Can Connecting Organizational Culture to Business Strategy Help Unlock Better Financial Performance? New CEO Study from Heidrick & Struggles Says Yes

— 82% of CEOs globally focused on culture over the past three years, yet only 31% of them did so to improve financial performance

— 74% of CEOs did not choose culture as a top driver of financial results, highlighting the lack of understanding around the critical role culture can play in supporting business performance

— As organizations focus on returning to the office, hybrid work environments and a tightening labor market, CEOs recognize the need to align culture with strategy and operating models, but most don’t know where to start

Building and maintaining a strong corporate culture during the pandemic proved a priority for the vast majority of CEOs at large companies globally, but most leaders are not effectively aligning culture with financial performance, according to a new report from Heidrick & Struggles, the premier provider of global leadership advisory and on-demand talent solutions, serving the senior-level talent and consulting needs of the world’s top organizations.

The global CEO survey found that 82% said they made culture a key priority during the last three years, often to bolster financial performance – but nearly three in four picked strategy, leadership or policies and processes, rather than corporate culture, as most important to driving financial performance. The study also identified a group of CEOs, or “culture accelerators,” who focused on culture shaping, listed culture as a top-three driver of their organizations’ financial performance and thought it was important to link culture to strategy. These culture leaders outperformed their peers in the study by generating more than double the three-year compound annual growth rate (CAGR) in revenue, 9.1 percent compared with 4.4 percent.

“The pandemic was a true test of company cultures globally,” said Rose Gailey, a partner and global lead for organization acceleration and culture shaping for Heidrick Consulting at Heidrick & Struggles. “It’s become clear that thriving cultures will be the linchpin of success for companies going forward – but what we found most surprising in our results is how few of the CEOs we surveyed recognized the critical role culture can play in supporting business performance, particularly if they create the right metrics to assess their progress on an ongoing basis.”

Aligning culture with the bottom line: How companies can accelerate progress reports the findings of a survey of 500 CEOs in nine countries around the world and examines how culture propels organizational performance as more companies begin returning to the office and navigating new workplace dynamics such as hybrid work environments and remote workforces.

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In Their Culture Focus, CEOs List Various Goals Led by Financial Progress

CEOs listed various reasons for setting culture as a priority the last three years, with 31% of CEOs ranking “improving financial performance” as the leading goal. Other primary goals were increasing employee engagement (26%), improving diversity and inclusion (24%), reinforcing strategy or direction change (21%), and improving customer service (20%).

Still, marked variation among CEOs emerged in reaching their organizations’ cultural goals. Over half met goals, such as increasing employee engagement, strengthening diversity and inclusion and improving financial performance. But it proved harder to meet goals for reinforcing a change in strategy and addressing ethics or compliance issues. Regardless of success in reaching a specific result, 74% of CEOs said their employees are mostly or entirely engaged in applying their cultural values day to day. That percentage didn’t vary much whether their workforce worked mostly in person or a combination of in-person and remote work.

“Culture can play a decisive role in helping businesses adapt and succeed in today’s fast-changing environment and uncertain world,” said Gailey. “The most effective cohort of culture leaders in this survey aligned culture to strategy and operating models, and our report reveals lessons that apply to the hybrid work challenges all leaders now face.”

What “Culture Accelerators” Do Differently

Companies often recognize they need to align strategy, operating models and culture, but many don’t know where to start. This isn’t the case with the 54 CEOs identified in the study as “culture accelerators” who explore culture with strategic intent and focus on their employees:

• Forty-eight percent center on culture to reinforce a change in strategy or direction versus 22% of others. These findings and the stronger financial results they generate suggest that starting with culture may be the right first step.
• More often, they identify the culture elements that impact financial performance as people-related, and they center on customer and quality, and collaboration and trust.
• Forty-eight percent put diversity and inclusion efforts front and center versus 30% of other CEOs.
• Two-thirds completely met or exceeded their culture goals, with 15% exceeding those goals versus 5% of other CEOs.

“The survey results reinforce the business case for linking company culture to strategy and creating broad engagement with the culture,” said Gailey. “A thriving culture is among a CEO’s best options for accelerating performance in today’s marketplace.”

 

Select Set of “Culture Connectors” Are Even More Effective

Within the culture accelerators, the study identified 30 CEOs who were labeled as “culture connectors.” These CEOs live the culture by focusing more tightly on clear, effective communication internally and externally and by engaging all their employees.

• Four of five selected “personal commitment to focusing on culture” versus 66% of culture accelerators and 45% of other CEOs.
• Nearly two-thirds of the culture connectors who believe appreciation and recognition support financial performance said those characteristics are prevalent in their culture, nearly double the share of other companies.
• These CEOs hold more two-way dialogues with employees about the importance of culture and more large-scale dialogue discussions to develop culture than do other CEOs.

Principles for Building a Thriving Culture

Heidrick & Struggles’ survey results reinforce the benefits companies gain when they link culture to strategy and create broad engagement with the culture. The firm’s four principles of culture shaping can help any leader get started to achieve those benefits:

• Purposeful leadership: lead with purpose, inclusively and with influence and adapt leadership approaches to the way people work.
• Personal change: live the culture, make the links between culture and financial performance and challenge others to do so too.
• Broad engagement: build momentum for the culture shaping process with employees at all levels of the organization through energetic and communicative leadership.
• Systemic alignment: ensure talent processes, onboarding and training include ways to develop and bolster key aspects of culture and measure progress regularly.

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