"Culture eats strategy for breakfast" is a phrase originated by Peter Drucker and made famous by Mark Fields, President at Ford.
Corporate culture is one of the most important factor that contributes to business success, yet at the same time it is one of the most neglected aspect for most business owners. And often the reason is because it is not tangible and measurable.
The success of any organisation depend on the alignment of culture, strategy and capabilities. Most business owners are entrenched in the day to day operations, upholding the need for better employees, more efficient machinery, cutting-edge technology, faster systems and sharper SOPs. Some business owners have decided that strategy has to be key in getting ahead and staying ahead of their competitors. But rarely business owners are willing to make a commitment to invest a good deal of resources to decide the kind of corporate culture they want to create.
Why the lack of commitment?
1) No immediate results
Does having a great corporate culture translate into immediate revenue?
Answer is no.
Conclusion: Then we should just focus on the "more important stuff".
2) Business owners cannot see it
More machines = more capacity = more revenue
More employees = more bandwidth = more projects = more revenue
More systems = more productivity = lower cost
Conclusion: Since we are not able to measure or quantify the value of a positive corporate culture then it is not justifiable to invest resources in it.
3) How does it benefit the company?
How do you measure culture? How can you tell if your organisation has positive or negative culture?
How do you quantify the benefits? How much does it cost to invest in building culture?
Conclusion: There is no clear ROI and therefore we cannot set aside a budget for it.
what is the impact of poor corporate culture in an organisation?
While it could be challenging to measure and quantify the impact of having a positive corporate culture, research has shown that it does has a direct impact in the area of employee engagement, morale and turnover rate.
Higher Employee Turnover Rate
According to studies done by BDC Network, organisations that purposefully craft and develop their culture experience a 14% turnover rate, whereas organisations that ignore their culture experience a 48% turnover rate.
Loss of Productivity
To further substantiate our point, we found out through a study done by Deloitte that the cost of losing an employee can range from tens of thousands of dollars to 1.5–2.0x the employee’s annual salary. These costs include hiring, on-boarding, training, ramp time to peak productivity, the loss of engagement from others due to high turnover, higher business error rates, and general culture impacts. (Source: Huffington Post)
For those of you who are looking for a formulae to quantify the cost of employee turnover, there is a quick reference below and using this spreadsheet to plug in your own numbers will give you a sense of what the costs look like for you.
For example, if you are a 100 person company with 11% annual turnover, and you spend $25k on per person on hiring, $10k on each of turnover and development, and lose $50k of productivity opportunity cost on average when refilling a role, then your annual cost of turnover would be about $1.05 million. Reducing this by just 20%, for example, would immediately yield over $200k in value.
Lower growth and share prices
To build an even more convincing case, research has shown that a weak corporate culture often leads to workers becoming disengaged and the outcome is lower growth and share prices over time.
Human talent is the biggest assets and growth-driver for every organisation. Failure to retain employees remains one of the most costly mistakes businesses continue to make.
Machines and equipments are ultimately capped by their capacity. But placing like-visioned people at the right place will always result in a flow of creativity, ideas, teamwork and growth.
To round it all up,
Capabilities help you to play the game better.
Strategy make you stay ahead of the game.
Culture keeps you in the game.