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Corporate Culture Key to Business Performance

The culture of any organisation is fundamental to business performance and yet can be difficult to measure or manage.

The corporate culture of an organisation is the way the organisation is seen by its shareholders, customers, employees and other stakeholders. It reflects the way an organisation does its business, its principles, values and behaviour. Corporate culture is linked to reputation, to employee satisfaction, to customer satisfaction and to corporate performance. It is, however, something of an intangible asset (or liability); difficult to set, difficult to measure and difficult to change. The biggest test of an organisation’s culture is often when something goes wrong, but setting and managing that culture is a long term venture and not something to be done overnight.

Corporate culture is created through a combination of executive and managerial behaviour, stated corporate aspirations such as vision and objectives and clearly stated corporate values. However, it is executive and management behaviours which create the strongest cultural signals for staff. With or without clearly articulated corporate vision and values, the organisation will look to its leaders to set the behavioural norms. If those behaviours contradict the stated corporate aspirations, then staff will assume that the aspirations are wrong or irrelevant.

In a large organisation, with many managers and layers of management it is easy for cultural messages to get confused. Even with a clear executive cultural direction, values can be interpreted differently or behaviours of individuals may not match the cultural norm. This can cause dilution of the intended culture in the business and in some cases the creation of an undesired culture. The result can be a business culture which does not reflect corporate aspirations or maybe even one which conflicts with corporate aspirations. In either case this could be considered a misinterpretation of corporate culture.

Potential consequences of a business culture which is not as intended can be catastrophic, for example;

  • A poor safety culture can give rise to HSE incidents as significant as the BP Macondo disaster
  • A poor risk culture can threaten a business’  financial standing as was the case with RBS and other banks in the recent financial crisis

Clearly most examples of corporate culture misinterpretation are not as extreme as these. However any dilution of the intended corporate culture can reduce business effectiveness or damage reputation. If a stated value is to ‘Value our people’ and yet a manager treats his team in a way which undermines their perceived value, the team are unlikely to perform at their best. If the manager has other managers reporting to him, then the effect on the organisation could be exacerbated. Whilst managers are unlikely to undermine others contributions intentionally, even in the best organisations such occasions can happen. The key here is that organisations have a culture which provides space for feedback and discussion about such matters so that managers can recognise and learn from their mistakes. Without such a culture, managers errors go uncorrected and can contribute to dilution of intended corporate culture.

Potential also exists for Values to apparently conflict with each other so how a company manages such conflicts are important. If a company’s Values say ‘Safety is most important’ and ‘We have a relentless focus on delivery’, then it is important that staff recognise when safety takes precedence over delivery. Making such a judgment is not always as straightforward as it seems and a corporate culture which provides time for discussion when potential conflicts arise is essential.

Key challenges in ensuring an effective corporate culture include;

  • Difficulty seeing the big picture
  • Challenges taking responsibility for critical issues
  • Lack of openness to learning
  • Inability to accept things may not be perfect

Typically, corporate culture reflects the values an organisation has. These could include: Customers, Trust, Ethics, Safety, People, Risk, Security, Innovation, Delivery and Quality. The exact wording and make up of a company’s values being driven by its particular situation and corporate culture.

Given the importance of getting corporate culture correct, it is surprising how little attention it gets in most businesses. The first step in this area would be to assess the effectiveness of current corporate culture and start to identify gaps and approaches to address them.

Being clear on corporate culture and how it is sustained is critical to a business’ success. Without it, a business risks significant damage to reputation or compromise to business performance, which in some examples can be catastrophic. Having clear values in place and re-enforcing these values through management behaviour is the best way to propagate a clear culture. When behaviours do not align with stated values, potential exists for confusion or misinterpretation of culture. An effective business culture needs to provide for feedback and learning so that employees can provide input on strengths and weaknesses in the way the values are implemented and the culture actually permeates the organisation.

This article was written by Sam Gomersall.

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