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Organisational Culture and Profitability

Oct 8, 2016 | Featured, Organisational Culture, UK

Introduction

Strategy or Culture?
Short term profitability and productivity are mainly determined by strategy.
In the long run however, organisational culture has the most impact. Although your bottom line this year is mostly determined by your strategy, your bottom line over the course of 2 to 3 years will substantially be delivered by the culture within your Organisation.

Research by Eric Flamholtz (Corporate Culture: The Ultimate Strategic Asset) shows a linear correlation between the amount of cultivating organisational culture and profitability. Also he demonstrates that culture can claim up to 46% of the financial Results in the best performing business units.

The graph displays how portfolio value developed over a decade for a group of 40 best-companies-to-work-for (USA) compared to S&P500 development over the same period: a factor 4 per year more profitable.

Value

Is doubling up each year realistic? 
A well known organisation* has done an experiment. All employees were sumoned and told to increase revenu up to 100%. The criticism they uttered was strong. What on earth made management put forward this absurd goal? Impossible…

At that moment each co-worker was asked to say what was possible. And in doing so, also to explain why that would be possible. In the end co-workers realized they previously shared a large amount of subconscious inhibiting arguments that lead them to believe it was impossible.

Next they were asked to test some of the new and enabling arguments with prospects to assess what a quarterly increase could be.  An important clue for them was that they wouldn’t be judged and everything was permitted. Each and every one of them was responsible to organize help should they need it.

Management also received some valuable pointers. The main challenge for them was to trust their co-workers.

Result: At the end of the year this company increased revenu with more than 80%, thinking they would only get 5%. Co-worker enthousiasm went through the roof and they kept adding to the avalange of ideas and suggestions to build up business even more. They experienced true ownership and intrapreneurship, rather than the more traditional task and job orientation they had previously struggled with.

Customers? They felt much more involved and experienced genuine interest for their specifiic challenges. From a mere buy and sell relationship they upgraded to proper strategic partnership.

Conclusion to sum this business case up:
“An organisation can grow if and when it’s co-workers grow!”

*The name of this company is known to TheValueFactory. For privacy reasons it’s shielded here.

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