The Unexpected ROI of Culture and How to Sell It

[Music] Welcome to the Work Trends podcast brought to you by Talent Culture. I'm your host, Megan Embero. Every week, I interview smart people reimagining the world of work. Be sure to stay current with all of our interesting podcasts by visiting our page at Talent Culture Work Trends on Apple Podcast or Spotify. And of course, you can listen at talentculture.com on the podcast page. Hello, everyone, and welcome to the Talent Culture Work Trends podcast sponsored by Culture Amp. I'm your host, Megan Embero, and today we are delving into the ROI of Workplace Culture. While many leaders understand the human impact of maintaining a positive culture, they must also have the ability to explain why investing in culture is a savvy business practice. But before we dive into today's podcast, go ahead and ask yourself these questions. Number one, does your executive leadership have a keen understanding of the overall workplace culture? And number two, do you feel that your organization understands the correlation between culture and retention or productivity? Let's get started. Joining us today is Frisia Jackson from Culture Amp, who is a researcher, leader, and passionate champion for the intersection of data and culture. Let me tell you a little bit more about her. As the lead researcher at Culture Amp, Frisia's team analyzes all of Culture Amp's data to bust myths. How cool is that, by the way? And all along the way, she's finding common patterns and sharing those insights with the world. She combines her practical experience consulting with the most progressive companies in the Bay Area with academic nerdiness from her masters in IO psychology. We are so excited to have you here today, Frisia. Thank you, I am so excited to be here. I love the term nerdiness in your bio, and I'm immediately adding it to mind, by the way. So great, let's jump right in, shall we? How do most companies talk about the ROI of Culture? Yeah, this is really a perennial question, and one that I'm hearing even more frequently, given the economic environment, and really the talent market right now. And when it comes to ROI and quantifying impact, companies really want to see the dollar signs. And the number one way I see them putting those dollar signs to culture is through turnover. And that's because the link between a company's culture and their turnover is pretty clear. You know, for example, we're able to look at how an employee responded to a company survey and then follow them over time to see if they are still at the company in a year. And of course, we found that the most predictive question is just asking them if they intend to stay. But there are parts of a company's culture that profoundly impact that intent. One is if an employee doesn't feel valued, they are 2.7 times more likely than average to leave within 12 months. And of course, we know that that turnover has many costs associated with it. Some are obvious and easier to quantify, like loss of productivity or loss of revenue, the cost to put up a new job ad, the cost to rent them up and train them. And some are not so obvious, you know, like the lost institutional knowledge or the hit to employee morale and employer branding. And kind of with those things in mind, the cost of turnover estimates really range wildly. You know, I see 20% to 200% of an employee's salary. And that really tends to vary based on the seniority of the role with more senior roles being on the upper end of that range. I'm sure I'm preaching to the choir on this. But I think that's like the most popular and straightforward way to assess the business impact. And I see some companies getting a little bit more strategic with it, you know, looking at not only global turnover, but instead zooming into key groups, like high performers or female engineers. And the second most popular I see is connecting straight to the dollar sign. So things like improvement in revenue. For example, we did some research looking at culture amp customers over five years. And we found that aspects of culture correlate with stock price growth. So we were looking at over 500 publicly traded companies. And some of the key determinants were employees having the information they need to do their job effectively. The perceptions that resources are effectively applied towards company goals and having performance be evaluated fairly. So those cultural aspects of enablement, efficiency, and equity were all really associated with six to nine percent higher stock price growth in the following period. And the way I've seen customers do kind of similar research internally is to look at their engaged sales folks and see are they more likely to hit their sales quota. It's kind of an easy way to make that case. Whoa, I love seeing this nerdiness and all these numbers in action. I have to ask you, what are some of the unexpected ROI outcomes of culture? Yeah, you know, I tried to deliver on the nerdiness. We set it up front. So I'm giving it to you. So the obvious ones are, you know, what I just talked about was really directly related to current employees or profit. And I've seen companies expand beyond that to really quantify the broader impact. So a good example is looking at customer satisfaction and retention. We did research looking at our overlapping customers with ZenDesk, which is, you know, customer service response software. And we found that highly engaged companies, the CSAT was 92%. While companies with low engagement, the CSAT was 83%. So really, if your employees are engaged, they provide a better experience for your customers. And it's also fairly easy to do your own research here by incorporating, you know, CSAT for a team into things like your employee survey results. And seeing if that relationship that we found holds true in your organization. And if it does, you could do something like really simple regression to say, you know, if you improve engagement by 1%, how much CSAT could improve. And I think customer attention is very similar there. And that if there's high turnover in your organization and a