Author: Joshua Seedman
Executive Summary
Exhibit 1 (Click to Enlarge)
Exhibit 2 (Click to Enlarge)
The word “culture” connotes many different meanings for those in the corporate world. However, too often it is simply a misunderstood buzzword that companies easily throw around in boilerplate speeches while concurrently failing to truly address culture head-on. Such a mindset is generally perpetuated because many enterprises fail to recognize "culture" as a significant revenue and profit generating platform (See Exhibits 1, 2, 3, and 4). Such a mindset not only stifles employee engagement but also destroys top and bottom line growth. Culture transformations are not simply a feel-good, kumbaya moment that inspires employees while concurrently draining a company’s resources. Instead, organizational health and an accompanying world-class culture drives employee engagement, inspiration, and an ownership mindset, which is the catalyst for creating significant customer loyalty, product innovation, agility, and profitable growth (See Exhibit 2). Indeed, this article advocates that culture is perhaps the greatest yet most ignored profit generating engine. Accordingly, winners will be those that appeal as much, if not more, to employees' hearts than minds. While shareholders and leaders are rightfully concerned about meeting top and bottom line numbers, employees on the other hand are instead generally motivated and inspired via an authentic purpose that can only be accomplished via a distinctive culture.
Exhibit 3 (Click to Enlarge)
Exhibit 4 (Click to Enlarge)
Ultimately, many companies experience what this article terms as a "culture paradox" (See Exhibit 3). Specifically, many successful enterprises begin with an inspired culture but over time that inspired culture creates growth, that growth creates complexity, that complexity destroys a once inspired culture, and a poor culture destroys any growth. Consequently, culture is perhaps the greatest growth generating engine because the success of an organization's brand, products, employee engagement, customer loyalty, and ultimately profitable growth are all by-products of a company's culture or lack thereof. Thus, in the ever-changing corporate landscape, the days of being successful on merely a differentiated product are over. A sub-par, let alone toxic culture, permeates every facet of one’s business.
“If you want raving shareholders and customers you first need raving employees; and if you want raving employees you first need a world-class culture.”
According to both Gallup and Qualtrics, only 30% of employees are engaged in their work, illustrating a glaring, cultural root problem (See Exhibit 8). Furthermore, for every $1 invested in improving culture and employee engagement an up to ~$4 ROI is witnessed (See Exhibit 9). Thus, investing in one's culture should be a simple investment decision. However, many companies forget that innovation, world-class customer service, and profitable growth begins and ends with its employees. Taking it one step further, culture is the starting point for creating those inspired employees. Thus, if you want raving shareholders and customers you first need raving employees; and if you want raving employees you first need a world-class culture. Accordingly, this article covers three core topics to address this highly transformative topic, specifically: (1) "why" culture is vital, (2) “what” is needed to drive sustainable culture change, and (3) “how” cultural transformations can be implemented to unlock significant top and bottom line growth.
Introduction
Why Culture is Vital to Growth or the Lack Thereof
“Oftentimes a company’s culture and mission are simply collecting dust in an employee’s office. Without psychological ownership these words never drive change, employee engagement, or growth. ”
Most of the areas holding back a company’s growth stem from internal obstacles rather than external market or competitive forces. Indeed, Bain & Company found that 85% of the root causes for failure to maintain profitable growth are now internal to a company. In addition, McKinsey & Company found that culture is one of the most significant barriers to effectiveness and a major reason why transformations fail (See Exhibit 5). Many companies have a written culture but most would be hard pressed to tell you what that culture is let alone confidently say their organization lives and practices by it. So often, a company’s culture and mission are simply collecting dust in employees' offices with little idea as to what those words actually say. In addition, most written cultures, mission statements, and values are so disconnected from what’s actually happening on the ground that a majority of employees (let alone leaders) would likely be unable to wholeheartedly say that those nice words belonged to their organization. Simply, the culture is merely lofty words on paper. Without psychological ownership these words never drive change, employee engagement, or growth. Thus, any growth transformation will stop in the executive room and never successfully work its way down to the company's employees let alone its customers.
“Highly engaged organizations with a purpose driven culture have double the rate of success of lower engaged organizations. With only 30% of employees engaged in their work and an up to 4X ROI on improving culture and engagement, the investment decision is simple.”
