“You’ll see culture mostly talked about as stories or anecdotes. It’s a vague concept that people sort of know is important, but they don’t quite know how to apply.” Charles O’Reilly, professor, Stanford University Business School

For many bottom-line-driven CEOs, addressing corporate culture is a tough sell. The cartoonification of culture initiatives  – Starbucks-endowed work nooks or ping pong tables, for example – can prevent real culture programs from gaining traction in boardrooms. However, research dating back to 1992 indicates that resources directed at culture initiatives may reap the highest returns.

What is Corporate Culture?

Corporate culture is the summation of all the interactions that make up a company. As defined by ex-Netflix chief talent officer Patty Mccord:

“It’s the stories people tell. It’s the way people operate when no one’s looking. It’s the values that you hold dear, that you know your colleagues do [as well]. It’s the expectations of how people are going to behave, and what gets punished and what gets rewarded.”

Crucially, where a company succeeds in embedding a healthy culture in its approach to the market – the how, when, and why of actions – to the extent that it is second nature, everyone involved with that culture does the “right thing” instinctively. Culture is powerful.

How Big a Factor Is Culture in Firm Performance?

Scholarly interest in the impact of culture on organizations is well documented. In 1992, Harvard Business School Professors John P. Kotter and James L. Heskett studied the corporate cultures of 200 companies and how each company’s culture affected their long-term economic performance.

The researchers also wrote a book chronicling their findings called, “Corporate Culture and Performance,” which concluded that strong corporate cultures with strong financial results “highly value employees, customers, and owners and that those cultures encourage leadership from everyone in the firm.”

In strong corporate cultures, if customers demand a change, say Kotter and Heskett, “the organization’s culture is such that people are forced to change their practices to meet the new needs. Also, anyone within the organization is empowered to do so.”

The table below is extracted from the book. It shows the difference in performance for 12 companies with a performance-enhancing culture and 20 without a performance-enhancing culture in areas such as revenue and stock price. The differences are staggering.

Source: Kotter and Heskett, 1992

The ping pong tables and hoodies associated with the Silicon Valley tech giants may be fodder for the skeptics who doubt that culture is a core value driver of top organizations, but the data from Kotter and Heskett are quantifiable indicators of the importance of culture.

The next two articles explore the impact of culture on corporate giants. Microsoft is a focus because it has come full circle in its cultural journey. From its emergence as a jean-clad team of motivated comrades, it became bloated by bureaucracy. At the same time, in-fighting caused its innovation and products to fail, and Microsoft became a laggard experiencing a “lost decade” a far as market superiority is concerned.

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