If Culture Comes First, Performance Will Follow

A vice-president approached me one day after I finished delivering a keynote. The talk was focused on organizational culture. He was friendly, but rather cocky. The first line he spoke to me was telling. "It takes too long," he said. "These engagement things you talked about, it takes too long to implement. I need to drive results, not worry about people's feelings."

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It was a wee bit strange to say the least. Why he decided to take the time to tell me I was wrong said more about his lack of emotional intelligence than it did his poor judgment. I asked if he thought the way his employees were being treated might have an adverse effect on his company's performance. "It doesn't matter," he responded, "because if they're not performing, they will be found out."

That exchange haunts me somewhat. In part I am thankful he came forward. He was being truthful and honest, displaying what may be a pattern of leadership found in many organizations. What he did not pay attention to — or outright ignored — during the keynote was the irrefutable causality between culture and performance. As always, I showcased reams of data, research and examples that proves an engaged organizational culture results in increased performance levels, not the other way around. I remain haunted because I know he's still out there (like so many other so-called leaders) causing havoc with the people he is supposedly leading. We do have a ways to go.

I recently stumbled upon another excellent piece of research and feel compelled enough to share it in this space. I suspect the aforementioned vice-president won't care, but I hope you do.

The paper is called "Which comes first, organizational culture or performance?" and published in the April, 2015 edition of the Journal of Organizational Behavior. The sub-title? "A longitudinal study of causal priority with automobile dealerships."

The researchers responsible investigated 95 different automobile dealerships over the course of six years, analyzing multiple dimensions of culture and performance data in each of the dealer's sales and service departments. Longitudinal studies like these are my favorite. They eviscerate statistical doubt while providing credible insights over a longer period of time rather than a short-term snapshot.

In their study the researchers looked at automobile dealerships that carried the same products. Furthermore, the dealers used the same performance metrics but each of them were owned and operated independently. Bottom line? There was an incredible level of consistency across multiple factors and data points.

Their hypothesis was simple. Based on their review of various culture and performance literature (they looked at dozens of published papers) the researchers "expected that department culture would have an effect on both customer satisfaction and sales." Furthermore, they predicted that the overall culture and engagement of a dealership would be a stronger predictor of subsequent performance rather than vice versa. That is, culture affects performance not the other way around.

Dealerships were spread across the United States. Both culture and performance were operationalized at the department level — sales or service — within each dealership, which is to say each location possessed the autonomy to manage how it operated. Using the Denison Organizational Culture Survey (DOCS), researchers assessed four primary cultural traits: involvement, consistency, adaptability, and mission. They did so quarterly with each of the 95 dealerships. Customer satisfaction scores were the result of a quarterly customer survey.  New vehicle sales also were reported quarterly. The researchers instituted various control factors as well, which included their final analysis having separated out sales and services departments.

The results are stunning, and prove yet again that if culture comes first, performance levels will follow.

• Service departments: the results supported the hypothesis that culture has causal priority over customer satisfaction

• Sales departments: the results also supported the hypothesis that culture has causal priority over customer satisfaction

• Overall results supported the hypothesis that culture has causal priority over vehicle sales

• Overall results supported customer satisfaction as fully mediating the culture-to-vehicle sales relationship

The researchers write, "Overall, department culture was found to consistently predict higher subsequent levels of customer satisfaction ratings and vehicle sales, with no evidence obtained for a reciprocal performance-to-culture feedback loop. In addition, the positive effect of culture on vehicle sales was mediated by customer satisfaction."

Put simply, an engaged culture marked by high levels of involvement, consistency, adaptability, and a transparent mission improves sales and customer satisfaction. More proof about the causality of culture and performance comes from Queen's University Centre for Business Venturing. Using data over a ten-year period of employee engagement surveys and company results, it found the following for organizations that possessed an engaged culture:

• 65% greater share-price increase

• 26% less employee turnover

• 100% more unsolicited employment applications

• 20% less absenteeism

• 15% greater employee productivity

• 30% greater customer satisfaction levels.

The counter punch to both sets of research is the current state of employee engagement. It remains anemic, aided and abetted by leaders who act like the vice-president that approached me after my keynote.

"Fewer employees are engaged and we expect this trend to continue," says Ken Oehler, Global Culture and Engagement Practice leader at Aon Hewitt, a firm that has witnessed global employee engagement levels recently drop. Aon Hewitt discovered that, more than ever, senior leadership holds the cards to improving organizational culture. They write, "Contrary to what many believe, the immediate manager may not impact or have control over many of the top engagement opportunities. This may be an indication that the manager is not as important in the engagement equation as they once were. It is likely that employees are looking to senior leaders to point the way and make decisions for the future much more closely than before."

Another organization that has been analyzing employee engagement for over two decades, Gallup, also sees the relationship between culture and performance. In its most recent engagement report it found that, “Highly engaged business units achieve a 10% increase in customer metrics and a 20% increase in sales.” Gallup provides further evidence that an engaged culture improves performance, not the other way around. They write, " The relationship between engagement and performance at the business/work unit level is substantial. "

In summary, the question is simple.

Do you seek to create an engaged culture first or are you more worried about performance?

I don't need to tell you where I stand with this question. What frustrates me, however, pertains to the number of leaders who believe a myopic focus on performance can positively impact culture. It's a very rare scenario. The real answer lies in knowing that it is an engaged culture that positively affects performance.

My thanks to Anthony S. Boyce, Levi Nieminen, Michael A Gillespie, Ann Marie Ryan, and Daniel Denison for publishing "Which comes first, organizational culture or performance?"