THE IMPORTANCE OF CORPORATE CULTURE 1

The Importance of Corporate Culture as a Success Factor in Today’s Most Successful Companies

Introduction

From 2001 until 2017, I was employed in the Dutch banking sector. This period includes

the global financial crisis and the period thereafter. In the aftermath of the crisis, the existing

culture in the financial sector was thought to have not only enabled but also worsened the

behavior that let to excessive risk-taking. In the Netherlands, recommendations were given by

the “Adviescommissie Toekomst Banken” in their report called: “Towards the Recovery of Trust”.

A new corporate culture was advocated to regain the trust of society. This new culture put clients

in first place again, and was more conscious of the role of the financial sector in the overall

society. Around the same time, the fintech sector started to emerge. Innovation hit the financial

sector. This was also having an impact on the optimal corporate culture. As the company went

through this phase, I became a witness to the company struggling to cope with both outside

forces. And whilst management did initiate a move towards an updated, more innovation-based

strategy, in practice, I found little had changed. It seemed difficult to change a corporate culture

that not had much experience with change itself.

This paper tries to identify key success factors for companies in today’s increasingly

competitive environment. Questions to be answered are: Who are today’s successful companies

and what are their shared characteristics? What is the role of corporate culture and what defines
THE IMPORTANCE OF CORPORATE CULTURE 2

today’s successful corporate cultures? And finally, what is the role of senior management and

what corporate leadership can do to facilitate moving towards a different corporate culture?

The Most Successful Companies

When one wants to investigate the importance of corporate culture as a success factor in

today’s most successful companies, a definition is required for the most successful companies.

For this paper, a dataset was built including the 100 listed companies with the highest market

value from 2018 as well as 1998. 1 This dataset contains information on sectors, ranking, market

values, age and corporate values. First, we will look at the 25 companies with the highest market

value. To be able to distinguish trends, a comparison is made between the top 25 at the end of

1998 and the top 25 at the end of 2018. The top 25 companies represent a total market value of

USD 9.4tn at the end of 2018. This is more than double the market value of the top 25 companies

in 1998 (USD 4.2tn). The table below shows the sectors the top 25 companies represent, both at

the end of 2018 as well as the end of 1998.

Sector # # Rank (avg) Rank (avg)

2018 1998 2018 1998
Consumer Goods 3 4 18 15
Consumer Services 3 4 9 15
Financials 7 3 13 23
Healthcare 1 6 10 12
Industrials - 1 - 2
Oil & Gas 3 1 17 6
Technology 7 4 9 7
Telecommunications 1 4 24 16
Table 1 Sector comparison top 25 companies in 2018 and top 25 companies in 1998.

1
Market value is measured as the number of outstanding shares time the value per share. This is also known as the
market capitalization.
THE IMPORTANCE OF CORPORATE CULTURE 3

The table shows various changes over time. There was only one remaining healthcare

company in 2018 (Johnson & Johnson) versus six in 1998. Most of these simply fell out of the

top 25. Also, an increase is shown for the financial sector, from three to seven. This is partly

related to the inclusion of two Chinese banks that were not yet listed in 1998. The banks do show

a substantial increase in market value since 1998. This is expected to be a result of the continuing

effects of a policy of liberalization and deregulation that lasted up until the global financial crisis.

The telecommunications sector has also seen a decline since 2000, from four to one. This was a

result of regulatory changes and fast technological progress which forced some into bankruptcy

(WorldCom). 2 Finally, the number of technology companies has risen to 7 with new entrants as

Apple, Tencent, Facebook and Alphabet (the holding company of Google). Technology also

plays an important role in some of the other companies. An example is Amazon, which is

classified as Consumer Services, but can clearly be characterized as technology-driven, if not

entirely technology-based. Overall, 18 of the top 25 companies in 2018 did not appear in the top

25 list of 1998 and 12 did not even appear in the top 100 of 1998. Out of the top 10 companies in

2018, 8 were new to the top 10. This leads to another interesting difference between the top 25 in

2018 and 1998 which is the average age of the companies. In 1998, the average age was 99

years. One might have expected the average age to have increased with 20 years in 2018.

