As a small business owner, you are a master of what service you provide or what product you sell. Rarely do small business owners go into business with the desire to manage people. Creating an engaged culture, while a nice thought, is not always top of mind when managing the day to day tyranny of the urgent. When you start hiring employees they become one of the most expensive items on your balance sheet. Investing in your culture and your people can make a difference to the bottom line. The following information will give you a quick overview of what culture and engagement are and some examples of the impact that focusing on this area can produce for you!
What is Culture and Why Does It Matter?
Culture is the behavior and practices of an organization, exhibited by both stated and unstated rules and expectations, providing a picture of how the company and its employees function. The culture is dictated by leadership, systems and processes which influence both employee and organizational behavior.
According to the Harvard Business Review, Six Aspects Determine a Company’s Culture includes:
- The Mission & Vision of the Company (provides the company’s purpose)
- Company Values (core of the culture, shows what the company thinks is important)
- Company Practices (does the company walk their talk)
- People (need to share your values to improve employee engagement)
- Company Narrative (unique story of the company and its differentiators)
- Company Location (geographic location and office environment)
A key component of company culture is employee engagement. Engagement is the level of commitment that an employee or group of employees give to an organization on both an emotional and intellectual level. Engagement is not the culture in totality, but it is one aspect that can be measured and improved upon to positively affect a company’s performance and bottom line.
Culture & Employee Engagement Can be Improved in Four Key Ways:
- Good Hiring Practices (get the right people in the right roles)
- Align Employees with Goals (ensure employees understand how they contribute to the company goals and that they are aligned with company values)
- Open and Honest Communication (communicate clearly and often)
- Recognizing People (show appreciation for employee accomplishments)
Why Worry About Culture and Employee Engagement?
A healthy company culture is not all about dogs in the workplace and a beer tap in the break room. Those things may make people “happy” temporarily, however, a happy culture and an engaged workforce are two different things. The benefits of a healthy culture include:
- Increased employee productivity and customer satisfaction. (A Workplace Research Foundation report shows that engaged employees are reported to be 38% more productive on average)
- Increased company performance and profitability. (A Gallup report shows 20% higher productivity and profits with highly engaged employees)
- Increased employee retention (Losing an employee costs the company 1-4 times their salary depending on the level of expertise and training needed for the position. Companies with more engaged employees have 14% higher retention according to Gallup.)
- Decreased safety incidents, theft, absenteeism and quality defects. (According to the Workplace Research Foundation: Companies that foster engaged brand ambassadors in their workforce report an average of 2.69 sick days taken annually per employee, compared to companies with weak engagement efforts, reporting an average of 6.19 sick days.)
Evaluating the health of the culture of a business is an often-overlooked metric. Peter Drucker, world renowned business strategist, has been quoted saying “Culture eats strategy for breakfast.” Since people are the key contributor to much of the success of a company, looking at the health of a culture and fixing its challenges can have a profound positive impact on the company. This is especially important to consider because in most companies, people are the most expensive line item in the budget.
Does Employee Engagement Really Affect a Company’s Bottom Line?
There are case studies that would indicate that evaluating the engagement of a company’s employees and then implementing a program to address challenges has a direct impact on the bottom line. Consider the following example shared from a book written by Jill Christensen titled, “If Not You, Who? Cracking the Code of Employee Disengagement.”
Example One: Avaya, a global provider of next-generation business collaboration and communication services implemented a plan to solve their employee disengagement issues. In two years, they found the following to be true:
Employee engagement survey categories had anywhere from a 6 to a 16-point increase in three categories: strategy buy-in, confidence in senior leaders, and open and honest Communication.
Avaya moved their overall employment engagement score from 51% to 62%. As a reference point, a 2% increase is considered “statistically significant.”
The company also realized a 26% rise in their stock price.
Additional examples of well-known companies with bottom line increases as a result of cultural improvement, are provided by a report from Entrepreneur Magazine.
Example Two: Taco Bell, a well-known fast food restaurant found that restaurants with the lowest turnover rate had a 55% increase in company profit.
Example Three: Sears, a well-known retailer found an increase in employee satisfaction resulted in a 5% rise in company revenue.
And the hits just keep coming – in January 2016, Glassdoor released a research report answering the question, “Does company culture pay off?” The key findings of this report are as follows:
Companies named on Glassdoor’s “Best Places to Work” list broadly outperformed the Standard & Poor (S&P) 500 from 2009-2014. Since 2009, a portfolio of Fortune’s “Best Companies to Work For” outperformed the S&P 500 by 84.2%, and significantly outperformed the overall stock market. Being named a “Best Place to Work” leads to a 0.75% jump in stock returns during the ten days following the announcement. Examining the stock returns of public companies with the lowest employee ratings on Glassdoor revealed that they broadly under-performed the market from 2009-2014.
Additional examples from online research of lesser known companies that had amazing results from cultural improvements:
Example Four: Banta Catalog Group, a catalog printing and distribution center outside of Minneapolis generated significant benefits during their culture change process. Two years after starting the process, the plant found the following:
- Profitability increased 36%.
- Within 6 months, employee engagement improved 20%.
- Employee retention improved 17%.
- Recruiting and training costs decreased.
- Employees actively looked for ways to cut costs and improve.
Example Five: Bowater Pulp and Paper, a newsprint manufacturer and de-inking facility generated a positive impact with a cultural improvement initiative gaining the follow results.
- More than $50 million in cost reductions.
- Health and safety records improved.
- Employee satisfaction rose dramatically.
- Company named Dow Jones gold medal service and quality winner several years in a row.
To improve your culture, you need to have a good idea of where your business currently resides. A thorough evaluation process will point out areas of the company that can be addressed to improve its value. We have found that the Gallup Q12 (http://www.q12gallup.com) is a great tool to get an initial read on your employee engagement. It is not only affordable, at $15 per employee, but provides a great dashboard that can help you view progress over time. Gallup has evaluated over 25 million employees with this tool. Your company will receive a score of 1 to 5. If a company scores in the 66th percentile or greater, in regard to engagement, they are considered above average when compared to the Gallup database.
If your company falls in the 33rd to the 66th percentile, the company is in the midrange of all companies in the Gallup database. Below the 33rd percentile, the company scored in the lower third of companies. Combining these results with interviews of key employees will allow you to gain insight into your company and to compile its strengths, weaknesses, and opportunities. These can then be used to point out areas to start working on employee engagement to affect company culture.
What Are Your Next Steps?
At LifePoint Strategies, we have created a subjective rating system based on the discovery phase of cultural evaluation. Depending on where your company scores, LifePoint can help you develop a strategy to make an immediate impact. The strategy will be implemented over a 6-month period and the company will then be re-evaluated with regard to employee engagement and positive company growth.
While improving employee engagement and creating a strong culture are not quick fix issues, addressing them will have a big impact on your bottom line.