customer, if someone leaves, then the customer is loving their, you know, CS rep that they've been working with. They may leave as well. And the next is thinking about the ROI of future employees. So when someone is having a good experience at work, we know they're more likely to refer folks in their networks. And there's some interesting research here as well that shows that referrals actually cut down the hiring time. According to job light, it's by 40%. And they're also more likely to stay. So the University of Toronto did a randomized control trial, which we know is the gold standard and we don't often have in workplace research. And they did that and found after a year of looking at grocery change, the stores with referrals had 15% less employee turnover, which is just a huge difference in terms of the cost there. And the final one I'll share is innovation. So research by MIT Sloan found that companies in the top quartile of employee experience were two times more innovative than those in the bottom quartile. And the way that they assessed this, I thought was really interesting. So it was based on the percentage of revenue from new products and services in the past two years. And so it's easy to kind of go beyond productivity and turnover if you understand these other potential options that you could be looking at. This is all so interesting. And I think my next question naturally becomes, what have you seen as successful in selling a business case for workplace culture to the people in leadership, the people writing the checks, the people making this a priority? I have so many. So many tips. So the first thing is really you need to understand what the top priority is for those people, right? Because before you even start to sell, you need to know the data that will kind of assess those KPIs that they're interested in. And the most successful companies I've worked with do small experiments to be able to see if something has an impact. So an example might be doing a pilot coaching program and putting one cohort through it and using a control group to compare the difference. And then using the results of that small experiment to either sell the bigger idea you're hoping to fund or immediately debunk your idea and not waste your time. So it's really a win-win no matter what the outcome is. And then I think the second thing is really focusing on storytelling, which I'm sure there are so many podcasts that say, you should focus on storytelling. But I think I have a few tangible tips and examples. - That might go exactly. - Exactly. - Step further. And so first is like consider your narrative arc. You need to understand the aspiration, but the organization is trying to get to and the challenges that are getting in the way. And once you have that, there's kind of two things that are going to supercharge your story. So first is choosing the right main character. So many people say things like turnover is 40%. And that makes the main character the concept of turnover. Which is really, really hard to relate to. Instead, you could say something like, we lost two out of five of our valued employees last year. That little tweak really humanized as the data and puts your employees at the center of it. So another example would be like, instead of manager effectiveness is 65%, you could say 3,000 of our employees are being managed by ineffective managers. So I think that gives a little bit more example of how storytelling could improve. The next thing is to really understand your audience, so that means understanding what they care about, which we already talked about, and what they're being held accountable to. But it also means knowing what they're motivated by. Sometimes leaders are risk averse and more motivated by loss. So going with turnover or connecting it to customer churn would be a good place to go. Whereas others are more visionary and galvanized by, you know, the idea of a potential new exciting future. So innovation could be a good way to go. And it also means speaking in the language that they are speaking in. Even small tweaks like saying attrition versus turnover, versus retention. Those are all things that can help people to connect better. And finally, to really quantify the cost of doing nothing. Because doing nothing is always the easiest choice. And we often don't even realize that we're making that choice. So an example could be, we agreed that the speed of innovation and execution is our top priority for this year. We lost 121 years of experience and $25,000 due to turnover and engineering since our last meeting. Doing X could reduce that number to Y before our next meeting. So it really makes it timely and adds in that human element. So those are just a couple things that I've seen really work. So when should we not use a business case for selling the importance of culture initiatives? I think this is such an important question that most people aren't asking because everyone is really focused in on the ROI and the business case. And of course, I love data. So I'm like, yeah, we need to always create that ROI and and see, you know, what lever we should be pulling. But there are times when the business case can be detrimental. So when it comes to DI specifically, there's the business case, which is really that diversity will improve the bottom line. And then there's the fairness case that it's the right thing to do. And Yale did some really interesting research and found by looking at Fortune 500 companies, 80% of them use the business case. And so they were thinking, what is the impact of that? And when they had individuals from underrepresented groups read a message from a perspective employers website and then rate how much they think they would feel like they belonged to the company. A company is with the business case. They found they anticipated feeling less belonging, more likely to be stereotyped and more likely to be seen as interchangeable since the business case really views diversity as a means to an end. And they even found that sometimes the business case caused majority group employees to feel that way too. So creating a