Our research and client engagements illustrate that improving culture and employee engagement is highly correlated to improving profitable growth. In its most striking form, each dollar invested in improving culture and employee engagement can reap up to a 4X ROI (See Exhibit 9). In addition, and according to Gallup, highly engaged organizations have double the rate of success of lower engaged organizations while also enjoying significant improvements in profitable growth. On the flip side of this, and according to another Gallup study, almost 70% of employees are either destroying or not creating any value day in and day out, leaving only 30% of employees truly engaged in their work (See Exhibits 8 and 9). With an up to 4X ROI the decision to invest in raising employee engagement and driving culture excellence is simple.
Exhibit 5 (Click to Enlarge)
To ensure top-down alignment and sustainable change across the enterprise, companies must take the same vigorous approach to its change management, organizational development, and culture optimizations as it does with its sales, strategy, finance, and operations. Simply, a company must:
IDENTIFY: Diagnose a company's culture via cross-functional focus groups. Specifically, what is transpiring across every facet of the enterprise (from the bottoms-up, not top-down).
CREATE: Produce a customized action plan and culture with the collective agreement of the entire organization. Everyone’s voice should be heard in creating a culture of inspiration and engagement. This will ensure ownership and not simply empty words on paper.
IMPLEMENT: Lead an "always on" rigorous change management implementation process to ensure firm-wide adoption rate and sustainability. Simply, ensure that those agreed to “words on paper” are always brought to life via enterprise psychological ownership rather than a mere statement that collects dust in an employee’s desk.
The Culture Paradox™
“A culture can either be highly value creative or destructive. Simply, a great culture creates growth, growth creates complexity, complexity destroys a once inspired culture, and a poor culture destroys growth. ”
Exhibit 6 (Click to Enlarge)
Many companies experience what this article calls a “culture paradox” (See Exhibit 6). Simply, a great culture creates growth, growth creates complexity, complexity destroys that culture, and a poor culture destroys growth. Ultimately, a culture is a not a by-product of a company’s strategy, brand, or products. Instead, quite the opposite is true. The success of a company’s brand, including its product(s) and/or services, customer loyalty, and profitable growth are all byproducts of a company’s culture or lack thereof. The culture paradox can be best summarized across the following five core areas (see below).
“A culture is a not a by-product of a company’s strategy, brand, or products. Instead, success, including product innovation, customer loyalty, and profitable growth are all byproducts of a company’s culture or lack thereof. ”
Culture Is the Foundation to Growth: Growth begins with a defined culture - one that is frontline obsessed, customer centric, cross-functionally aligned, and purpose driven. Simply, the first step to innovative products, customer advocates, and profitable growth is to instill a purpose driven culture. This creates employee advocates that will in turn create “wow” moments for customers because the company first created those “wow” moments for its employees.
World-Class Culture Creates Growth: Over time, a world-class culture breeds profitable growth because employee engagement (i.e., inspired employee advocates) is highly correlated to customer loyalty, innovative products, and thus profits. Simply, for every $1 invested in improving employee engagement an up to $4 ROI can be witnessed with customer engagement (See Exhibit 9). For example, founder led startups often begin with an inspired culture that serves as a gateway to profound growth.
Growth Creates Complexity: As companies grow, complexity slowly creeps in which begins destroying that growth. This is a byproduct of loosing focus on maintaining a purpose driven, “bottoms-up” employee focused culture. Simply, most of the areas holding back a company’s growth stem from internal obstacles (i.e., complexity), rather than external market or competitive forces. As noted, up to 85% of the root causes for failure to maintain profitable growth are now internal to a company and its associated complexity.
Complexity Destroys Culture: Complexity destroys enterprise focus and alignment, which ultimately drives silos, internal stress, micromanagement, disgruntlement instead of engagement, and processes for the sake of processes. Such an atmosphere destroys trust, autonomy, empowerment, innovation, and inspiration (i.e., culture). In large part this complexity transpires because (1) trust has been replaced with micromanaging, a lack of empowerment, and poor autonomy (i.e., leadership manages activities instead of outcomes), (2) agile decision-making has been replaced with levels of bureaucracy and red tape, and (3) cross-functional collaboration and an enterprise customer centric mindset have been replaced with value destructive silos.
