In addition to having a clear mission, culture is another extremely vital and sometimes overlooked component of a successful organization.

Once upon a time, there was a family of four in the suburbs of New York City. “How many times do I have to tell you Billy, don’t be rude!” This was the third time today that the father had reprimanded his son for making an ill-mannered remark. He gets frustrated because no matter how many times he tells Billy not to be rude, he still misbehaves.

Funny enough, the father fails to hold himself to the same standard, his wife often acts boorish, and there are no real repercussions anytime anyone in the household is rude. So, as a result, nobody in that household cares to remedy rudeness.

If instead, everyone in the household held each other religiously accountable for every explicitly stated virtue and principle, then everyone would naturally act accordingly (ex., respectful, courteous, friendly). This is how culture works.

Culture can be defined as the shared beliefs, values, customs, and behaviors that characterize a group or society. It encompasses the ways of life and the collective knowledge and experience of the group. It shapes the way people think, behave, communicate, and interact with each other.

Culture can exist within any group of people, from your relatively small friend group to the global sports team that you affiliate with. It can develop naturally and it can also be intentionally shaped a certain way.

As you can imagine, it’s extremely important how it is molded within an organization that is working towards a common goal. It’s a simple concept to grasp but is also highly elusive in practice. 

Culture is like the air we breathe; We don’t notice it until it’s not there. It’s something that we often take for granted, but is essential for a smooth and functioning organization. When culture is strong, it’s like regular air: we don’t notice it. But it is there and it’s important. Contrarily, when culture is weak, it can be like breathing in polluted air: we notice it immediately, and it can harm our health.

Culture exists whether you know it or not, and regardless of whether you consciously try to shape it or not. Either way, it ultimately determines how people can and should act.

Just how important is culture in business? Well, after financial troubles and poor business planning, it’s arguably the leading contributing factor in failed companies of all sizes. And it’s often not because shaping culture was too complex, or management not being skilled enough, but rather due to the innocent mistake of neglect.

Referring back to our analogy, culture is like air. It’s easy to neglect because it exists regardless of whether you acknowledge it or not. And with all the important stuff that people need to do, it doesn’t seem like a priority until it goes bad. The problem with this is it’s a lot more expensive and difficult to repair a toxic culture than it is to maintain or gradually improve an okay one.

Bad Culture

A company with poor culture can appear in many different shapes and sizes, but the negative effects bleed into many departments and aspects of the business. People not showing up on time, lack of respect, lack of transparency, lack of trust, fear of speaking up, tolerance for unethical behavior, no accountability, poor communication, micromanagement, and lack of employee engagement can all be signs and symptoms of cultural deterioration. These problems can quickly corrode the effectiveness and productivity of an organization and lead to low morale, high turnover, legal problems, higher costs, and ultimately, implosion.

Remember, culture is simply the company’s DNA. It’s the glue that makes all the (very different) moving parts move in unison to achieve the common goal. So when it becomes corrupt, then the company becomes corrupt.

The fish rots from the head down.

Lehman Brothers is an example of what can happen as a result of poor company culture. Founded in 1850, they were one of the largest and most prestigious investment banks in the world that specialized in investment banking, asset management, and securities trading. They were “too big to fail”.

Lehman Brothers had a culture problem. They incentivized and rewarded risk and short-term profit over all else. Not only that, but employees were afraid to speak up and question things due to the fear of being fired^[1].

In the years leading up to its collapse, Lehman Brothers made several risky investments including subprime mortgages. When the housing market collapsed in 2007, the value of these investments plummeted, and Lehman Brothers was forced to file for bankruptcy. This culture of “take risks at all costs” contributed to the company’s collapse in 2008 and brought down the global economy with them, today known as the global financial crisis.

Not all companies with poor culture end in a spectacular way. Sometimes it can be more of a gradual implosion which is still as destructive, and in fact trickier to resolve than a competitor eating away at your market share. This is because external threats are at least easier to identify and compete with. But internal threats are insidious and delicate. 

You simply want to destroy external threats. But you cannot have the same straightforward all-out attack on an internal threat as that risks causing greater and more lasting damage to your own organization. 

A metaphorical example would be protecting your own body. Protecting yourself against a person trying to harm you is easier than protecting yourself against an internal threat such as cancer or a deadly virus. You know what the bad guy looks like and can take many more measures to stop him. Meanwhile, immobilizing an illness inside your body requires more delicacy and strategy because you need to terminate the illness without causing too much damage to the rest of your body.

The same principle applies to an organization. You simply want to end, acquire, or rectify your competitors and all other external threats to your company. This can be done aggressively as it’s either you or them who survive. But cultural problems are internal and pertain to your own people. You don’t solve culture by immediately lambasting or firing everyone who doesn’t act accordingly. It takes time, effort, and strategy to harmonize and amend. You need skilled ethical managers to lead by example, motivate, and cultivate an efficient working environment.

Additionally, business is about competition. Every company is fighting for survival. If two companies are competing, and one of them are also battling internally, then they are voluntarily weakened. Self-imposed debilitation during a ruthless fight for survival. Not only do they have to battle their competitor, but they’re also fighting themselves. Very counterintuitive and disadvantageous.

As Abraham Lincoln famously said, “A house divided against itself cannot stand.”

Good Culture

Culture has a bad side but it also has a good side. As we’ve discussed above, when it goes bad, it can go really bad. But when it goes well, it can greatly refine a business.

One year before he passed away, Sam Walton had built one of the largest discount stores in the entire world and amassed a fortune that could last many generations. He had been battling cancer for a while and also knew he was getting up there in age. So he decided to write a book revealing all of the secrets to the success of the empire he built from the ground up. A store that you have probably heard of, called Walmart.

