Culture: Arguably the Hottest Topic in Business Today

#Last year Merriam Webster’s dictionary stated that ”culture” was the most popular word of the year. Well, it has now become one of the most important words in corporate board rooms, and for good reason.

We have a retention crisis. New Deloitte research shows that culture, engagement, and employee retention are now the top talent challenges facing business leaders. More than half business leaders rate this issue “urgent” – up from only around 20% last year.

What’s going on? It’s very simple: as the economy picks up steam (unemployment now below 5.5%), employees have more bargaining power than ever before. Thanks to social websites like LinkedIn LNKD -0.15%, Glassdoor, and Indeed, a company’s employment brand is now public information so if you’re not a great place to work, people find out fast. This shifts power into the hands of job-seekers.

And many companies have work to do. Gallup’s latest research shows that only 31% of employees are engaged at work (51% are disengaged and 17.5% actively disengaged). Analysis of the Glassdoor database shows that the average employee gives their company a C+ (3.1 out of 5) when asked whether they would recommend their company to a friend (Bersin by Deloitte research with Glassdoor).

We have arrived in a world of “haves” and “have-nots” when it comes to attracting and engaging top talent.

Let me cite some examples:

• I recently met with one of the world’s biggest industrial manufacturers on the east coast and they lamented losing top aerospace engineers to Google GOOGL +0.26%. They’re scratching their heads to figure out how to prevent more top engineers from leaving.
• A large well-known Silicon Valley company considering a major facelift of its corporate campus to attract young people. They’re not sure if it will work or not, but they feel they have no choice. Here there is a war to build the “best workplace in the world” – free food, unlimited vacation, yoga classes, beer bashes, and bright open offices are everywhere.

Most financial services companies I meet with tell me they are struggling to hire top people. While the industry is still popular with MBAs, the recession damaged the reputation for this industry and it’s just starting to recover.

Companies that focus on culture are becoming icons for job seekers:

• Fortune’ Best Companies happen to be many of the same companies listed in Glassdoor’s Best Places to Work and also LinkedIn’s Most In-Demand Employers. This shows that companies with strong positive cultures (Fortune and Glassdoor’s list is based on employee surveys) are now the most in-demand. So the “culture winners” are winning bigger.
• Younger companies that focus on culture see a huge payoff. HubSpot, a growing New England tech firm focused on its culture (around 1,000 employees), has Glassdoor ratings of 4.6, far above the industry average. They give their staff free books and education and believe so strongly in transparency that they post their board meeting notes and culture manifesto online.
• NetFlix’s culture manifesto ”freedom with responsibility” is one of the most popular documents on the internet, 11 million+ viewers. Everyone wants to copy it.
• Value statements have popped up everywhere. Zappos’ cultural values focus on innovation, Quicken Loans  uses its colorful “ISMS” to guide values (“call back every client the same day” is one of their values), Google has its 10 ”truths” (focus on the user is one), RW Baird has its “ unique culture,” LinkedIn is in the “human service” business and calls itself a “tribe, Salesforce focuses on giving to the community, and it goes on and on.
• Culture-driven companies explicitly put their people first. Wegmans, the #7 best place to work in the Fortune list, reset business goals just to create the jobs and career growth they want for their people. “Take care of your people and they will take care of your customers,” as the saying goes.
• Traditional companies like Aetna are now heavily focused on culture. Recently the New York Times published an article about Aetna’s CEO Mark Bertolini. He has raised wages, improved health benefits, and introduced yoga and mindfulness training to his entire company to improve retention and culture in the call centers. Their $100M + turnover problem is rapidly going away and he claims to have already improved the bottom line by 3-4 %.

Look at how office space is now part of building a great culture. Fortune’s new “25 coolest offices of the 100 Best Companies” shows how most of these great places to work are actually great PLACES to work. Flexibility, entertainment, and bright colorful offices and art make these companies a fun place to work.

People now believe that culture has a direct impact on financial performance. I just talked with two industry analysts who read Glassdoor comments before they publish analyst reports. Both told me they use this data to understand employee sentiment read comments about the CEO as part of their core research. It also helps them compare competitors.

As the saying goes, “Culture eats Strategy for Lunch.” (And free lunch is now part of the culture.)

Ok it’s a popular topic. What is culture anyway?

Culture is a big and somewhat vague term. Some define it as “what happens when nobody is looking.”

In reality, it’s much more complex. Culture is the set of behaviors, values, artifacts, reward systems, and rituals that make up your organization. You can “feel” culture when you visit a company, because it is often evident in people’s behavior, enthusiasm, and the space itself.

I visit a lot of companies and I can often sense the culture in a few minutes. Are people busy and working with customers? Or are they quietly working alone? Do they get in early and leave late? Or does the parking lot empty at 4:30? Is the office beautiful and inspiring with values and icons around, or is it messy and busy? Is there a sense of order or a sense of family? All these clues help diagnose culture.

When you communicate and honor culture, people know what to expect and feel comfortable. And the climate must support it. For example, a CEO I interviewed told me that “calling people back the same day” was part of his culture – so he monitors this behavior because to him, customer service is cultural bedrock.

As a company grows or acquires another company, the culture will often shift. IBM has been through many culture changes over the years, and one can trace them to major transitions in the business. When I worked there in the 1980s, IBM was a technology pioneer, but then later slowly but deliberately changed its culture to that of a consulting organization. Now it seems to be headed back.

Sometimes an acquisition will damage a well-honed culture, so watch out here. (When HP acquired Compaq, for example, a culture of engineering quality was mixed with a culture of low-cost production, causing a historic challenge.)

Do you value employee development? Are people empowered to take charge or do they follow the rules? How are people promoted and why? The Simply Irresistible model describes many of the factors. If you’re focused on culture, we encourage managers think about the “total employee experience”: everything from the coffee in the coffee machine to the quality of management plays a role.