Chapter 18

The Culture Index

TYPES OF ORGANIZATIONS WHERE THIS METRIC IS APPROPRIATE

Culture is important in any large organization of more than a few hundred employees. If your employer is a small company with 75 employees, the leaders probably know all the employees by name and assessing culture can be done by just talking with people. If your employer is an organization of thousands or tens of thousands, it is unlikely that leaders can get a good gut feeling for the culture by talking with a few people and observing behavior in the workplace. Measuring culture is also more important in an organization that has had some turnover in its leadership. This is particularly true when new leaders have been brought in from the outside.

I recall working with Discover Card in Chicago for several years. Discover’s president and most of is leaders were formerly with Sears, before Sears spun off Discover as a separate company and sold it to Morgan Stanley. Many of the old Sears values still permeated Discover Card, and it was a culture characterized by hard work, honesty, and loyalty. Most people had that strong Midwest work ethic, even at Discover facilities in Delaware, Utah, and Arizona. When parent company Morgan Stanley decided it was time for a new leadership team it brought in an executive from the old MBNA, which at the time was one of the most successful credit card companies in the United States. It later got bought out by Bank of America, and executives probably saw the writing on the wall and decided to leave while they still had the chance. The new president of Discover Card was very different from Tom, the retiring one. First of all, he was really young, as well as aggressive and innovative. He brought in a few of his cronies from MBNA, and pretty soon the culture of Discover Card started changing to be more like that of what used to be MBNA. Not all of this was bad, but it was viewed as such by many of the older employees. In fact, some of the new values were clearer and easier to see than the old ones.

The new executive team brought in a team of consultants who crafted a new set of values that spelled D-I-S-C-O-V-E-R:

Doing the Right Thing

• Displaying integrity and performing to the highest ethical and business standards.
• Being accountable for your own actions and results; acknowledging and learning from mistakes.
• Encouraging the personal growth of others.

Innovation

• Finding ways to be first to market.
• Promoting continuous improvement.
• Encouraging prudent risk taking and having tolerance for honest mistakes.
• Recognizing and rewarding truly inventive initiative and risk taking.

Simplicity

• Providing clear and direct messages.
• Working to streamline workflow.
• Making efficient use of resources and time.

Collaboration

• Promoting cooperative efforts with others and being a team player.
• Working toward the most effective, mutually satisfactory solution.
• Developing positive, professional partnerships with colleagues and customers.

Openness

• Communicating openly and honestly with others; fostering an environment of trust.
• Providing and accepting ideas and feedback.
• Listening to, understanding, and appreciating others’ viewpoints.

Volunteerism

• Recognizing and supporting the needs of our communities.
• Committing time and energy to the company’s volunteer activities.
• Assisting and supporting team members and customers in achieving company, team, and individual goals.

Enthusiasm

• Exhibiting a clear understanding and commitment to the company’s vision, mission, values, and business strategies.
• Displaying a high energy level and going the extra mile.
• Fostering a creative and fun environment that recognizes and celebrates achievements.

Respect

• Encouraging and valuing the opinions of team members and customers.
• Honoring and respecting diversity of people, their ideas, and their work styles.
• Promoting and demonstrating a balance between work and home life.

If your company is going through a change in leadership it is vitally important to measure your culture. Regardless of whether you want to keep things the same or if you want to change the culture and get rid of some of the old values, it is important to measure and manage this effort. If the founders still run your company, and the values are so ingrained in the way the organization functions, you probably don’t need to bother with this metric unless you are planning a big growth spurt. Whether growth is organic or coming from acquisitions, you probably want to make sure that the culture stays the same, so it needs to be measured. What is ironic is that almost all organizations talk about the importance of their culture as a key to their success, yet almost none of these same organizations measure or manage this dimension of performance. Where I do see measures, they are worthless. In this chapter you will learn about some useful measures to include in a culture index.

HOW DOES THIS IMPACT PERFORMANCE?

The most direct influence of culture is on employee satisfaction and engagement. I recall seeing how the changing culture of a client of mine that used to be on the Fortune list of the 100 Best Companies to Work For impacted employee morale. People used to love working at this company and were fanatically devoted to its success until the CEO left to teach at Harvard Business School and the new management team installed a new culture focused on cost control, process improvement, and outsourcing of noncore functions. Not only did employee satisfaction and engagement deteriorate but so did growth, profits, new products, and stock price. To suggest that culture has an impact on all measures of a company’s success would not be much of a stretch. Even relationships with suppliers and vendors are impacted by an organization’s culture. Back in the 1970s and 1980s, the culture of the Big Three automakers was to bully their suppliers and ask them for as many perks as they could get away with. This impacted the culture of their suppliers, who lost some self-respect by always backing down and giving in to demands for price cuts, jobs for kids, Super Bowl tickets, and other less savory requests.