A Poor Culture Destroys Growth: This ever-growing complexity rapidly erodes a once inspired culture and without an inspired culture any growth will be short-lived. At this stage, oftentimes only an aspirational written culture still exists that attempts to define a company’s purpose and mission but to little avail. Simply, employee engagement and inspiration are often simply words on paper. Without psychological ownership these words will never drive anything except value destruction and a false sense of organizational security. Culture is at best empty words collecting dust in an employee's office - a far cry from the once inspired and lived culture the company initially enjoyed in its growth stage.
The "culture paradox" is certainly a slippery slope and a domino effect of value destructive pitfalls. However, winners will be those that successfully combine the inspired culture, passion, innovation, agility, frontline obsession, and employee engagement of a startup with the scale, muscle, and processes of a F100 enterprise. Ultimately, companies should never think that “culture” is simply a buzzword with little financial correlation. As illustrated by the "culture paradox," organizations must prioritize culture because this is where either sustainable growth or value destruction begins.
Enterprise Benefits from Distinctive Culture Transformations
Exhibit 7 (Click to Enlarge)
Companies that prioritize culture and organizational health transformations can avoid the culture paradox and unlock significant value. Simply, culture transformations are not simply a feel-good, kumbaya moment that inspires employees while concurrently draining a company’s resources. Instead, organizational health and an accompanying world-class culture drives profitable growth. Specifically, there are eight core areas to any culture transformation that will impact either the top or bottom line (See Exhibit 7). These include:
1. Engaged Leadership
2. Defined Culture
3. Work Environment
4. Employee Turnover
5. Employee Engagement
6. Ownership & Passion
7. Customer Engagement
8. Customer Loyalty
1. Engaged Leadership: Poor decision-making from a lack of enterprise focus and alignment is often the number one value destroyer. Organizational health begins with looking from the bottoms-up while ensuring change is being initiated from the top-down. Employees need engaged leaders that practice what they preach. The right culture and leadership mindset drives alignment across actions and behaviors, which ultimately is the foundation of any lasting, value unlocking cultural shift.
“A world-class culture begins with looking from the bottoms-up while ensuring change is being initiated from the top-down.”
2. Sustainable, Defined Culture: Volatility is the new normal. Thus, an effective culture transformation drives focus, purpose, and sustainability (i.e., a culture that stands the test of time and disruption). While culture forms the backbone of any organization without an embedded psychological ownership these words fail to drive any sustainable benefit. According to McKinsey & Company's survey of over 2,000 respondents, culture is the most significant barrier to effectiveness, in large part because the culture lacked the sustainability to stand the test of time and volatility (See Exhibit 5).
3. Work Environment: How an employee feels about their work environment is equally as important as the actions that follow. An empowered, employee first environment stemming from an "inside-out | bottoms-up" culture model ensures (1) increased revenue stemming from greater productivity, inspiration, and innovation and (2) lower costs stemming from decreased turnover and training costs.
4. Employee Turnover: Employee turnover can significantly bloat costs and drain an organization of its talent. By improving culture, turnover decreases. As turnover decreases profits increase as a byproduct of fewer onboarding costs. Finally, revenue increases as a byproduct of improved productivity which equates to greater revenue and profit per employee.
Exhibit 8 (Click to Enlarge)
Exhibit 9 (Click to Enlarge)
5. Employee Engagement: Employee engagement is highly correlated to customer loyalty, which in turn is highly correlated to revenue and profits. Thus, the mentality “I bring my best to work every day” is a must for engagement, productivity, enterprise effectiveness, customer loyalty, and innovation. This requires an internal investment but will be rewarded with employee loyalty and improved performance. For every $1 invested in employee engagement an up to $4 ROI is seen with customers. With only 30% of employees engaged in their work the investment decision is simple (See Exhibits 8 and 9).
6. Ownership & Passion: Employees can either have an “employee” or “owner” mindset. An "employee" mindset produces a begrudging mentality that drains financial performance while an “owner” mentality produces engaged advocates for the organization that not only meet but also exceed enterprise and customer expectations. Such a mindset shift improves employee productivity (i.e., greater revenue for FTE) and increases customer lifetime value.
“Employees can either have an “employee” or “owner” mindset. An “employee” mindset produces a begrudging mentality which drains financial performance while an “owner” mentality produces engaged advocates that not only meet but also exceed customer expectations.”
