The Effects of Company Culture on Company Profitability

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The Effects of Company Culture on Company Pro9tability The Effects of Company Culture on Company Pro9tability

Jennifer Bartoli

Northeastern Illinois University

, jebar[email protected]

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THE EFFECTS OF COMPANY CULTURE ON COMPANY PROFITABILITY

A Thesis Presented to

the Faculty of the University Honors Program

Northeastern Illinois University

In Partial Fulfillment of the Requirements

of the NEIU Honors Program

for Graduation with Honors

Jennifer Bartoli

May 2021

HONORS SENIOR PROJECT

ACCEPTANCE AND APPROVAL FORM

Jennifer Bartoli

The Effects of Company Culture on Company Profitability

This thesis has been reviewed by the faculty of the NEIU Honors Program and is found to be in

good order in content, style, and mechanical accuracy. It is accepted in partial fulfillment of the

requirements of the NEIU Honors Program and graduation with honors.

Prof. Hardik A. Marfatia Department of Economics Date

Faculty Advisor

Prof. Scott W. Hegerty, Department of Economics Date

Faculty Reader

Prof. Aaron Schirmer, Department of Biology Date

Honors Curriculum & Standards Board

Dr. Nadja Insel, Department of Earth Science Date

Co- Coordinator, University Honors Program

Prof. Ana Nieves, Department of Art & Design Date

Co- Coordinator, University Honors Program

5/5/2021

5/5/2020

iii

ABSTRACT

The majority of companies, whether they be service, production, or entertainment

oriented, all have one common goal: profitability. Certain companies spend millions of dollars

researching the latest trends or the next best-selling product in order to capitalize on it. Other

companies spend all their effort and time on customer relations in order to draw as many new

consumers into their business as they can. Finally, some companies spend many years focusing

on increasing profits through growing their brand or business. Overall, no matter how companies

expand and change, they are all working towards the same thing: profitability. Profitability can

be accomplished through either increasing sales or decreasing costs. Though, what many

companies forget is they all have one thing in common that can have a strong impact on

profitability: company culture. Company culture refers to the force within a company that

encourages certain behaviors and shaped the attitudes of employees. No matter what type of

company, what products or services they sell, and even where they are located, company culture

is an overarching aspect of a company. This research will look at pre-collected data which

measures and analyzes the effect that company culture has on company profit. The term

“company culture” will be defined and looked at as an opportunity for growth of the company,

rather than an afterthought. The hypothesis that positive company culture contributes to higher

company profit and negative company culture leads to losses will be tested in this research.

Finally, this research paper will look at how companies can use its culture to their advantage.

Company culture is an extremely valuable asset that companies have, that has been surprisingly

underutilized in the past. This research paper seeks to inform those in the business world about

the tremendous benefits that company culture can have, if implemented correctly, on company

profitability.

ACKNOWLEDGEMENTS

The competition of this research could not have been possible without the assistance from Dr.

Hardik Marfatia. Furthermore, those at the Northeastern Illinois University Honors Program

including but not limited to Dr. Scott Hegerty and Dr. Jon Hageman. And finally, to all those

who assisted but are not listed, thank you.

TABLE OF CONTENTS

ABSTRACT...................................................................................................................................iii

ACKNOWLEDGEMENTS …………….......................................................................................iv

TABLE OF CONTENTS................................................................................................................v

INTRODUCTION.......................................................................................................................... 1

MAIN STUDY................................................................................................................................ 2

What is Company Culture…………………………………………………………………2

Positive vs. Negative Company Culture………………………………………………..…4

Measuring The Impact Of Company Culture…………………………………………..…5

Flamholtz (2001) Study………………………………………………………...…5

The Telda (2016) Study…………………………………………………………...7

The Rebelo and Gomes (2015) Study………………………………………..……8

Result Summary…………………………………………………………………...9

Implications………………………………………………………………………………10

Is A Positive Company Culture Worth It?.........................................................................14

Examples…………………………………………………………………………………15

Google……………………………………………………………………………16

Amazon…………………………………………………………………………..17

CONCLUSION……………………............................................................................................. 19

BIBLIOGRAPHY ........................................................................................................................ 20

INTRODUCTION

Companies are always attempting to figure out what factors affect their retained earnings.

