Does Corporate Culture impact P+L performance?

Organisations are forever looking at corporate culture. Trying to improve it, before have a solid taxonomy or understanding about what it actually is. For organisations to capitalise on culture and translate it to organisational performance a direct link needs to be made about company culture and the impact it can have on long-term economic performance.

Strong cultures facilitate adaptation to economic change and turbulent environments. However can culture foster better or stronger financial results? Is there direct profit and loss impact achieved from a type of culture. For organisations that want their culture to positively and tangibly impact financial performance, the key is to embark on performance-enhancing culture change programs. Many mistakes organisations take is that they address the intangible, emotive language without having a direct correlation back to the hard tangible measures of a business in the form of performance KPIs, compensation systems. Executives asking their companies to change the intangibles because it’s the moral high-road will lead to failure and exhaustion of companies, divisions, functions, teams and employees. If culture is directly linked to the hard quantitative measures for companies, divisions, functions, teams and individuals then it becomes more real and the direct cause-and-effect on a balance sheet and profit and loss can be linked.

One standout Exhibit in that book highlights the difference in results over an eleven year period between twelve companies that did and twenty companies that did not have this sort of culture.

	Average Increase for Twelve Firms with Performance-Enhancing Cultures	Average Increase for Twenty Firms without Performance-Enhancing Cultures
Revenue Growth	682%	166%
Employment Growth	282%	36%
Stock Price Growth	901%	74%
Net Income Growth	756%	1%

Table 1: How culture impacts financials - Corporate Culture and Performance

The above table highlights that a performance enhancing culture drive equity value over 900%. Of course there are many other contributing factors that drive performance, but the difference between the four financial ratios in Table 1 are enough evidence, that organisations need to bring quantitative tangibility when driving culture. Executives and HR professionals need to roll up the sleeves and do some ‘heavy lifting’ in linking cultural performance directly to KPIs that track performance of employees, teams, divisions and codify these metrics with hardwires to financial performance. Otherwise employees will just continue to roll their eyes when an unrelated culture initiative is force-fed without any direct link to the very fabric of what the organisation stands for: its core operation and financial performance.