7. Customer Engagement: Customer engagement is where an enterprise customer-centric mindset, distinctive employee engagement, and a pain point free customer journey collide. Without this engagement, customer lifetime value declines, acquisition costs increase, and growth stagnates, producing internal and external pain points. Simply, customer engagement begins with employee engagement and employee engagement begins with an inspired, purpose driven culture.
8. Customer Loyalty: Top quartile customer loyalty, stemming from culture excellence, improves net promoter scores (NPS) and creates customer brand builders. This equates to decreased customer acquisition costs, improved recommendations, decreased marketing costs stemming from organic brand influencers, enhanced brand perception, and increased revenue.
In essence, nothing is more crucial to sustainable profits, a successful brand, and long-term viability as organizational health and a world-class culture. By tackling culture head-on, the aforementioned eight benefits can ensure internal health issues are no longer holding back growth. Instead, when all of these elements are successfully working in unison, profound top and bottom line benefits are unlocked across the entire organization.
What to Do
- Shift Your Thinking via Inside-Out | Bottoms-Up -
With both the pain points and benefits from culture transformations apparent, often, the big question in leader’s minds is “how do we think about creating a world-class culture?” The simple question is that it requires a permanent shift in thinking. This article advocates that the first step to taking on a new mindset and to creating a world-class culture consists of leveraging an “inside-out | bottoms-up™” model (See Exhibits 10 and 11).
Exhibit 10 (Click to Enlarge)
To begin the culture transformation journey, companies should take an “inside-out, bottoms-up” approach. Simply, "internal" instead of "external" forces (i.e., inside-out) coupled with employee engagement (from the bottoms-up) are the first priority to creating a distinctive culture. Indeed, a core underlying problem contributing to cultural problems stems from employees and consequently customers taking a back seat to the company’s brand, product, and financial results. Because most of the areas holding back a company’s growth stem from internal obstacles, rather than external market or competitive forces, the proposed “inside-out | bottoms-up” model advocates that an employee first mindset (i.e., inside-out) serves as a gateway to product innovation, service excellence, and ultimately sustainable growth. More specifically, regarding the “inside-out” element, a company must look internally at driving a culture that creates raving employee advocates before it can expect to create raving customer advocates or innovative products (See Exhibit 10).
Exhibit 11 (Click to Enlarge)
In addition, the “bottoms-up” element indicates a renewed focus on the frontline as the heart, soul, and pulse keepers of the organization takes place at this stage (See Exhibit 11). For example, typically, the least paid staff are the ones that have the most touch points with the customer. However, these very employees are traditionally the least empowered and thus engaged because a tops-down instead of bottoms-up approach is taken, equating to significant value destruction stemming from both employee and customer pain points. The underlying issue begins with leadership, which snowballs downward into siloed groups that lack empowerment, resources, and focused alignment.
The premise for this inside-out | bottoms-up™ model rests on the following: while excessive rules may work for compliance, choice is a far better option for bringing the best out of one's company and employees. Simply, choice is the fuel for an ownership mindset/engaged employee, ownership is the fuel for learning, learning is the fuel for innovation, innovation is the fuel for both distinctive products and world-class customer experience, and distinctive products and customer experience is the fuel for profitable growth. Without an employee first mindset a domino of value destructive undercurrents start overtaking an organization, including (1) poor employee engagement, (2) high employee turnover, (3) low employee productivity, (4) stifled creativity and poor innovation, (5) poor customer service, (6) low customer loyalty, (7) slow decision-making, (8) internal competition stemming from silos, and (9) stagnant profitable growth. By shifting to an inside-out | bottoms-up mindset companies can transition to a culture first decision-making model.
How to Implement a Culture Transformation
6-Step Framework for Creating a Distinctive Culture
Exhibit 12 (Click to Enlarge)
Once an "inside-out | bottoms-up" mindset is taken, companies can follow a simple six-step framework in creating and implementing a sustainable, value unlocking culture (See Exhibit 12). To summarize, these six steps include the following: (1) ensure psychological ownership, (2) reward transparency, (3) align and bring focus, (4) usher in choice and learning, (5) empower, and (6) create engagement.