Components such as advertising, product demand, and the state of the economy are all things

that have been tested and proven to affect a company’s retained earnings. All these elements can

affect profitability by either decreasing the total costs incurred or increasing sales. These factors

which have been proven to affect company financial gain have, historically, come from elements

originating from outside of the company. However, factors under the direct control of the

company must have affected profitability though this effect has not been completely explored.

Company culture is one of the most important features regarding the inner workings of a

company and yet has no widely accepted definition. Company culture can be the expectation to

respond to emails after the workday has concluded or what year-end professional goals

employees work towards. Company culture also referred to as organizational culture, can affect

which individuals are hired, what products or services you provide, and what activities get

accomplished [Ahmed 2014]. Since company culture affects so many aspects of a business, it

seems logical that it must have some effect on the revenue or loss of a company. In this paper,

the connection between company culture and company profitability will be explored. The

hypothesis is that positive company culture has a strong correlation with profit and company

success.

The definition of company culture will be defined and explained along with the

definitions of positive and negative company culture. This research will then look at three

separate studies, the Flamholtz (2001) study, the Tedla (2016) study, and the Rebelo and Gomes

(2015) study. All three of these studies will provide the necessary data to track the connection

between company culture and company profitability. These studies will then be analyzed for the

effect and implications that they have presented for existing businesses. The next idea that will

be explored is whether or not this information is valuable for managers. The question of whether

this increase in revenue makes up for the costs it takes to create a positive company culture, will

be analyzed. Furthermore, it will explore what happens when companies attempt to change

company culture and never see this increase in profitability. Finally, though the study of

company culture is not new, it has been developing and changing. Over the past 20 years,

companies such as Google and Amazon have emerged, both bringing with them vastly

contradicting ideas of successful company culture and both becoming extremely profitable

nevertheless. This study will look into the company cultures created at the successful

organizations of Google and Amazon and the implications that these different cultures on

profitability. Once these studies have been explored, the effects on profitability measured, and

famous contradicting examples are analyzed, the connection between company culture and

company profitability will be clear and significant.

WHAT IS COMPANY CULTURE?

Company culture is an umbrella term used to describe the invisible forces which shape

attitudes and encourages behaviors within a company. [Groysberg, 2018]. The company or

organizational culture is often considered to be an extremely powerful tool, useful in deciding

the inner workings of how a company’s members think and act. [Schuneman, 2019].

Furthermore, an organization’s culture can not only impact the work lives of its employees but

can have significant impacts on its employees’ personal lives as well.

The term organizational culture can trace its origins back to Dr. Elliott Jaques’ book “The

Changing Culture of a Factory” published in 1963. Dr. Jaques explains that new members

entering into an existing company need to learn and accept the traditional way of thinking and

doing things that the existing members all share [Jaques, 1951]. Through Jaques’s work, many

economists have been able to create a general list of attributes that make up organizational

culture. These attributes are as follows: treatment of employees, interactions between managers

and their subordinates, accountability of authority, long-term organizational goals, and

opportunities to progress [Schuneman 2019]. Treatment of employees includes fair pay and

merit-based recognition. Interactions between managers and their subordinates include feedback,

recognition, and personal appraisal. Accountability of authority is the creation of trust and

dependence on a company's authority figures. Long-term organizational goals refer to the shared

or collaborative vision for the organization’s future. Finally, opportunities to progress are when

individuals in the company can grow within the business. Even with this clear definition of what

organizational culture is, it can be difficult to trace the impact that company culture has on

company profitability.

