Research

Corporate culture as a roadmap to success

Everyone knows the legendary success stories of corporate culture — Southwest Airlines comes immediately to mind — but research has not been able to pin down exactly how culture influences financial performance. Researchers at the W. P. Carey School of Business set out to find the link. The answer, they discovered, was in the realization that there is no one simple path leading from cultural values to outcomes. The reality is much more complex: The connection between corporate culture and financial success is actually indirect.

2005-08-03

In an industry still struggling to regain its footing since the 9/11 terrorist attacks, Southwest Airlines remains an anomaly. The hugely successful low-fare airline has grown from a tiny startup to one of the industry's largest powers. While its major airline competitors struggle, Southwest continues to climb: the Dallas-based airline has enjoyed more than 30 straight years of profitability.

Researchers have long suspected Southwest's unique corporate culture has helped set it apart from its less successful competitors. They just haven't been able to prove it.

"It's one thing to say that culture is related to financial performance, but past research did not support that," said Angelo Kinicki, a professor of management at the W. P. Carey School of Business and an expert in corporate cultures. "We know companies like Southwest or SAS Institute — companies that have unique cultures — are highly successful, but research has not been able to identify how culture influences financial performance. The question is: Why not?"

To crack the culture question, Kinicki and researchers Cheri Ostroff and Mathis Schulte of Columbia University recently conducted a survey of more than 3,000 bank employees on their feelings about their company, their workplace culture, their commitment to customer service and other matters. Of the original group polled, 1,120 at 120 branches were eventually included in the study.

The findings represent a breakthrough. Kinicki and his team are the first researchers ever to definitively examine the process by which corporate culture affects bottom-line performance. In the study, Kinicki successfully linked the bank's culture to its climate and, then, to the level of customer satisfaction achieved. "We know now that if you want to create a higher level of customer satisfaction, you can get it by using culture as a competitive weapon," Kinicki said. He will explore the role culture plays in organizations next February in a three-day Executive Education program titled "Leadership: Aligning Strategy, Talent and Culture."

Kinicki's interest in corporate cultures dates to his days as a consultant, when he was hired by an organization to help change the culture at an office that had lost its edge. The problem? Employees were not held accountable for their production. To transform the "non-accountable culture," Kinicki drew up a system though which employees would be rewarded for meeting predetermined goals.

It was a straightforward system that Kinicki and top managers believed employees would quickly embrace. But that never quite happened. "People resisted us. It took us three years to get it done," he remembers. "Why? Because the change effort was inconsistent with the organization's culture."

The experience indicated to Kinicki that culture is a powerful force within a company — powerful enough, he suspected, to help or hinder financial performance. Other researchers had the same notion. But when it came time to find the definitive link, they were stumped.

"That baffled everyone," Kinicki said. "Researchers couldn't find the link." They knew companies like Intel or GE or Southwest have cultures that help them succeed, yet they couldn't prove it." Researchers were stymied, Kinicki discovered, because they had been looking for a direct link between cultural values and outcomes, but the reality is much more complex. The connection between culture and success is actually indirect.

Organizational culture and organizational climate, though similar, are somewhat different, the researchers explained. Culture can be loosely defined as a company's personality. It tends to originate at the top — the cultural values espoused by senior management are often at the heart. Climate, on the other hand, wells up from the grassroots. It is comprised of the perceptions employees hold in common about what is expected and what behavior is rewarded at their workplace. This includes shared understandings of formal and informal policies, practices, events and procedures.

"Culture is the informal fabric of an organization," Kinicki said. "It fascinates me. And it's such a powerful thing."

Previous research had shown a company's climate was related to outcomes like customer satisfaction but the connection to culture could not be traced. Kinicki's team hypothesized that culture did, in fact, affect outcomes — but that it did so, indirectly, by working through climate.

The bank study proved that a company's cultural values directly impacted the nature and strength of its climate, which then helped shape employees attitudes about their jobs and, finally, how they treated customers. In sum, the researchers found that the decisions a company makes or doesn't make to establish a winning culture can and does have an affect on how, for example, its employees serve customers. "Culture matters," Kinicki said.

Companies such as SAS have known that for years—and have profited as a result. Under the leadership of CEO Bob Goodnight, the North Carolina software firm has created a Shangri-la for its employees: Benefits are hefty. Health care is provided on site. Piano players serenade passersby in the lobby. "They are a people-focused corporation," Kinicki said. "At the core of their culture, they believe the way you make money is through hiring the best people and making them happy. Both SAS and Southwest agree with that. These companies care about their people, and they show it by creating a climate that demonstrates, 'We care.'"

Kinicki is quick to point out there is no "right" culture model. Though both SAS and GE boast successful cultures, their models differ greatly. In contrast to the slightly cushy culture of SAS the GE culture is tough. GE is a goal-oriented company that demands success from its employees mdash; that sometimes means long, hard hours at the office. Those who don't succeed are shown the door. The model works because GE's culture is consistent with its vision and goals. The key, according to Kinicki, "is to create an organizational culture that is consistent with an organization's vision and strategic goals."

What remains surprising to Kinicki is the number of companies that ignore culture completely. That's simply bad business, he said. Companies like Southwest, SAS, GE, Intel and others have proven that a winning culture can be a bottom-line business advantage. With happy employees, the study indicates, these companies can expect to enjoy better outcomes as well as trusting relationships.

"If you do what you say and you're clear about what you want to be, and then create systems to support that — hiring systems, reward systems — you can have a very powerful influence on your success," Kinicki said. "But some companies just can't seem to do that."

Management Faculty