Step #1. Ensure Psychological Ownership: As noted, many companies have a written culture but most would be hard pressed to tell you what that culture is. Simply, they are merely lofty words on paper. Without psychological ownership these words never drive change, employee empowerment, or employee engagement. Thus, the first step in culture transformation is to create a customized culture with the collective agreement of the entire organization. Simply, ensure the voice of the employees – from the bottom-up – is involved via initiatives such as focus groups, town hall meetings, and employee engagement tracking (e.g., eNPS surveys). The key point is to ensure holistic and collective data points, engagement, and decision-making across the enterprise. Only then will a newly written culture be lived and breathed by the entire enterprise because psychological ownership transpired from collective decision-making.
“A company that promotes a culture of “yes people” will give way to groupthink, which is the destroyer of innovation, employee engagement, and profitable growth. ”
Step #2. Reward Transparency: The right culture puts employees first while ensuring the company rewards – not punishes – its employees for transparency in an effort to solve the company’s most pressing problems. Otherwise, a company promotes a culture of “yes people” which gives way to groupthink and is the destroyer of innovation, employee engagement, and profitable growth. Instead, promote a culture where there is an obligation to respectfully dissent. Indeed, there is a high correlation between the level of employee involvement in key decision-making initiatives and the successful adoption of those initiatives. Accordingly, success at this stage is rooted in transitioning employees from an “employee” mindset, to a “partner” mindset, and ultimately to an “ownership” mindset. Thus, companies must ensure the frontline on up has a seat at the table; otherwise, the pulse and ultimately voice of the customer is lost, not to mention employee buy-in and ownership.
“Without organizational wide focus and alignment, both of which stems from the right culture, a firm will never gain the momentum it needs for sustainable growth.”
Step #3. Align and Bring Focus: Leaders must ensure organizational wide focus and alignment. Simply, to have sound decision-making a company must know where it wants to go (i.e., what is its aspirational goal). Otherwise, it’s analogous to getting in a car and saying we’re going to drive around; great – but where are we going? Without focus and alignment any company will waste significant time going around in circles. Instead, leaders must focus on getting “everyone on the bus” via alignment, laser focus, cross-functional collaboration, and empowerment. For example, and as illustrated by a simple visual analogy, most organizations are divided into four large groups, specifically (1) upper management, (2) middle management, (3) first line managers, and (4) frontline employees (See Exhibit 13). The goal is of course to have everyone on the bus. However, the common scenario is that (1) upper managers are speeding ahead in their fancy race cars with little regard for those who are trying to keep up, (2) middle managers are frantically trying to keep pace in their dilapidated Model T cars, (3) first line managers are struggling to keep up in their old bicycles, and (4) the frontline is desperately trying to run/walk to keep pace with not only the bicycles in front but also the upper managers leading the way in their fancy race cars (See Exhibit 13).
Exhibit 13 (Click to Enlarge)
In this scenario, only the leaders have access to a modern vehicle with a GPS system, allowing them to arrive at the company’s desired destination most expediently. However, because the leaders have not made it clear where they are headed everyone under them (middle managers on down) is reliant on trying to feverishly keep up with the leader’s race car (i.e., the only one with a GPS system). In a best case situation, perhaps the middle and first line managers can follow for a quarter to one mile but within a few hundred feet the frontline will be lost. Give it another 1-2 miles and everyone will be aimlessly lost, going their own way. Simply, the company is now full of misaligned, siloed units, each aimlessly trying to find their way. This problem stems from two core issues. Firstly, leaders did not provide their employees with alignment or focus on where the company was headed (i.e., only the leaders knew where the company was headed). Secondly, employees (middle managers on down) were not given the proper resources to take them where they needed to go because leadership was hoarding all the resources for driving positive change. Simply, decision-making was not pushed down to the frontline and employees did not have the empowerment, autonomy, bias for action, or focused alignment to do what was best for the organization and its customers. This becomes more and more prevalent the further down one goes in an organization - equating to the poorest employee engagement with those who spend the most time with the customers (i.e., the frontline). This creates (1) many employee and customer pain points, (2) a toxic company culture, (3) unnecessary processes and micromanagement, (4) countless silos, and (5) tremendous energy and financial leakage.
“While excessive rules may work for compliance, empowerment and choice build engagement, which is the foundation to any successful culture.”
