How Company Culture Impacts Organizational Performance

Caitlin Kirwan

Internal Comms & Engagement Expert

7 Nov 2023

Does company culture really matter that much when it comes to the organization’s overall performance? And does driving a ‘high-performance culture’ actually result in high-performing teams, or just increased levels of workplace stress and burnout?

Let’s jump into the topic and explore the ways in which a company’s culture can impact its performance.  

What is company culture? 

The definition of company culture differs depending on who you ask, but I like to think of it as “the way things are done around here” – something that is formed over time by a company’s shared values, beliefs, standards, and behaviors.

“It’s the sum of your formal and informal systems and behaviors and values, all of which create an experience for your employees and customers” – Great Place to Work

We know at both an instinctive and anecdotal level that positive and strong organizational cultures keep employees engaged, satisfied, and productive. But sometimes we need more than instinct and anecdotes alone, so let’s consider exactly how company culture influences overall performance.

The relationship between culture and productivity

A recent Workplace Culture Survey found that 76% of employees in the US agreed there is a clear link between their organization’s culture and their personal productivity and efficiency. And data confirms that organizations with strong cultures significantly outperform the broader market when it comes to financial performance.

Let’s break down the things that might be causing this.

The impact of company culture on employee engagement

Studies show that organizations with a robust culture have up to 72% higher employee engagement than those with misaligned cultures. And higher employee engagement leads to higher productivity…

Highly engaged teams achieve 21% greater profitability, largely driven by their high levels of motivation, low absenteeism, and low employee turnover. The positive financial impacts of an engaged workforce are undeniable, and the influence that company culture has on engagement levels is clear.    

On the flip side, poor company culture leads to a disengaged workforce. And research shows that organizations with high numbers of disengaged employees have 18% lower productivity and 15% lower profitability.

Investing in building a collaborative, communicative, and supportive culture that prioritizes employee engagement provides very clear and tangible returns.

The impact of company culture on attracting top talent

Having a strong culture is more important than ever when it comes to attracting the best candidates, with almost three in five people saying they would decline a job offer if they didn’t feel completely on board with the company’s culture.  

Candidates begin building an impression of the organization’s culture from the very start of the hiring process. The way the job description is worded, the look and feel of the careers website, the interactions they have with the hiring team, and the Glassdoor reviews from current and former employees.

“Why aren’t we getting any quality applicants?! We know they’re out there!”

Sound familiar? The hiring process can be slow and resource-intensive when an organization’s culture is not attractive enough to incentivize top talent to move companies. And teams that are under pressure due to understaffing are simply unable to deliver their best results for the business.

The impact of company culture on employee retention 

You’d be forgiven for falling off your chair when you read about the financial impacts of recruiting a replacement when a valued employee decides to leave the company.

The total cost of hiring a new team member is estimated to be between three and four times the position’s salary. This means if you’re recruiting an Operations Manager with an annual salary of €55,000, your total hiring cost could be around €192,500!  

This whopping figure is made up of the direct recruiting costs but also the indirect ‘soft’ costs of employee turnover, which includes the loss of knowledge and experience, the time managers need to invest in the recruitment process and new hire training and onboarding costs.

It is definitely in an organization’s best financial interest to minimize employee turnover, which is where company culture comes into play.  

Increased employee engagement, partly driven by a strong organizational culture, directly leads to improved employee retention. People who love their jobs and are proud of their companies simply aren’t looking to leave.

But if culture begins to deteriorate, one study revealed that 71% of employees said they would start looking for a new opportunity elsewhere. Employees working for companies with an unsupportive and high-pressured culture are much more likely to experience workplace stress, which leads to an increase of almost 50% in voluntary turnover.

The impact of company culture on workforce motivation 

Perhaps one of the more obvious ways that a company’s culture influences its performance is through employee motivation.

An organization that creates psychological safety through building a supportive culture that helps employees to thrive is rewarded with motivated team members who are more willing to go above and beyond. And this increased motivation is shown to result in a 57% increase in discretionary effort, which produces an individual performance improvement of around 20%.

But pushing too hard for a “high-performance culture” does not always lead to better business results. A cut-throat company culture that prioritizes high performance and focuses purely on outputs can be harmful to productivity over time. Rather than motivating employees to give more discretionary effort, organizations with high-pressure cultures lead to increased employee stress and burnout.

Studies show a negative correlation between employee stress and productivity and it’s made obvious that high-performance cultures that place employees under significant stress lead to a decrease in productivity.

Whatever way you look at it, it’s clear that employee motivation is hugely influenced by company culture.

Want to learn more about how culture impacts organizational performance?

The evidence paints a pretty convincing picture of the ways in which company culture impacts performance. I hope this information comes in handy when you need to consider the true ROI of a new employee initiatives, tool or campaign!

Ready to go one step further? Check out 9 Proven Ways To Improve Company Culture and 3 Ways to Communicate Company Culture with Employees, or come and say hello to learn how Workvivo can help to improve your company culture!