Look at any “Best Places to Work” list and you can see what great culture looks like. Companies that have what Rich Karlgaard describes as a healthy “soft edge” reward and recognize great work. They prioritize innovation and creativity. Their leaders walk the mission statement talk.
Yeah, yeah, yeah. We know. But really—what are the measurable facts and figures that say “This is a great company whose stocks have long-term value”? Is there a numbers side to great culture? Can it be quantified?
Absolutely, says Karlgaard. Below, he identifies a few factors to look for when assessing company culture:
Employee turnover—beware of extremes. Amazon is an amazing American success story, but the company struggles to show much of a profit. This is bad news when investor sentiment turns away from growth and toward value. One factor hurting Amazon’s profit is its very high employee turnover. Amazon ranks as second highest in the country, which means Amazon is constantly training new employees. This hurts productivity and profit. At the other extreme is Eastman Kodak, which has the lowest employee turnover among American public-market companies. “Kodak’s low turnover is less a sign of loyalty than it is a sign of too much dead wood and rigid thinking,” says Karlgaard.
High productivity. “Here’s the bottom line,” says Karlgaard. “People work harder when they trust the purpose of their career and their company. Research and market results have proven that dignity, respect, pride—and the sense of trust those feelings engender—create real-world returns and measurable increases in productivity.
“Look for companies that make the Best Places to Work lists and are industry leaders in revenue per employee. When you find both in one company, you’ll have a highly productive workforce.”
Employees endorse the company. Have you ever asked a friend about the company he works for and received a “Trust me, you do not want to work there” as a response? That’s a huge red flag. At companies with great cultures, employees don’t hesitate to talk up their workplace to friends and colleagues. Monitor social media such as LinkedIn, Facebook, and Twitter to get the inside scoop on the inside mood of the company.
High customer loyalty. Mediocre brands or passing fads fail to gain any real loyalty with customers, because the leaders pay a lot of attention to what their brands say, but demonstrate little concern for what they actually do. A brand is simply a promise a business or organization makes to its customers. Great brands stick to their promises so their customers stick with them.
“Consumers tend to treat businesses the way they treat their friends,” notes Karlgaard. “If a friend betrays them by not acting with loyalty and honesty, they lose trust. And maybe the friendship ends. Similarly, if businesses engage in practices that don’t follow a code of conduct customers consider acceptable—if they break their promises—they’ll usually cease supporting them. And, of course, with the Internet and social media, this dynamic has been greatly amplified. In this sense, customer loyalty is a great culture checkpoint.”
Innovation. The “innovation response” in companies is very much like a healthy immune system response in living organisms. People who enjoy long-term health don’t have episodic bursts of health. They are healthy nearly all of the time. Their immune systems routinely fight off most threats. Can the same be true of companies? The analogy fits. In great companies, innovation is a natural response to threats. In fact, companies with frequent new products that do well in the marketplace will most likely have great cultures.
“And that’s because innovative companies must have environments where employees feel comfortable enough to share their ideas,” says Karlgaard. “They have to trust their coworkers, but more importantly, they have to trust that their ideas won’t be met with instant derision or naysaying by company higher-ups.
“But do not confuse a healthy innovative culture with kindergarten,” he adds. “Bill Gates and Steve Jobs could be very derisive if you spoke up without solid facts and thoughtful analysis. When Jobs was a jerk, he was paying you a kind of compliment. You are better than this, he was saying.”
Sick days used. Engaged employees use fewer sick days. If a company’s employees are using a disproportionately high number of sick days compared to, say, a company on a Best Places to Work list, then chances are that company has a culture problem.
Leadership. Do employees trust their higher-ups? Do leaders walk the talk? Are leader decisions transparent? How employees feel about company leaders is a great indicator of the quality of a company’s culture. Where negative attitudes exist, productivity and engagement problems will also exist, which will, of course, affect long-term profitability. “Apple CEO Tim Cook is very demanding, but it starts with himself,” says Karlgaard. “He’s up at 4:30 a.m. to start his workday. He can be a tough boss, but he’s not a hypocrite.”
Team size. As companies strive to stay agile and innovative, many have discovered that units of 8 to 12 people work best as the natural size of high-performance teams. This is the magic number for leadership teams, product teams, research teams, design teams, and more.
“In all industries and fields, small teams are beating out their unwieldy counterparts because they work, even at the very highest levels,” says Karlgaard. “For example, FedEx—a giant, incredibly complex company—has streamlined its core leadership team to CEO Fred Smith and 10 direct reports. This fosters high performance and helps the company to present a single face to customers and shareholders. Some CEOs are fond of using the ‘Two-Pizza Rule’ to determine team sizes. If a group can’t be fed by two pizzas, it’s too big.”
Rich Karlgaard is author of The Soft Edge : Where Great Companies Find Lasting Success (Jossey-Bass/A Wiley Imprint, 2014, ISBN: 978-1-118-82942-4, $28.00, www.richkarlgaard.com). He is also the publisher of Forbes magazine, where he writes a column, Innovation Rules, known for its witty assessment of business and leadership issues. He has been a regular panelist on television’s Forbes on FOX since the show’s inception in 2001. Karlgaard is also a serial entrepreneur, having co-founded Upside magazine, Garage Technology Partners, and Silicon Valley’s premier public business forum, the 7,500-member Churchill Club. He is a past winner of Ernst & Young’s “Entrepreneur of the Year” award. Karlgaard’s 2004 book, Life 2.0, was a Wall Street Journal business bestseller. A graduate of Stanford University, Karlgaard and his family live in Silicon Valley.