How Does Corporate Culture Impact a Company’s Success?

Culture exists in any organization, whether created through careful design and implementation, or through natural development as a company grows.

What exactly is “corporate culture”?

Perhaps the most universally accepted definition comes from former MIT Sloan School of Management Professor E. H. Schein: “The set of shared, taken-for-granted implicit assumptions that a group holds and that determines how it perceives, thinks about, and reacts to its various environments.”

In the past decades, many scholars and experts have conducted extensive research on this topic. For example, after researching 207 companies within 22 industries between 1977 and 1988, John Kotter & James Heskett discovered that corporate culture affects economic performance.

They analyzed corporate cultures using three metrics: substance, strength, and adaptability, and measured economic performance by profit, return on investment, and stock price. Their research indicated that a company outperforms its counterparts when 1) its culture emphasizes customers, investors, and employees; and 2) its culture fits its business environment and adapts to changes.

Companies that have experienced only short-term success differ from those that have enjoyed long-term success in one key way: they haven’t had time to introduce changes to their corporate culture. With time, the same culture that once suited the environment and facilitated growth can become a hindrance.

Because corporate culture has a strong influence on a company’s economic performance, it can have a polarizing effect. A strong corporate culture that is compatible with the environment will drive better financial results compared with a weaker corporate culture. But a strong corporate culture that is not in tune with the environment will hinder the company more than a weak corporate culture ever could.

Corporate culture—specifically, promoting a “culture of inclusion”—also can affect employees’ view of their company’s future economic performance. According to a recent Cisco IBSG survey, 55 percent of respondents from companies with inclusive business environments are “very confident” about their organizations’ future revenue outlook, while only 35 percent of respondents from non-inclusive companies expressed this same level of confidence.

In addition, 93 percent of respondents from companies with an inclusive business culture said their company’s investments in collaboration solutions have outperformed expectations in terms of the business value. By contrast, only 28 percent of respondents from noninclusive companies said that their companies’ investments in collaboration solutions have outperformed expectations.

There’s no doubt about it: “culture” applies at least as much to corporations as it does to the concert hall or art museum.