According to Eric Flamholtz in his 2001 journal article, “Corporate Culture and the

Bottom Line” there are four key areas that organizations must use to manage their culture or

values. The four key areas are the treatment of customers, the treatment of an organization’s

people or human capital, the standards of organizational performance, and the notions of

accountability [Flamholtz, 2001]. Flamholtz has created a very clear-cut rubric that companies

can use to manage their culture. The first item in this rubric was the treatment of customers and

the treatment of an organization’s people or human capital all contribute to the psychological

environment of a company. Furthermore, the standards of organizational performance and the

notions of accountability lead to employees maintaining consistent and active engagement in

their business activities.

Managing an organization's culture is an extremely important and useful tool that

managers can potentially use to increase company profitability. Positive company culture leads

to an increase in company profitability is the hypothesis for this research. Having said that, what

is the difference between positive and negative company culture?

POSITIVE VS. NEGATIVE COMPANY CULTURE

Now that we have defined company culture, it is important to understand the difference

between positive and negative company culture. Positive company culture is oftentimes defined

as a respectful and collaborative work environment that leaves employees feeling satisfied with

their work. [Kohll, 2018] This can be any workplace that emphasizes the strengths of its

employees and creates an environment of enthusiasm and encouragement. Alan Kohll mentions

the benefits of positive company culture in his 2018 Forbes article, “Strong company cultures

have been linked to higher rates of productivity. This is because employees tend to be more

motivated and dedicated to employers who invest in their well-being and happiness.” [Kohll,

2018] The previous quote explains that when employees feel happy and valued within their

workplace, they become more motivated within their job. This leads to greater productivity from

employees at firms with positive company culture. Companies can accomplish this positive

company culture in many different ways, such as yearly employee bonuses, merit-based raises

and promotions, and even employee perks such as free sports tickets. This positive culture has a

positive effect on the well-being of employees which leads to a positive impact on company

productivity.

Similar to positive company culture, negative company culture can have the same strong

effect on employees, only with detrimental effects. Negative company culture is frequently

defined as a work environment in which employees feel invalidated and insignificant [Frost,

2021]. Frequently, negative company culture is associated with high employee turnover rates and

an unhealthy work environment. Factors like poor communication can cause negative company

culture due to the lack of support and information being provided to employees. Even factors like

competition can be a great incentive at first but can cause resentment between employees, which

can lead to divisions between them. This negative company culture can present itself in many

ways, though it becomes recognizable when employees have an unhealthy balance between their

work and home lives. Overall, negative company culture can be detrimental to business but can

be avoided when management is working towards a healthy and flourishing work environment.

Now that the full extent of what makes up company culture has been defined and explored; a

new question arises. How have companies used company culture to affect company profitability?

MEASURING THE IMPACT OF COMPANY CULTURE

Company culture is often described as an invisible force and it can be difficult to truly see

the impact it has on the overall company. Despite the difficulty that company culture may be to

define, the impact that it has on the business overall is crucial. Furthermore, how is the impact of

company culture measured? Fortunately, through mediums such as surveys, studies, and other

research collections there are many different sources to evaluate this impact.

FLAMHOLTZ (2001) STUDY

The first study that will be evaluated is the Flamholtz (2001) study, which evaluated a

US-based, medium-sized, industrial enterprise that was surveyed by Eric Flamholtz from the

University of California at Los Angeles. This company was given a pseudonym company name,

the Banner Corporation. “The intent of the present study is to determine whether corporate

culture has a significant impact on financial performance.” [Flamholtz, 2001]. Flamholtz and his

team worked on creating a desired corporate culture for the Banner Corporation by developing

an explicit statement of company values and cultural statements. These statements were then

turned into an assessment questionnaire of the company culture which was sent out to all salaried

employees. This survey was administered to 950 employees and had a response rate of 78%

[Flamholtz, 2001]. This questionnaire was designed with two objectives in mind, the first of

which is as follows: “to determine the extent to which people throughout Banner Corporation

agreed with the stated or desired culture” [Flamholtz, 2001]. The second objective was “to

determine the extent to which people perceived that each division, as well as the corporate office

(headquarters), was behaving in ways consistent with the desired or ideal corporate culture”

[Flamholtz, 2001]. These objectives show that the Banner Corporation study was aimed at

measuring the acceptance rate that employees had towards the stated or desired company culture.

