The Power of Corporate Culture and Brands

For many years, astute managers have recognized that they must actively manage and foster their organizational cultures. When Fortune magazine released the results of its 1995 Corporate Reputations Survey, it underscored the point: "There is a growing realization that companies cannot live by numbers alone ... the one thing that set the top ranking companies in the survey apart is their robust cultures." ^[2]

Culture as a concept has been applied to organizations for decades. Intense public consideration began in 1982, when Tom Peters and Robert Waterman wrote In Search of Excellence. They argued that culture, consisting of behaviors and beliefs, is the glue that holds organizations together. ^[3] When a company's culture is strong, a consistent set of behaviors and values is evident across the majority of managers and employees.

With the growing list of corporate failures in the early 2000s exemplified by Worldcom, Enron, Parmalat, and HIH Insurance (Australia), this glue is coming under even greater scrutiny. Increasingly, stakeholders of all types—stockholders, suppliers, customers, and employees—question the integrity, transparency, and quality of organizations with which they deal. Can organizational self-reports be trusted? Can executives be believed when they say they will do something? Does the organization operate in a manner that is consistent with the values it espouses and the brand promises it makes?

Regulatory authorities are jumping into the act, holding managers accountable to the company values and cultures they espouse. A recent claim was brought by the New Zealand Employment Relations Authority against EDS, the giant information technology outsourcing company, for unfairly laying off staff. The authority criticized EDS for "its gross failure to honor its own values system," including "value and respect for the individual" and "keep[ing] lines of communication open." ^[4]

Many business leaders maintain that their most sustainable competitive advantage is corporate spirit, employee engagement, and a belief throughout the organization in what it is trying to achieve. We are living in an age when intangible values are identified as key indicators of success. It is also a period when the most productive workers tend to be those who are engaged with and connected to the soul of the organization. It is estimated that a recent and minor drop in employee engagement in Singapore, for example, costs that economy between $4.9 billion and $6.7 billion annually. ^[5]

Some people still hold the misplaced view that culture is simply about the soft side of a company, that culture is solely about creating a caring and nurturing environment for employees. The reality is that culture is actually about performance, an idea validated by studies that show a strong link between company culture and financial results. Lyle Spencer, researcher and emotional intelligence expert, concludes that while results vary from company to company, in general every 1 percent improvement in service climate delivers a 2 percent increase in revenue. ^[6]

A strong culture, by itself, is not a guarantee of economic success. In fact, it may be counterproductive under certain conditions. John Kotter and James Heskett explain that "Strategy is simply the logic for how to achieve movement in some direction. The beliefs and practices called for in a strategy may be compatible with a firm's culture, or they may not. When they are not, the company finds it difficult to implement the strategy necessary." ^[7]

The nature of values and behaviors that typify the culture of a company are therefore more important than its strength. A successful culture is adaptive to the environment in which it exists. If the culture values customers highly and directs change to serve their needs, then the organization will be more adaptive. This is why a brand can be a powerful conduit for culture change. A brand can be seen as an expression of the relationship between the company and its stakeholders. A brand that has been well thought through will reflect the overlap between the needs of customers, the industry in terms of product or service capabilities, and the company culture. In contrast, according to Kotter and Heskett, companies that have strong cultures but are poor performers lack this outward focus. Instead, they act more out of self-interest, are characterized by bureaucratic centralization and insularity, and are often arrogant. ^[8]

^[2]Corporate Reputations Survey, Fortune 13, no. 4 (March 6, 1995): 54–60.

^[3]Tom Peters and Robert Waterman, In Search of Excellence (New York: Harper Collins, 1982).

^[4]Matthew Dearnaley, "'Unfair' Redundancy to Cost EDS $72,000," New Zealand Herald, January 12, 2004. Kotter and Heskett also cite the example of Time Inc., which in 1989 successfully blocked a hostile takeover bid by Paramount, arguing that its culture would be destroyed or changed by the takeover. John P. Kotter and James L. Heskett, Corporate Culture and Performance (New York: Free Press, 1992), 10.

^[5]Ashok Gopal, "Disengaged Employees Cost Singapore $4.9 Billion," Gallup Management Journal, October 9, 2003.

^[6]Lyle Spencer, "Improvement in Service Climate Drives Increase in Revenue" (paper presented at a meeting of the Consortium for Research on Emotional Intelligence in Organizations, Cambridge, Massachusetts, April 19, 2001).

^[7]Kotter and Heskett, Corporate Culture and Performance.

^[8]Kotter and Heskett, Corporate Culture and Performance.