Last year Merriam Webster’s dictionary stated that ”culture” was the most popular word of the year. Well, it has now become one of the most important words in corporate board rooms, and for good reason.
We have a retention crisis. New Deloitte research shows that culture, engagement, and employee retention are now the top talent challenges facing business leaders. More than half business leaders rate this issue “urgent” – up from only around 20% last year.
What’s going on? It’s very simple: as the economy picks up steam (unemployment now below 5.5%), employees have more bargaining power than ever before. Thanks to social websites likeLinkedIn LNKD +0.07%, Glassdoor, and Indeed, a company’s employment brand is now public information so if you’re not a great place to work, people find out fast. This shifts power into the hands of job-seekers.
And many companies have work to do. Gallup’s latest research shows that only 31% of employees are engaged at work (51% are disengaged and 17.5% activelydisengaged). Analysis of the Glassdoor database shows that the average employee gives their company a C+ (3.1 out of 5) when asked whether they would recommend their company to a friend (Bersin by Deloitte research with Glassdoor).
We have arrived in a world of “haves” and “have-nots” when it comes to attracting and engaging top talent.
Let me cite some examples:
- I recently met with one of the world’s biggest industrial manufacturers on the east coast and they lamented losing top aerospace engineers to Google GOOGL +0.73%. They’re scratching their heads to figure out how to prevent more top engineers from leaving.
- A large well-known Silicon Valley company considering a major facelift of its corporate campus to attract young people. They’re not sure if it will work or not, but they feel they have no choice. Here there is a war to build the “best workplace in the world” – free food, unlimited vacation, yoga classes, beer bashes, and bright open offices are everywhere. (Check out Google’s new space age campus design.)
- Most financial services companies I meet with tell me they are struggling to hire top people. While the industry is still popular with MBAs, the recession damaged the reputation for this industry and it’s just starting to recover.
Companies that focus on culture are becoming icons for job seekers:
- Fortune’ Best Companies happen to be many of the same companies listed in Glassdoor’sBest Places to Work and also LinkedIn’s Most In-Demand Employers. This shows that companies with strong positive cultures (Fortune and Glassdoor’s list is based on employee surveys) are now the most in-demand. So the “culture winners” are winning bigger.
- Younger companies that focus on culture see a huge payoff. HubSpot, a growing New England tech firm focused on its culture (around 1,000 employees), has Glassdoor ratings of 4.6, far above the industry average. They give their staff free books and education and believe so strongly in transparency that they post their board meeting notes and culture manifesto online.
- NetFlix’s culture manifesto ”freedom with responsibility” is one of the most popular documents on the internet, 11 million+ viewers. Everyone wants to copy it.
- Value statements have popped up everywhere. Zappos’ cultural values focus on innovation, Quicken Loans uses its colorful “ISMS” to guide values (“call back every client the same day” is one of their values), Google has its 10 ”truths” (focus on the user is one), RW Baird has its “ unique culture,” Salesforce focuses on community, and it goes on and on.
- Culture-driven companies explicitly put their people first. Wegmans, the #7 best place to work in the Fortune list, reset business goals just to create the jobs and career growth they want for their people. “Take care of your people and they will take care of your customers,” as the saying goes.
- Traditional companies like Aetna are now heavily focused on culture. Recently the New York Times published an article about Aetna’s CEO Mark Bertolini. He has raised wages, improved health benefits, and introduced yoga and mindfulness training to his entire company to improve retention and culture in the call centers. Their $100M + turnover problem is rapidly going away and he claims to have already improved the bottom line by 3-4 %.
People now believe that culture has a direct impact on financial performance. I just talked with two industry analysts who read Glassdoor comments before they publish analyst reports. Both told me they use this data to understand employee sentiment read comments about the CEO as part of their core research. It also helps them compare competitors.
As the saying goes, “Culture eats Strategy for Lunch.” (And free lunch is now part of the culture.)
Ok it’s a popular topic. What is culture anyway?
Culture is a big and somewhat vague term. Some define it as “what happens when nobody is looking.”
In reality, it’s much more complex. Culture is the set of behaviors, values, artifacts, reward systems, and rituals that make up your organization. You can “feel” culture when you visit a company, because it is often evident in people’s behavior, enthusiasm, and the space itself.
I visit a lot of companies and I can often sense the culture in a few minutes. Are people busy and working with customers? Or are they quietly working alone? Do they get in early and leave late? Or does the parking lot empty at 4:30? Is the office beautiful and inspiring with values and icons around, or is it messy and busy? Is there a sense of order or a sense of family? All these clues help diagnose culture.
The Competing Values Framework, by Kim Cameron and Robert Quinn, is a terrific textbook on organizational culture. After years of research the authors grouped organizational cultures into four types and their research shows that most teams fall into one of these four types. You can diagnose your culture using tools like theirs (and others) and it will help you align your values and hiring to the culture you want to build. There are three issues to consider: type (what is your culture), strength (how strong is it), and congruence (how consistent is it).
Our research shows that culture and employee engagement are tightly linked (“culture” vs. “climate”), but not the same thing. Culture is slow to build, pervasive, and hard to change. Climate can be changed quickly.
When you communicate and honor culture, people know what to expect and feel comfortable. And the climate must support it. For example, a CEO I interviewed told me that “calling people back the same day” was part of his culture – so he monitors this behavior because to him, customer service is cultural bedrock.
As a company grows or acquires another company, the culture will often shift. IBM has been through many culture changes over the years, and one can trace them to major transitions in the business. When I worked there in the 1980s, IBM was a technology pioneer, but then later slowly but deliberately changed its culture to that of a consulting organization. Now it seems to be headed back.
