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Organisational culture plays a bigger role in a company’s financial performance than generally believed. Companies with a strong connect between strategy and culture are likely to be twice more profitable than their peers, says a recent study by Tata Strategic Management Group.
The study says a company whose culture is strongly aligned with its strategy is likely to report a profit margin of 11.5 per cent against 4.8 per cent reported by firms whose organisational culture and strategy are not in sync with each other.
The study is based on a survey of top management (chief executive officers (CEOs), managing directors, directors and chief people officers) across 96 companies from various sectors and of different sizes. The responses are based on the perception of the top leadership about their organisational culture and its fit with the firm’s market strategy. The study is skewed towards large firms, with half of the respondents (49 per cent) reporting annual revenue of Rs 500 crore or more last financial year.
The study uses the Organisational Culture Assessment Instrument (OCAI) framework developed by Kim Cameron and Robert Quinn of the University of Michigan. According to OCAI, there are four major cultures: clan, adhocracy, hierarchy and market. Any organisation’s culture is a combination of these four.
The survey indicates the clan culture—collaboration and mentorship—is the most dominant among Indian corporates. The dominance, however, decreases with the increase in the size (revenues) of the organisation. The market culture—competing, goal-oriented—becomes dominant as the firm becomes bigger.
“A winning strategy in itself is nothing if it is not supported by right cultural attributes. Employees in a company that operates in a competitive consumer market are expected to operate differently than colleagues working for, say, a commodity manufacturer,” says Raju Bhinge, CEO, Tata Strategic Management Group, a management consultancy firm that operates as a division of Tata Industries.
He says culture is often the unspoken variable impacting corporate performance, but its impact is rarely measured due to its intangible nature. The study is an attempt to quantify the link and the results confirm the strong linkages between a firm’s culture and its market performance.
“The organisational culture affects the way employee interact with each other, with customers and other stakeholders, besides their perception of the organisation. This, in turn, impact other stakeholders’ perception about the company,” adds Bhinge.
For example, Apple is known for fostering a culture of innovation among its employees, which fits into its overall business strategy of developing innovative gadgets and solutions for consumers. Back home in India, the success of the Godrej Group is widely believed to have been supported by its focus on employee development, welfare and mentorship, which are typical elements of a predominantly clannish culture. The ICICI Group, on the other hand, is highly regarded for its focus on sensing the pulse of customers and its result orientation, typical of a market culture.
More than three quarters (87 per cent) of industry leaders claim to plan their culture with their evolving business plans but many fail to achieve the alignment. Only 69 per cent of the respondents claimed alignment between their culture and business strategy. A third of the respondents admitted the culture existing in their organisation was not something they had envisioned as a business leader.
Firms in the automotive, engineering and metals sectors reported full alignment between their strategy and organisational culture. In comparison, more than half of the respondents in logistics, services (telecom, hospitality and consulting), and power and infrastructure sectors feel their culture is either weakly aligned or not aligned at all with their strategy.
| TImpact of Strategy-Culture alignment on corporate profitability | |
| Profit Margin | |
| Culture not aligned with Strategy | 4.8% |
| Not Sure | 5.9% |
| Culture aligned with Srategy | 9.3% |
| Culture Strongly aligned with Strategy | 11.5% |
