As I was writing my latest book, Built to Win, I wanted to be sure to incorporate the notion that it’s important to design a customer-centric culture because there are clear outcomes to doing so. Culture (and certainly not one that puts the customer at the center of the business) isn’t just fluff. It’s tangible. It’s measurable. It’s critical. It’s the foundation of the business and of business success.
Because culture is defined as core values plus behaviors, I needed a statement that nicely summarized the fact that the culture drives value – for employees, for customers, and for the business. After all, the sub-title of the book is: Designing a Customer-Centric Culture That Drives Value for Your Business. When I saw Marc Lore’s (founder of Jet.com) quote that “the values create the value,” I said, “Yes, that’s what I’m looking for.” Short and sweet – and right to the point.
Culture is a driving force in creating value for customers and for the business. Yes, values do create value. First, when your values drive a customer-centric culture, you’re putting customers at the center of all you do – again, no discussions, decisions, or designs without thinking about the customer. Solving problems for customers creates value for them – and ultimately creates value for the business. (That assumes you’ve done the work to understand your customers and focus on those customers that will create the greatest value for the business, too.) Second, when customers’ values align with the brand’s values, when customers are aligned with a brand’s purpose, they are more likely to prefer, purchase from, and recommend the brand to others than those who are not.
How do we know? Well, as with any other work you do within your organization, shining the spotlight on culture is also all about the outcomes! Not all outcomes are financial, but what I’ll call “intermediary outcomes” that ultimately lead to the business outcomes you desire. Let’s move to drawing a very clear line from culture to business outcomes, starting with this graphic below.
While the graphic may be self-explanatory, let’s walk through it briefly.
The foundation of a winning organization is leadership and culture. Leaders must deliberately design the culture they desire, or else allow the culture they get. Rather the former than the latter! To do so, leaders must care about their people, create a culture that puts people first, and ensure that employees have a great experience. As a result, employees are enabled to do good work, and they feel a sense of purpose and belonging; they’ll feel appreciated and valued; and they’ll feel energy and enthusiasm about their work and the workplace. All of that leads to employee happiness and engagement; a more creative, innovative, and productive workforce that puts out quality work; and employee loyalty.
With that as their foundation, employees can deliver an experience for customers that leaves customers feeling valued; helps them to achieve value; solves their problems and helps them do some job: and culminates in engagement, happiness, and loyalty.
When all of that is aligned, the business benefits include both strong employer and talent branding, shorter and less costly recruiting cycles, increased customer lifetime value, revenue growth, profitability, and a host of competitive advantages that perpetuate all of these outcomes.
Let’s get to some real hard data about the connection between your culture and the bottom line. In the past, executives have used the excuse that there’s no data on this connection, but it exists.
McKinsey conducted some research that points to culture correlating with performance. They looked at more than 1,000 companies, and those with cultures in the top quartile of McKinsey’s Organizational Health Index had shareholder returns that were not only 60 percent higher than median companies but also 200 percent higher than companies landing in the bottom quartile.
John Kotter and James Heskett conducted research years ago, culminating in a 1992 book titled Corporate Culture and Performance, and they have continued to build on that research over the years. They discovered that leaders who use culture as a strategic tool (versus those who don’t) do so quite successfully; these leaders saw, over an extended period of time…
- Revenue growth: 4x
- Job creation/workforce growth: 8x
- Stock price growth: 12x
- Profits: 750 percent higher
- Net income growth: 700 percent
- Customer satisfaction: doubled
In 2019, Grant Thornton LLC and Oxford Economics published a report titled Return on Culture. In it, they highlighted several statistics about culture, performance, employee engagement, loyalty, and more. A few noteworthy findings with regards to culture and performance include:
- “Public companies with extremely healthy cultures are 2.5 times more likely to report significant stock price increases over the past year.
- Companies with extremely healthy cultures are 1.5 times more likely to report average revenue growth over 15 percent for the past three years.
- The average S&P 500 company would see savings of $156M in turnover costs annually if employees were to describe its culture as healthy.”
Culture and the impact of having a healthy culture is powerful. There’s a lot of other research out there about that. For example, I’ve seen research from Gallup and from Aon Hewitt that extolled the virtues of an engaged culture. Culture is the foundation. Design and nurture a great culture and watch employees thrive.
You know the old adage that people don’t leave companies, they leave managers. Well, there’s an updated – and probably equally, if not more, accurate – version of that, that people don’t leave companies, they leave cultures.
In their research, Grant Thornton LLC also found that respondents with extremely healthy cultures are more likely (45 percent) to retain employees for more than six years versus respondents overall (29 percent). But here’s the real proof for the updated adage: half (49 percent) of employees would leave their jobs for a lower-paying job in exchange for a better organizational culture. (We may even be witnessing this with the Great Resignation.)
The importance of culture is real. It makes a huge difference all around!
It’s the job of any business owner to be clear about the company’s non-negotiable core values. They’re the riverbanks that help guide us as we refine and improve on performance and excellence. A lack of riverbanks creates estuaries and cloudy waters that are confusing to navigate. I want a crystal-clear, swiftly-flowing stream. ~ Danny Meyer, CEO of Union Square Hospitality Group.