Once the questionnaire’s responses were collected, Flamholtz and his team found that

over 96% of the respondents agreed with the stated or ideal culture of the corporation. Banner

Corporation was separated into divisions and within those, earnings before interest and taxes, or

EBIT, were recorded. Flamholtz and his team proved their hypothesis, “...that the greater the

degree of agreement between the desired corporate culture and the culture perceived to exist, the

better the financial performance.” [Flamholtz, 2001]. Flamholtz was setting out to see if the

divisions that perform the best financially are the same ones that are best in compliance with the

company's desired culture. Furthermore, Flamholtz was seeing if the lowest financially

performing divisions were those who were most out of line with the desired company culture.

Flamholtz collected the data that was derived from the Flamholtz (2001) study and

plotted it, further showing the divisional concurrence with company culture. This data from the

Banner Corporation was looking within a medium-sized industrial enterprise and suggested that

the correlation between divisions that adhere to the desired company culture increased earnings

before interest and tax. These results strongly support the hypothesis that positive company

culture affects company profitability, though there are many other factors and companies to look

at to further demonstrate this correlation.

THE TELDA (2016) STUDY

A study conducted by Tewodros Bayeh Tedla at Walden University in 2016 was

attempting to discover the strategies that managers use to create an effective company culture

that improves performance [Tedla 2016]. Tedla developed in this dissertation, the following

question to ask senior managers, “What successful strategies do senior company managers use to

establish organizational culture to improve performance?” [Tedla 2016]. Tedla conducted face-

to-face interviews with 20 senior managers within one corporate group. These senior managers

all had at least five years of experience and had educational backgrounds ranging from master's

degrees to doctoral degrees [Tedla 2016]. The participants in this study were given both a

consent form and an invitation letter 15 days before the interview date, giving them time to think

over the study topic. These interviews lasted anywhere from 30-60 minutes for each participant

and follow-up interviews provided some additional information and data. Once Tedla collected

the data and analyzed it, the combination of each senior manager's answers had four main

apparent themes within them. Those four themes are “well-defined mission and vision, core

corporate values, employee-focused leadership, and consistency” [Tedla 2016]. This study

provides important information regarding how company culture affects company performance in

the context of a corporate group. Overall, it shows how managers can use the effects that

company culture has on company profitability to their advantage and create strategies that help

them increase profitability through company culture.

THE REBELO AND GOMES (2015) STUDY

In 2015, Teresa Rebelo and Adelino Duarte Gomes conducted a study involving 107

medium-size firms to measure the effects that specific types of company culture had on

organizational performance. Of the 107 firms surveyed in Rebelo and Gomes’ sample, 70% were

manufacturing firms, and 30% were consulting firms [Gomes and Rebelo 2016]. Furthermore, of

the firms sampled, 61% have been in existence for less than 20 years. [Gomes and Rebelo 2016].

The study consisted of a questionnaire that was completed by a representative of the firm's

employees. This survey collected data regarding employee culture and the overall concept of

company culture on the organizational level. This particular study was measuring both company

culture's effects on profitability as well as culture effects on customer satisfaction. The

employees are the link between both company profitability and customer satisfaction, according

to Gomes and Rebelo. “Thus, one managerial contribution of these findings is that an

organizational culture oriented toward learning should not be overlooked and to invest in

creating this kind of culture seems to be a good option due to its potential positive effect on

different organizational stakeholders” [Gomes and Rebelo 2016]. This study concluded that

managers should invest time, money, and initiative into creating a supportive environment where

positive company culture can develop and flourish.