In his book, Sam talks about how they started from humble beginnings and how they were able to grow into the behemoth it is today. He mentions how crucial a role culture played in the success of the company. He highlights its importance when they had just a couple of stores in the small towns of Arkansas, and how equally important it was when they had many hundreds of employees dispersed nationwide.

In Sam’s own words, “The truth is that none of that is the real secret to our unbelievable prosperity. What has carried this company so far so fast is the relationship that we, the managers, have been able to enjoy with our associates. By “associates” we mean those employees out in the stores and in the distribution centers and on the trucks who generally earn an hourly wage for all their hard work. Our relationship with the associates is a partnership in the truest sense. It’s the only reason our company has been able to consistently outperform the competition—and even our own expectations.”

Sam also reflects on his sense of urgency for maintaining the successful culture as they grew. “What’s really worried me over the years is not our stock price, but that we might someday fail to take care of our customers, or that our managers might fail to motivate and take care of our associates. I also was worried that we might lose the team concept, or fail to keep the family concept viable and realistic and meaningful to our folks as we grow.”

In the early days of Walmart, Sam found it not only ethical but also profitable to cultivate a productive culture “The more you share profits with your associates—whether it’s in salaries or incentives or bonuses or stock discounts—the more profit will accrue to the company. Why? Because the way management treats the associates is exactly how the associates will then treat the customers. And if the associates treat the customers well, the customers will return again and again, and that is where the real profit in this business lies”

While those quotes mainly touch on respect, dignity, and compensation, Sam also talks about the various qualities, behaviors, and habits that he manufactured into Walmart’s culture. As Sam has said himself, take that subtle but imperative factor out of the equation, and Walmart could not have succeeded.

I use Walmart as an example because they are now the single largest employer, not only in the USA but in the world. From reading Sam’s book, you learn that Walmart could have failed at many different times throughout its history but didn’t. It managed to do a lot of things right, plus had some luck along the way. But it was also the strong culture they had built and prioritized that played a massive role in the success of the business. That bled competitive advantages internally throughout the company, and externally to the customer.

Google is another prime example of productive company culture. In the early days, the company was known for its relaxed and informal atmosphere. Employees were encouraged to be creative and take calculated risks, and there was a strong sense of camaraderie. This culture helped Google attract some of the brightest minds in the tech industry, including many would-be entrepreneurs. This played a major role in the company’s early success.

One anecdote that illustrates the importance of culture at Google is the story of the “20% time” policy. This policy allowed employees to spend 20% of their workweek on personal projects, which often led to the development of innovative new products and services, such as Gmail. This one aspect of their culture attracted and developed entrepreneurial minds and habits early on and set the company miles ahead of its competitors.

This is just one example of their entire cultivation. Google’s culture is the key ingredient that turned what was once a university research project called “Backrub” into a 170,000+ person company with arguably the most skilled and talented employer base, and a market cap of over $1.6 trillion.

Shaping Culture

So now we know that neglecting culture is bad and shaping a strong culture is good. But where do you begin to shape it and how is it actually done?

There are many good books, articles, and lectures on shaping company culture that do a better job of explaining than me, but I’ll very briefly outline the fundamentals.

Before you start building, you have to first understand what you want to build. This includes things like defining your company’s mission and core values, and then envisioning the company’s entire ecosystem. This should not be done artificially or used as a facade. Really take the time to understand what you want to build. If this step is not done correctly and sincerely, then none of the following steps will matter.

Once you understand your business, then you will have a better idea about how to shape the environment to its most efficient state. Some traits of a strong culture are pretty standard like being timely, respectful, and efficient. But remember, it still requires work, accountability, and structure to cement anything into the culture, even something as simple as mutual respect.

Most companies may also want to incorporate encouraging honest and open communication, praising good work and successes, holding individuals accountable, and offering growth opportunities. Beyond the fundamentals, each organization’s culture should tailor to its own disposition.

A general guideline to help build a strong company culture is to remove all friction to mutual understanding. This means doing everything in your power to cultivate an environment where communication is seamless and people of all levels are understood by each other. 

People across departments should understand each other’s frustrations, motivations, ideal working conditions, etc. Not that every little request can be met, but if there’s at least an understanding, then that’s one step in the right direction. You at least know where the potential failure/weak points are if something were to go wrong, and you know how and where to improve morale.

More important than agreeableness and like-mindedness is understanding. It’s nearly impossible for any relationship to deteriorate when there is mutual understanding.

On a final note, not all cultures can and should be the same. It is okay for a person to not fit into a certain company’s culture. It doesn’t necessarily mean the culture is poor or the person is not employable.

For example, a highly competitive employee who is used to working in a fast-paced environment joins a company with a more laid-back culture. There’s nothing wrong with the company or the employee, but they’re just not a good fit for each other. In another example, a software developer who is used to working independently joining a company that has a strong emphasis on teamwork and collaboration isn’t a great fit.

Shaping a strong culture should be a priority in every organization as it helps them to become more efficient for their specific goals, makes the workplace more enjoyable, and provides tons of other tangible benefits and advantages. Neglecting the culture is not only disadvantageous but destructive to the entire organization.

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[1] Interestingly, Dr. Paul Rosch, president of the American Institute of Stress, found that individual performance improves as stress increases — but only to a point. Past that point, performance declines massively. And if subjected to distress for extended periods of time, people get sick. But within an acceptable range of competition and tension, more of the brain is firing, more pathways are stimulated, and more creative centers are engaged.