Corporate Culture Can Be a Key to Financial Performance

What Is Corporate Culture and Why Is it Important
Corporate culture is often confused with organisational culture, but it shouldn’t be. Organisational culture allegedly permeates downward from senior management throughout the entire staff and embodies every aspect of operations. Corporate culture concentrates on the company’s values, beliefs, and behaviours. While corporate culture may or may not embrace the scope of organisational culture, it is often even more important.

Corporate culture can be compared to cities, sports teams, and households. Companies also embody different environments that help or hinder operations, development, creativity, and teamwork. There is no single culture that guarantees success.

A large bank may have a more formal, stratified corporate culture than a newer software development firm. Yet, both may be wildly successful. Corporate culture trickles down from senior management and affects everyone who works for the company. It is often more a “feeling” than a written policy.

A contemporary invention is the building of “team culture.” As the team concept of operations becomes more popular, the creation of a winning team culture takes an ever more important role. Much like “good chemistry” on a sports team or a neighborhood block party, positive team culture often forms successful corporate culture.

Those companies that disregard the importance or even the existence of corporate culture fail to recognise that every entity has one. Whether or not senior management encourages the development of a positive corporate culture, one will develop. In every case, corporate culture is important, as it will tend to attract a “type” of employee, provide avenues for advancement and high performance or roadblocks to success, and establish or hinder an esprit décor that subtly directs company success or failure.

How Corporate Culture Can Influence Financial Performance
An extensive study, Leadership and Culture, conducted jointly by HR.com and Crawford International, displayed that those companies with positive adaptive corporate cultures, combined with effective leadership efforts, consistently financially outperformed those firms that did not employ this combination.

Using high-level statistical evaluations to examine many Fortune 500 companies, the study results were neither borderline nor open to mistaken interpretation. Tracking the performance of almost 100 companies that had both adaptive and non-adaptive corporate cultures, they found the following startling result. Those firms with adaptive, progressive corporate cultures financially outperformed those companies that lacked this feature by a ratio of 900 to 1! The method of measurement was simple and straightforward: Long-term net income and stock price growth were evaluated.

Just as an adaptive corporate culture can improve operations and financial performance, a static, non-evolving culture can, at best, have no effect on performance, or, at worst, hinder the achievement of acceptable results. A key factor appears to revolve around the ability of a corporate culture to recognise short business cycles and react quickly to upward or downward trends. This feature allows a company’s corporate culture to evolve into a formidable up-to-date player in the elusive and moving condition of economic trends.

Team culture plays a critical role in both the adaptive nature and success of the company. On one hand, you might see very different team culture if you observe an IT team, a finance team, and a creative marketing team. Yet all are successful AND they have the ability to blend in with the corporate culture embodied by the company as a whole. When teams function well in this dual capacity, the company can reap big rewards.

From a purely financial perspective, an effective corporate culture can make a visible impact on a daily basis. For example, a corporate culture that subconsciously stresses expense control, profit maximisation, and precise financial accountability sometimes creates an entire staff of mini-accounting managers. Employees tend to consider the use of all funds. They often ask, “Is this expense appropriate?” “How can I make my function a profit center?” “If I authorise this expenditure, will I generate a return on investment for the company?”

Should you “turn the coin over,” you could see another corporate culture that receives messages that indicate that it’s all right to make your job comfortable. Your expense account represents a maximum spending limit, not an opportunity to financially contribute directly to the bottom line. This style of corporate culture might also follow the time-honored principle, “This is the way we’ve always done it.”

The 21^st century problem with this approach - and the reason that adaptive corporate cultures deliver so much to the financial performance of a company - is that technology, markets, and business economics change rapidly, often unexpectedly. It is imperative that companies identify and react to these changes to stay abreast of the challenges and opportunities presented by these uncertainties. A 20^th century, more formal, stratified corporate culture sometimes takes the role of the Titanic: a beautiful, classic, and strong entity that simply cannot turn or react in a timely fashion to avoid danger. Adaptive corporate cultures have the ability to shift focus quickly to take advantage of the opportunities presented.