Culture - Performance - Bottom Line

Culture and its IMPACT! on Financial Performance

“Start with action on the technical system: followed quickly with cultural change.” – Jeffery Liker

Success at the Speed of Leadership™


Presented by:

Richard S. Dillard, PMP

Research and Development by Robert A. Cooke, Ph.D. and J. Clayton Lafferty, Ph.D. Copyright 1973-2006 by Human Synergistics International. Used by permission.




Does Culture Improve Financial Performance?




Culture Impacts the Bottom LineThree Cross-Sectional and Two Longitudinal Studies show strong relationships between culture and performance measures:

– Higher Product/Service Quality– Stronger Revenue Growth– Higher Profits

Copyright E.J. Sanders and R.A. Cooke (2005). “Translating ‘Soft’ Changes Into ‘Hard’ Dollars”. Paper presented at ASTD Expo 2005, Orlando, Florida. Used by permission.




Culture and Profitability Correlation

Financial Data provided by Towers-

Perrin for 69 companies in

various industries.

R.A. Cooke (2004). “Vision is Not Shortsighted”. Paper presented at the 6th Australian Conference on Culture and Leadership. Syndney, Australia. Used by permission.




Corporate culture can have a significant impact on a firm’s long-term economic performance:

Revenues 682% 166%

Work Force 282% 36%

Stock Price 901% 74%

Net Income 756% 1%

Adaptive Unadaptive

Corporate Culture: Kotter & Heskett (1992)




RE

VE

NU

EE

BIT

AN

PA

T

YAGO

% B/(W)

1996 1997 1998 1999 2000 2001*

* Before significant items

-1

-12

4 5.1 7.311.0

2002*

-0.8 -0.8

1.8 1.26.2

1.0

-26

-16.1

7.5 7.8 6.2

14.0

8.6

5.1

19.6

2003*

6.6

9.1

11.2

2004*

3.9

4.3

12.5

1998 2000 20021996 2004

Culture and Profit at Lion Nathan

Copyright © 2006 by Human Synergistics® International and Human Synergistics (NZ) Ltd. Used by permission.




1998 2000 20021996 2004

Net Profit After Taxes in Millions of Australian $

70

90

110

130

150

170

190

210

230

1996 1997 1998 1999 2000 2001 2002 2003 2004

Culture and Profit at Lion Nathan

Copyright © 2006 by Human Synergistics® International and Human Synergistics (NZ) Ltd. Used by permission.




Organizational Culture and the Bottom Line• The latest research from links organizational

culture with profitability, sales growth, market value, and customer satisfaction.

• The results are based on a study of 102 public companies from a broad range of industries surveyed by Denison Consulting from 1996-2004. Companies are incorporated primarily in the U.S. (89%).




•

Return-on-Assets 4.5%

Sales Growth .1%

Market-to-Book Ratio 3.5

Return-on-Assets 6.3%

Sales Growth 15.1%

Market-to-Book Ratio 4.4

If we compare the 102 firms in the top and bottom 25% based on their overall average of the 12 indexes, companies with higher culture scores have greater profitability, sales growth, and market value than those with lower culture scores.

• Each of the 12 indexes has a score. It is the percentile score based on our normative database which shows you the percentage of 707 companies that scored lower on the index.

• Each color bar indicates the percentile quadrant of the score. The more color the better.

• These firms are earning almost $2 more on every $100 spent on assets!

• Top 25%• Bottom 25%

• The market value (share price x #shares) is 440% of book value (which is a company's assets minus liabilities).

• Managers in the top 25% are creating more value in the marketplace.




Impact on Sales Growth

16.4%15.2%

16.9%

14.3%

0.7%

3.0%3.0%

-0.1%

-4%

0%

4%

8%

12%

16%

20%

Mission Consistency Involvement Adaptability

Sale

s G

row

th

Top 25% Bottom 25%

Looking at the impact on sales growth, firms in the top 25% of each trait in the Denison model have dramatically higher sales in the year the company was surveyed.

Each bar represents the average sales growth of ~24 firms. For example, the 24 firms with the highest total mission score have a sales growth average=14.3% versus the 24 lowest rated firms which have a sales growth average= -.1%. Therefore, focusing on culture is a great way to improve sales.




What about the Long-Term (ROA)?Here we show the return-on-assets* for the top 25% and bottom 25% of each trait over a three-year period.

*Standardized within industry

Adaptability

45%

50%

55%

60%

65%

70%

75%

Year 0 Year 1 Year 2 Year 3

Ind

ust

ry P

erc

enti

le

Top 25% AdaptabilityBottom 25% Adaptability

Mission

45%

50%

55%

60%

65%

70%

75%


Ind

ust

ry P

erc

en

tile

Top 25% MissionBottom 25% Mission

Involvement

45%

50%

55%

60%

65%

70%

75%


Ind

ust

ry P

erc

enti

le

Top 25% InvolvementBottom 25% Involvement

Consistency

45%

50%

55%

60%

65%

70%

75%


Indust

ry P

erc

entile

Top 25% ConsistencyBottom 25% Consistency

• These firms are only matching the industry average in ROA.

• On average, 72% of firms in their industry rank below these companies in profitability.




Customer SatisfactionIn a separate study of 240 automotive dealerships, firms with higher culture scores have higher customer satisfaction ratings.

• N=10 • N=12




Conclusion• Your organization’s culture can have a

dramatic impact on the bottom line.• Culture is a controllable aspect of the

organization that can improve profitability, sales growth, market value, and customer satisfaction.

• Developing culture today will improve your performance tomorrow.

Culture - Performance - Bottom Line

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