PETS BEFORE PROFITS: PURINA’S CORPORATE CULTURE

One of the best-run companies I’ve ever worked with is Purina, part of food giant Nestlé. Its culture revolves around the idea that pets are always more important than profits. This value made decision making easy in a time when there have been several pet food scares due to tainted raw materials.

A few years ago when a number of dogs and cats died from bad pet food, Purina pulled all of its products from all retail shelves just to be sure; it later found out that almost none of its pet food was bad. The move cost the company millions, but company president Terry Block wanted to make sure no dog or cat died because the company was worried about losing money. This decision communicated the value loud and clear to all employees and customers.

Another value that characterizes Purina is innovation. About a third of its sales every year come from new or enhanced products, which would seem to be a tough challenge in the pet food business. Purina is also known for its positive work/life balance, with 97 percent employee satisfaction (the best companies in America typically get 80 percent satisfaction, and average companies get 50 percent). In 2010 Purina was awarded the coveted Malcolm Baldrige National Quality Award, while also being awarded best place to work in St. Louis, and best company in America for work/life balance. And, by the way, Purina also has the best financial and market share results of any company in its industry.

Many of the metrics proposed in this book are important for some organizations but not for others. Culture, on the other hand, is something that all large organizations need to measure and manage because of how important it is for success.

COST AND EFFORT TO MEASURE

Depending on how sophisticated your approach to gathering culture data is, this metric is probably going to require at least a medium amount of time and cost to measure. Most of the data that does exist on culture tends to be pretty useless, so new metrics will have to created, along with data collection plans. Where the cost goes from medium to high is when an organization needs to rewrite its values as a first step in measuring compliance with them. Discover Financial Services spent about a year working with consultants from Senn Delaney to craft the set of values you read about earlier and communicate them to employees. Of course, you can do this on your own without lots of consultants, but it still will take time, and sometimes you need an outside viewpoint to get an honest assessment of your existing culture and values before deciding on what you want them to become. When you consider the importance of measures of culture to your overall success, the payoff is worth the investment if you can get an accurate read from reviewing the data on a regular basis, allowing you to manage the culture.

HOW DO I MEASURE IT?

Before you can measure your culture and values, you need to make sure people understand them. Most company values I see are a generic list of vague words or phrases that no one would object to but no one understands either. Some of the values I see on brass plaques and wallet cards are:

• Leadership
• Perseverance
• Trust
• Integrity
• Teamwork
• Customer focus
• Risk taking
• Diversity
• Communication
• Growth
• Competence
• Excellence

I am guessing that a few of yours are listed here if you are like most companies and put almost no thought into defining your values and culture. The first step in measuring your culture is to make sure that people understand what your values are, which means that they can easily recognize behavior and decisions that are inconsistent or consistent with those values. Some examples of some innovative and clear values of companies are:

• Democracy—Namaste Solar
• Fitness—TRX
• Training—Hopkins Printing
• Weirdness—Zappos

Toms Shoes is another company with a clear and unique culture which it calls “one for one.” For every pair of shoes sold, Toms donates a pair of shoes to a needy child. One of the unusual ones that Discover has on its list of values is volunteerism. Giving back to the community by volunteering time and money is a big part of the culture at Discover, and this value is not only unusual, it is easy to see in behavior and resource allocation. Beginning with a clear and well-thought-out set of values that define the culture you aspire to become is the first step.

If you have a set of values like the generic words and phrases I have listed previously, but your people like them, then you need to begin by defining example behaviors that show those values and examples that show the opposite. For example, consider the Discover value of respect. Some behaviors that demonstrate respect are waiting your turn to talk in meetings and showing up on time, whereas showing up to meetings late and interrupting others are disrespectful behaviors. Early on in its culture change initiative, people at Discover started fining one another a dollar when they observed a behavior inconsistent with the values. Show up to a meeting late, put a dollar in the coffee can. Interrupt someone, put another dollar in. The dollars not only served as a good reminder to follow the values, but counting them gave the company a measure of the degree to which behavior in the workplace was consistent with the values. Of course, sometimes it would backfire and people would come into meetings announcing that they were putting $10 in the kitty because they planned on violating all the values during the meeting.

Assuming you have a clear and well-communicated set of values, you can now begin constructing a culture index. As with most complex dimensions of performance, it is impossible to measure your culture with a couple of metrics. Rather, you need to construct an index, like your FICO score, that allows leaders to look at a single gauge to measure culture and drill into details if the gauge shows yellow or red performance.