In the study conducted by Gomes and Rebelo, organizational culture was looked at in the

context of two outcomes, profitability and customer satisfaction. Their study revealed that there

is a direct positive impact of organizational culture on profitability and an indirect positive effect

of organizational culture on customer satisfaction. Gomes and Rebelo also used total quality

management as a way to link company culture to their two outcomes. This study, similar to the

other two mentioned previously, all draw similar conclusions. These results all lead to the idea

that company culture does have a substantial impact on company profitability. However, what

implications can that conclusion have and how can companies use it to their advantage?

RESULT SUMMARY

All three studies evaluated, the Flamholtz (2001) study, the Telda (2016) study, and the

Rebelo and Gomes (2015) study, presented vastly different data that all came to similar

conclusions. In the Flamholtz (2001) study, the data measuring the connection between earnings

before interest and taxes and the divisional agreement with company culture was graphed. This

led to a regression equation explaining the being calculated as y = 0.3888x -18.015. This meant

that around 46% of the earnings before interest and tax was explained by the corporate culture of

each division within the Banner Corporation. The Telda (2016) study on the other hand,

conducted interviews with senior managers within different companies and evaluated the

monetary success that these managers had when they worked to improve company culture.

Teldan found a high correlation between senior managers who worked hard to create a positive

company culture, and the success their departments and or divisions had within the company.

Finally, the Rebelo and Gomes (2015) study evaluated the impact that employees had on

company profitability through company culture and customer satisfaction. Through their

collected data, they found a high correlation between profitability and company culture, 2.51 and

1.38 correlation between the two. These three studies all provide substantial data to support the

high correlation between positive company culture and an increase in company profitability.

IMPLICATIONS

After looking at three different studies all conducted to measure the impact that company

culture has on company profitability, what are the implications of these findings? The Flamholtz

(2001) study, for example, demonstrates that company culture does impact the financial

performance of the organization. Banner Corporation can then implement these findings as part

of their management systems. In practice, managers can measure the improvements of their

divisions adhering to the desired company culture and see the increase in company profits as a

result. Therefore, what does this mean for the management of the Banner Corporation?

By establishing the connection between company culture and company profitability and making

those necessary changes in the management decisions and strategies, it adds a new level to the

responsibilities of management. Managers within corporate businesses are responsible for three

important categories: company processes, people, and expectations [Stobierski 2019]. For

managers to effectively increase company profits through company culture, they need to manage

all three important categories simultaneously. Managers with this new company profitability

connection must oversee the processes which go on within their organization, focusing on

company profitability. That idea is nothing new, managers always had company profitability on

their radar. Though, how can they both manage processes centered around profitability, while

simultaneously managing people and aim them towards profitability? The next important

category for managers is to supervise people, and in the context of these studies, that would

require managers to aim employees towards the desired company culture. Managing people is a

strenuous task on its own, the difficulty is heightened when this additional step of ensuring that

employees all share the same desired company culture is added. The next category that the

higher-ups are responsible for is managing expectations. This is when managers expect realistic

outcomes for any initiative within their company. Though managers need to oversee their

employees effectively to go along with realistic expectations, they also have their own

expectations to take care of, such as increasing company profitability thanks to company culture.

All of the previous factors add to the continuous list of tasks and projects that managers

effectively lead. This list can be overwhelming and that is why many managers forget about

company culture and only ever have company profitability on their mind while decision making.

This disconnect of only focusing on company profitability and not on the factor that affects it,

company culture, can have negative and sometimes detrimental impacts on the culture and

profitability itself. The Flamholtz (2001) study has suggested that the connection between

corporate culture and company performance is now under the list of tasks that company

managers have. This means that managers are now in charge of reducing the gap between the

companies desired culture and the current state of culture for the company. By creating a positive

company culture, all other aspects of a manager’s job within the organization become easier due

to cultures' positive effects on productivity and profitability.

