Culture and Performance: What's the Connection?

The second post in a series based on the National Center for the Middle Market’s in-depth research report, High-Performance Culture: How Middle Market Executives View & Harness the Power of Culture, this article looks at two critical aspects of culture that correlate with business performance metrics.

In high-performing middle market companies, culture is more than a feeling you get when you walk in the door. It’s a top-down commitment that permeates every aspect of the organization, from its mission and values to its policies and decisions.

And it matters. Culture can drive critical metrics such as revenue growth and a company’s ability to attract and retain high-value customers and employees.

In our latest research, we identified two specific components of culture that correlate with high performance: the strength of the culture and the flavor or type of culture that exists in the organization.

An ingrained culture beats a muddled culture hands-down.

Culture needs to be clearly defined and, ideally, should be infused in every aspect of the organization. When culture is strong, it pays. In companies where culture is ingrained or stable, executives are significantly more likely to be satisfied with it. In part, this is because leaders and employees have clear guidance for making strategic and day-to-day decisions. They know what to do, and it’s easier to do it.

More importantly, an entrenched culture drives faster growth. In our study, executives who said their culture was ingrained and slow to change reported past-year revenue growth of 10.8%, compared to growth of a little more than 7% for companies with less fixed cultures. Executives in companies that described their culture as a muddle saw the rate of revenue growth decline by an average of 2.7%. Clearly, the more established the culture, the better it is for business.

Type of culture matters greatly, too.

In our study, 96% of executives identified with one of seven different flavors of culture: customer-centric, innovative/creative, great-place-to-work, technically-oriented, continuous improvement, highly-efficient, or risk-averse. When we looked at revenue growth and key customer and employee metrics by type of culture, we found interesting differences.

Culture type and revenue growth

Of the seven cultural types, four are associated with faster revenue growth: innovative/creative, great-place-to-work, technically-oriented, and continuous improvement. Companies in these categories come from all industries and all revenue segments, but they share a commitment to being the best of the best in at least one area, be it uniqueness, quality, process, or environment. And that commitment translates into faster growth.

Culture type and talent metrics

Middle market leaders agree that their culture has an impact on their ability to attract and retain quality people. Not surprisingly, executives at companies that focus on creating a great place to work are most likely to believe their cultures make a difference in these areas. They are also most likely to say their employees understand what’s expected of them. Executives are less confident in their employees’ ability to understand and deliver on expectations when the focus is on continuous improvement, efficiency, or quality through technical excellence. Leaders of companies with risk-averse cultures are the least likely to believe their culture supports talent management and the most likely to say culture has a negative impact on finding and keeping good people.

Culture type and customer metrics

Curiously, executives who say their culture is customer-centric are not the mostly likely to believe their culture helps them attract and retain customers. This may be because the cultural focus is not clearly translated into specific behaviors or expectations for employees, so customers don’t experience the intent of the culture in their day-to-day interactions. Conversely, those businesses with an innovative/creative culture are mostly likely to say that their customers appreciate their culture and would recommend their businesses to other potential clients.

Dive deeper into the relationships between culture and performance.

For more insight into the connections between culture and performance metrics, and to explore how your corporate culture may be contributing to (or hurting) your organization’s goals, download our latest research report, High-Performance Culture: How Middle Market Executives View & Harness the Power of Culture.

Previously in this series
Post 1: What's Your Culture Type?

Next in this series
Post 3: Pinning Down Culture: How to Manage Yours and Measure Its Impact