Financial Returns From Organizational Culture Improvement: Translating “Soft” Changes into “Hard” DollarsWHITE PAPER humansynergistics.com Copyright… [618238]

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Financial Returns From Organizational
Culture Improvement: Translating “Soft” Changes into “Hard” DollarsWHITE PAPER humansynergistics.com
Copyright © 2012 by Human Synergistics International. All rights reserved.
Abstract
Culture change initiatives can lead to real financial returns. This presentation summarizes the results of a series of studies that demonstrate the strong relationship between Constructive organizational cultures and financial performance. First we review cross-sectional studies confirming that Constructive cultures are related to financial outcomes across organizations within the same industry. Then the results of longitudinal case studies show how organizational development programs have produced measurable cultural changes that, in turn, have led to improvements in bottom-line financial performance.
Financial RetuRns FRom
oRganizational cultuRe impRovement
We discuss five different studies that
validate and support the importance of the work carried out by training and development practitioners to improve organizational culture. The studies referenced use quantitative data to measure both organizational culture, via the Organizational Culture Inventory® (OCI®; Cooke and Lafferty, 1987), and financial performance (based on corporate financial reports), and draw strong correlations between the two. The OCI is a well-respected survey that has been completed by over 2 million individuals over the past twenty years and is statistically reliable and valid (Cooke and Szumal, 1993).
Three cross-sectional studies linking
organizational culture and financial performance are of key interest to us here. The first focuses on organizations in a variety of industries and demonstrates a positive correlation between the strength of Constructive cultural norms and earnings/sales ratios (Cooke, 2004). The second is a study by Klein (1992) that focuses on retail stores within a single chain and shows stronger sales growth at the stores with Constructive cultures than at sister stores with less Constructive cultures. The third is a large study of newspapers which shows many bottom-line measures are positively related to the strength of Constructive norms. (Human Synergistics/Center for Applied Research, Inc. and The Readership Institute, 2001).
Possibly the best-known longitudinal study
that links financial performance to adaptive (similar to Constructive) cultures is the classic work by Kotter and Heskett (1992). They show that companies with adaptive cultures performed significantly better than those with nonadaptive (overlapping with what Cooke and Lafferty (1987) refer to as defensive) cultures over an 11-year period along various financial indicators. Their research design, however, is retrospective and neither survey-based nor intended to trace the impact of eric J. sanders andRobert a . cooke, ph.D.

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culture change interventions. The two
longitudinal case studies presented here complement Kotter and Heskett’s research by demonstrating that investments in cultural change programs and positive changes in cultural norms are followed by significant improvements in financial performance. By suggesting that culture leads to performance, the case studies also complement the crosssectional studies (which show significant correlations between culture and performance but do not demonstrate causality).
These research results should be of value
to training and development practitioners when recommending cultural change initiatives to CEOs and other high-level executives of client organizations. The quantitative results should enable them to make a stronger case for the return the organization will realize from an investment in improving organizational culture.
oRganizational cultuRe
inventoR y (oci)
While culture can be assessed either quantitatively or qualitatively, survey-based quantitative measures provide the type of data that are useful for relating culture to performance.
The survey used in the studies reviewed
here is the Organizational Culture Inventory (OCI). The OCI measures the operating cultures of organizations in terms of behavioral norms, or “what’s expected” of members. It includes 120 statements describing behaviors that might be expected or implicitly required of members of an organization. The results of the assessment are mapped on a circumplex—a circular graph divided into 12 sections like the hours on a clock. The twelve sections represent norms for twelve behavioral styles that cluster and statistically factor into three types of cultures:
• Constructive cultures, including Humanistic-Encouraging, Affiliative, Achievement and Self-Actualizing;
• Passive/Defensive cultures, including
Approval, Conventional, Dependent and
Avoidance; and
• Aggressive/Defensive cultures, including
Oppositional, Power, Competitive and Perfectionistic (Cooke and Lafferty, 1987; Szumal, 2003).