The Telda (2016) study has different, yet important implications from their conducted

research. This study focused on corporate senior managers and interviewed them regarding how

they developed a corporate culture that increase company productivity. The study established a

definitive list of key terms that were present in almost all strategies of the interviewed senior

managers. Within the particular corporate group, it became clear that these managers were given

quality training that caused them to promote performance-oriented systems within their corporate

group. “The corporate group leadership used the consistency strategy to establish an effective

organizational culture and to improve performance in the corporate group” [Telda 2016]. This

shows that the leadership for the senior managers has instilled values of effective company

culture and that it greatly affects company performance. This is an extremely important and

valuable asset that leaders can give their subordinates and this study proves how effective it can

be. The top management can express the importance of the connection between company culture

and company profitability to middle and lower-level management. This expression of importance

by top management makes middle and lower management more aware of this powerful tool they

have in their arsenal and they can then begin to strategically use it in their projects.

The Telda (2016) study also shows that consistency between firms and departments of

the same company is an important factor in ensuring employees adhere to the desired company

culture. “The company human resource, finance, materials management, and marketing policies

served as a necessary tool to help managers in the corporate group to maintain consistency”

[Telda 2016]. This statement opens up an interesting question; how can managers push the same

company culture to employees of all different backgrounds, workspaces, and jobs? As Tedla

stated, the company's departments such as human resources, finance, marketing, etc, all serve as

bridges between the many different areas of the company. The next connection between

employees of all different backgrounds is simply the company culture. At the end of the day,

company culture is simply the shared values, goals, and ideas between employees of the same

company. It does not matter which department one work in within the company, as long as you

work there and have goals to work towards. Every individual employee contributes to the

company culture and can relate to other employees at the same workplace as them. Employees

have the ability as a whole to not only change company culture if desired but to use company

culture to affect profitability. The staff are the ones who hold the most value in the equation of

company culture and company profitability because they are the ones that make that connection a

reality. The Telda (2016) Study shows evidence that managers and employees truly have a large

impact on the profitability of their company, no matter if they are affecting it knowingly or not.

The Rebelo and Gomes (2015) study was focused on linking company culture to

organizational performance and customer satisfaction. Gomes and Rebelo expressed that

employees are the link between company culture and customer satisfaction. This study shows a

positive relationship between organizational culture and performance as well as customer

satisfaction. The research expresses that managers who invest time, money, and effort into

creating a supportive work environment using positive company culture see an increase in

company profitability as well as customer satisfaction. With that being said, what does this study

mean for other businesses?

Profitability and customer satisfaction are each goals that companies strive for. Giving

managers the tools necessary to increase both customer satisfaction and company profitability

while also keeping their employees happy seems like the ideal situation. Unfortunately,

achieving a positive company culture is not always something that some business managers

strive for or can practically accomplish. In many cases, creating a positive company culture can

be a costly process. Creating workplace incentives, giving out employee bonuses, and

promotions to keep employees happy are all costs that add up, and many managers do not see

this as a long-term investment. That being said, how does creating a positive company culture

give managers the “payoff” they are promised through company profitability or do some

companies spend more money creating the positive environment and never get to reap any of the

rewards?

IS A POSITIVE COMPANY CULTURE WORTH IT?

A select amount of companies view positive company culture as an unnecessary cost.

Many managers focus on getting rid of unnecessary costs, thus increasing short-term profits.

They do not see the long-term benefits that investing in positive company culture produces. A

company will see the change in productivity and profitability over time from positive company

culture, however, this factor can be overlooked by managers not wishing to invest the long-term

money and energy. Managers will not see the payoff that positive company culture has on

company profitability right away. They themselves need to feel invested in the long-term future

of the company and they need to want to work towards what's the best for their employees.