However, as a result of the new entrants being mostly younger companies, the average age in

2018 decreased to 80 years. Five of these were even younger than 25 years.

Summarizing, we note that today’s top 25 companies are double the size in terms of

market value of their 1998 equivalents, were mostly not in the top 25 in 1998, operate in slightly

2
Couper, E. A., Hejkal, J.P., Wolman, A.L. (2003). Boom and Bust in Telecommunications
Federal Reserve Bank of Richmond. Economic Quarterly Volume 89/4 Fall 2003
THE IMPORTANCE OF CORPORATE CULTURE 4

different sectors and are much younger than the top 25 companies in 1998. Now that we have

identified and characterized the top 25 companies, let’s have a closer look at what makes these

companies successful.

Drivers of Success

Ample literature is available on what factors drive the success of companies. PwC (2013)

identifies companies with “a powerful set of capabilities, having a truly distinctive way of

providing value and having a clear identity as outperforming companies that do not have these

characteristics”. 3 Johnson and Soenen (2003) also refer to uniqueness as an indicator of

successful companies. Uniqueness is measured as the amount of R&D expenditures. They reason

that companies that are not unique as they sell products closely resembling those of their

competitors have low R&D expenditures as their innovations are easily duplicated. By linking

R&D expenditures to uniqueness the authors basically link the companies’ ability to successfully

innovate to its success. Innovation can be defined in many different ways, but most have the

following two aspects in common: the degree of novelty (new to the company, the industry or for

instance the world) and the type of innovation 4. In term of types, Keely (2013) distinguishes ten

types of innovation: profit model, network, structure, process, product performance, product

system, service, channel, brand and customer engagement. In 2010, the OECD (2010) stated that,

not only had innovation traditionally been one of the important drivers of growth, it was viewed

as becoming increasingly important. Evidence for this can also be found in the 2018 top 25

companies: for a significant number of companies their innovation is their core product (for

3
Leinwand, P., Mainardi, C., (2013). What drives a company’s success? Highlights of survey
findings. PwC
4
[Link]
THE IMPORTANCE OF CORPORATE CULTURE 5

instance Facebook, Alphabet, Amazon, Microsoft & Alibaba). Other companies have used

innovation to develop additional, new products or enhance existing ones (AT&T, Samsung

Electronics and Taiwan Semiconductor). The financial companies are to be considered a different

animal. So far, fintech has become an increasing threat as it is already intervening with the

traditional business models. This has, however, not prevented the largest ones to increase their

market values significantly over the past two decades. Amabile (1988) even goes further by

stating it has become impossible to survive without being innovative. Competition, changing

regulation and shifting market conditions cause a continues demand for innovation.

The aforementioned shows that the ability to innovate, having a powerful set of capabilities and

being unique are important success factors. One could subsequently conclude that companies

who have not done so yet, should start building a strategy towards achieving these factors.

However, this sounds easier than done in practice. Research by Charan and Colvin (1999) shows

that leadership’s ability to execute a strategy is a better indicator for success than the quality of

the strategy itself. Also, most will have heard the infamous quote by Drucker: culture can eat

strategy for breakfast. This raises the question what corporate culture aspects are required to

successfully more towards a more innovative and change-driven company? And what does this

imply for leadership and people management? And finally, can we also see these developments

with our top 25 companies? These questions are the subject of the remainder of this paper.

The role of corporate culture

In this paragraph, the role of corporate culture is discussed as well as how it influences

the success of the company. First, however, we need to define what corporate culture is? In

literature, many descriptions are available. Walton (1980) defines culture as: “a system of shared
THE IMPORTANCE OF CORPORATE CULTURE 6

values (defining what is important) and norms (defining appropriate attitudes and behaviors).”

Schein (1992) distinguishes three different layers of corporate culture. These are shown in the

graph below:

Figure 1 The 3 layers of corporate culture

The so-called Practices form the most visible part of corporate culture. Practices consist of

Artifacts (for instance rituals, the physical workspace and the language spoken) and Behaviors.