business case is not always the best path. And something should really be done because they're the right thing to do. And they don't need a business justification. Well, I have to ask of your worldwide customer base, what do you see across industries, company size, location, other demographics that illustrate our common human needs at work right now? There's so many things. I mean, we just actually crunch the numbers for the last year of data because we put our benchmarks out every six months. And looking at over 7,000 customers and over two million employee responses from the last year, we see that the top drivers of engagement are typically related to leadership and learning and development. And they really exemplify the human needs to be seen, to have purpose, and to make progress. So for example, the number one question is, my company is a great company for me to make a contribution to my development. So that really exemplifies the need for progress and development. The second is that leaders at the company demonstrate people are important to the company's success that need to be seen. And then finally, the company effectively directing resources, funding, people, and effort towards company goals. And that is really just desire to be part of like something bigger that's going to be effective in achieving its purpose. And we see that, you know, there's small differences across industry and across region, but there's much more that's the same. Well, I love that you bring a global perspective. I think right now during the Olympic season, there is this natural inclination to remember that human needs are universal, but you, and I'm looking at you out there, work trends, community, you can use your research in your experience to underscore that it's a fact. So last question here, very briefly, because I know this is another big topic because you create so much amazing content there at Culture Amp. Tell us, what do you recommend we read today? Yeah, you're right. There's so many. So I will try to keep it brief. One is if you are interested in the ROI, we did create an ROI calculator that HR folks can use to really sell through the importance of focusing on culture, or if someone's listening and they're esceptic, you can check it out to see like at a glance. If all of my data did not convince you, then maybe this will and it will show you kind of what are the aspects of business that are affected by the employee experience. And one thing I love about it is as a researcher, I mentioned that before that the estimates for the cost of turnover range from 20 to 200% and we actually use 20%. So I love that it's very conservative so that when someone is is sharing the data with their executive or their board, they can be very confident they aren't overselling the impact. And then finally, if you're interested in the ROI, your numbers person. So like check out cultureamp.com/science, which is where we highlight all of our research back blogs. There's so many that they're constantly coming out. So that's where you can see them. We just recently did an article looking at the employee experience of women leaders and found not only is there a representation gap, which we're all aware of, but also a sentiment gap. So women in the sea suite are much less likely to feel respected and like they belong than their male counterparts. So that's just an example of something that we found recently in all of that data. Well, hard talent culture, communities, fullest marty's here. So we love resources and we appreciate your generosity in sharing these insightful offerings. Thanks so much for stopping by. Thanks for having me. What a great conversation. It's no secret that we are culture fanatics here at talent culture. It's a big part of who we are and what our community is committed to improving. This was a fabulous discussion that takes a hard look at how workplace culture is a critical element of a successful business. Here are a few of my key takeaways. Number one, if organizational leadership is unclear and how the employee experience and workplace culture is affecting profitability, attrition, or productivity, that's an important place to start. Number two, take the time to understand when to and when not to use culture as a business case. Number three, people in business isn't new, but it's only getting better. It's wise to ensure that you're regularly and intentionally using that data to inform business decisions. Thank you again for being here, Frisha. It's been a true pleasure and listeners, be sure to visit cultureamp.com and learn more about this interesting topic. And last but not least, the talent culture community wants to hear from you. We want to hear what you're thinking. So question number one, how would you rate your organization's commitment to maintaining a positive workplace culture? Number two, have you ever had to explain the connection between culture in the bottom line and what sparked those aha moments? Number three, what kind of data in analytics do you believe are game changers in assessing how to improve culture? Let us know we want to hear from you. Visit us on Twitter, LinkedIn, and Instagram to share your responses to these questions or feel free to contact me personally @meganembiro on social and [email protected]. As always, thanks for listening to the Work Trends podcast, the place to find meaningful connections at work. If you love what we do here, make sure to share our podcast with friends and colleagues, or send us a question on the socials using the hashtag #worktrends. See you soon. Thanks for joining us for today's conversation. I hope you enjoyed it as much as I did, just a reminder that you can hear all the Work Trends podcast on Spotify, Apple Podcast, and on the podcast page at talentculture.com. Be sure to subscribe so you can listen on the go and stay up to date on all the latest news you want to hear. I look forward to catching up with you next time. I hope today's information made you wiser, happier, more informed, and most importantly, thinking of how you can use it to improve the quality of your life. [BLANK_AUDIO]