June 28, 2019 Move the Needle in the Middle Market

Volume 22 | Issue 2

Learn how strength and culture types can drive your company forward. Based on research from the National Center for the Middle Market.

Click here to read the complete illustrated article as originally published or continue below to read the text article.

An executive once told me, “Trying to manage culture is like trying to nail Jell-O to a wall.”

He was wrong. Among executives at midsized companies, nearly a quarter say that culture is their top business priority—and in the fastest- growing companies, 39 percent say culture is job one. If managing culture were a futile exercise, the leaders of winning companies wouldn’t be wasting their time on it. Indeed, a striking finding of our new study of High- Performance Culture is that there is a direct correlation between company performance and the priority executives give to culture.

The fact is, managing company culture can and should be as tangible and specific as taking care of brand, strategy, value proposition, or any number of other issues that may be hard to quantify but are critically important. Certainly the benefits are clear. Companies with strong, stable cultures grew 10.8 percent last year— more than three points higher than the average. By contrast, companies where culture is not clear—a muddle—actually lost 2.7 percent on the top line.

Type of culture matters greatly, too. In our study, 96 percent of executives identified with one of seven different flavors of culture: customer-centric, innovative/creative, great-place-to-work, technically-oriented, continuous improvement, highly-efficient, or risk-averse. When we looked at revenue growth and key customer and employee metrics by type of culture, we found interesting differences. Of the seven cultural types, four are associated with faster revenue growth: innovative/creative, great-place-to-work, technically-oriented, and continuous improvement. Companies in these categories come from all industries and all revenue segments, but they share a commitment to being the best of the best in at least one area. Moreover, it’s relatively easy for employees to see how the values expressed in those cultures should show up in the tasks of daily work. That combination of commitment and agency translates into faster growth.

The great power of culture is that it operates all the time, whether or not the boss is in the room. A positive, high-performance culture works for you at every water cooler, in every meeting, every contact with customers.

Culture plays an especially powerful role for middle market companies. It may be their single biggest advantage in recruiting talent: Big companies can outspend you, but midsized companies can offer workplaces that are more engaging, innovative, and collaborative. The same is true for attracting and retaining customers. Your culture has a direct impact on their experience—our study documents that customer retention is especially strong for companies with innovative cultures, great-place-to-work-cultures, and efficiency-oriented cultures—and that risk-averse cultures turn customers off.

You want a culture that’s strong; you want a culture that gives employees a sense of how to act; you want a culture that supports your strategy and value proposition. How do you nail that Jell-O to the wall?

Leaders play a powerful role in shaping culture and keeping it healthy. Our study of high performance culture in the middle market reveals five key things leaders should do:

1. Develop a clear vision, mission, and values for the company. Our data show that 90 percent of the fastest-growing middle market companies have done this, twenty points higher than the average.
2. Values shouldn’t be brought down from the mountain—they need to be shared and communicated. That’s the second things leaders should do: make sure that they talk about values—not just via signs in the cafeteria, but when decisions are being made.
3. The third thing: culture needs to be embodied in the ways managers behave. Actions speak louder than words. If you want to be innovative but shut down any idea that doesn’t come from the in-group, well, you’ve just undermined that culture.
4. Fourth, reward people who embody the behavior you want. The single strongest message a leader sends is who gets promoted—and that applies to promotions at all levels, not just at the top. Don’t promote jerks, no matter how good their numbers look.
5. Finally, measure it. Employee engagement scores, customer satisfaction numbers—these can tell you if things are going right. But you want to go deeper. Understand the different types of corporate culture outlined in our study, and work with your team to develop some metrics specific to your company.

All these things—developing a vision, mission, and values; communicating them; modeling them; rewarding them; and tracking— become increasingly important as a company grows. When you’ve got departments and layers—when you have multiple locations or P&Ls—you should spend more time on culture. That’s why the leaders of the fastest growing companies pay so much attention to culture. Culture—the invisible person in the room— is the spirit shaping the way people relate to each other and the decisions they make. As a leader, it’s your job to make sure that invisible person acts in ways that help your company perform at its best. Read the full report from the National Center for the Middle Market at www.middlemarketcenter.org/research-reports/power-of-culture.

THOMAS A. STEWART
EXECUTIVE DIRECTOR
NATIONAL CENTER FOR THE MIDDLE MARKET
Thomas A. Stewart is the Executive Director of the National Center for the Middle Market, the leading source for knowledge, leadership and research on mid-sized companies, based at the Fisher College of Business at The Ohio State University. Stewart is an influential thought leader on global management issues and ideas: an internationally recognized editor and publisher, authority on intellectual capital and knowledge management, and a best-selling author.

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