The scores for members of an organization are aggregated, plotted on a profile and, in the process, converted to percentile scores based on statistical norms drawn from years of research that allow objective comparison of styles within and across organizations.
cRoss-sectional stuDies
Culture in Relation to Earning/Sales
Ratios and Volatility
The first study was made possible by
Towers-Perrin, which provided Human Synergistics with data on earnings/sales ratios for publicly-traded corporations over a three-year period.
Human Synergistics had carried out OCI
projects with many of these organizations and was able to create a data set of 69 companies that included both the financial and culture data. A measure of average performance across the three years was developed for each firm. Additionally, the standard deviation across the three years was calculated to serve as a proxy for volatility in performance (Cooke, 2004).

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Copyright © 2012 by Human Synergistics International. All rights reserved.Figure 1: High Sales Growth
Stores Culture Profiled Against No Growth StoresCorrelations were carried out to see if the cultural styles were related to performance. As expected, the strength of Constructive norms across organizations was significantly related to earnings/sales ratios (r = .22, p < .05). No relationships between the financial measures and either the Passive/Defensive or Aggressive/Defensive styles were observed. However, the Aggressive/Defensive styles were significantly related to volatility (r = .34; p < .01).
These results are consistent with those
of previous studies showing a positive relationship between Constructive cultures and other, non-financial, measures of performance. For example, Constructive cultural norms have been shown to be related to member commitment and motivation, teamwork and cooperation, and organizational-level indicators such as adaptability and client satisfaction (Cooke and Szumal, 2000). These positive outcomes are likely to translate into better financial performance. Additionally, the results around volatility are consistent with previous findings showing that Defensive cultures can lead to internal competition, power struggles, and an undue emphasis on short-term performance.
While informative, the power of this
study (and the potential magnitude of the correlations) is limited by the fact that companies from many different industries were included. The next two studies we review focus on specific companies and industries.
Constructive Culture and Sales Growth
in Retail Men’s Apparel Stores
Martin Klein, now Director of the
Courage Institute, studied the culture and performance of a group of men’s apparel stores (1992). Klein divided the 44 stores in his sample into categories, including:
• High Growth—stores with the largest sales increases compared to previous years and the greatest sales volume (n=11), and
• No Growth—stores with the largest sales
decreases and smallest total sales volume
(n=12).
Having spent 20 years working in retail
(Sanders) and studying various types of stores (Cooke), we can verify that retail chains place a strong emphasis on sales growth. Store managers are promoted or fired, and stores are maintained and expanded or closed, depending upon whether they can beat last year’s numbers. Those who could show consistent growth along with higher sales volume, such as those in Klein’s High Growth sub-sample, would certainly be considered “the cream of the crop” by the senior management of any retail chain.
The staff of each store completed the OCI,
their responses were aggregated to the store level, and ANOVA (analysis of variance) tests were run. Klein found, as predicted, that the Constructive cultural styles were significantly stronger in the High Growth stores than in the No Growth stores. We took his results a step further and mapped them on the OCI circumplex, which shows the High Growth stores are higher on every Constructive cultural style and lower on most of the Defensive cultural styles (see Figure 1). Teams in the Constructive stores focused on achieving goals instead of winning competitions, on helping each other instead of fighting each other, and on working as a team instead of as a group of individuals that happen to work in the same place. This is a culture for performance, and the results confirm that it is successful.
(High growth stores are inside the dark line;
no growth stores are in the shaded area.)

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Readership Institute Culture Results
In 2001, the Readership Institute at
Northwestern University conducted The Impact Study, focusing on newspapers and their readers. This was a multi-faceted study designed to help newspapers grow sustainable readership through research findings that could be put into action and yield measurable results in US markets. Part of that research included assessing the organizational culture at 90 newspapers via the OCI.
