Why Is Cultural Competency Important for Businesses?

What is cultural competence?

Cultural competence is the ability to understand and empathize with people from a range of backgrounds and lived experiences. It goes beyond simple tolerance and requires an openness to different perspectives and ways of thinking. 

At its core, cultural competence involves three key elements: 

• Understanding your own culture.
• Being willing to learn about other cultures and worldviews.
• Approaching differences with respect, not judgment.

In practice, cultural competence helps people connect more easily and avoid unnecessary misunderstandings. Those outcomes matter in business, particularly when you’re working with diverse customers, employees or partners.

Culturally competent business leaders recognize that differences exist among all people and that the skills often associated with international business — such as listening, adaptability and cultural awareness — apply just as much to local organizations. When businesses pay attention to how they bridge visible and invisible differences, they’re better positioned to build trust, collaborate effectively and grow.

What are the business benefits of cultural competence?

There’s clear evidence that cultural competence pays off for businesses. In McKinsey’s “Diversity Matters Even More” report from December 2023, companies in the top quartile for gender diversity on executive teams were 39 percent more likely to outperform their peers financially. The same held true for ethnic diversity, with top-quartile companies 39 percent more likely to outperform those in the bottom quartile.

These results aren’t accidental. Financial performance improves when leaders intentionally seek out and apply diverse perspectives. When businesses focus on cultural competence and how people work across differences, visible and invisible, the payoff shows up in decision-making, workplace collaboration and results. 

Below are six key reasons cultural competence matters for businesses.

1. Faster rapport building

Trust matters in every business relationship, and rapport is often how that trust gets built. When time is money, the ability to connect more quickly can make a real difference. Building rapport is easier when you show a genuine interest in understanding others and meeting them where they are.

Small gestures can go a long way. Taking the time to learn a few words of another language or familiarizing yourself with important cultural holidays signals respect and curiosity. Those efforts help people feel seen, which makes it easier to establish trust early on.

2. Increased efficiency

Culturally competent workplaces tend to run more smoothly and enjoy better workplace teamwork. When team members understand and respect different communication styles, collaboration comes with less friction. Over time, that shared understanding helps teams work together more easily and move through tasks more efficiently.

3. New market opportunities

Cultural competence can also open the door to new markets. When businesses are willing to step outside their comfort zones and take the time to understand different cultures, beliefs and languages, they’re better positioned to spot opportunities others may miss. Cultural adaptability makes it easier to build trust in unfamiliar spaces, while rigidity often limits growth.

4. Enhanced customer loyalty

Customers are more likely to stick with brands that make them feel understood and valued. Customer loyalty grows when businesses take the time to understand their customers’ demographics and cultural identities, allowing them to meet expectations and serve people in ways that feel relevant and respectful.

5. Innovation and adaptability

Diverse teams tend to approach problems from different angles, which can lead to more creative solutions. Cultural competence supports that mindset by encouraging openness to new ideas, perspectives and ways of working. As a result, culturally competent companies are often more willing to experiment, adapt and evolve.

That openness can translate into stronger products and services over time. In contrast, organizations that resist unfamiliar ideas may be more likely to stick with the status quo and miss opportunities for profitable growth.

6. Improved communication

Clear communication is easier when people understand each other and have strong working relationships, even across cultural differences. Within teams, that understanding helps reduce miscommunication and unnecessary tension. The same is true when businesses communicate with customers.

When companies make an effort to respect customers’ language and cultural context, conversations tend to be clearer and more effective. As a bonus, fewer misunderstandings often mean fewer complaints, cancellations and returns.

What should leaders do to foster cultural competency?

Leaders play a central role in shaping how cultural competence shows up at work. While there are many skills true leaders can model and teach, one of the most important places to start is by addressing bias. Consider the following best practices for fostering cultural competency in your workplace.

Eliminate workplace biases.

Culturally competent leaders are mindful of how bias, including gender bias, can creep into hiring, promoting from within and everyday teamwork. Seeing differences as strengths, rather than obstacles, helps reduce “us vs. them” dynamics.

Education and employee training can support this effort, especially when they’re tied to real workplace situations. When leaders focus on evaluating people based on ability and performance, teams are more likely to collaborate openly and fairly, without defaulting to cliques or assumptions.

