BUILDING A CULTURE OF SUCCESS
Mr Van Doorne this week led a corporate culture group exercise in Bangkok. Dale Carnegie works in 89 countries with various cultures.
Will improving my company’s culture drive my stock price up? In the long term it probably will, says Preeyakorn Mimaphunt, Thailand managing director of Dale Carnegie, and Jean-Louis Van Doorne, Dale Carnegie’s New York-based senior vice-president.
Company culture affects workplace engagement, and workplace engagement affects financial performance, Mr Van Doorne says.
Culture is the “unconscious thoughts that drive employee decisions and behaviours each day and are used to solve internal and external challenges over time … It determines how employees see themselves as part of an organisation, how they make strategic decisions and how they approach problem solving,” he says.
There is no one culture that is right or wrong, as long as it stays within certain standards, Mr Van Doorne says. Dale Carnegie, a global human resources consulting firm focused on leadership and workplace engagement, works in 89 countries with many different cultures.
As long as it stays within certain standards, no one culture is right or wrong, Mr Van Doorne says.
Around the world the firm has worked with some of the largest organisations across all industries, including JP Morgan Chase, Citigroup, Unilever, Microsoft and Oracle. In Thailand, the company has helped public and private companies such as PTT, Chevron, Continental and Government Housing Bank, Mr Preeyakorn says.
With so much global experience, the senior vice-president is positive that successful company cultures can be created across national differences.
In order to change GH Bank’s bureaucratic culture, Dale Carnegie started by screening some of the most talented individuals in the organisation and guiding them to transform how the company operates. It is essential that the chief executive is involved in every part of the process, Mr Preeyakorn says.
Culture is a de facto component of any organisation, but is it cashed out in a company’s yearly statements?
Mr Preeyakorn and Mr Van Doorne say it is.
Asked whether their consulting work resulted in increased financial results, Mr Preeyakorn says a drinks company in Thailand experienced increased sales and employee engagement after Dale Carnegie’s intervention. (He declined to discuss details about the increase.)
The consulting firm recently conducted a survey of companies in India, Germany, Indonesia and the US, exploring this link. From their initial pool of companies, the organisation took the 21% that described their corporate culture as “excellent”. From this group the study selected a subset it termed “culture champions” — those that outperformed financial expectations, had low turnover and had high employee engagement scores relative to others in their industry.
Mr Preeyakorn says the chief executive must be involved in the process of a firm’s transformation.
According to their results, a larger percentage of culture champions believe that culture has a strong impact on financial metrics than other leaders surveyed do. For example, 92% of culture champions agreed that culture has a strong impact on financial performance, compared with 52% of other leaders.
That culture champions think culture has an impact on financial returns is not a surprise. In order to be considered a culture champion, a company first has to rate its culture as excellent, which suggests that culture is something these companies invest heavily in, presumably in the hopes of deriving a return.
But the questions remains: Do companies that emphasise company culture actually perform better?
James Heskett, professor emeritus of business logistics at Harvard Business School, argued in his 2012 book The Culture Cycle that culture can account for up to 50% of the differences in performance between companies in an industry.
Some larger-than-life industry leaders agree with Mr Heskett. Ken Iverson, who is credited with taking Nucor Steel from the verge of bankruptcy to its status as America’s largest steelmaker, said company success is 30% innovation and 70% culture, in a statement quoted by Mr Heskett.
Among other things, Nucor implemented a culture in which employees are motivated “through a combination of below market wages and the opportunity to triple those wages through productivity-based incentives”, Mr Heskett wrote.
Nucor had the highest return to shareholders in the S&P 500 between 2004 and 2009, according to Mr Heskett.
Most leaders agree that corporate culture is important. In Dale Carnegie’s survey, for example, 95% of “culture stars” said culture is a priority, only slightly above other company leaders, 94% of whom said it was a priority. But measuring the return on culture investment remains a singularly elusive enterprise.
Mr Heskett says the right way to measure the effect is through metrics like employee retention (low turnover rate), employee referrals, relation to customers and labour returns (productivity). These factors, he says, are a predictor of future success, and are key to the survival of the organisation.
Analyses explicitly linking employee engagement and company culture to financial returns, like the drinks engagement flagged by Mr Preeyakorn, are sparse.
Mr Heskett points to a study at Sears in the 1990s in which “an effort to raise employee engagement produced a 1.3 unit improvement in customer satisfaction … and a store-level revenue growth rate of .5% above the average of stores in a control group”.
But the effect on financials in this case was only visible after a year and a half, which could be disappointing for those looking at culture as a quick and grand solution to sour income statements.
Academic studies have done little to vindicate corporate culture hype, but some have suggested the correlation between clear and strong mission statements and valuations provides more dramatic evidence.
WeWork, for example, is known to place a strong emphasis on its mission and vision. Visitors to its website are greeted with the message that the company is not merely in the business of renting out office space, but also of providing space designed to create fresh ideas and organic networking.
WeWork’s mission statement, displayed prominently on its website’s top bar, is to “create a world where people work to make a life, not just make a living”.
WeWork has been called the most overvalued firm in the world, and this is not a coincidence. The company was valued at $20 billion (662 billion baht) per its last investment round, which computes to close to half a million dollars per customer, says Scott Galloway, a marketing professor at New York University’s Stern School of Business.
TechCrunch estimates the startup’s valuation is 46% above its market worth. Its closest competitors enjoy much more modest valuations. IWG Plc, a London-traded company operating under brands like Regus, is traded at a valuation of £2.33 billion with $1 billion in revenue. WeWork’s price-to-sales ratio is close to 20, more than 18 times Regus’s 1.16 ratio.
In contrast to WeWork, Regus dubs itself the world’s largest provider of flexible workspace solutions and one that “provides office space wherever [people] need it”. Its mission, hidden in small print in the middle of its annual report, is to “make business travel more productive for our customers”, a much less high-sounding proposition than that of its private rival WeWork.
According to Dale Carnegie’s study, 84% of culture champions and 66% of all other company leaders are “currently taking action to improve their corporate culture”.
Will they profit from their efforts? Research suggests that they will, but the process is long and less dramatic than they might expect. If done right, however, a fundamental change in corporate culture is a change that is built to last.