Step #4. Usher in Choice and Learning: While excessive rules may work for compliance, choice is a far better option. Simply, choice is the fuel for an ownership mindset/engaged employee, ownership is the fuel for learning, learning is the fuel for innovation, innovation is the fuel for both distinctive products and world-class customer experience, and distinctive products and customer experience is the fuel for profitable growth. Thus, empowerment, choice, and the authority to take action build engagement – the foundation of any strong culture. For example, Google allows its engineers to spend 20% of their time working on anything they'd like. Google understands the power of employee autonomy, empowerment, and choice. Consequently, in a given year, typically 50% of Google’s new products are created from this 20%. This includes the ever popular Gmail, Orkut, and Google News.
“The heartbeat of any company is the customer and the employee (front-line on up) is the physician who is right there on a daily basis measuring the patient’s (i.e., customer’s) pulse. If companies don’t empower and listen to the frontline it’s analogous to a patient being put in front of a doctor without the necessary tools for the required surgical procedure.”
Step #5. Empower from the “Bottom-Up” – Not “Top-Down:” Engaged employees must be cultivated through an enlightened culture and supported by inspiring leadership. To accomplish this, an organization must take a renewed focus on the frontline as the heart, soul, and pulse keepers of the organization takes place at this stage. Typically, the least paid staff are the ones that have the most touch points with the customer. However, these very employees are traditionally the least empowered, equating to value destruction stemming from both employee and customer pain points. For example, the employee/front-line is the physician who is right there on a daily basis measuring the patient’s (i.e., customer’s) pulse. If companies don’t empower and listen to the frontline it’s analogous to a patient being put in front of a doctor without the necessary tools for the required surgical procedure. The challenge being that the physician has not been given the power to act or tools to perform his or her work. For example, imagine a physician always needing to ask for management approval during life and death situations. The same is true with the frontline on up. The physician (i.e., employee) may be able to have a nice conversation with the patient (i.e., customer) but if the physician (i.e., employee) is not empowered with the tools, resources, and empowerment to act on the spot the patient either (1) dies (i.e., customer lost forever), (2) goes to a competitor (lifetime value shrinks), and/or (3) drives bad publicity (i.e., bad social proof and high legal fees occur).
“Want to create ownership and inspired employees? Give them a generous dollar amount they can spend on any one customer without seeking management approval. This produces an “ownership” instead of an “employee” mindset with the empowerment to act in real-time on the customer’s behalf.”
For example, I often recommend designating anywhere from $200 to $10,000 (depending on the industry and product/offering) that any one employee can spend on a customer without seeking management approval. Simply, give employees the "ownership capabilities" to act in real time on both the company's and customer's behalf. This protocol transitions an employee to an engaged owner that is empowered to create, real-time “wow” moments for customers because they now have the tools to not only meet but also exceed customer expectations. In a nutshell, do not be afraid to give autonomy and empower employees from the bottom-up because such a model (1) mitigates slow decision-making, (2) drives ownership, (3) decreases poor resource allocation and dilution of resources, (4) mitigates customer pain points, and (5) creates the foundational elements of an inspired culture.
“The first step to innovative products, customer advocates, and ultimately profitable growth is to create employee advocates that in turn will be inspired to create those “wow” moments for customers because a company first created those “wow” moments for its employees.”
Step #6. Drive an “Inside-Out” not “Outside-In” Emphasis: Ultimately, people are a company's greatest asset – more than its brand, products, or customers. If a company can get its culture and employee element right a great brand, product, and customer base will occur almost automatically. As previously noted, the first step to a culture transformation is to shift one's mindset to an inside-out | bottoms-up mindset. As the transformation progresses it is all too easy to lose this mindset and shift one's thoughts to issues such as competitors and external market forces. While obviously vital, these areas should not be prioritized over ensuring a focus on internal health. Thus, this framework is bookended with ensuring this internal focused mental shift continues to drive culture success and is not simply a fleeting notion. As previously noted, most of the areas holding back growth stem from internal obstacles. Thus, leaders must always be looking internally at creating a culture that creates raving employee advocates before it can expect to create raving customer advocates or innovative products. Specifically, the first step to innovative products, customer advocates, and ultimately profitable growth is to focus on internal, culture excellence.
