Costs of Deprioritizing Company Culture



When times are tough, company culture takes a backseat.  Leaders often ignore the impact culture has on the bottom line when overwhelmed with the challenges of meeting quarterly numbers. It's critical to remember that short term decisions can have very long term effects that are difficult to correct once entrenched. Here are some examples:

Low Morale

Low morale is contagious.  Once trust is lost with employees, it's much harder to gain it back later, making impacts linger over time.

  • According to a study by Gallup, actively disengaged employees cost the U.S. economy $483 billion to $605 billion annually in lost productivity.
  • A survey by TINYpulse found that 25% of employees who reported feeling undervalued at work had taken more than three sick days in the previous three months, compared to 10% of those who felt valued.
  • According to a report by Gallup, companies with engaged employees outperform those with disengaged employees by 202%.

Increased Turnover

When cutting costs, sometimes downsizing by attrition seems like a good thing. It feels better when employees leave voluntarily rather than during a layoff.  But the people who leave first when a company is showing signs of trouble will likely be the high performers - people who can find better opportunities more easily.  Once good people leave, exits can accelerate quickly, and filling open critical positions becomes more and more difficult. 

  • According to a report by the Work Institute, the cost of employee turnover in the U.S. was $617 billion in 2020.
  • The Society for Human Resource Management (SHRM) estimates that the cost of replacing an employee can range from 50% to 200% of the employee's annual salary.
  • A study by Glassdoor found that companies with high employee turnover had lower customer satisfaction ratings than companies with lower turnover rates.
  • According to a study by McKinsey, companies with a high level of employee tenure are more likely to innovate, due to the deep institutional knowledge and long-term perspective that tenured employees bring to the table.

Loss of Diversity

During times of economic regression, leadership behaviors tend to regress, as well. Best practices related to combatting bias and supporting diversity fall by the wayside.  Layoffs, for example, disproportionately affect certain groups of employees, including those from marginalized or underrepresented backgrounds.  The impacts of this loss are real.

  • According to a study by McKinsey, companies in the top quartile for gender diversity are 15% more likely to have financial returns above their respective national industry medians.
  • A study by the Center for Talent Innovation found that companies with more diverse teams are 45% more likely to report growth in market share over the previous year and 70% more likely to capture a new market.
  • A study by the National Bureau of Economic Research found that companies with more racial diversity had higher sales revenue, more customers, and greater market share than less diverse companies.
  • According to a study by McKinsey, gender-diverse companies are 15% more likely to outperform their peers, while ethnically diverse companies are 35% more likely to do the same. 

Poor Communication

Times of trouble often lead to rapid rethinking of strategies and roadmaps.  Keeping a large organization in sync during uncertainty is an exceptional challenge. Poor communication of direction and strategy has its costs, even in the best of times.

  • According to a survey by ClearCompany, 86% of employees and executives cite lack of collaboration or ineffective communication for workplace failures.
  • A study by Towers Watson found that companies with effective communication strategies had a 47% higher total return to shareholders compared to companies with poor communication practices.
  • A study by the Project Management Institute found that organizations that communicate their strategy effectively are 41% more likely to achieve their goals.
  • According to a survey by Dynamic Signal, 80% of U.S. workers feel stressed because of ineffective company communication.
  • According to research by Deloitte, organizations with a strong sense of purpose are 30% more likely to be innovative and 40% more likely to achieve their business goals. 

Conclusion

The impacts of company culture should not be taken lightly.  Companies seeking to increase productivity, improve employee performance, make better decisions, and encourage innovation to offset losses experienced during painful transitions would do well to reprioritize culture in a meaningful and sustainable way.

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