The Shared Basic Values are the least visible. The middle consists of the Norms. There are

mutual relationships between the layers. A change in Values can lead to different Norms which

can lead to different Behavior. Now corporate culture is defined, the next questions to be

answered are how corporates cultures impact the success of companies and what aspects are

found to be important in an innovation-driven environment?

Chatman and Eunyoung Cha (2003) define two different ways for strong corporate

cultures to improve the performance of a company. The first way is by energizing members of

staff by “appealing to their higher ideals and values and rallying them around a set of

meaningful, unified goals.” The second way is by shaping and coordinating the behavior of

members of staff. By stating the values and norms clearly, members of staff will focus on what is

important for the organization and as a result impact their behavior and decision making. This
THE IMPORTANCE OF CORPORATE CULTURE 7

was already evidenced long ago by Roethlisberger and Dickson (1939), who show that shared

norms can have a bigger impact on behavior than physical work environments or even monetary

rewards.

Kotter and Heskett (1992) found that a corporate culture has to include norms and values

that enable innovation and change in order to be successful in the long term. Acebo and Viltard

(2018) summarize a number of corporate culture characteristics from earlier research that

facilitate innovation:

− Freedom/Autonomy/Entrepreneurship: Members of staff have the freedom to perform within

areas of their interest and where support can be found for new ideas;

− Creativity: time should be made available for creative activity;

− Flexibility: The skillset and experience of members of staff is used where it fits best for

instance by participating in multiple projects;

− Workers Participation: Members of staff should be involved in the decision-making

processes;

− Continuous Learning: An emphasis on personal development in an environment were

members of staff are allowed to make and learn from mistakes;

− Risk Taking: In order to seize opportunities, members of staff should be allowed to take risk.

Some of these bear resemblances to a climate for initiative and psychological safety, which Baer

and Frese (2019) consider a condition for success in an innovation-driven culture. Psychological

safety links to the aforementioned continuous learning characteristic where members of staff can

make and learn from mistakes. A climate for initiative refers to: “formal and informal

organizational practices and procedures guiding and supporting a proactive, self-starting, and
THE IMPORTANCE OF CORPORATE CULTURE 8

persistent approach toward work.” This aligns well with the Freedom / Autonomy /

Entrepreneurship characteristic.

Chatman and Eunyoung Cha (2003) leave no doubt as to who is responsible for an

adequate corporate culture. In their view, leadership’s primary role is to develop and maintain the

corporate culture. Jandaghi, Matin and Farjami (2009) also evidence the importance of

leadership culture. They find that successful companies have more transformational leadership

aspects embedded into their organization than less successful companies. In fact, leadership

could be added to the critical success factors of companies that was discussed in the previous

paragraph. Transformational leadership increases the company’s ability to cope with continues

change. According to Bass and Avolio (1993) there are four components in the transformational

leadership model:

− Charisma: The ability to inspire people and value their contribution to group interest is

viewed as a key characteristic for a leader;

− Inspirational Motivation: Encouraging people to suitable behaviors in an inspirational

way;

− Intellectual Stimulation: Encouraging people to be creative and innovate;

− Individualized Consideration: Paying attention to other;

Using these skills properly indicates the following traits of corporate leadership: Creativity,

Team-Orientation, Appreciation of Others, Teaching (learning) and Responsibility.

Chatman and Eunyoung Cha (2003) also define a number of leadership tools to manage and

change corporate cultures:

− Recruiting and selecting people for culture fit in addition to the more tradition job-person

fit;
THE IMPORTANCE OF CORPORATE CULTURE 9

− Managing culture through socialization and training. The aim of which is to clarify the

cultural values and to create strong bonds between members of staff;

− Managing culture through the reward system. Rewards need to be clear, consistent and

comprehensive.

Today’s most successful companies

Finally, we can investigate whether these characteristics, norms and values that enable

innovation and change can also be found in today’s most highly valued companies. An overview

was made of all their reported corporate values. The results are presented in the below word

clouds, where the size of the words represents the number of occurrences of the values.

