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Return on Culture

Counting what counts: Healthy cultures keep score

Corporate culture moves from fluffy to financial

RFP
Plastic rulerWelcome to the new frontier of competitive advantage — culture capital.

Thanks, in part, to a slew of corporate scandals and an increasing focus on a brand’s culture from employees and customers alike, companies that ignore the health of their culture jeopardize their ability attract talent, remain relevant and compete in the marketplace. That’s why today’s leaders are grabbling with the issue of culture measurement to ensure there is alignment between the rhetoric and reality. Devilishly hard to understand and difficult to talk about in practical ways, corporate culture has historically been thought of in terms of fluffy rather than financial terms. But those companies whose cultures fail to contribute to profitable growth or beat the competition are destined for the dustbin.

In an age where big data and analytics rule, organizations are failing to approach culture with the same measurement mindset. A new “Return on Culture” research study conducted by Grant Thornton and Oxford Economics found that today’s organizations have much work to do in measuring the effectiveness of culture and tying it to business results.
 
More than half of the survey’s executive respondents indicated that they have taken steps to build or improve organizational culture. Yet, despite having a prominent seat at the CEO’s table of organizational priorities, culture fails to warrant a spot on the company’s measurement scorecard. An organization’s culture and health is just as reliable a predictor of success as sales figures and needs to be measured.



Chris Smith, Grant Thornton Strategy & Transformation Practice Managing Principal, notes, “Cultural practitioners have focused their time over the last three decades on this notion of ‘Does culture matter?’ Qualitatively, we’ve always known that culture matters but crossing over into the quantitative, objective side aligned to the metrics that the Street or executives care about has not been explored before.”

Smith added, “Executives need to start thinking about how there needs to be a metric on their executive scorecard sitting right next to the profit metric, right next to the customer satisfaction metric and right next to the revenue metric.  It’s that important.”

Successful companies get the metrics right. They are rigorous about selecting the right ones to track change, they avoid using too many, and they balance measures of cost efficiency with measures of improved effectiveness. In this way, measuring culture acts as an early-warning system. If you’re carefully tracking your culture, you’ll be able to identify when it starts to shift which allows you to course-correct before it becomes a major problem.

Executives lack metrics for employee engagement
Despite the significant investments organizations make in culture each year, Grant Thornton’s research reveals that a staggering 69% of executives have not established metrics which they track. Only a fifth track productivity levels or employment data; even fewer (13%) use regular surveys or personal information about employees (10%). More than a third (38%) of executives admit that tracking which methods work best is an impediment to building a strong organizational culture.

Results of a recent National Center for the Middle Market (NCMM) report, “High performance culture”, suggest that efforts to measure the impact of culture also varies based on culture type. Those companies with a focus on innovation and creativity or customer centricity, for example, are the most likely to collect customer statistics, and those focused on a great place to work are most likely to collect employee-related statistics. Of those middle market companies with 10%+ revenue growth, 80% collect customer retention statistics while 77% measure customer acquisition and 70% track customer referrals. The same company executives report tracking employee retention (80%), employee recruiting (69%) and employee referrals (59%).

Minding the measure gap For too long, organizations have thrown up their hands, claiming that measuring culture effectiveness is about trying to quantify the unquantifiable. Yet, that’s only part of the metrics challenge. Generally, people don’t like being measured and will often change behaviors to meet the goals for which they’re being rewarded.  And each metric comes with the overhead needed to track it. For some companies, sometimes the value doesn’t justify the effort.

Nicole Blythe, Grant Thornton National Managing Partner, People Experience acknowledged that “Culture is a journey with no destination. We’re never going to say we’re done. And that is just not something that most people are wired to transition through.”

Blythe also suggested that some organizations may just not understand what to measure when it comes to organizational culture. Executives may not equate traditional business measures that are actually indications of cultural strength to the effectiveness of organizational culture. Many leaders struggle, for example, to see the direct correlation between employee engagement, high performance, customer satisfaction and profit. “Too often, we want to associate culture with that touchy-feely piece of things when in reality some of the metrics that we use to evaluate business performance and productivity are also indicators of culture.”

Greatest impediments to building a healthy culture
For some companies, the reason culture isn’t being effectively measured is tied directly in the corner office. “A lot of times culture is not measured because executives feel they know best,” suggested Erica O’Malley, Grant Thornton Partner, Organizational Strategy. “Executives believe culture is important but if 90% of CEOs think it’s important and nearly 70% of them aren’t measuring it, do they really think it’s important?”

In their book, Measurement Madness, Dina Gray et al. share story after story of how measures used in the wrong way end up driving all the wrong behaviors. They say “people focus on the measure at the expense of the real objectives of the organization.” And the resulting behavior varies from gaming the measure to downright unethical behaviors to ‘hit targets’.

High-performing companies measure and monitor the alignment between culture and behavior and focus on cultural consistency. They meaningfully describe their ideal culture and employee experience and then measure whether the reality reflects the ideal. Companies with healthy cultures have a deep understanding of how standard measures are connected to the everyday behavior of employees and, in return, individuals understand what’s important to the organization by considering what factors are being measured.