The results showed that newspapers had
predominantly defensive cultures, with 73 of the 90 being defensive. In these defensive cultures, “employees lose sight of the overall goal, get lost in details, and make little effort to coordinate with others. Newspaper employees also are confrontational, which causes unproductive conflict, results in safe but ineffectual decisions, and creates the inability to solve problems in a group” (Readership Institute, 2001).However, a separate survey carried out to identify the “Ideal culture” for newspapers clearly suggested that people in the industry view a Constructive culture as more appropriate. Additionally, managers tended to have a more constructive view of the Current culture than others. This suggests that the Defensive cultures of the newspapers in the sample can be changed.
Why they should change is readily
apparent from the findings of the study showing the positive effects of Constructive cultures. Using correlation analysis, Human Synergistics found significant positive relationships between Constructive norms (and negative relationships between Defensive norms) and many factors that directly affect the bottom line of newspaper companies (see Table 1). These include satisfaction, stress, turnover, cooperation and teamwork, intra-unit cooperation, product/service quality, customer satisfaction, and reader behavior. The strength of Constructive norms was also directly related to profit,
Table 1: Culture and Newspaper Effectiveness
Strength of Cultural Norms 1
Effectiveness (O utcomes) Constr uctive Passive/Defensive Aggressive/Defensiv e
Individual Leve l
Notes:* p < .05; ** p <.01; *** p < .001. Organizational n = 79. One-tailed correlations with list-wise deletion of missing cases.
Coefficients differ slightl y with case-wise deletion.
1 Culture factor scores based on the Organizational Culture Invent ory (Human S ynergistics) .
2 Based on the Organizational Effectiveness Invent ory (Human S ynergistics) .
3 Based on organizational records collected b y the Readership Institute (Nor thwestern Universit y).
4 Based on su rveys of newspaper r eaders carried out b y the Readership Institute .
5 Regression residual of pro/f_it not explained b y revenue and circulation strata.Satisfaction 2 .576*** -.420*** -.352***
Stress 2 .255* .245* .303**
Turnover 3 -.193* .104 .292**
Cooperation/T eamwork 2 .424*** -.345*** -.466***
Inter-Unit Coordination 2 .512*** -.370** -.197*
Product/S ervice Q uality 2 .455*** -.294** -.338***
Customer S atisfaction 4 .046 .143 -.294**
Readership 4 .211* .104 -.066
Pro/f_it 5 .224* -.148 -.018Group Leve l
Organizational Leve l
Analyses by: Rober t A. Cooke , Ph.D., Human S ynergistics, 7/2003Table 1: Culture and Newspaper Effectiveness

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Copyright © 2012 by Human Synergistics International. All rights reserved.controlling for the size of the newspaper.
Organizational culture is both directly and indirectly related to the bottom line at newspapers.
longituDinal case stuDies
Culture Change at The Ohio State
University Medical Center
In 2001, Dr. Fred Sanfilippo, the Dean
of the Ohio State University Medical Center determined that one of the key factors they needed to change to improve the center was the organization’s culture. They administered the OCI and found that their predominant cultural styles were Defensive, especially Avoidance and Oppositional. This suggested that the behaviors typically found included lack of involvement and poor teamwork, waiting for others to act first, and blaming others if a problem occurred. Prevailing norms also included opposition to new ideas, refusal to accept criticism, and a focus on process rather than outcomes. However, the Dean and his leadership team also identified a strong desire among the staff to change to a more participative, Constructive and Achievement-oriented culture.
The medical center has a three-part
mission: research, education and patient care. To succeed in this mission it also has a key goal to deal with the financial challenges facing an academic medical center. The senior leadership realized the key to succeeding in their mission was first and foremost investment in their people. They started with high-level leadership training for executives, leadership training for faculty and staff, and management training for all who wanted to improve their skills. The culture change program also included 360° feedback, culture retreats and an organization-wide focus on becoming a more collegial, Achievement-oriented and Self-Actualizing institution.
