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Linking Organizational Culture to the Bottom Line

Linking Organizational Culture to the Bottom Line. Introduction. We present here an overview of the latest research linking organizational culture with profitability , sales growth , market value , and customer satisfaction .

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Linking Organizational Culture to the Bottom Line

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  1. Linking Organizational Culture to the Bottom Line

  2. Introduction • We present here an overview of the latest research linking organizational culture with profitability, sales growth, market value, and customer satisfaction. • The results are based on a study of 102 public companies from a broad range of industries surveyed by Denison Consulting from 1996-2004. Companies are incorporated primarily in the U.S. (89%).

  3. First, an overview of the model… AdaptabilityPattern..Trends..Market Translating the demands of the business environment into action “Are we listening to the marketplace?” MissionDirection..Purpose..Blueprint Defining a meaningful long-term direction for the organization “Do we know where we are going?” InvolvementCommitment..Ownership Responsibility Building human capability, ownership, and responsibility “Are our people aligned and engaged?“ ConsistencySystems…Structures… Processes Defining the values and systems that are the basis of a strong culture “Does our system create leverage?” 1-3

  4. Links to Performance

  5. Impact on Performance If we compare the 102 firms in the top and bottom 25% based on their overall average of the 12 indexes, companies with higher culture scores have greater profitability, sales growth, and market value than those with lower culture scores. Bottom 25% Top 25% Each color bar indicates the percentile quadrant of the score. The more color the better. Each of the 12 indexes has a score. It is the percentile score based on our normative database which shows you the percentage of 888 companies that scored lower on the index. These firms are earning almost $2 more on every $100 spent on assets! The market value (share price x #shares) is 440% of book value (which is a company's assets minus liabilities). Managers in the top 25% are creating more value in the marketplace.

  6. Impact on Sales Growth Looking at the impact on sales growth, firms in the top 25% of each trait in the Denison model have dramatically higher sales in the year the company was surveyed. Each bar represents the average sales growth of ~24 firms. For example, the 24 firms with the highest total mission score have a sales growth average=14.3% versus the 24 lowest rated firms which have a sales growth average= -.1%. Therefore, focusing on culture is a great way to improve sales.

  7. What about the Long-Term? Today’s culture impacts tomorrow’s performance! Here we show the return-on-assets* for the top 25% and bottom 25% of each trait over a three-year period. On average, 72% of firms in their industry rank below these companies in profitability. These firms are only matching the industry average in ROA. *Standardized within industry

  8. Additional Research

  9. Customer Satisfaction In a separate study of 240 automotive dealerships, firms with higher culture scores have higher customer satisfaction ratings. N=10 N=12

  10. Return on Shareholder’s Equity Average ROE = 6% Average ROE = 21% In a study of 161 publically traded companies from a broad range of industries, we see the contrast in performance of the 10% of the organization with the best culture scores with the 10% with the lowest culture scores. The difference between the average Return on Equity for these organizations is also significant. We found similar results for Return on Investment.

  11. Satisfying Your Customers Bottom Five Markets (Customer Sat) Top Five Markets (Customer Sat) This profile shows the top and bottom five performers of a large Fortune 500 construction company. Correlations with customer satisfaction were significant for all twelve indices. There was an average 24 percentile point difference between the top and bottom five in all 12 indices.

  12. Percentile Difference Between Top 5 and Bottom 5 in CSMS

  13. Growing Your Business Over 5% Sales Decrease Over 5% Sales Increase This was a study of retail supermarkets in the US. It includes 12,000 individuals in 2500 stores.

  14. Percentile Difference Between Stores with a 5% Sales Decrease and a 5% Sales Increase

  15. Conclusion • Your organization’s culture can have a dramatic impact on your bottom line. • Culture is a controllable aspect of your organization that can improve your profitability, sales growth, market value, and customer satisfaction. • Developing your culture today will improve your performancetomorrow. • For more information, contact us at www.denisonconsulting.com or (734) 302-4002.

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