Organizations that succeed at building healthy cultures that lead to strong business performance also don’t make the mistake of using an engagement score as a proxy for a culture score.  Engagement is how employees feel about working in a company while culture comprises the patterns of behavior that are desired, encouraged, discouraged and tolerated.Consider the case of companies like Volkswagen and Uber. There was no evidence that employees of those companies were not engaged at work but we now know there were serious risks in the patterns of behaviors in those organizations.

Measuring what you treasure As corporate culture continues to serve as a differentiator for both employees and customers, some companies are getting serious about culture measurement.  Consider these examples of organizations that are making measurement a priority:

  • Zappos. Well known for its commitment to culture, Zappos management places a high priority on the concept of connectedness to support its core values. To measure success in supporting this connectedness, the firm uses several tools including a Face game that, along with FaceMail, encourages employees to know each other and associate faces with names. Its effectiveness is regularly measured with an internal feedback system called Z60.

  • JetBlue. The airline employs a robust measurement program and tracks, among other metrics, employee satisfaction scores. According to Ann Rhoades, co-founder of JetBlue, former Chief People Officer of Southwest Airlines and Promus Hotel Company, “When an employee tells us they are very happy to be part of the organization, we calculate that number.It is a measure for all of our managers and a portion of their bonus was based on the employee satisfaction score in their department.”

    Rhoades stressed that it’s important that every person is involved in meeting the metrics and goals. As an example, “The first day you come to work for us, we explain to you what the main metrics are including cost per available seat mile and revenue per available seat mile.”

    JetBlue also actively uses Net Promoter Score for employees. “When you get your six-month and 12-month employee satisfaction score, we ask you to tell us how long you intend to stay with us and would you recommend to family and friends to fly with and to work for JetBlue,” Rhoades said. “Those are critically important metrics for us.  It tells us whether our people are recruiting other A-players to work for us and whether they’re also telling their family that this is a great brand. If your own people aren’t doing it, it will never work. 

    Rhoades added, “Culture isn’t an unmeasurable thing. It’s all about performance.  It’s all about productivity. At the end of the day, I believe it drastically affects your performance!”

  • VMware. Technology company VMware uses eNPS scores in order to respond to employee feedback in an agile way. “We look at NPS and eNPS scores side by side,” explained Betsy Sutter, SVP and Chief People Officer of VMware. “We do a number of things to evaluate employee engagement and satisfaction throughout the year. We’re constantly trying to get a pulse in a very real-time way so we can adjust.”

Good measures start with great strategies In the past, measuring culture was something that was done once or twice a year via an engagement survey, a big and often expensive project that took months to return results. What’s more, these one-off surveys can be “too little, too late” for the fast pace of today’s workplace and prove ineffective as the sole measure of taking the temperature of culture health.

Rather, high-performing organizations understand that measuring culture is an ongoing process that is built into the very fabric of company operations. New tools have emerged to provide organizations with real-time sentiment and employee feedback and make it possible for organizations to monitor employee perspectives with the same rigor as they measure customer sentiment.

Whether you’re looking to design a formal culture measurement program or just improve an existing one, here are some key guidelines to follow:

  • Map culture initiatives to KPIs.
    Solid baseline data is key if you are to effectively measure the ROI of culture initiatives. Define key performance indicators for culture and measure outcomes to determine if you’re generating the intended impact. If not, iterate leveraging data insights to build your culture program.

  • Start with existing KPIs.
    Design culture-enhancing initiatives to increase the results of core KPIs such as customer retention rate, employee turnover rate, employee engagement or customer satisfaction. It will provide a solid foundation upon which to build a measurement program.

  • Consider Employee Net Promoter Score to measure employee engagement.
    Using eNPS tools can help measure the impact of culture projects by slicing data based on specific elements of engagement. Adding in pulse-driven tools to accumulate larger pools of data can help to understand leading measures rather than waiting for annual results.

  • Track both employee and customer feedback.
    In order to measure the impact organizational culture has on bottom-line performance, make sure to track both employee and customer perspectives. Key metrics include customer satisfaction, customer referrals, customer acquisition, employee retention, employee recruitment and employee referrals.

  • Define KPIs for culture change initiatives.
    Culture change efforts can be costly in terms of both human and financial resources. Define metrics that are specific to the culture change investment to measure its effectiveness. Make sure the success metrics move beyond just employee engagement. Employees can be individually engaged (“satisfied”, “committed”) yet collectively ineffective.

  • Adapt culture KPIs to organizational goals. 
    Effective culture metrics are adaptive. Culture transformation meets a specific objective at a specific time. Its measures will differ widely from one organization to another and even within an organization from one growth phase to another.

With culture clearly a core differentiator for today’s businesses, it’s critical to keep score of what’s working and what’s not. In order to remain competitive, attract and retain talent and drive business growth, organizations need to measure what matters. And there is perhaps nothing that matters more than the health of your organization’s culture.

How does your company culture measure up? Take Grant Thornton’s culture benchmarking survey to determine your company’s current areas of strengths and weaknesses.  Designed to accommodate any given company’s unique profile, the benchmarking tool tests current performance against five key drivers that lead to healthier cultures including: workplace environment; direct investment in employees, diversity, sense of community and value systems.