How to Measure a Company’s Most Elusive Element: Culture

October 3, 2011

by Mark Graham Brown

Your organization has a set of values and a culture, whether it was engineered or not. Most organizational cultures tend to revolve around the personal values of the founders, even if the company has been around a long time. Young companies tend not to think much about culture because they are too busy focusing on customers and shareholders. As companies’ age and the founders retire or die, they tend to do more inward looking and often want to make sure that the values that made them great in the beginning still characterize the company.

Southwest Airlines is one of those rare companies that has maintained it culture of humor, focus on the customer, and efficiency, long after founder Herb Kelleher stepped down as CEO. 3M is also a company that has been through leadership changes, yet stays focused on the core value of innovation.

Most mature companies tend to see a major culture change in a negative direction when the founder steps down. Changing culture and values tends to be gradual and once you realize you’ve lost the wonderful culture you used to have, it is too late. Although challenging, it is possible to measure culture so you can zero in and fix problems and make adjustments before things go too far south. Organizational culture can be a major asset or a damaging liability that hinders all efforts to grow and become more successful. Measuring and managing it is something few companies do well.

Clear and Relevant Values

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 BS values I see on brass plaques and wallet cards are:

Leadership Perseverance Trust
Integrity Teamwork Customer-Focus
Risk Taking Diversity Communication
Growth Competence Excellence

Does your company use any of those same words to define your values and culture? It is possible especially if you, like most companies, 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 the values. Some examples of some innovative and clear values of companies are:

Democracy – Namaste Solar Fitness – TRX
Weirdness – Zappos Training – Hopkins Printing

Toms Shoes is another company with a clear and unique culture – they call it “one for one.” For every pair of shoes sold, Toms donates a pair of shoes to a needy child.

Purina’s Pets Before Profits

One of the best run companies I’ve ever worked with is Purina, part of food giant Nestle. Their culture revolves around the idea that pets are always more important than profits. This value made decision making easy 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 their products from all retail shelves just to be sure, only later they found out that almost none of their pet food was bad. The move cost the company millions, but Purina 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 this company 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 work/life balance with 97 percent employee satisfaction. The best companies in America get rated at 80 percent satisfaction and average companies get 50 percent. In 2010 Purina was awarded the coveted Malcolm Baldrige Award, while also being awarded best place to work in St. Louis, and the best company in America for work/life balance. And, by the way, they also have the best financial and market share results of any company in their industry.

Useless Culture Metrics

The minority of companies that measure anything on their corporate scorecard relating to values or culture tend to get it wrong. Sears made a desperate attempt to change their culture of arrogance and resistance to change back in 1996 when they crafted their new values – the “three Ps: Passion (for the customer), People (add value), and Performance (leadership).” Their measure of culture was the percentage of employees who had attended their “cultural renewal training.” In other words, they measured culture by counting butts in chairs. Obviously this did not pan out well for Sears, as they are now a fraction of the size they were back in the 1970s.

Another common metric for measuring culture is an employee survey asking questions about whether or not employees understand and support the values. But of course they do if they want to keep their jobs. Another common and useless culture metric I often see is counting communications relating to the values/culture. This might include the number of values plaques posted (one organization even posted them in bathroom stalls and in front of urinals), wallet cards distributed and meetings attended where values are reviewed.

Creating 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 values are and can they recognize when our behavior and decision making is consistent with those values? This is best measured via a test that could be anonymous.
Perceptions – Opinions about what are 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 that look and think like them that went to the same six universities where they always recruit.
Behavior – Incidents of good and bad decisions 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 workout 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.

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

Making the Culture Gauge Move

Having an accurate way of measuring your culture is the first step toward maintaining or improving it. Before wasting time on training, meetings, posters and wallet cards, the best way of improving or maintaining your culture is selecting people who already embrace your values. This is particularly important when picking bosses. Successful companies use behavioral interviewing to determine a person’s values and traits before bringing them in. Others are making good use of social media to communicate their culture and values to prospective employees so they can attract people who share their beliefs and values. If you don’t like animals, for example, you probably won’t feel comfortable working at Purina where many employees bring their dogs and cats to work every day. Although culture is elusive, it is a dimension that needs to be measured and managed to help ensure your success. It is also something that your competitors may never figure out how to copy, so it can be a huge competitive advantage.

Mark Graham Brown is a veteran consultant and regarded as one of the leading experts on performance measurement/balanced scorecard and the Baldrige model. He is a regular contributor to Business Finance.