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Why values driven organizations improve your bottom line

Ken Blanchard and Phil Hodges estimate that fewer than 10% of organizations have clear, written values and many take the work on values no further than words. To create an impact, core values need to extend into the day-to-day fabric of the organization and be a reference for decisions and behaviours at all levels, influencing people daily.

Those in different places in an organization see evidence of culture and values differently. For example; those at the top, rate tangible KPIs (key performance indictors) as demonstrative of organizational culture (e.g. financial performance, competitive compensation); those lower down rate their personal experience as important evidence of values (e.g. open communication, employee recognition, access to leaders). Both are forms of evidence.

What does the emerging importance of values (the paradigm we referred to by some as the Values Economy) mean for organizations?

Looking from the best case to the worst-case scenario, you can see for yourself the way you can harness core values for good or ignore core values at your peril. The research from Forrester reinforces what we have known for some time. The key factor common to companies that have delivered sustained high performance at the top of their market for 100 years or more is a base of values that is strong enough to provide the employees of the company with a common bond a purpose beyond profit. A growing body of research shows that there is a strong link between financial performance and values-driven organizations. In 2001, Eric Flamholtz discovered a strong positive correlation between cultural agreement (a proxy for values or cultural alignment) and a companys EBIT (earnings before interest and taxes).

additional evidence of the significant role of corporate culture not only in overall organizational effectiveness, but also in the so-called bottom line.

Other studies show that companies with strong adaptive cultures based on shared values outperform other companies by significant margins in the areas of sales, profit, employment and stock price growth, over the long term. The chair of the UK-government-sponsored Employee Engagement Task Force and non-executive director of the Ministry of Justice in the UK, David MacLeod, describing the power of living values, comments:

All organizations have some values on the wall. What we found was that when those values were different from what colleagues and bosses do, that brings distrust. When they align, then it creates trust.

Values in practice

How do you make sure that your stakeholders experience of your organizational values is explicit and aligned from the boardroom to the front line?

The tone is set by every employee, not just those at the highest level. Those at the top model what is important and are particularly visible in everything that they do people take notice of how they behave. Yet, wherever you are, you have influence on those around you.

We need to turn the lens inwardly if the organization is going to behave in line with their core values. What are you doing? If you dont behave as if the core values matter, then others wont either. For values to be really cemented in the organizations culture, everyone must be held accountable for living and demonstrating the values in their day-to-day decisions and actions. Embedding values is a challenge.

For organizations, identifying values is the first step but it is not enough. Well-written values without good execution can lead to disasters such as Enron or, more recently, Carillion. Carillions explicit value statements of We Care, We Achieve Together, We Deliver, We Improve masked the real and self-defeating culture at work. Many leadership surveys see corporate values as rhetoric rather than reality, with most employees unaware of their organizations values. And yet, most employees see the potential benefits of having a set of values in the first place, especially if consequences of living and failing to live the core values are explicitly aligned.

In the wake of the banking crisis and other corporate scandals, now more than ever, organizational values should be at the forefront of business leaders minds Peter Cheese

The lived values of an organization have a huge impact on reputation and business outcomes. Its also possible to delude yourself and your organization that youre fine, all is well. The way powerful and intelligent people deliberately set aside crucial facts and turn a blind eye to fatal errors and frauds is explored in the book Wilful Blindness by Margaret Heffernan. But where actions cut across the beliefs and traditions expected by core communities of stakeholders, standards expected in the profession and the ethical standards and practice embedded in different legal systems, disaster can be a very real outcome for all involved.

The bottom line

It might appear obvious, but authenticity is the key. It has become fashionable for organizations to describe themselves as values-driven and yet, for the stakeholders (employees, customers, service partners, local communities, investors, members, citizens) of some, if not many, of these organizations, there is a disconnect between the aspirational words and the experienced reality. Values are now mainstream; it is no longer about a framed plaque on the wall. Values are the guiding compass and are most effective when they consciously inform every decision taken and how employees behave. In the Values Economy, the successful organizations will be those which create a sense of shared values with all stakeholder groups.

However, be aware that, while this approach sounds simple, and in many ways is just that, sustained success requires sustained effort and it is hard work. Leaders need to lead, not just with public endorsement butin practical terms on an ongoing basis. Strategic alignment with co-ordinated execution is key. Finally, to use a variation on the popular adage, practice makes more perfect: (effective) practice results in improvement and, at the same time, there is always room for further improvement.