My team at Culture Partners just completed some new research, and I want to take you through it.
In the current climate of economic uncertainty, the advent of artificial intelligence, and shifting dynamics in the labor force, company leaders are at a crossroads for their organizations’ futures.
From CEOs to managers, leaders want to know:
- How can I face market volatility with confidence?
- How can I stay ahead of the competition now and in the future by improving business outcomes?
- How can I create a workplace culture that meets employee expectations and drives business results?
Methodology
In collaboration with Charles O’Reilly, the Frank E. Buck Professor of Management at the Stanford Graduate School of Business, we explored the relationship between culture, strategy, and revenue growth through a series of regression models analyzing a survey with 243 respondents from various industries.Firm size ranged from 100 to 350,000 employees, and the revenue growth percentage reported ranged from -100 percent to +1,500 percent. The average revenue change over the last three years for all companies was 35.8 percent.
The survey asked respondents to sort their current business strategy into one of three groups: Innovation, Low Cost, and Customer-Centricity. It then asked them to describe their culture based on eight dimensions:
- Adaptiveness
- Collaborative
- Results-Oriented
- Integrity
- Customer-Oriented
- Detail-Oriented
- Transparency
- People-Oriented
The regression models then assessed how these business strategies, cultural dimensions, and overall cultural change and focus influenced revenue growth over the past three years.
Findings
Surprisingly, strategy had no significant impact on revenue growth. Likewise, strategy and culture together had no impact on revenue growth.Out of the eight cultural dimensions, only one significantly correlates to revenue change: Adaptiveness. Companies with adaptive cultures, meaning they can shift culture to flex and stay in alignment with strategy, had an average revenue change of 49.8 percent. Other dimensions, such as Customer-Oriented, People-Oriented, Results-Oriented, and more, had an average revenue change of 17 percent.
Additionally, detail orientation had a significant negative correlation with revenue growth. In other words, cultures with a high focus on detail orientation experienced lower revenue growth overall. In contrast, companies with a high focus on people, results, collaboration, and innovation experienced higher revenue growth overall.
There was much benefit to the alignment of various business aspects. For example, companies that successfully aligned their “culture” (behaviors, experiences, and beliefs) with their overall “strategy” (tactics and operations) saw a 42 percent revenue change over three years; companies without this type of alignment saw a 1 percent decrease in the same span. “Purpose,” which is somewhat hard to define and can vary by person, saw 39 percent three-year growth when aligned to culture. A purpose-aligned culture means defining task work and outcomes as tied to employees’ long-term goals.
None of these things happen in a vacuum. You need good employees, a strong culture, a sense of purpose, good products and services, and a strategy. But above all, adaptability seems to be the winner regarding cultural style—which is logical in a time of such drastic business change.
Recommendations for Shifting the Focus to Culture and Adaptability
This is a call for a new paradigm around the role culture has historically occupied in the minds of executive leadership.Rather than seeing cultural transformation as another item to fit within their budget, these findings demonstrate how a cultural focus can transform organizational budgets as a prime indicator of revenue growth.
To begin to shift their paradigm about the role culture plays, executives can:
- Consider rethinking how they approach training and promoting frontline managers.
- Find examples of resilience and bounceback within the organization and spotlight those.
- Recognize and reward people who have pivoted for a client or customer.
- Consider language around resilience, adaptability, pivoting, adjusting, and more for mission statements and all-hands meetings.
- Embrace adaptability regarding how employees work—WFH or hybrid might be best for them, and leaders must be adaptable.
In later posts, I’ll break down more of Culture Partners’ findings and methodology from our analysis and provide actionable takeaways. These will help leaders start applying the cultural principles that drive change.
