Is This Business Sustainable?

There are a multitude of models used to assess the sustainability of a business. Most evaluate strategy, performance, market growth potential, customer retention probability, governance and the management of human resources.

In a dynamic, competitive market, where customers believe they can find all they need on the internet, and where a competitive advantage built on technology cannot long be sustained, it’s an organization’s culture and people that constitute its most sustainable competitive advantage.

Harvard’s James Heskett argues that “Culture can account for up to half of the difference in operating profit between two organizations in the same business. Shaping a culture is one of a leader’s most important jobs; it can be ignored, but only for so long and at one’s peril.”

The culture of a business is a significant contributor to its success, but evaluating culture can be challenging, involving more qualitative than quantitative metrics. As a result, during a typical acquisition due diligence process, inadequate cultural assessments are the norm as most effort is invested in evaluating more easily measureable parameters. The consequences of a deficient appraisal of cultural impact on the business are significant – a greatly prolonged integration of the acquired organization, wasted time, energy and money, and irreversible damage to the acquired company’s culture that often reduces its contribution to the combined organization.

To improve the assessment of cultural impact, consider three factors:

Customers learn about an organization, and decide to entrust their business to it, based on the credibility of the company. But they choose to retain their relationship with a business based on its culture of reliability, commitment to customer success, and dedication of its people. The sustainability of any business begins with its commitment to retain profitable customers; the organization’s culture enables the building of enduring customer relationships.