culture can save significant sums by reducing these turnover costs.
Sharing your purpose and values in the recruitment process means you’re more likely to attract people who align with the business and will strengthen the culture. Remember that a strong positive culture has positive effects on employee engagement, teamwork, leadership, and, inevitably, financial performance.
Streamlined Decision-Making
In a positive culture, employees at all levels of the organisation understand the purpose of why the organisation exists, how the values can help create a greater good, and how the values influence the vision of a better future. A high clarity of purpose and vision on a firm foundation of strong core values influences and simplifies decision-making processes. This alignment saves time and resources, thus positively impacting the bottom line.
Employee Engagement and Productivity
The concept of “culture eating strategy for breakfast” highlights how organizational culture can overpower and undermine strategic initiatives, particularly concerning employees. When the organizational culture doesn’t align with the strategic goals or lacks clarity, employees may prioritize cultural norms over strategic directives. This can lead to resistance, low morale, or apathy towards implementing strategic changes, ultimately hindering the effectiveness of the strategy. If the organizational culture doesn’t support the strategy or actively works against it, employees may inadvertently sabotage strategic efforts, rendering them ineffective.
Customer Satisfaction and Loyalty
Employees who feel valued and aligned with the corporate culture naturally extend these positive feelings to their interactions with customers. When employees are genuinely happy and engaged, they deliver better customer service, which correlates with customer satisfaction and loyalty, vital for repeat business and long-term success.
Consumers also aren’t hiding the fact that they’ll bring their money to organizations with values that align with their own. A CSR study by Cone Communications from 2017 revealed that 87% of consumers would purchase a product when the selling company advocated for an issue they cared about. 76% of consumers will also refuse to buy a company’s product or service if it supports an issue contrary to their beliefs.
When organizations effectively align their communication with their values and actions, they tend to attract customers who resonate with those values. Here’s why:
Authenticity: When an organization’s communication reflects its true values and actions, it comes across as authentic. Customers appreciate authenticity and are more likely to trust and connect with businesses that demonstrate it.
Emotional Connection: Values-based communication fosters an emotional connection with customers who share similar values. This connection can lead to increased loyalty and long-term relationships with those customers.
Brand Loyalty: Customers who feel aligned with a company’s values are more likely to become loyal customers. They may view their purchases as a reflection of their values and identity, which reinforces their commitment to the brand over time.
Word of Mouth: Satisfied customers who share the organization’s values are likely to spread positive word-of-mouth recommendations to others with similar values. This can lead to organic growth and the attraction of more like-minded customers.
Differentiation: In a competitive market, core value communication can differentiate a company from its competitors. It creates a unique brand identity that resonates with a specific segment of the market, attracting customers who prioritize those values.
Organizations that consistently align their communication with their values and actions are more likely to cultivate a loyal customer base that shares and supports those values.
Quantifying Culture’s Impact
Though some effects of corporate culture may seem hard to measure, metrics such as employee engagement scores, customer satisfaction indexes, and employee retention rates offer quantifiable data. By tracking these indicators, companies can measure how shifts in culture impact their financial standing.
Key takeaways
Culture is not just a buzzword, or an abstract concept reserved for team-building activities. It’s a potent business tool directly correlating with a company’s financial health. By understanding and harnessing the power of a positive organizational culture, companies can make meaningful improvements that reflect the workplace environment and the bottom line. Executives should, therefore, view investing in culture not as an expense but as a long-term strategic asset that pays dividends in more ways than one.
Do you want to learn how to build a winning culture?
