Why Corporate Culture is Important

February 1, 1999
Much has been written and even more has been said about the topic of organizational culture. Still, it can remain a nebulous and undefined aspect of an organization. Many would call it one of those "soft, HR-type things." But corporate culture is important because it’s the sum total of values, virtues, accepted behaviors (both good and not so good), "the way we do things around here" and the political environment of a company.

An organization’s culture may contradict itself.
Some terms that are used to describe an organization’s culture can include: aggressive, customer focused, consensus-based decision making, innovative, honest, research driven, technology driven, process oriented (can be read as bureaucratic), laid back, hierarchical, family friendly, risk taking, whatever-it-takes attitude and other similar terms.

Sometimes these terms may go against or contradict one another. Can you imagine the confusion at a company that proclaimed its employees were empowered, yet the decision-making process was by consensus? Employees, customers and vendors would receive mixed signals.

You may be thinking, who would ever describe themselves using both those terms used in this example? You are probably right: No one would consciously describe their company in those contradictory terms. However, it probably wouldn’t take you very long to think of an organization that openly says it’s employees are empowered, yet the day-to-day operations have so much decision-making bureaucracy, one wonders how they ever get anything done at a profit.

A "desired" organization culture and an "actual" organization culture are often worlds apart, and it’s important to understand how each are playing out in your workplace. It gets to the value of the organizations’ culture.

Unawareness of culture can cost you.
Hiring people who aren’t aware of the culture—and who don’t agree with the work in a manner that ignores the culture—can cost a significant amount of real dollars. How much? Consider this: A $50,000 person is hired as a financial analyst. It will probably take six months to realize that he doesn’t agree with or follow the organization’s culture. When someone doesn’t conform with the culture, the actions that person takes can create havoc within the departmental unit.

Let’s assume that this havoc is expressed in lost or inefficient productivity. Calculate the cost of his decline in productivity at 15 percent of his salary ($7,500), the training he has been given (valued at $10,000 due to the time and resources that have been given to him), and chalk up another $10,000 for the impact he has on others productivity in a non-managerial role, his supervisor’s time to coach and counsel him on less than satisfactory performance, etc.

Nine months go by and you decide to replace him. Maybe you will give him a few weeks of severance, and you feel bad, so you’ll pay for outplacement cost. Then there are the recruitment costs, lost productivity, increased overtime of others who pick up the slack, lost opportunity to conduct financial analyses in particular areas of the company, along with new training and indoctrination costs. Conservatively, this can easily equal $75,000. Fortune recently estimated that the cost of replacing someone was 150 percent of their base salary. We have already come up with over $100,000 because someone did not fully accept or understand the organization’s culture.

Imagine what the cost would be if the person was a senior executive making $250,000 or more with a staff of dozens, if not hundreds. How many solid people will leave who work for this executive because she gave signals that were conflicting with the stated culture of the company?

Start understanding culture by assessing it.
The impact of culture on the bottom line can be quite high, as demonstrated in the previous examples. It’s imperative to know the company culture and assess new employees belief systems against your organizational culture.

People often wonder how a culture is created. In most cases (and when no one has done anything to change it) it goes back to the origins of the company and its founders. Their actions and behaviors set the stage for establishing the culture. The culture can change over the years when the senior management of the company consciously begin to behave differently and acknowledge new methods to describe the ways things are going to be done. The success of the change will have a direct proportion to the level of commitment given to the change.

For example, let’s say the CEO proclaims that the company will display the utmost honesty and integrity possible. How successful will this be if the sales department still tells white lies to the customers about the status of the shipment to cover up for an error in getting the order placed. Similarly, what if the accounts payable department continues to tell vendors "the check is in the mail" when they are instructed to hold onto the check to get the most interest float. As long as these relatively minor examples continue to exist, how can employees believe management is serious about a high honesty and integrity culture? At the very least, they will believe that integrity is OK, yet there is a lot of room for interpretation.

Identify the organization’s values, and find new ones.
How does a company go about identifying the exact elements of the culture it has in place? Many conduct an audit of the existing culture. The first step of this process is to ask the senior executives how they would describe the culture, followed by an organization wide survey of employee opinions to validate the information provided by the executives.

Generally, if such an audit has never been conducted, the variance in results will be quite surprising. Most effective audits are conducted by outside consultants who have expertise in this area. They can tell the CEO and senior management exactly what they’ve heard and observed without worry that their job is in jeopardy in their role as the messenger.

This audit would identify any values that may be in conflict with other values, as in the examples given earlier. The audit would analyze actions taken by employees and management to determine if those actions support or detract from particular values the company desires as part of its culture.

A gap analysis is performed to identify how far away the actual culture is from the desired culture. This represents a significant opportunity for the senior management team to develop actionable plans to close the gap. Again, the success of any planned changes will be in direct proportion to the level of commitment given to the change.

Conducting a "cultural fit assessment" of candidates for employment is a small price to pay to save hundreds of thousands of dollars in replacement or poor decision costs. This can be accomplished using a variety of techniques, beginning with simple behavioral interviewing through to highly predictive (and somewhat costly) psychological assessments. In the middle are surveys that candidates can take to describe their style that can be overlaid onto a company’s style patterns.

Companies wouldn’t hire someone who didn’t have the particular technical or functional expertise they require. To assess a candidate’s technical or functional expertise, a number of questioning techniques are used. The same can be done to assess the candidate’s acceptance of your organization culture.

Culture is no soft matter.
Once the CEO and senior management team buy into the need for changes to attitudes, beliefs and behaviors, it will take some time before these changes become a part of the everyday culture and way of doing business. Every action, decision, communication and goal has to be evaluated against the new cultural direction. When the stories are told about how a customer was handled in the face of adversity and those stories are the norm, then you know the culture has taken hold.

Understanding how the culture of an organization impacts the bottom line and profitability of a company can be revealing. Companies can maximize their profitability by defining all of the elements of its culture, deciding if they like what they discover, assessing if their behaviors and actions are supportive of the culture, and conducting thorough assessments of candidates for employment to ensure they will fully embrace the culture of their new employer.

It is a given that payroll costs are one of the highest items in a company. Maximizing the return on those payroll costs is critical for financial success today. The impact of culture on the bottom line is substantial. Companies can no longer treat this as a soft cost.

Workforce Extra, February 1999, pp. 8-9.