Why Organizational Culture Matters (Part 1)

This blog is the first in our three-part series about organizational culture.

“Culture is simply a shared way of doing something with a passion.”

– Brian Chesky, Co-Founder, CEO Airbnb 

What is the greatest quality that sets a high performing organization apart from the rest? Harder workers? Ingenious strategy? Better leadership?

This might be the case over the short term; however, these acute advantages subside if they’re not built upon a strong foundation. This foundation is something that fosters sustainable growth and competitive advantage. This foundation is culture.

Company culture is the implied social order of an organization that shapes people’s attitudes and behaviours in wide-ranging, durable ways. It is these beliefs and behaviours that determine how management and employees interact, as well as how an organization manages external business. Culture begins with what people do and how they do it. High-performing organizations are distinguishable not by what their people do but how and why people do what they do. Taken together, culture is the collective behaviours and intrinsic mindsets and beliefs that form our daily interactions. The big question is: why does company culture matter?

There are 4 main reasons why culture matters :

1. Organizational performance is associated with culture. A recent survey by McKinsey outlined that companies with top quartile cultures have a 60% and 200% higher shareholder return than the median and bottom quartile companies, respectively.
2. Culture is a unique attribute of an organization. As organizations continue to accelerate their innovative strategies, their business models and deliverables are at risk of being reproduced; therefore, the greatest advantage over competitors is a distinct culture that enhances organizational adaptability and agility to achieve success.
3. Culture helps with organizational adaptability. Culture can improve an organization’s adaptability. This means that, when market environments change, companies with healthy cultures can thrive and overcome undesirable environments. Research by McKinsey outlines that while 70% of organizational transformations fail, 70% of these failures are due to culture-related matters. Moreover, a study by LHH indicated that 54% of respondents described culture as the single largest barrier to a successful organizational transformation.
4. Undesirable culture can result in underperformance. In changing markets, organizations often look towards transformation to help elevate their current state to their desired state. However, this model assumes that organizational transformation can be achieved. Therefore, maintaining a desirable culture can enable sustainable growth and integration, during times of change and uncertainty, when transformation is not an option.

With that said, what does a healthy organizational culture look like?

Great organizational culture is evident through accountable leaders and their clarity in communicating expectations. This creates a respectful, supportive, and energetic work environment, as well as employees that are ready and excited to achieve those expectations. A key marker for a healthy organizational culture is whether existing employees would recommend their company for people looking for work.

Conversely, poor organizational culture is very evident. These environments foster conflict, and a lack of trust perpetuates across all levels of the organization. They can be toxic, non-collaborative, and competitive. Senior leaders may also refrain from discussing business strategy, often leaving their employees in the dark with the future trajectory of the organization.

Even though people intuitively know what a “good” culture looks like and what a “toxic” culture looks like, it’s not always easy to build, design, and sustain your ideal culture. Prior to the COVID-19 pandemic, 70% of Human Resource leaders were confident they understood the type of culture needed to improve their organization’s performance. That being said, only 30% were confident that their desired culture was truly part of their actual culture. This means that leadership was able to articulate their desired culture, but they were not confident in being able to follow through and create the environment that fostered this desired culture.

Want to learn more about how to design and sustain the best culture for your organization? Stay tuned for the next installment of this three-part series or click here for now.