Corporate Culture Has A Quantifiable Impact On The Bottom Line

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Photo: By sharynmorrow on Flickr

Via Harvard Business School:Corporate culture is often thought of as a hard-to-define, or soft concept in management circles. Soft not in the sense that it isn’t important—most CEOs will tell you that their ability to inculcate values and mission into the DNA of a firm is among the most important work they do.

No, the problem arises because little research has been targeted at trying to quantify its importance on performance. In his new book, The Culture Cycle: How to Shape the Unseen Force that Transforms Performance, HBS Professor Emeritus James L. Heskett attempts just that. “organisation culture is not a soft concept,” he says. “Its impact on profit can be measured and quantified.”

Heskett finds that as much as half of the difference in operating profit between organisations can be attributed to effective cultures. Why? “We know, for example, that engaged managers and employees are much more likely to remain in an organisation, leading directly to fewer hires from outside the organisation,” Heskett writes in the book. “This, in turn, results in lower wage costs for talent; lower recruiting, hiring, and training costs; and higher productivity (fewer lost sales and higher sales per employee). Higher employee continuity leads to better customer relationships that contribute to greater customer loyalty, lower marketing costs, and enhanced sales.”

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