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Why Is Organizational Culture Important for Business Success

Published: January 10, 2023

Last Updated: June 8, 2023

  3 min read

By: Michelle Cadieux

why company culture is important

Organizational culture is important for many reasons. A positive culture can attract and retain talent, while a negative one limits growth.

Conventional wisdom holds that culture resides in "tangible" things like office design, logos, or social events. But this is a myth that has long been dispelled. True culture is much less tangible. 

What we perceive as “culture” actually start as beliefs (usually at the top of the orgazniation) which trickle down to shape the behviours of entire groups of people. 

As such, culture affects everyone in a company on a daily basis. Work culture isn't just a fluffy concept; it's essential ingredient for a successful, thriving business.

Like plants need optimal environments to grow and thrive, so do people. Toxic company cultures are detrimental to the mental and physical health of employees. On the other hand, a great company culture creates happier and healthier employees and has a net positive effect on business performance. 

Let's explore just how culture impacts key areas of the organization. By doing so, you'll better understand the importance and value of organizational culture and the benefits an organization can reap from it in the long run.

bigstock-Many-Happy-Business-People-Rai-420052171Why Is Organizational Culture Important for Business Success

Attracting candidates & talent

A company's culture is an extension of its brand and reputation. As such, a strong company culture can be a major attraction for potential employees. Think about when employees talk about your work to their family and friends; often, the first thing they boat about is the great culture. 

To that end, in the current economic climate, most people look for more than just a paycheck at work. Studies even show that a vast majority of candidates are aware of a company's mission and culture before applying.

And in the remote work era, knowledge workers have a widened pool of options to choose from. With this wider range of options, there is more pressure on companies to stand out and attract talent. Simply offering good pay and basic benefits isn't enough. Every other employer out there is offering the same thing! As such, offering a strong culture can be especially appealing to young job seekers.

Improving employee retention

Leaders may have a gut feeling something is wrong with their culture. But it's difficult to prove problems like high turnover are due to bad culture. After all, employees rarely cite "poor culture" as a reason for leaving, and most companies lack the tech systems to measure culture objectively. ROI is hard to prove.

Because of its murky nature, leaders tend to dismiss its importance and relegate everything in the "culture" bucket to Human Resources. 

But even if something is hard to measure, it does not mean it's useless. These assumptions have proven to be misguided. 

For example, a 2022 article published by MIT Sloan titled Toxic Culture Is Driving the Great Resignation reveals toxic company culture to be the top predictor of employee turnover. Even more than pay. 10X more, to be precise. 

Company culture is something employees encounter every day. Even the most resilient employees will struggle to cope when a company culture is unhealthy. Consequently, a rising turnover rate is one of the first signs of cultural trouble. Never ignore it.

Organizational performance

Culture might be invisible, but it's a powerful force. When employees are exposed to positive, healthy cultures, they are more likely to be happy, thriving, and productive. To that end, culture doesn't impact employees; it impacts an organization's total performance. 

Research by two Harvard Business School professors set out to prove this theory. They conducted a rigorous analysis of 207 companies for 11 years. They wrote an entire book describing the findings. 

We'll help you skip to the best part. What they found comparing companies with weak cultures versus those with the best cultures; strong cultures increased revenues by an average of 682% versus 166%, expanded their workforces by 282% versus 36%, and grew their stock prices by 901% versus 74%. 

A simple conclusion: Culture isn't just a "nice to have." Investing in company culture has undeniable benefits for employees and, in turn, the bottom line.

Creating evangelists

Evangelists are employees who advocate for your company. They're the employees who endorse your business on social media and talk about your company to their friends and family. In short, these people are proud to work for your business.

Creating employee evangelism can be a powerful way to attract both talent and clients to your business. Positive word of mouth is free advertising for a business.

But this positive reputation has to be earned. Not just any company is evangelism-worthy. A strong employer brand reputation begins with building a strong culture. In other words, cultivating company culture is a long-term investment that pays off exponentially in the long run.

Final Thoughts

In business, the lowest-hanging fruit often gets picked first. We are naturally drawn to short-term goals because they are easier to reach and measure. That’s just human nature.

But this bias is also why many businesses fail to build company culture – it's not a short-term goal. You can’t simply list “build a great culture” on your quarterly to-do list and then be done with it. It’s a perpetual process. 

In the end, the companies that take a leap of faith to invest in company culture will succeed long-term. Because so few businesses spend money on programs where ROI is uncertain or difficult to quantify. Taking even small steps to improve your culture and invest in employees will give you a strong competitive advantage. And you can be sure any business will reap countless benefits as a result.

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