Investing in a positive company culture is one of the best investments a corporation can make.
There are a lot of moving parts that go into how a company makes a profit. Questions abound and strategies are constantly being reworked. What product is being sold and for how much? What’s the price of the item or service to the company? How much does it cost to market said product? What do we pay our staff to earn a positive ROI? Who is best to lead on this project? However, one of the most critical and overlooked concerns is about how company culture can affect a company’s bottom line.
Whether encouraged or not, a company’s culture develops on its own, built and maintained by the employees working for the company. Because of this, it’s important that corporate culture is guided by positive corporate policies. A negative culture at work can be toxic, leading to disgruntled employees, negative publicity, lower profit margins, internal (and external) gossip, and job hopping, all of which can lead to decreased profitability. However, if a company can build and sustain a positive culture – which carries a relatively low-cost up-front investment – it can increase profitability by keeping its employees and customers happy.
1. Engaged Employees
A 2012 study from the Center for American Progress found that the average cost to replace an employee earning $30,000 – $50,000 per year is 20 percent of annual salary. For high-salaried employees, it could cost up to 213 percent of annual salary. Employee turnover can get very expensive, very quickly. So in a positive corporate culture, when employees are respected by management and supported to do their job, they are more likely to find meaning in their work and be committed to the company’s goals. According to a Gallup research project, companies with engaged employees realize a 41 percent reduction in absenteeism and a 17 percent increase in productivity. Engaged employees mean less job turnover and new hires, the attraction of better talent at the time of hiring, and stronger referrals of potential new employees. Also, in a positive environment, there tend to be lower medical and insurance costs, a decreased chance of litigation expenses, and any internal politics/disagreements are more apt to be settled constructively.
2. Happy Customers
Whether a company sells widgets or provides a service, without customers there is no business to be had. Customers make or break all businesses, so if profitability is what a company is after, the customer must be held in high regard. Engaged employees lead to loyal employees, and loyal employees lead to loyal customers – and that drives profits. Having client-facing employees who find a definite purpose in their work is the key to excellent customer service, which results in repeat business and/or positive referrals to other (potential) customers.
3. Efficiency Equals Opportunity
Daily meetings to hash out the “who does what” or “I thought he was doing that” conversations are efficiency killers. When a company’s culture encourages smooth(er) internal communication between employees, teams, customers, or suppliers, cooperation and teamwork improve. This efficiency opens up time for problem-solving, as well as time to take on additional projects or clients, leading to corporate growth.
4. Supported Business Goals
From the CEO down to the entry-level employees, when everyone knows and respects the culture and goals, profits increase. Even in the face of adversity, be it market share loss or inventory problems, when working in a positive environment supported by senior leaders, employees can avoid the “culture of fear” that is often in place at other corporations. This allows them to be motivated to continue working towards the common goal of the company
5. Profit Generates Profit
That saying “it takes money to make money” is popular and widely used because it’s true. If a company wants to continue to grow, it’s going to need the money to do so – i.e., profit. So if a positive company culture increases profitability, then that profit can lead to additional growth. When a company has a culture that is viewed as negative by its employees, getting the profit needed to make even more profit is going to be that much more difficult. Moreover, according to Gallup, “the behaviors of highly engaged business units result in 21% greater profitability.” And what does a 21 percent increase in profit lead to? Greater profits.
Corporate Culture and Economic Performance
To back up the idea that a positive company culture increases profitability, we will leave you with this. Writing at Forbes.com, John Kotter discussed some strong findings on how corporate culture affects economic performance from his book Corporate Culture and Performance, which tracked the cultures of 200 companies over eleven years. He found that those with a “performance-enhancing culture” out-performed those without a positive culture by hundreds of percentage points, as seen below in this graphic:
Yes, that’s a 901 percent increase in stock price growth compared to a 74 percent increase.
Now it’s time to make sure your company is building a positive, productive culture that not only makes it a great place to work but also helps your bottom line. What steps are you taking to build such an environment, and how can re:purpose help you get there?