The key dimensions in a culture index are:

• Knowledge. Do people know what your values are and can they recognize when your behavior and decision making is consistent with those values? This is best measured via a test that could be anonymous. You are not measuring individual employees, only how well the values have been communicated. I prefer measuring knowledge versus process measures such as training or orientation sessions conducted, because people could attend these sessions and not remember a thing. The knowledge that should be tested is not memorization of the values but whether employees can identify behaviors and actions that are consistent or inconsistent with the values.
• Perceptions. These are opinions about the real values and culture of the company, collected via anonymous surveys or focus groups held off-site and facilitated by outsiders. Questions should focus on identifying what the real values and priorities are versus what is stated. For example, a lot of companies talk about diversity, but tend to hire people who look and think like them and who graduated from the same six universities where they always recruit. Perceptions can be measured with a survey or with focus groups, and a sample of the workforce can be surveyed monthly or quarterly.
• Behavior. This refers to incidents of good and bad actions and employee behavior related to the values. For example, if health and fitness is one of your values, you might measure the number of employees who get an annual physical or work out in the company gym. If one of your values is work/life balance, you might measure how many employees work while they are on vacation. If your value is accountability, you might track how many employees are disciplined or fired for poor performance. Some companies, like Purina, recognize employees with on-the-spot rewards when behavior is observed that demonstrates their values. Counting the number of people recognized could also be a behavior measure. Or the opposite: Discover Financial Services counted dollars in the coffee cans to measure bad behaviors.
• Decisions and resource allocations. The real values of an organization are often best understood by looking at how they make decisions and commit resources. The Purina example of taking all their pet food off retail shelves before finding out their food was not tainted is a perfect example. Discover might look at how employees are given time and other resources for volunteerism. One company I read about expects all employees to spend eight hours a month on community service. It gives them four hours off from work with pay and expects them to donate the other four hours. Measuring decisions and resource allocation might involve a quarterly or monthly documentation of major decisions that have been made and resource allocations, and coding them as neutral, for the values, or against them.

Each of these four dimensions is assigned a percentage weight based on its relative importance and the integrity of the data in each category. It is also important to measure culture at least once a quarter; monthly would be preferred. An annual metric on any aspect of performance is mostly useless, because things can go south in a lot faster than a year.

VARIATIONS

According to research done by a company called Critical Metrics in the spring of 2012, the vast majority of companies that have any measure of corporate culture do nothing more than a survey of perceptions. The lure of this is that it is cheap and easy. There are many downsides to using this as your only measure, however. First, many employees will probably not complete the survey because they are already oversurveyed and they have lots of work to do. Second, employees who do fill out the survey may not be honest, especially if it is done electronically and there is no way to ensure anonymity. People may tell you a politically correct answer for fear of being labeled as someone who is not a team player. The other problem with relying on a culture survey is that surveys can only be done every so often (usually once a year), making it impossible to manage a measurement that only occurs once a year.

A variation that one of my clients uses is a one-question survey done monthly on one-twelfth of the population that asks on a 1–10 scale the degree to which the company operates according to its stated values. Along with the survey, they also do random anonymous knowledge tests of a sample of employees once a month and count the number of employees recognized for behavior consistent with the values. These three measures track perceptions, knowledge, and behavior, and the amount of effort needed to collect the data is minimal.

FORMULA AND FREQUENCY

As with most of the indices described in this book, the formula outlined here should be viewed as a generic straw man that needs to be customized and tailored to fit your own organization:

TARGETS AND BENCHMARKS

As with most of the metrics in this book, your own targets would need to be set in relation to your baseline and other comparative data you might gather from others. However, if less than 80 percent of your employees don’t understand the values and less than 80 percent don’t perceive that the company really operates according to its stated values, I consider that the red range. If between 80 and 90 percent understand the values and related behaviors, I would code that as yellow or still needs work, and green should probably be 90 percent or better. The same sorts of ranges would apply when setting targets for the perception data. If less than 90 percent of your workforce thinks the values are not really followed, that is a big problem. When setting targets for the submetric that relates to decisions by senior management and commitment of resources, the red, yellow, and green targets should be in the same ranges.

BENEFITS OF DATA

The biggest benefit of this data on culture is that you can actually manage it. Very few organizations measure and manage their culture, and yet they all say it is vitally important. By tracking culture using the three types of measures I have mentioned, you can implement the right countermeasure to improve it. If most people don’t understand the values, then a good training program should solve that problem. If, on the other hand, everyone understands the values but thinks the organization does not really follow them, then that is a much bigger problem. Changing perceptions takes time and cannot be done with a training program. The fastest way to change perceptions is to have the leaders start making decisions and committing resources in such a way as to communicate the values.

Take Discover Financial Service’s value of volunteerism, for example. If all the leaders suddenly started volunteering more of their time, encouraging their direct reports to do so, and committed more company resources to charity and community groups, perceptions would probably start to change regarding the degree to which the company really believes in volunteerism. Another benefit of measuring your culture is that it will reveal programs and efforts that may be a waste of time. One client was appalled that no one remembered the organization’s values, so he posted them in front of all urinals and on the back of all bathroom stall doors. Several months later, people still couldn’t recall them even though many looked at them seven or eight times a day. Organizations often embark on culture change initiatives without any way to measure their success or failure. This metric will help you fine-tune your efforts and zero in on approaches that really work.

NOTE

1. William Joyce, Nitin Nohria, and Bruce Roberson, What Really Works: The 4 + 2 Formula for Sustained Business Success (New York: HarperBusiness, 2003).