Figure 2 Top 100 2018 companies values Figure 3 Top 100 2018 companies that were not in the
1998 top 100

The top-100 2018 list shows that integrity and customer (focus) 5 are the most commonly

seen values. Most of these are aligned with what was found to be important for innovation

enabling corporate cultures. Innovation itself as well as trust, diversity, people and inclusion can

be viewed as enabling innovation. An analysis was also done on the companies that were present

in the top 100 of 2018, but not in 1998. These are to a large extent technology-driven, and all

5
In creating the word clouds some values were grouped. For instance, customer-based, costumer-
driven, client-focussed we grouped in customer.
THE IMPORTANCE OF CORPORATE CULTURE 10

extremely fast growers such as Apple, Alphabet (Google), Amazon, Facebook and Alibaba. Also,

these companies show values that are fairly similar to values from the entire top-100 of 2018.

Interestingly, innovation is not referred to as a common value. This may be the result, however,

of these companies’ main products being an innovation itself and therefore there is less need to

explicitly refer to innovation in its values and use values that facilitate innovation instead.

Concluding Remarks

In this paper the success factors of the successful companies were researched, both in

theory as well as when looking at the top 25 most successful companies. These companies are

younger than 20 years earlier, are larger in terms of market value and often technology and

innovation driven. This also has an impact on other companies that, in order to remain

competitive, also need to move towards technology and innovation. This change in strategy can

only be executed successfully in the appropriate corporate culture where a different set of norms

and values are required. Leadership has a large responsibility in creating an environment that

enables innovation. Some researchers have even argued that its leadership’s primary role to

develop and maintain the corporate culture that includes more autonomy for members of staff as

well as influence in decision making, more risk-taking and being allowed to make mistakes with

the aim to learn.

THE IMPORTANCE OF CORPORATE CULTURE 11

References

Acebo, L., Viltard, M., (2018). Corporate Culture: a key to stimulate innovation, Independent

Journal of Management & Production

Amabile, T., (1988). A model of creativity and innovation in organizations, Research in

Organizational Behaviour, Wiley, Vol 10, pages 123-167

Baer, M., Frese, M., (2003). Innovation Is Not Enough: Climates for Initiative and Psychological

Safety, Process Innovations, and Firm Performance, Journal of Organizational Behavior, Vol. 24,

No. 1, pp. 45-68

Bass, B., Avolio, B., (1993). Improving Organizational Effectiveness through Transformational

Leadership. Thousand Oaks, CA: Sage

Charan, R., Colvin, G., (1999). Why CEOs Fail, Fortune, June 21, pp. 68-78

Jandaghi,, G., Matin, H., Farjami, A., (2009). Comparing transformational leadership in

successful and unsuccessful companies, African Journal Of Business Management, Jul, Vol.3(7),

pp.272-280

Johnson., R., Soenen, L., (2003). Indicators of Successful Companies. European Management

Journal, Vol. 21, Issue 3

Keeley, L., (2013). “Ten Types of Innovation: The Discipline of Building Breakthroughs”

Kotter, J., Heskett, J., (1992). Corporate Culture and Performance, New York, NY: Free Press

Leinwand, P., Mainardi, C., (2013). What drives a company’s success? Highlights of survey

findings. PwC

OECD Studies on SMEs and Entrepreneurship (2010). SMEs, Entrepreneurship and Innovation
THE IMPORTANCE OF CORPORATE CULTURE 12

Roethlisberger, F., Dickson, W., (1939). Management and the Worker: An Account of a Research

Program conducted by the Western Electric Company, Hawthorne Works, Chicago (Cambridge:

MA, Harvard University Press

Schein, E., (1992). Organizational culture and leadership, Jossey-Bass Inc., San Francisco

Walton, R., Establishing and Maintaining High Commitment Work Systems, in Chatman, J.,

Eunyoung Cha, S., (2003). Leading by Leveraging Culture. California Management Review