Unfortunately, if the company culture is not already in a good position, it can be difficult to fill

management positions with those individuals who have a passion for the company. If a company

harbors positive company culture, it creates passionate and motivated employees. These

motivated employees work hard at their job and create goals that are in line with the company's

objectives. Those motivated employees become managers who work hard to create the same

nourishing environment that they were given for other employees. This produces a cycle of

positive company culture that creates highly motivated employees. This cycle can be difficult to

start because this payoff is not necessarily seen by the manager who begins the cycle. Due to

this, it can seem like the payoff is more long-term than some managers are willing to invest. This

process can be long-term but the benefits that come from creating a positive company culture

make up for it.

In some cases, companies may spend a large portion of money on creating a positive

work environment and never see a change in profitability. While this research is mainly focused

on tracking the link between company culture and company profitability, there are still many

other factors that are affected by the change in company culture. One important factor that is

affected by creating positive company culture is the decrease in turnover costs. Turnover costs

are defined as the costs relating to the loss of morale and burnout of employees, the cost of hiring

someone new, and losing an employee [Branham, 2001]. There are two types of turnover costs,

direct and indirect. Direct turnover costs are the cost of employees leaving the company, the cost

to replace the lost employee, and the costs that result from this transitional period. Indirect

turnover costs are more abstractly connected to the cost of turnover, such as the loss in

production and the reduced performance of employees. Furthermore, when employees leave their

workplace, they take their unique and useful skills away with them. Therefore, by creating a

positive company culture, even if it does not lead to company profitability directly, it avoids

direct and indirect turnover costs which greatly reduce company profitability and employee

morale.

EXAMPLES

As stated previously, the connection between company culture and company profitability

is influential and valuable. There are well-established companies that have utilized this

connection and have been very successful. A company that has utilized the connection between

company culture and company profitability is Google. Taking a deeper look into Google’s

company culture, how has Google not only completely changed the idea of positive company

culture but also used it to dramatically increase company profits?

GOOGLE

Google is a web-based search engine company founded in 1998 by Larry Page and

Sergen Brin. Google has become the ideal representation for positive work environments and

positive company culture. They have office locations throughout North America, South America,

Europe, Asia, Africa, and Australia which are all designed with the idea of communication and

innovation in mind. Google is known for having an almost inconceivable good workplace

environment. They have foosball tables, swimming pools, and gaming systems at their offices to

encourage creativity and taking a break from working. Due to this, Google attracts very

ambitious, motivated workers and they keep those workers engaged creatively by giving them

spaces to create and learn from one another. They also hire based on character and they look for

candidates who are team-oriented and innovative. Google does this because according to them,

they can teach someone skills like coding or design but cannot teach someone to be motivated

and to be a good worker. The revolutionary approach to a company culture that Google has taken

in the last 20 years has changed how the everyday person viewed a successful company. Due to

Google’s unorthodox approach to company culture, they have become the poster child for

positive company culture. It is no secret that Google is extremely successful, bringing in nearly

$181.69 billion dollars of revenue in 2020 [Johnson 2021]. Google provides costly perks to its

employees, such as free chef-prepared meals, free dry-cleaning, etc. They justify these costs by

stating that these perks ensure no employees are dissatisfied and they avoid turnover costs. Due

to this fun atmosphere, Google can offer employees less money and keep them working for

longer. They also stated that retaining employees means less time and money is spent replacing

and recruiting new workers [Bulygo, 2020]. Google has capitalized on the connection between

company culture and company profitability but not all companies follow in suit.