Over just four years, the results have
been impressive. The culture has moved from being primarily Passive/Defensive—emphasizing Avoidance—to an Aggressive/Defensive one—high in Competitive norms—with strong movement toward becoming a more Constructive culture. This means that the dominant norms now are toward winning and being noticed, with a strong emphasis on setting and achieving goals and on helping and encouraging others.
Improvements in the mission areas of
research, education and patient care have been equally impressive. With respect to research, the OSU Medical Center has doubled research funding, created a research faculty track and three new high-technology medicine departments, and built the largest research center at the university ever without any state or university capital funding. In education, they increased the number of MD applicants by 28% (well above the national average), and MD-PhD applicants by 129%, increased merit scholarships to 34 from just 4 two years ago, and increased continuing medical education by 193% in just two years. In patient care or clinical medicine, 80% of their physicians are rated as among the best doctors in the geographical area, they have the most “wired” hospitals for the fifth consecutive year and, by the US News and World Report’s honor roll system, they are now in the top quartile of academic medical centers in the country.
The goal of dealing with the financial
issues facing an academic medical center facilitates all of their mission areas, and OSU has done phenomenally well in

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that regard. In 2000, before the culture
change program started, funding per square foot was about $75. That has risen every year and is now over $100 per square foot. More impressive still, the center’s FY 2000 budget was about $600 million accompanied by a deficit of over $40 million. In just four years, they have grown to an FY 2004 budget of over $900 million with a $7 million surplus. These are impressive results that show that investment in culture change pays a huge return over time.
Lion Nathan’s Culture Change Success
Lion Nathan is the largest brewer in New Zealand and the second-largest in Australia. As part of their corporate goal “to make our world a more sociable place” (Lion Nathan 2004 Annual Report), they have worked to develop a great business by improving on many fronts, not the least of which is corporate culture.
In 1996, Lion Nathan CEO Gordon Cairns and HR Director Bob Barbour
developed a plan to assess and improve their organizational culture. They started at the top with Cairns using a 360ș assessment—the Life Styles Inventory™ (LSI)—to create a leadership development plan that included coaching by Barbour on a regular basis (Barbour, 2003). The development plan now includes leaders at all levels of the organization. They use the LSI about every 18 months, talent reviews every six months in a “Competency X Results” model, and other tools to continually develop internal talent (Cairns, 2002).
Lion Nathan also administered the
Organizational Culture Inventory in 1996 and has continued to do so every two years since (see Figure 2). At the time of the first assessment, the organizational culture of Lion Nathan was Aggressive/Defensive. The strongest cultural styles were Competitive, Power, Oppositional and Avoidance. The results suggested
We measure our culture and know that it drives
business results
1996
YAGO
%
B/(W)
Figure Cour tesy of S haun McCar thy, Human Sy nergistics New Zealand* Before significant item s1996 1997 1998 1999 2000 2001* 2002* 2003* 2004*
-0.8 -0.8
-1.0
-12.0
-26.0-16.11.8
4.0
7.51.2
5.1
7.86.2
7.3
6.21.0
11.0
14.08.6
5.1
19.66.6
9.1
11.23.9
4.3
12.51998 2000 2002 2004
Figure 2: Lion Nathan Organizational Culture
and Financial Results over Time

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Copyright © 2012 by Human Synergistics International. All rights reserved.that members felt they had to win at all
costs. People competed against each other internally, sometimes to the detriment of the organization. Being in control was important, and if something went wrong, one criticized it openly and passed the blame for problems on to someone else. Cairns and his team recognized that this was not a healthy environment to work in, nor one that would lead to long-term business success.
The turnaround in the culture at Lion
Nathan has been remarkable. The most recent OCI results show that over the past eight years, the culture of the organization culture has become very Constructive (see Figure 2). This transformation is discussed in the 2004 Annual Report, which states that Lion Nathan offers its employees three things: “1) The chance to be the best that they can be; 2) The ability to make a real difference; and 3) The opportunity to have a great time doing it.” Given this strong constructive environment, Lion Nathan has been rated one of the top ten employers in Australia (Cairns, 2002).