Exhibit 14 (Click to Enlarge)
For those just beginning on their culture transformations, this article advocates a simple 3-step framework. Ultimately, leaders of any organization have three obligations, specifically: (1) engage its employees by creating an empowered, innovative, and inspired culture, (2) delight customers with world-class service excellence, and (3) deliver strong financial results. If the first two take place the third area (financial results) will take care of itself. EPC is an acronym for (1) employee, (2) product, and (3) customer and is a simple framework that highlights the key trigger points to enterprise and culture success (See Exhibit 14).
“Companies have three obligations: (1) engage its employees by creating an inspired, purpose driven culture, (2) delight customers, and (3) deliver strong financial results. If the first two take place financial results will take care of itself.”
For example, we have all likely witnessed how companies become so obsessed with their product and/or brand that they inadvertently lose site of the customer and perhaps more importantly, its employees. So often CEO’s mention that they want to create raving customers but forget that the first step to profitable growth and raving customers is to create a culture of raving employees. Concurrently, employees will then be inspired and engaged to create those “wow” moments for customers because the company first created those "wow" moments for its employees.
Bringing It All Together
- Tracking Success -
Exhibit 15 (Click to Enlarge)
Finally, companies should leverage an “organizational health quadrant” which covers several key organizational health KPI’s. This ensures transformation tracking and enterprise alignment on the key culture value drivers. Specifically, this quadrant highlights the following five KPI’s: (1) employee turnover, (2) employee productivity, (3) employee engagement, (4) customer engagement, and (5) customer recommendations (including customer advocacy and customer acquisition costs). Winners and losers are divided into four categories, including:
QUADRANT I: Growth only mindset | Intense growth mindset that comes at the expense of a culture first approach
QUADRANT II: Bottom quartile performer | Defined culture but little to no adoption rate
QUADRANT III: Status quo performer | No defined culture because it is viewed as unimportant
QUADRANT IV (WINNER): Culture excellence | World-class culture that is adopted by the entire enterprise
Most companies generally fall within Quadrants 1, 2, and 3, leaving typically less than 3% to 5% of enterprises achieving Quadrant 4 status (i.e., organizational health and culture excellence). In its simplest form, this “organizational health quadrant” illustrates that there are key revenue and cost implications associated with either top or bottom-quartile internal health (See Exhibit 15). In addition, it provides five easy to track KPI's. By keeping a close watch on how the enterprise is tracking across these five core areas, companies can easily measure their culture status and/or their culture transformation progress.
Ultimately, companies that leverage (1) an “inside-out | bottoms-up” mentality, (2) the 6-step culture transformation framework, and (3) the “organizational health quadrant” and its accompanying KPI’s will greatly increase the likelihood of creating value unlocking, sustainable change across the enterprise.
Conclusion
“Culture is not simply a feel-good, kumbaya moment but rather a quantifiable, profit generating machine that either creates or destroys value. Consequently, the greatest threat to any enterprise is not disruption, not competitors, not new entrants, and not dissatisfied customers but rather itself.”
Nothing takes the place of a world-class culture. With it, an organization experiences sustainable growth but without it, internal health problems abound which ultimately destroys the company from within. Simply, the greatest threat to any enterprise is not disruption, not its competitors, not new entrants, and not even dissatisfied customers but rather itself. A culture is not simply a feel-good, kumbaya moment but rather a quantifiable, profit generating machine that either creates or destroys value. Thus, any enterprise must look internally and get its own house in order by creating a culture that is lived and breathed by its employees. Then, and only then, will a company witness the level of employee engagement and organizational health needed to drive innovation, customer loyalty, and sustainable growth.
About the Author
Joshua Seedman is the founder and chairman of PNI Consulting, a management consulting firm that specializes in global transformations. He has over 20 years of operating and general management experience with expertise in organizational transformations, customer experience, employee engagement, digital transformations, sales & marketing, operational turnarounds, culture/change management, and high-stakes negotiations. His experience includes executive roles within F500 companies, top-tier consulting leadership (McKinsey & Company), over 10 years of global P&L ownership, and corporate lawyer (Davis Polk & Wardwell). He received his MBA from Kellogg School of Management and his Juris Doctor (cum laude) from Northwestern University School of Law.
