Culture: 4 keys to why it matters

March 27, 2018What separates the highest performing organizations from the rest? Clever strategy? Superior products? Better people?

Perhaps they do – for a while – but any advantage fades if it is not built atop something more fundamental. Something that enables a competitive advantage to sustain and grow over time. That something is culture.

What is culture?

Culture starts with what people do and how they do it. In any industry, what people do may not differ dramatically, but high-performing organizations distinguish themselves in how they do it. This cumulative effect of what is done and how it is done ultimately determines an organization’s performance.

Culture also encompasses why people do what they do. As the Titanic’s captain grasped a little too late on that fateful night in 1912, 90 percent of an iceberg’s mass lies beneath the surface. Culture is similar as it includes observable behaviors (the what and how above the surface) as well as everything underneath – the shared mindsets and beliefs that influence how people in an organization behave. Just like a captain navigating frigid waters, anyone trying to understand an organization’s culture must recognize that most of what matters cannot be readily seen.

Thus, culture is the common set of behaviors and underlying mindsets and beliefs that shape how people work and interact day to day.

Four reasons why culture matters

1. Culture correlates with performance. Based on our research of over 1,000 organizations that encompass more than three million individuals, those with top quartile cultures (as measured by our Organizational Health Index) post a return to shareholders 60 percent higher than median companies and 200 percent higher than those in the bottom quartile.
2. Culture is inherently difficult to copy. The quickening pace of innovation means that products and business models face the constant threat of being replicated. In this environment, the ultimate competitive advantage is a healthy culture that adapts automatically to changing conditions to find new ways to succeed.
3. Healthy cultures enable organizations to adapt. In a world where the one constant is change, culture becomes even more important because organizations with high-performing cultures thrive on change. The converse also holds true: Unhealthy cultures do not respond well to change. Our research shows that 70 percent of transformations fail, and 70 percent of those failures are due to culture-related issues.
4. Unhealthy cultures lead to underperformance…or worse. Over time, not only do unhealthy cultures foster lackluster performance, but they can be your undoing. Daily headlines attest, culture can bring corporate giants to their knees.

This topic – how to create healthier and higher-performing cultures – is one we will explore in more detail in subsequent posts.