From Laura Gallaher; August 23, 2021

As the CEO, you know culture matters. And in the last few years, you put your money where your mouth is – in a big way – working to create an effective culture at your company. The new yoga classes, take-your-dog-to-work days, rooftop meetings and cross-functional team retreats are getting rave reviews. But you’ve got to admit, sometimes it all just seems like a bunch of fluff. Is it really making a difference in your bottom line?

How can you measure the changes, if any, that directly impact company culture? A whole lot of money has been spent on new initiatives, but now that it’s time to report and measure, and you want to make sure you’re counting the right wins. It’s a deceptively simple truth: if you want to optimize something, you must first know what you are optimizing for. So, what makes an effective culture? And how can you measure it?

An effective organizational culture: (1) Drives business results; (2) Increases employee engagement; and (3) Improves lives.

An effective organizational culture must drive business results. Organizations exist to create value and generate profits for their owners/shareholders. Every division of your firm has performance criteria which are linked to the core mission. Company strategy captures how a company intends to compete and deliver value while maximizing profit. An effective culture is one that is aligned with this.

When there is alignment between strategy and culture, the attitudes, beliefs and resulting behaviors of employees are naturally those which are required to execute the strategy. This removes the need for burdensome enforcement mechanisms to drive behavior. Not only do such mechanisms deplete the energy and resources of the company, they also often fail.

This is exactly why Peter Drucker famously said, “Culture eats strategy for breakfast.” It doesn’t mean that strategy is unimportant, rather, it means that when the two are in conflict, culture always wins.

The second criterion is that an effective culture increases employee engagement. One Gallup study found that companies with the highest levels of employee engagement were 22% more profitable and 21% more productive, while another of their studies found that companies with engaged employees outperformed their peers by 147% in earnings per share. A single “toxic” disengaged employee can cost as much as $12,000/year and it’s estimated that companies lose over $500 billion annually.

The extent to which employees feel passionate about their jobs and how committed they are to the company determines how much they are willing to go above and beyond in their work. Engagement is a fascinating combination of heart and mind composed of an intrinsic emotional connection to the business and its purpose along with a rational evaluation of the benefits, conditions and quality of employment.

The third and final criterion of an effective culture is that it must improve lives. This may sound somewhat idealistic, but providing a healthy and engaging work environment for people to come to every day greatly improves their lives. The idea of corporate social responsibility has gotten a lot of traction in recent years and most companies are practicing some form of this.

We spend a tremendous amount of time at work – roughly 1/3 of our lives – and the quality of the working environment directly impacts the quality of our lives. For many that impact reaches beyond the walls of the office as they take it home with them. By creating a positive work environment and reducing the negative impacts of stress and burnout, an effective culture can have a tremendous positive impact on peoples’ entire lives.

Let’s bring this all back home, to you as a CEO. When it comes to measuring the impact of cultural change at your company, the criteria you want to use are business results, employee engagement, and improving lives. With these yardsticks in hand, it becomes a little easier to measure the impact of initiatives, and to set goals and deliverables for the coming year.