How Do Profit Margins Affect Culture?

July 18, 2013


For some time now I’ve been struggling with the question written in the headline above.  I’ve personally worked in an organization that seemingly had endless profits and resources, while I’ve also worked in one that was struggling to break even.  Obviously the one with endless resources had the advantage, but maybe it’s not as simple as you think.

The Chicken or The Egg

It would be easy to say that the reason the struggling organization was tight on profit margins was because of their culture issues.  While culture ultimately has a serious impact on profits, I don’t believe it’s always a cause and effect situation.

Truth be told the industry I’m talking about (construction) is one where margins are always hard to come by.  That automatically means that resources are tight and people are stretched everywhere you look.  Sound familiar?

If you think about it, that means everyone has to wear more than one hat.  It also means things that “seem” optional often get cut or frozen.  Things like training, employee appreciation events, raises, motivational seminars, bonuses, development programs, etc.

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What kind of culture do you think that inspires?  An exhausted one.

Contrast this with a company in an industry like pharma, where profits seem endless.  Sales teams are being flown all over the country several times a year to motivational / training meetings.  Dinners, drinks, gifts, and bonuses are given all around.

That’s not to mention, there are layers of people to insure messaging, morale, and ethics are of the highest quality.  These many layers make it seem like the individual has little impact.  It also guarantees constant change in direction, since there was a manager for everything and a manager in training just in case.  Making the culture blurry and pointless.

It doesn’t really seem right, does it?

Advantage or Disadvantage?

Earlier I eluded to the fact that the company with endless profits had an advantage.  But as you can see they also had a disadvantage.

The seemingly endless resources they had were regularly squandered.  I often saw employees that did not appreciate the things they had.  As usual, humans inevitably take things for granted.

Now, I can’t say that employees from a company with tight margins are so much better, but I can promise you that when they do get something small, it goes a long way towards their appreciation.

So, in this case, I’d say the organization with limited resources has the advantage, because if they put any energy into improving their culture, they can more easily impact it.  While the other company would have to do much more for the same affect.

Bottom Line

There is no perfect answer here.  Clearly, it’s easy for a company with tight margins to minimize the importance of their culture.  They just don’t have the time or the resources for it.

You already know that I’m going to say that this is a major mistake!

Building a unique culture is one of the few things that can help differentiate companies from their competitors (at any size).  Finding ways to breakdown the communication barriers so that your team is energized and engaged, is the only way to insure you maximize creativity and inevitably results.

With tight margins at stake, this becomes even more important!

I believe the trick here is balance.  It starts with leadership setting the tone and making it a priority.  It ends with every individual in the organization following through.  Looking past the day to day margin issues and focusing on the long-term can be tough, but it is necessary if the long-term is important:

If you want to run, run a mile. If you want to experience a different life, run a marathon.

Emil Zatopek

Question:  Have you worked at a company with tight margins?  How high of a priority was the culture?



2 responses to How Do Profit Margins Affect Culture?

  1. Margins certainly influence most business decisions but a competent leader will make the trip worth taking regardless. Money, or lack there of, has a great impact on culture. Squeezed capital can make a company lean, mean, and creative. It can also make the culture embittered and harsh. A flush bank account is luxurious and can be used to spread the appreciation, but it can also make a company lazy and comfortable. Financed capital is another factor. The appearance of money is a powerful tool. It can grow you, or bury you (I tend to believe in the burial scenario ;-)) In the end corporate leadership is the key. Margins certainly influence most business decisions but a competent leader will make the trip worth taking regardless.

    • Hey Steve! Sorry for the delay here!

      I agree wholeheartedly! I think your last sentence sums it up perfectly!

      Bottom line is that money affects priorities and priorities affect time given to certain activities. Leadership, strategic thinking, employee engagement, intentional culture are all impacted by this dynamic.

      I think we can all be better about handling this fluctuation by being more aware of it.