Why organizational culture matters for business success?

There are over 52 per cent of Fortune 500 companies that have gone bankrupt since the year 2000. One can explore reasons for such huge organizations turning unprofitable and losing market value, or write them off as a phenomenon of natural death, driven by economic cycles.

There are hundreds of companies which are delisted from stock markets across the world every year. Many unlisted, private firms do go out of business, shut down their operations, lay-off millions of employees, exit from markets, sever ties with customers, and erode share-holder value.

I see 'organizational culture' as the critical and primary reason for this mammoth economic meltdown. Organizational culture exists in all organizations, whether they have 5 or 5,00,000 employees. The big question is, if the culture in an organization is 'by-default' or 'by-design'? Almost all the companies which have failed seem to possess an organizational culture, which is 'by-default' and not consciously, professionally well designed.

On the face of it, organizational-culture seems like a theoretical model for a mere administrative check-list. However, a CEO and his senior executive team need to be extremely congruent and emotionally intelligent to understand that organizational culture is central to all efficiencies of an organization, which impacts profitability and continuity.

A discerning organizational leader understands all processes internal and external to an organization are driven by culture, which is adopted by employees with repeated pattern of behaviour, overtime. Organizations can only control their end of active processes with well-designed culture, and have very limited control over external functions of the market which are driven by divergent cultures. If an organization can't design, deploy and enable a structured organizational culture with the core objectives of enhancing shareholder value and customer-value creation, that organization is certainly setting itself on a path to failure.

If organizations don't invest their focus and resources into designing and enabling a robust organizational-culture, this deficiency steadily destroys precious organizational resources in the form of pilferage, wastage, lower productivity, unaccountable actions, bad employee behaviour, poor product design, low quality production, poor customer support, poor corporate communication and eventually low customer and shareholder value. I will highlight few critical functions of an organization which will essentially fail, without a well-designed organizational-culture.

Vision management

Vision is an organizational destination. Lack of well-designed organizational culture hinders the communication of vision all across the organization. If the vision is not translated into actionable near-term, mid-term and long-term business strategy, it can't be accomplished.

If the CEO or just few senior executives having a vision is not enough for an organization to have vision led guidance for sustenance and growth. When even large companies fail, they do because of the organization's failure to communicate and act on the stated vision.

Organizations can design their culture which enables communication of organizational vision constantly across the organization and even beyond. This essentially repetitive macro function is a critical factor to designing the organizational culture for an enterprise of any size. This culture enables value-guidance, resource allocation priority, choosing and rejecting business opportunities, quality standards, product design, product development, employee loyalty, customer and shareholder value creation.

Business strategy

I have consulted for many organizations where 'Business Strategy' was non-existent and it was not considered as an essential top-management function. That's the established culture in these enterprises. These businesses were failing, were marginal players in the market, were struggling to compete, recruited below average human resource, and were unprofitable for years. To me, all indicators are pointing at the 'organizational culture' as the core reason for their unenviable situation.

Lack of functionally designed, actionable and reviewable business strategy. This is one of the key exhibits of any firm, which lacks professionally designed organizational culture.

If the functional head of an organization doesn't find it necessary to have a well worked, actionable Business Strategy – what does it say about the culture of the organization? What can be expected out of lower-level resource heads in reference to their resource plans? What kind of expectations will a share-holder or investor have on ROI (Return On Investment) in an organization which doesn't have a Business Strategy to drive its operations?

Having a robust, result-centric, profit-driven and measurable Business Strategy is an essential function of any organization, whether it is small, medium or large in size. What other reason than its own 'culture of negligence', 'culture of adhocism' or 'culture of ignorance' is stopping a CEO from playing his real role? The operational adhocism and irresponsibility of any functional head in an organization is the direct outcome of a 'by-default' organizational culture or an 'ill-designed' organizational culture.

Market, customer & shareholder value

179 companies have been de-listed from US Stock Exchanges between 2020 to 2021. This is just a small slice of a much bigger pie of failed companies world-wide. How can these many well-funded, professionally managed, publicly listed companies fail their shareholders and customers? The univocal answer is – it's their organizational culture which failed them.

The culture of management inertia, slow decision-making process, snail paced transformation, incompetence to manage market disruptions, poor resource allocation, visonlessness, bad profit formula, low quality human resource, dysfunctional business strategy and many other operational failures bring down even massive organizations. Every single function which drives negative outcomes contribute to the fall, and every organizational function is the outcome of an ill-formed or unprofessionally-designed organizational culture.

Organizations which continue to achieve market success, accentuate customer and shareholder value certainly possess an invaluable, unique organizational culture, which is designed, deployed and perfected overtime with application across the organization. They are not just the best workplaces, the top talent chooses to work but also best enterprises who add compounding value to their customers, shareholders and to the global economy at large. Organizational culture is the heart of all successful enterprises.

(The Author is a Harvard Business School-Certified Organizational Strategist & an internationally renowned Author)