Over time, this approach creates space for more creative problem-solving. Employees can take pride in their different backgrounds and perspectives, which often leads to stronger ideas and more thoughtful contributions across the organization.

Practice empathetic responsiveness.

Empathy starts with stepping outside your own perspective and taking the time to understand someone else’s. That’s not always easy, especially when another person’s experiences don’t match your own. Leaders who pause, listen and ask questions tend to build more trust than those who jump in with quick responses or assumptions.

Learning about different cultures and international etiquette is an important part of cultural competence, but it’s just a starting point. No leader will ever be an expert in every experience. What matters more is being willing to listen, ask thoughtful questions and take people seriously when they share their perspectives. That kind of attentiveness helps create a workplace that feels genuinely open and respectful, not performative.

Reserve value judgments.

In customer service, a common complaint you’ll hear is, “Our customers are idiots!” When that attitude takes hold, customers often pick up on it, even when it’s never said out loud.

In many cases, the frustration comes from a simple gap in experience. Customers who are new to a product or service don’t have the same background or training as the people supporting them. Cultural competence asks employees to pause in those moments and separate what they’re observing from the judgments they’re making.

Learning to create space between thoughts and assumptions is an essential skill. When teams do that, they’re less likely to push customers away with subtle disdain and more likely to build a culture that makes people feel respected and valued, which, over time, helps foster loyalty.

Discover customer values.

One important skill leaders and sales teams can develop is learning how to ask customers what actually matters to them. For example, say a window salesperson drones on about durability for 30 minutes, but the customer cares far more about how the windows will look in their home. Durability matters, but it wasn’t the priority at that moment. A simple question at the start of the conversation could have changed the entire dynamic.

Rather than assuming what customers value, culturally competent sales professionals ask open-ended questions. One example is, “If you came home tomorrow and all your windows were magically replaced, what would make you happy about them?” The answer almost always reveals the customer’s core values.

What is the implementation framework for cultural competence?

Building cultural competence isn’t a one-time initiative or a box to check. It’s an ongoing process that works best when companies take a structured, phased approach. Drawing on established research and best practices from organizations such as the Georgetown University National Center for Cultural Competence, the framework below outlines how businesses can get started and build momentum over time.

1. Assessment and planning (Months 1-2): Start by taking an honest look at where your organization stands. That may include using established cultural competence assessment tools — such as the Cultural and Linguistic Competence Health Practitioner Assessment — along with gathering formal and anonymous employee feedback and reviewing existing policies through an inclusivity lens. Leadership buy-in matters early, so this is also the stage to secure executive support, allocate resources and form a cross-functional group to guide the work. Clear goals, timelines and baseline metrics give the effort direction and accountability from the outset.
2. Foundation building (Months 3-4): Once you understand your starting point, focus on putting the right structures in place. This often includes refining hiring and promotion practices, clarifying expectations around inclusive behavior and reinforcing anti-discrimination and harassment policies. Leadership training can help managers develop the skills needed to lead inclusively, while employee resource groups, mentorship programs and diverse hiring panels help support the work across teams.
3. Training and development (Months 5-8): Training is often most effective when it’s practical and tailored by role. Customer-facing employees and those on cross-cultural teams may need extra support when it comes to communication, conflict resolution and inclusive service. Pairing workshops with mentoring or peer learning helps those skills carry over into day-to-day work.
4. Integration and reinforcement (Months 9-12): If cultural competence is going to stick, it has to show up in how people are managed day to day. That includes performance management processes, what gets recognized and which behaviors are rewarded. When inclusive actions are noticed, talked about and shared internally, they’re more likely to become part of how teams actually work, not just something rolled out once and forgotten.
5. Measurement and improvement (Ongoing): Cultural competence isn’t something you set once and walk away from. As teams grow and change, it’s worth checking in regularly to see what’s working and what needs attention. Employee surveys, manager feedback and performance data can offer useful signals, especially when you look at trends tied to employee retention and customer satisfaction. Some organizations also use external benchmarks or third-party certifications to check their progress and spot opportunities to improve.

Cultural competence works best when it’s treated as an ongoing part of how a business operates, not a one-off initiative. Companies that take the time to build it thoughtfully tend to make better decisions, keep people longer and connect more effectively with customers. Over time, that consistency is what turns good intentions into real business results.

Skye Schooley and Dr. Richard Nongard contributed to this article.