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People in business talk a lot about company culture, but what is it really?

Culture can be positive or negative, and it strongly influences company performance.

Corporate culture is made up of the values and norms that permeate the company and the people who work there. Company culture is multi-dimensional, and because it can be difficult to quantify, there’s no single, all-encompassing definition of what it is and what it isn’t.

It is made up both of what people think (values) and what they do (norms). For example, if a company says it values ethical behavior, one of its norms may be that people feel empowered to speak up when they discover someone is behaving unethically.

Ninety percent of C-level executives believe that improving company culture increases company valuation, and 85% of them believe that unhealthy culture leads to unethical behavior. One way and the other, corporate culture is intricately intertwined with company performance. But how do you quantify culture? MIT Sloan Management Review, along with Glassdoor, recently introduced a tool designed to do precisely that.

The MIT SMR / Glassdoor Culture 500 Tool

The MIT SMR / Glassdoor Culture 500 tool uses machine learning and unstructured data analysis to provide business leaders with tools for benchmarking culture in their organizations. Based on 1.2 million employee reviews on Glassdoor, along with natural language processing (NLP) methodology to provide insights about the culture in 500 leading companies across nine key cultural markers.

The cultural markers are agility, collaboration, customer focus, diversity, execution, innovation, integrity, performance, and respect. By using this tool, companies can gain insights into aspects of their own corporate culture and identify the most effective types of cultural transformation initiatives if necessary.

Strong Company Culture correlates with Market Performance

The main reasons companies should care about quantifying culture is that strength of company culture correlates with strength in market performance. A Glassdoor report titled “Does Company Culture Pay Off?” answers its titular question with a resounding “Yes!”

Working to improve company culture can lead to a stronger bottom line.

The study found that since 2009, a portfolio of Fortune Magazine’s “Best Companies to Work For” outperformed the S&P 500 by 84.2%, while Glassdoor’s “Best Places to Work” outperformed the overall market by 115.6%.  Conversely, the 30 lowest-rated companies on Glassdoor underperformed the market significantly from 2009-2014.

What Influences Company Culture Most?

It makes sense that good company culture correlates with good market performance, but what influences culture? A National Bureau of Economic Research report found that executives ranked their “Current CEO” as the top influencer of their company’s current culture. Additionally, when asked what prevented their culture from being all it could be, 69% said that “Leadership needs to invest more time in the culture.”

In other words, if corporate leadership isn’t paying attention to culture, chances are that culture isn’t what it should be. And when culture falters, performance tends to falter as well.

Cultural transformation is about more than redecorating office spaces or naming an Employee of the Month. While there’s nothing wrong with making the workplace nicer and friendlier, corporate culture goes deeper. Top leaders – particularly CEOs – have the most influence over what company culture is made up of, and it’s incumbent upon them and upon all top leaders to pay attention to culture, gain insights from it, and learn where cultural transformation is necessary.

There is no denying the link between strong company performance and strong company culture because hard data correlates the two. More subjectively, a strong company culture makes people want to work there and helps attract and retain top talent due to both tangible and intangible factors. Leaders who don’t invest themselves in understanding and building a strong company culture do themselves and their company a disservice.

Company culture may not be as straightforward as a balance sheet, but understanding culture is every bit as important to ensuring long term success.

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