New Research Links Company Culture and Financial Performance
To those of us in the business world, academia can appear to move at a glacial pace. But academic research plays an essential role in identifying successful organizational strategies and mechanisms that might not be apparent, even to the actual teams that are implementing them. Pomello is built based on a large body of research which validates the relationship between strong organizational culture and key metrics like employee performance, engagement, and turnover.
Last week another study was released which took this research one step further and demonstrated a strong relationship between a positive company culture and company financial performance. Since academic papers aren’t the easiest to read we’ve distilled the insights from this paper down into the most important points.
Study Details and Results
This study looked at the relationship between culture and performance in sales and service departments across 95 auto dealerships over 6 years. The study was designed to determine whether culture causes performance or vice versa. Specifically, the study sought to establish a causal effect of culture on customer satisfaction and sales. What the research uncovered was a complex and ongoing relationship between culture, customer satisfaction, and sales.
The first important point to note is that culture is a long-term investment. While a new perk might give you an immediate but short-lived spike in employee engagement, a strong, positive culture tends to impact both customer satisfaction and sales at a time lag. This means that by working on your culture consistently beginning today, you will start to reap the financial rewards at 1-2 year intervals. For the service departments customer satisfaction increased as a result of culture at a one year lag, whereas for sales departments customer satisfaction increased over a two year lag. Similarly the positive impact of culture on customer satisfaction in sales departments had a cascading effect on sales over a two year period.
For another good summary of the study see this WSJ article.
Culture management is not a tactival initiative, it is strategic. It is not for the faint of heart, and it cannot be religated to a leadership offsite. It must be consistently communicated and measured in order to drive value over the long-term.
Now you might argue that waiting two years to see the benefits is a long time. But these are only the financial benefits. Working on your culture will have immediately measureable benefits on your employee engagement levels, individual performance, and turnover.