Building Financial Success: The Impact of Constructive Cultures

Over the last few years, the evidence confirming the strength of the relationship between culture and performance is simply becoming overwhelming.

If we accept Kotter and Hesketts' research (Corporate Culture and Performance, 1992) as the first study to show a clear link between culture and performance, then the research since has only served to strengthen their case.

What Kotter and Heskett found was that, throughout a 10 year period of research, those organisations they defined as having an "adaptive" culture performed four times better (in terms of revenue growth) and 12 times better (in terms of stock price growth) than those they identified as having "non-adaptive" cultures.

At Human Synergistics we have been a little sceptical about studies that compare different businesses across different industries as we acknowledge that there are many variables that have an impact on performance, not just culture.

Our studies have thus tended to concentrate on comparable business units within the same organisation, where many other variables can be held constant, thus creating a tighter model for research purposes.

What we have found in these studies is that culture quite clearly has a direct impact on revenue growth and expense management and thus profitability. Constructive cultures go with higher performance levels and defensive cultures go with lower performance levels.

Recently, when a pragmatic Senior Executive like Gordon Cairns, CEO of Lion Nathan, went public at conferences and presented his case that Lion Nathan's changes in culture have contributed significantly to their improved financial performance (reflected in their growing share price), then we think we are all onto something.

And it's not just us. Our colleagues in other consulting and research firms are also publishing their own studies confirming the strength of the link; eg.

• Jeffry Pfeffer in his outstanding book The Human Equation presents a comprehensive review of several studies.

• Hewitt Associates' study with Vanderbuilt University - their "Top 100 Best Employers" showed cumulative stock returns 50% higher than the market norm.

• Gallup's studies on "employee engagement" - organisations high in their index are 50% more likely to have lower staff turnover and 38% more likely to report higher productivity. Watson Wyatt's research into "good management practices" - those that rated highly were linked to a 90% greater increase in shareholder value.

• PricewaterhouseCoopers' studies into "effective people management" - those rating high on their index showed 35% higher revenue per employee.

Regardless of who studied what, they all say the same thing - that there is a very clear and undeniable link between culture and performance.

Whilst all of these (and other) studies show the link, the key for us lies in identifying and understanding the factors that must be impacted on to achieve the desired end state. Our efforts over all these years have focused on helping individuals, groups and organisations build the cultural expectations and leadership behaviours that create a high performing organisation.