Lion Nathan has also gained strong
financial returns on the investment made to redirect culture, as indicated by three key financial measures: revenues; earnings before interest, taxes and amortization (EBITA); and net profit after taxes (NPAT, before significant or abnormal items). First, note these numbers declined in the first two years after the culture change initiative began. Culture change can create uncertainty with an organization; however, the pain has been well worth it. Since 1998, Lion Nathan has reported increases in each of these key financial measures every year, as shown by the annual rate of change in Figure 2. In addition, the common stock price has risen every year since 1999, more than doubling from $3.58 to $7.58 (Australian dollars) in 2004—a 12.8% annual increase. Clearly culture change has been good for the shareholders of Lion Nathan.
summaR y
The five studies reviewed above
convincingly show the return on investment that organizations can achieve with culture change initiatives. The cross-cultural studies show a strong correlation between Constructive cultures and business success. Retail stores with more Constructive cultures showed stronger growth in revenue and indeed higher revenue than their defensive-culture sister stores. Newspapers with Constructive cultures had higher satisfaction, more cooperation and teamwork, lower stress, better readership, and higher profit.
It is important to note, however, that
link between culture and profit was not direct. Detailed analysis of the retail store data indicated that Constructive cultures translated into cooperation and teamwork, which promoted high quality service and, in turn, repeat business and better sales. Similarly, the more constructive and successful newspapers were driven by a philosophy oriented toward serving their readers, which made out-performed their defensive counterparts.
In the longitudinal studies, the Ohio
State University Medical Center showed that over four years they moved from a defensive, avoidant culture to a competitive and more Constructive culture, through leadership development and an organization-wide emphasis on culture change. They also improved their research, education and patient-care performance, raised their budget by 50% and moved from a $40 million deficit to a $7 million

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surplus. Finally, Lion Nathan showed that
a concerted culture change program, led and supported by senior management, can completely change an organization’s culture. The company’s culture moved from Defensive to Constructive, Achievement and team-oriented, and the financial results show it, especially in the past six years.
Key factors in both Lion Nathan and the
medical center were strong missions and committed leadership. These factors allow the translation of “soft” organizational culture change initiatives into “hard” dollars for the organizations bold enough to implement them.Eric J. Sanders has master’s degrees in
economics and business administration, twenty years experience in retail sales and management, taught economics at two universities and trained over 1000 K-12 economics teachers in the US and Ukraine.
Dr. Robert A. Cooke is Director of Human
Synergistics International and is Associate Professor Emeritus at the University of Illinois at Chicago. He developed many organizational development assessments and experiential exercises and is the author of over 75 articles and technical reports.

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Copyright © 2012 by Human Synergistics International. All rights reserved.Barbour, Robert (2003). Reinventing the
Lion: The role of HR. Human Synergistics Australia. www.human-synergistics.com.au/content/articles/ezine/archive/2003-07/bob-barbourlion.asp [Retrieved 3/10/05]
Cairns, Gordon. Developing Leaders for
a Performance Culture, 4
th Australian
Conference on Culture and Leadership, Sydney, Australia, Human Synergistics 2002.
Cooke, R. A. (2004). Culture-Performance
Connection: A Mandate for Change, Presented at the sixth annual Australian Conference on Culture and Leadership, Sydney, July 2004.
Cooke, R.A. & Lafferty, J.C.. (1987).
Organizational Culture Inventory. Plymouth
MI: Human Synergistics.
Cooke, R. A., & Szumal, J. L. (1993).
Measuring normative beliefs and shared behavioral expectations in organizations: The reliability and validity of the Organizational Culture Inventory®. Psychological Reports, 72, 1299-1330.