AMAZON

Amazon was founded in 1994 as an online bookstore by Jeff Bezos. In its nearly 25 years

as a company, Amazon has become the largest online retailer in the world. Despite its immense

success and larger-than-life sales, in recent years Amazon has received several allegations from

previous employees claiming that the company's workplace was harmful and harsh. In a 2015

New York Times article published by Jodi Kantor and David Streiteld, the poor work

environment and negative company culture of Amazon was revealed to the public. [Kantor &

Streitfeld, 2015]. Newly recruited employees are thrown into the deep end of this harsh work

environment by being informed that if they “hit the wall” in this fast-paced environment, the

only solution is to simply climb it [Kantor & Streitfeld, 2015]. Employees are encouraged to tear

each other apart during workplace meetings and sabotage other employees by complaining to

higher management about their inability to complete simple tasks. Oftentimes important and

content-heavy emails are sent well after midnight on a workday along with follow-up messages

soon after if the email has not been addressed by its recipient immediately. Turnover costs are

extremely high, as the average worker stays with the company for only one year [PayScale

2021]. “Some workers who suffered from cancer, miscarriages, and other personal crises said

they had been evaluated unfairly or edged out rather than given time to recover” [Kantor &

Streitfeld, 2015]. This “hard-driving” culture includes long hours, difficult entry tests, and lots of

processes in place to “weed out” non serious workers. There has been a multitude of lawsuits

against Amazon in recent years, many regarding wrongful termination, unfair work conditions,

and unequal pay. [Schiffer 2020]. All of these lawsuits add to the long list of costs that are

avoidable if the company would adopt more of a positive workplace culture. Amazon’s top

recruiting director, Susan Harker, has stated that due to the innovative and groundbreaking ideas

that come from Amazon, the workplace is extremely challenging and not for everyone. Bo

Olson, a former book marketing employee at Amazon, said that he witnesses nearly every single

coworker of his, break down and cry at some point during his time working there. [Kantor &

Streitfeld, 2015]. Amazon workers are given the bare bones when it comes to complementary

workplace benefits, oftentimes having to pay for business travel expenses themselves. This

customer-focused mindset comes with a cost, as the employees oftentimes feel overlooked. Amy

Michaels, who worked at the advertising and marketing department from 2012- 2014, had stated

that these high turnover rates are beginning to make upper and middle management view

employees as extremely easy to replace [Kantor & Streitfeld, 2015]. This inhumane viewpoint of

employees may have extremely detrimental effects on management if they continue along this

unhealthy path. Despite the seemingly intolerable working conditions that Amazon put its

employees through, they still come out year after year extremely successful and profitable.

However, more and more companies are adopting a similar business strategy to Amazon and

despite their business strategy giving them a considerable competitive advantage, whether this is

a sustainable competitive advantage or not might depend on their treatment of their ever-

changing employees. Both Google and Amazon arguably both have monopolies in their industry.

Their domination of their respective industry means that Amazon can see a decrease in costs

because they purchase in such substantial sizes and Google has nearly no competition within

their industry to compete with.

CONCLUSION

Company culture is an extremely valuable tool that, when properly utilized, can lead to

increases in company profitability. The three studies explored in this research all show that

employees improve productivity when presented with a positive work environment and that

increase in productivity leads to lower turnover costs and higher profitability for the company.

Companies where managers see the value of positive company culture and use it to their

advantage end up creating a business strategy that creates a cycle of managers and employees

who all feel respected and flourish in their workspace. The impact of company culture can be

difficult to measure from a financial standpoint, especially if companies are only in earlier stages

of creating this positive company culture, but once this culture has been established it has many

long-term benefits. An example of a company that utilizes positive company culture to increase

profitability is Google. Google has created an extremely creative and team-oriented work

environment where employees work together to come up with innovative ideas and have creative

outlets all funded by the company. In contrast, Amazon sees substantial profits, but their

negative and harsh work environment causes costly turnover rates, damaging competition

between employees, and an unhealthy balance between work and home life in employees. It is

clear to see the large impact that company culture has on company profitability through the

studies conducted and examined in this research paper as well as analysis of current successful

companies with opposite company cultures. This link between positive company culture and

increase in company profitability is useful for any business, large or small, looking to truly

understand the full impact that upper and middle management choices and goals can have on the

health and longevity of their company. Positive company culture is an extremely useful

instrument that any manager can use as long as they fully understand the impact that it has.

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