What is the Value of Your Culture?

November 2019

When evaluating financial performance and looking for ways to reduce costs or improve margins, some things a business leader might consider are increasing prices, investing in technology, improving processes to create efficiencies, vendor price negotiations, or reducing inventory levels. Yet, some of the greatest impact on value can come from improving the culture.

Merriam Webster dictionary defines CULTURE as the set of shared attitudes, values, goals, and practices that characterizes an institution or organization. Outside of being hard to define, it can also be intangible or unmeasurable to many leaders, and even more difficult to quantify its financial impact on an organization

In addition, many business leaders have a false sense of what their culture really is, believing the culture is great when that may be far from reality. Losing sight of culture can significantly impact the bottom line and overall value of an organization.

A couple of high-profile and costly examples include Wells Fargo employees creating millions of fake accounts to hit company goals and Volkswagen employees falsifying diesel emissions information on their vehicles. The financial impact to both organizations has been significant, costing them billions in fines and decreased value, while also having a long-term negative impact on their brands.

Even without a high-profile incident like mentioned above, culture can still have a very big impact on the profitability and value of an organization. Gallup found that 52% of American workers are not engaged in their work, while an additional 18 % are “actively disengaged.” Gallup estimates that active disengagement from a toxic boss costs the U.S. $450 billion to $550 billion per year.

In studies by Gallup and the Queens School of Business, disengaged workers and organizations with low employee engagement scores experienced:

• 37% higher absenteeism

• 49% more accidents

• 60% more errors and defects

• 18% lower productivity

• 16% lower profitability

• 37% lower job growth

• 65% lower share price over time

Other impacts of a poor company culture include – increased turnover, increased doctor visits and healthcare costs, decreased customer satisfaction, and risk for employee misconduct and lawsuits.

In a merger or acquisition, culture can prove to be even more critical. If it is made a priority, focusing on culture can have a huge impact on the success of the transaction. Even if a there are synergies in products, services, geographic areas, etc., company cultures are often much different between organizations and can create significant difficulties when it comes to integration. Is the acquiring company expecting their culture to be accepted in the newly acquired organization? Or, is a merger creating an entirely new company culture altogether? Often, with an overwhelming list of transaction due diligence items to get the deal done and a daunting integration list, the culture piece of a merger or acquisition often gets overlooked and can have a detrimental impact on the success of the integration.

How can you make culture a priority in your organization?

Identifying culture as a priority is the first step. You may even consider designating a culture leader (someone who “owns” culture within an organization) and culture champions (employees who are visible and can drive culture and behaviors within an organization).  A culture leader and culture champions are even more-so important in the integration process of a merger or acquisition. You’ll need to define what your company culture is, then communicate it and hire based on it.

Do you really know how strong your company culture is or isn’t? How can it be measured? There are many ways in which culture can be measured, including culture index tools, employee pulse surveys, one-on-one conversations, using and tracking an employee net promotor score (eNPS), tracking turn-over rates (by position, department, location), and tracking absenteeism.

It needs to remain top of mind with specific on-going initiatives focused on strengthening and then preserving culture in the organization. 

Some of the biggest impacts on culture include improving collaboration and communication. In addition, evaluating surveys, employee feedback and other results can provide an understanding of what your employees value and ideas on how to improve culture. Some easy to implement and low-cost ideas which can improve culture include – encouraging traditions, supporting volunteering, company meals, flexible schedules, award ceremonies, working from home, and office gyms.

The impact of making your company culture a priority is significant:  

• 26% less employee turnover

• 20% less absenteeism15% greater employee productivity

• 100% more unsolicited employment applications

• 30% greater customer satisfaction level Improved effectiveness of M&A integrations

Making culture a priority is becoming more and more crucial for organizations to retain employees and keep a competitive advantage. In this low unemployment marketplace, what are you doing to make your company a great place to work? The payback in increased value is significant!

Jackie Bartanen, CPA, CVA, MBA is a consultant at Journey Consulting, LLC, in Green Bay