The Financial Impact of an Effective Company Culture

By: Annette Klososky, Partner & Sr. Leadership Consultant, EDA, Inc.

We often believe that cutting costs and maximizing resources will increase your rate of return. However, a further strategy lies in a place that is frequently overlooked: company culture.

When calculating ROI, you determine how much revenue an investment produces. The prime investment in your company should be your employees. They are the most valuable asset to increasing a company’s revenue. When employees are engaged, their productivity increases, and so does your company’s revenue.

According to Deloitte’s  2014 Core Beliefs & Culture Survey, “Corporate cultures develop with or without conscious effort. A culture created consciously takes much less effort than fixing a culture of bad habits created by unconscious means.”

Companies with the most effective cultures early on experienced the highest customer satisfaction and sales in later years, and this pattern was repeated over time. Organizations that encourage suitable culture factors proactively can expect to achieve a return on investment (profitability) three to four times higher than companies who do not.

 

Comparing 200 companies that intentionally manage their cultures well vs. similar organizations that did not:

  • Revenue increased 682% vs. 166%
  • Stock price increased 901% vs. 74%
  • Net income increased 756% vs. 1%

Companies that intentionally managed their culture experienced a 682% increase in revenue. 90% of financially “successful” corporate mergers and acquisitions addressed culture within the first 30 days after the announcement. In contrast, only one-third of financially “unsuccessful” mergers and acquisitions addressed culture within the first 30 days after the announcement.

Deloitte’s Survey also found that companies with effective cultures: “Engaged managers and employees are much more likely to remain in an organization, leading directly to fewer hires from outside the organization. This results in lower wage costs for talent; lower recruiting, hiring, and training costs; and higher productivity. Higher employee continuity leads to better customer relationships that contribute to greater customer loyalty, lower marketing costs, and enhanced sales.”

Furthermore, a strong company culture encourages the loyalty of your staff. That loyalty drives them to be personally and professionally invested in your company. This is what will truly maximize your ROI. In comparing the performance of eight companies with superior results against the performance of companies similar in size and industry sector, the most visible differentiating characteristics of the top performers were their values.

 

About the Author:

Annette Klososky serves Executive Development Associates in a partner role as a Senior Leadership Development Consultant and Operational Executive. She has 20+ years of experience working to influence change and results within organizations. A successful entrepreneur and organizational development expert, Annette built a peer advisory business in less than a year comprised of members representing companies with 40,000+ employees and $23 billion in revenue that was featured in Entrepreneur Magazine. She is passionate about equipping leaders with measurable people analytics data and much more.