The ROI of Culture

Does your organization have a defined culture or values?

If not, or if you don’t know, then January is a perfect time to think about how those two attributes can add to your top and bottom lines in the coming year. If they sound fuzzy and warm, they’re not. It has been proved that a values-driven culture can give you a competitive advantage and a stronger balance sheet.

For instance, have you ever thought about a values-driven culture as a recruiting and retention tool? It is. Best places to work generally have very well-defined, positive, collaborative cultures that lure the best candidates and keep productive employees. The Society for Human Resource Management estimates that it costs $3,500 to replace one $8-per-hour employee when all expenses -- recruiting, interviewing, hiring, training, reduced productivity and so on are considered. SHRM’s estimate was the lowest of 17 nationally respected companies who calculate this cost.

Other sources provide these employee replacement costs: 30 percent to 50 percent of the annual salary of entry-level employees, 150 percent of middle level employees, and up to 400 percent for specialized, high level employees.

Creating a culture that retains good people is clearly one example of its potential for ROI; there are others. Such calculations establish culture as a business asset, even a revenue center.

According to researchers Jeff Rosenthal and Mary Ann Masarech, values-driven culture contributes to business performance because they:

• Attract and retain star performers who not only have the skills required to achieve ambitious business goals, but also are so invigorated by the company’s core beliefs that they give 110 percent.
• Guide and inspire employee decisions and contribution in a flatter, fast-paced, decentralized workplace that is void of day-to-day management direction.
• Provide fixed points of reference and stability during periods of great change or crisis -- much like a lighthouse with its beacon of light during fog and rough seas.
• Create a more personal connection between employees and the organization, a type of emotional contract to replace the agreements implicit in our parents’ world of work.

During almost 40 years in executive leadership positions, it has been my experience that beliefs are captured in values, and those values are exhibited in the form of behaviors. The sum of behaviors defines the culture.

So, if we believe being honest is important, it becomes a core value. If we identify behaviors that are consistent with honesty -- such as not lying, not being secretive, being open, transparent, forthcoming and trusting -- we will want to instill those behaviors into the culture. To have cultural integrity, we must define values so that we are all in agreement on their meaning.

Here are some key steps you must take to establish a values-driven culture:

• Through team discovery sessions, led by the CEO, establish what you believe in as a culture.
• Identify the values that reflect your organization’s beliefs.
• Understand the relationship between values and behaviors.
• Agree on which behaviors are consistent and inconsistent with your values; what does that value look like in the office?
• Communicate the values and supporting behaviors down through the organization.
• Monitor behaviors regularly through performance reviews or other measures to manage value/behavior and potential cultural erosion.

A perfect example of a culture that is not working is one my consulting group came across recently in which managers proudly stated that their culture valued openness, opinions, positive disagreement and truth-telling. On closer examination, however, managers actually lacked what they called “mercy skills” in organizational interaction. Simply put, they shoot the messenger and punish all who speak up or disagree.

Where is your culture today, and where do you want it to be in 2014?

John P. Foster, managing member of the management consulting firm Pathfinder Group, has built several businesses and helps executives meet their goals by developing strategies to manage risk. He can be reached at john@governmentconsultants.com

(Image via mrkob/Shutterstock.com)