Cooke, R.A. & Szumal, J.L. (2000). Using
the Organizational Culture Inventory to understand the operating cultures of organizations. In Askanaszy, N.M., Wilderom, C.P .M., & Peterson, M.F. (eds). Handbook of organizational culture and climate, Thousand Oaks CA: Sage.Culture Report on the Newspaper Industry, Impact Quick Read Summary, Readership Institute, Media Management Center at Northwestern University, Evanston, IL, 2001.http:// www.readership.org/institute/quick_guide/data/impact_quick_guide.pdf [Retrieved 3/3/2005]
Klein, M. I. (1992). Corporate culture and
store performance: Differences among high performance and low performance stores. Ph.D. dissertation. Philadelphia: Temple University.
Kotter, John P . and Heskett, James
L. (1992). Corporate culture and performance, Maxwell Macmillan International, New York.
Lion Nathan 2004 Annual Report,
http://lion-nathan.republicast.com/AnnualReport2004/republicast.asp [Retrieved 3/3/2005]
Sanfilippo, Fred (2004). Creating
the Future of Medicine to Improve People’s Lives, http://senate.osu.edu/Sanfilippopresentationpart2.pdf [Retrieved 3/10/05]
Szumal, Janet L. Organizational Culture
Inventory® Interpretation and Development Guide, Plymouth, MI, USA, Human Synergistics, 2003.ReFeRences

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Changing the World—
One Organization at a Time®U.S.A. AUSTRALIA BELGIUM BRITISH ISLES BULGARIA CANADA FINLAND GERMANY HUNGARY JAPAN THE NETHERLANDS NEW ZEALAND ROMANIA SERBIA SOUTH KOREA
Creators of the Organizational Culture Inventory®, Desert Survival
Situation ™, Life Styles Inventory™ and Leadership/Impact®.
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Research & Development by Robert A. Cooke, Ph.D., and J. Clayton Lafferty, Ph.D. Copyright © by Human Synergistics International. All Rights Reserved.About the Circumplex
Human Synergistics International’s Circumplex provides a way to “see” what drives the performance of individual contributors, leaders, work teams and,
in short, the entire organization. It illustrates the factors underlying performance in terms of 12 styles of thinking and behaving. Some styles lead to effectiveness and productivity; some do not. Regardless of their impact, they all describe what’s happening inside the organization and provide a direction
for change and development.
Research & Development by:
Robert A. Cooke, Ph.D.
J. Clayton Laf ferty, Ph.D.
Copyright © 1973-2009by Human Synergistics International.All rights reserved.1
Resolves conflicts constructively
Encourages growth and development in others
Involves others in decision making
Develops others
2
Cooperative
Friendly
Genuine concern for others
At ease with people
3
Sets goals that please others
Agrees with everyone
Over-optimistic
Spoils people with kindness
4
Treats rules as more important than ideas
Follows policies and practices
Sets predictable goals and objectives
Conforming
5
Relies on others for direction
Doesn’t challenge others
A good follower
Compliant
6
Leaves decisions to others
Non-commital
“Lays low” when things get tough
Lacks self-confidence7
Opposes new ideas
Looks for mistakes
Cynical
Critical of others8
Wants to control everything
Believes in force
Abrupt
On the offensive9
Competes rather than cooperates
Strong need to win
Constantly compares self to others
Inclined to be reckless10
Never wants to make a mistake
Sets unrealistic goals
Personally takes care of every detail
Tries hard to prove self11
Works toward self-set goals
Accepts and shares responsibility
Believes that individual effort is important
Takes on challenging tasks12
Creative and original thinker
Receptive to change
High personal integrity
Self respectingEffective individuals in groups
and organizations show
STRONGER tendencies along
the Constructive styles.
Effective individuals in groups
and organizations show
WEAKER tendencies along the
Passive/Defensive styles.Effective individuals in groups
and organizations show
WEAKER tendencies along the
Aggressive/Defensive styles.
HSI v. 1.0
3/2012