Culture is a driver of performance

Recently, the Wall Street Journal published an article about the causal relationship between corporate culture and business performance. The article is based on research published in the Journal of Organizational Behavior, to which two of Denison’s in-house experts, Levi Nieminen and Dan Denison, contributed.

The research analyzes data from a six-year longitudinal study of the culture-performance (C-P) relationship in service and sales departments at 95 automobile dealerships. The study not only confirms a relationship between culture and performance, but evidences a clear causal relationship. As the WSJ put it, “the relationship is strong, but nuanced.”

As Denison’s research has consistently shown in the past, organizations with higher scores in four key areas of organizational culture tend to have higher sales and greater customer satisfaction than those with lower scores. The four areas are involvement (support for employee empowerment and team-work), consistency (in affirmation and implementation of corporate values), adaptability (ability to meet changes in competition and customer behavior), and mission (clear, measurable strategic goals and direction).

NEW INSIGHTS

The new study adds two significant insights to our growing understanding of the relationship between culture and performance, providing data to help answer under-researched questions in two areas.

• Causal priority. What drives what? Does corporate culture drive performance outcomes, does performance drive culture, or is there a reciprocal relationship?

The study suggests culture as a strong driver in the C-P relationship, without evidence of a reciprocal performance-to-culture feedback loop. Departments’ culture scores consistently predicted higher levels both of customer satisfaction ratings and of sales.

• Timing. How quickly do predictive C-P relationships emerge and how long do they last?

This study, combined with prior research, suggests a C-P relational peak 1 to 3 years after implementation of cultural changes. (The details in this study varied between the service and sales departments.) This offers businesses important cautions for evaluating the effectiveness of cultural change: Don’t give up too soon! Improvements may not be immediately visible. And don’t stop addressing culture once improved performance has been initially achieved—peaks don’t last forever, and adjustments will be necessary.

The complexity of changing corporate culture depends on many things. But as anecdotal experience and research increasingly show, it’s an important investment to make. Healthy corporate culture drives performance.

For more on this topic, see the Wall Street Journal article, “The Relationship Between Corporate Culture and Performance” and the research article in the Journal of Organizational Behavior, “Which comes first, organizational culture or performance? A longitudinal study of causal priority with automobile dealerships.”

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