What corporate culture is and why it matters

What corporate culture is and why it matters

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At the end of the analysis a company is a collection of people working together. What their work results in depends on the way they work, on their working practices, or so to say, their culture of working together. Therefore, if you want to improve the work you have to improve the corporate culture.

A company’s corporate culture is the way business is done in the firm. It is therefore the aggregate reflection of all actions of a company, decisions and behavior of its management and all of its employees, as well as all the business processes.

We should not perceive corporate culture as one aspect of the business along with other areas of business such as strategy, marketing policies, assets, financials, organizational structure etc. Instead we stress that the sum total of all those issues is the corporate culture. As Lou Gerstner said: “Culture is not just one aspect of the game – it is the game.” Therefore to make a firm more successful and profitable management has to ensure that all its strategic choices and attempts to change are reflected in the behavior of all employees, the corporate culture.

By claiming that the corporate culture is a result of a company’s decisions, I want to demystify the concept of corporate culture: I do not want it to be seen as a “soft-issue” that only organizational psychologists would deal with. This is not to deny that the professional organizational psychologist wouldn’t have a role to play in changing the corporate culture, but we stress that the main role is with business leaders who have to set the conditions for change.

But we do not mean by an ideal corporate culture a nursery environment where the company tries to make each employee as happy as possible. On the contrary we mean by corporate culture a business environment where self-motivated and self-disciplined employees are everyday doing their utmost to seek out the highest degree of customer satisfaction as the highest reward of their work.

The influences on a Corporate Culture

Knowing this about corporate culture, we realize that all strategic choices that aim at growth, improved profitability and long-term success will have to be implemented at the level of the corporate culture. If the corporate culture does not change so as to reflect the new strategy, then the strategy fails. This is precisely the issue that separates in the long run the winners from the losers: to win the corporate culture has to be molded to suit the strategy. Too often the results of a strategic change remain lackluster because company management focuses too narrowly on the material assets involved in the strategic decision and the related financial and technological aspects while ignoring the needs to change the behavioral practices that affect the overall performance. Long-term business success comes only with a winning corporate culture that ensures that all staff is continuously doing the right things in accordance with the company’s strategy and with the ultimate goal to improve customer satisfaction.

We say that corporate culture is the aggregate performance of each individual employee, but the performance of the individual is influenced by a multitude of factors. These factors form the constraints of (or influences on) a corporate culture. The facts of behavior that amount to a corporate culture are dependent on many considerations starting from the broadest of all categories, that of human nature. But when treating this subject we have to narrow in the considerations to those which immediately bear on business. Thus we get these main categories of influences:

1. Company’s decisions, past and present
2. Strategy, mission, and values
3. Company’s assets (the use assets are put to)
4. Formal policies and rules
5. Informal policies and rules and behavioral practices, traditions
6. Company’s organizational structure
7. Human resources policies
8. Company’s communication and reporting culture
9. Control environment and corporate governance
10. Risk appetite
11. Company’s brand image, public image
12. Commitment to customer satisfaction

A good Corporate Culture is a holistic enterprise

Business leaders have to continuously – and simultaneously – focus on all aspects of the business, that is, work on the total corporate culture. Most importantly they need to realize that each decision in one field of the business has carry-on implications on all the other parts of the business. Usually this is not realized when executives make strategic choices which are based only on directly measurable monetary values (monetary values which as such are often merely artificially invented to suit the financial measurement system). They fail to realize that at the final analysis the performance of a company is dependent on the corporate culture as a conglomerate of all aspects of the business.

When organizational consultants talk about corporate culture they tend to treat corporate culture as a stand-alone product consisting mainly of the company’s historical traditions, and therefore, they tell, that it is so difficult to affect corporate culture. But they precisely miss the point that all the “traditions” are also the result of historical decisions about how to conduct the business. Some of these decisions can be traced to existing rules, but for many of the traditions there is not necessarily an evident source, or it might be a result of a corruption of a rule that has served a totally different function in the past. – We do not believe that corporate culture should be limited to psychological issues such as the “mindset and instincts” of the employees. This because all corporate behavioral practices are at the end of the analysis based on decision – past or present, tacit or explicit. And this is also why they can be changed by new explicit and well-thought-out decisions. This does not imply that the change is easy and that change comes about merely by explicit decisions. Certainly not, the bigger the company and the more complex the business, the more long-term effort is needed to implement change and guidance by real change leaders.

Usually companies are managed by, and decisions made based on, procedures that do not capture, measure, or in any way foresee the impact that investments have on the overall way of doing business (i.e. the corporate culture); correspondingly they do not consider what changes in the corporate culture would have to be made in order to enhance the investment yields.

Awara has the expertise, resources and in-depth understanding of the Russian business environment needed to help our clients build a modern, innovative and winning corporate culture. By a corporate culture audit, we can identify the weaknesses in the corporate culture and help draw a plan for upgrading it so that the company can reach its full potential on the Russian market.

If you want to discuss this article, please contact:

Jon Hellevig, Managing partner of Awara Group
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