Obviously, I’ve been investing a lot of my time in learning about ROWE and, recently, I’ve also been spending time with Simon Sinek’s Start with Why. I think both are concepts very worth engaging in, as I think they both point to a universal problem – the lack of interest with which we all seem to go about our daily lives. We are, most definitely, lacking a sense of purpose out there. It’s clearly been established and is discussed, in some way or another, across nearly every management improvement article, book and interview.
So, in thinking about these things, I have to wonder what good these things do for a company? I mean, certainly the rank and file adore them – they make sense and appeal to base, humanistic concerns that ought to be much more a part of things in the workplace – and everywhere else – as we attempt to find our own, individual work/life balance. But what about the decision-making check-writers at the top? What’s in it for them?
All business is, to one degree or another, a volume business. The size of a business is determined by its revenues. While nearly every improvement school focuses on lowering costs – do they help to increase revenue? Most businesses will live within a certain margin that is reasonable within the company’s industry. True growth, however, occurs by selling more and increasing the volume of dollars flowing in.
So, how can a business see the impact of adopting progressive cultural experiments on total, overall dollars at its disposal? If you had asked me up until a week ago, my answer would have been: It can’t.
An employee-centric culture doesn’t necessarily give you the latest, greatest innovations in either management, product or service delivery, or design. It doesn’t make your accountants faster or cheaper. It doesn’t make your HR department more resilient, your marketing department more creative, your sales reps more ambitious and it doesn’t make customers throw tons of money at you. At least, not directly. Sure, there could be some statement about how engaged employees perform better, or how they are more likely to be creative or find innovation within their area of expertise. I believe those things to be true, but they are hard to determine and there’s no real, direct cause-and-effect relationship between culture that can be measured with a yardstick to determine performance anyway.
Or can it?
Last week, I came across a post by Torben Rick entitled, “Can corporate culture boost financial performance” that made me aware of a new book by James Heskett, an Emeritus Professor at Harvard Business School. The book, The Culture Cycle: How to Shape the Unseen Force that Transforms Performance. The book is discussed in some detail in an interview with Professor Heskett posted on the Harvard Business School’s website. Check out this excerpt:
Q: Your research produces an eye-opening number, that as much as half of the difference in operating profit between organizations can be attributed to effective cultures. Why is this true-how does culture affect the bottom line?
A: The point is that organization culture is not a soft concept. Its impact on profit can be measured and quantified. And in organizations with large numbers of customer-facing employees, the sum of the effects of employee turnover, referrals of potential employees by existing ones, productivity, customer loyalty, and referrals of new customers attributable to culture can add up to half of the difference in operating income between organizations in the same business.
Current and former CEOs such as Lou Gerstner (HBS MBA ’65) and Sam Palmisano (IBM), Ken Iverson (Nucor), Tony Hsieh (Zappos.com), and Scott Cook (HBS MBA ’76) (Intuit) who believe strongly in the importance of culture have been hinting at this, so I went out into the field and collected data that demonstrate it.
Once in a while, I love it when I am wrong.
Professor Hackett’s research would seem to indicate that the benefits of culture are not just idealistic arguments. With data to support those arguments, there’s growing evidence that the world of work could be a better place if only the decision makers made humanistic concerns as much a cornerstone of the business as the balance sheet. The business benefits of culture, it would seem, are no longer a just a set of intangible theories, but a quantifiable phenomenon that can be demonstrated with objective evidence.
Since the benefits are real, observable, demonstrable and can be measured then we have to conclude that culture can, indeed, help decision makers to to grow the business. The only thing left to do, then, is wonder why more business leaders aren’t investing in culture already?