Culture ROI Strategy for CFO’s

Toni Clubb, President, All American Leadership and long standing member of CFO Leadership Council offers her view of a strategy for CFO’s to understand better and measure organizational culture.  

The calculation of Culture ROI is basically the benefit of Culture initiatives divided by the cost of the Culture investment.  ROI is a simple concept, but when practically applied to organizational Culture, it requires a complicated cyclical process to determine what “benefits” are attributed to Culture programs and activities.  There are a multitude of factors impacting profits every month, so it is often subjective to carve out those contributions specifically related to Culture.

Organizational Culture is generally defined as a system of shared assumptions, values, and beliefs, which governs how people behave in organizations. These shared values have a strong influence on the people in the organization and dictate how they dress, act, and perform their jobs—all of which impacts productivity and profitability.

“Best practices suggest that culture and leadership development should be a continuous strategic process, including all stakeholders in the organization.”
Toni Clubb, President, All American Leadership  

The CFO’s ROI conundrum is to decide which programs or activities for improving Culture warrant an investment.  An associated challenge is how Human Resources (or any other department) reports the monthly results related to Culture development programs or activities.  Inherently, Culture has a variety of behavioral elements that can be measured and reported, but the dilemma includes answering reporting challenges such as:

  • Which behavioral elements?
  • Which metrics measure these elements?
  • How has the COVID-19 pandemic and an expanded remote workforce impact factor into the monthly reporting cycle?

The discussion that follows speaks to several of these behavioral elements and metrics and suggests some strategies for determining ROI on Culture initiatives.  Here are some suggestions to consider when developing reporting capabilities for Culture programs and activities:

  • Create a balanced approach with a team comprised of members from all departments to encourage collaboration and ownership.
  • Integrate Culture reporting elements into the monthly financial reporting package that correlate Culture with profitability, to promote discussions between departments.
  • Link Culture elements to other financial and operational performance measures not only to promote awareness and connection but also to begin to correlating Culture metrics with profit metrics.

Best practices suggest that Culture and leadership development should be a continuous strategic process, including all stakeholders in the organization.  These organizations also have a passion for continuous learning and development.  When an entire team is engaged, they feel valued, appreciated, and they give more of themselves, especially if they are passionate about the purpose of the organization.  All of this translates into improved operational results and higher profits, resulting in a higher ROI on Culture development initiatives.

The next section lists some standard metrics that have been utilized in supporting the calculation of ROI for Culture focused programs.  Keep in mind that many of the Culture-related characteristics and elements include soft skills, like collaboration, engagement, effective communication, and empowerment–all of which are harder to quantify with numbers.  Interestingly, all of the quantifiable items that follow are also related to observable behaviors.

  • Human Resources – Turnover, unscheduled absenteeism, internal promotions, results of diversity and inclusion initiatives, recruiting costs, on-time performance appraisals, unplanned overtime, average employee years of service, and internal referrals for open positions.
  • Customer/Client Services – Client retention, new clients, revenue by clients, revenue by customer service individual, and customer satisfaction surveys.
  • Operations – On-time delivery, customer product complaints, number of training certified employees, and returned or reworked orders.
  • Accounting – On-time financial reporting, quality of collections, credit approvals and rejections by both clients and customers, and responsiveness to customer inquiries on invoicing.
  • Suppliers – On-time deliveries of orders, competitive pricing, responsive to quality issues, and engaged in new product offerings to the company.
  • Legal – Number of open litigation cases, regulatory citations, and settlement costs.

The Culture development cycle below illustrates the on-going, continuous nature of an intentional Culture.  Cultural development by nature should be an evolutionary process that regularly clarifies and adjusts the future course of the organization

  1. A baseline employee Culture Assessment that provides the foundational behavioral metrics that all future analyses will be measured against is recommended as an organization begins the intentional Culture developmental process.  The assessment process also identifies those areas with the highest ROI potential and creates a roadmap for the next steps.
  2. Clarifying the company’s purpose and values is the next phase after the employee assessment is completed and interpreted.  Without clarity of the purpose and values, the development process will be ineffective and frustrating for employees without the tangible guidance of these clearly stated high-level benchmarks.  It is important to note that an organization should incorporate its purpose and value into all levels of the decision-making process.  This approach acts as a powerful influencing catalyst for inspiration through the employees’ embrace of them.
  3. Targeted Culture development programs focus on tangible behaviors.
  4. Pulse surveys provide regular metrics that monitor the effectiveness of the previous steps, and they provide valuable feedback.
  5. Sharing this process with all stakeholders helps to ensure that the company’s purpose and values are embraced and lived by everyone.  This step completes the cycle, but the cycle itself should continue to be repeated for maximum benefit.

In conclusion, it has been widely accepted that a high-performing organizational Culture has a significant positive impact on profitability.  Being intentional in the development of a Culture that is aligned in all aspects of the company will generate the tangible ROI leaders aspire to.  The only variable in this equation is how much benefit will be derived from this approach by the organization

About The Author

Toni Clubb is the President of All American Leadership, where she provides operational leadership, strategic planning, compliance, and finance expertise.  She has decades of leadership experience with former companies, including PepsiCo, Cort Furniture Rental, El Torito Restaurants, Vitatech Nutritional Sciences, and CFO Leadership Council.  She can be reached at: tclubb@allamericanleadership.com

 


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