Sometimes an acquisition will damage a well-honed culture, so watch out here. (When HP acquired Compaq, for example, a culture of engineering quality was mixed with a culture of low-cost production, causing a historic challenge.)
Many HR and management practices will drive or support culture. Do you value employee development? Are people empowered to take charge or do they follow the rules? How are people promoted and why? The Simply Irresistiblemodel describes many of the factors. If you’re focused on culture, we encourage managers and HR teams to think about the “total employee experience”: everything from the coffee in the coffee machine to the quality of management plays a role.
How Do We Build And Manage Great Culture?
Ultimately culture is driven by leadership. How leaders behave, what they say, and what they value drives culture.
I proved this myself: I analyzed the Glassdoor database and found that the factor most highly correlated with an individual’s recommendation of their company as a place to work was “quality and trust in leadership.”
So the selection of leaders, development of leaders, and the coaching of leaders are all critical to building the right culture. Companies that focus on building great leaders spend almost 3X the average on leadership development, and they get a tremendous return for it.
Once culture is established and communicated, it becomes a tool to screen and assist candidates. The Talent Board (a research group that studies the job candidate experience) found that 41% of all candidates search for information about a company culture before they apply. So your culture is already a screening tool when you recruit people.
Zappos relies on culture to screen all hires, by trying to see if they are “wacky.” (Zappos assesses culture before they even assess job fit.) Southwest Airlines assesses culture fit by asking candidates to tell a joke. When you focus on culture as strategy you find that some people just won’t fit, regardless of their pedigree.
When I asked the SVP of HR at a financial institution how they guard their culture she said “people who don’t work as a team just don’t like it here. They leave.” Culture is like a flywheel: it gets stronger the more you reinforce it.
If you want to improve your culture, look carefully at how you coach and evaluate your people. Do you believe in “forced ranking?” or “up or out?” That process in itself creates a type of culture – one most companies are moving away from. Today more than 60% of the companies we surveyed are changing how they evaluate performance because they want to drive empowerment and innovation into their organization. We call performance management the “secret ingredient” to building a highly engaged culture.
A New Industry Of Culture And Engagement Tools
An industry of new culture diagnostic and feedback tools is emerging. Historically culture assessment has been a niche market of small psychology firms (companies like Human Synergistics, Dennison Consulting, and Senn Delaney have been around for years). Now, driven by the need to engage and attract people, this market is going mainstream. New, mobile and real-time tools to assess culture, collect regular and real-time feedback, and analyze employee sentiment are disrupting the $billion market for employee engagement and culture surveys.
Some of the new vendors include CultureAmp, TinyHR, BlackbookHR,Achievers, Globoforce, BetterCompany.co, Glint.io, OfficeVibe, Waggl, Canary,RelatedMatters, and dozens of others now offer real-time engagement and employee feedback tools to help you better understand and improve your workplace environment. Deloitte has a new culture assessment tool which is gaining great momentum. (Read Why Companies Fail to Engage Today’s Workforce for more information on this new market.)
Keeping It Simple: Part Of Building A Great Culture
Remember also that great cultures are easy to understand. So keep it simple. If you can’t write your values and culture down in a few words, it’s probably too complex to understand.
We believe simplification is becoming the next big thing in business. More than 60% of the companies we surveyed told us that their employees feel “overwhelmed” by the volume of activity and messages they get at work. So part of your cultural facelift should also be “decluttering” of the workplace.
GE recently launched a major new strategy to simplify its business: the company is teaching managers how to focus, showing people how to spend more time with customers, and simplifying its back office processes. SAP did the same thing, and saw employee engagement rise by almost 30%.
Simplification can also improve the culture of compliance. New research by Deloitte Australia shows that financial services firms that focus on culture instead of compliance systems have better compliance. The research believes $240 billion is wasted on overly-complex compliance systems which could be replaced by a “culture of compliance.”
Great corporate cultures have always thrived on simplicity. Remember the mantra at IBM in the 1970s and 1980s? It was very simple: “Think.” The Nordstrom’s rule? ”Use good judgement.” These are simple statements that help people focus. When the rules and values are simple, we remember them.
One of the 10 ”Isms” in Quicken Loans’ manifesto is “ keep it simple.” Don’t make things complicated and don’t design for the “edge cases.”
Design thinking, agile and distributed management is all a part of simplifying work and improving corporate culture. This is an area where HR has work to do (read The Decluttering of Human Resources for more).
Ok I get it. Culture Matters. What should I do?
The prescription is pretty simple. Do you take culture seriously? Do you understand and monitor your culture? Does leadership use culture as a way to communicate values and strategy? Are you investing adequately in your people programs?
There are many role models to follow: Southwest Airlines’ culture of customer service and fun (elegantly described in The Southwest Way); Apple Inc.’s culture of innovation and technology elegance; Google’s culture of focusing on the user; even the US Post Office’s culture of service and reliability. Most of the companies in the Fortune Best Places to Work have a strong focus on culture – usually embodied by the CEO.
Your culture, like your strategy, is unique to your organization. It builds over time and is often hard to change. And when things don’t seem to be going well, turn back the clock. Sometimes the culture is what changed: remember what made your company great in the first place.
Finally, remember that culture lets you focus on your purpose and mission. As Joey Reiman describes in his book The Story of Purpose, people are not intrinsically motivated by profit or market share – it is purpose and values that bring us to work every day.
No matter if you’re a CEO, HR executive, manager, or team leader – culture really matters. Consider it one of your most powerful tools for business success.
Josh Bersin is a leading analyst in HR, talent, leadership, and HR technology. He is also founder and Principal of Bersin by Deloitte, a leading research and advisory firm.