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How to build a business case for culture

[fa icon="calendar"] 06-Dec-2017 08:00:00 / by Jerome Parisse-Brassens

Culture is a word that is on everyone’s lips at the moment, but often not for the right reasons; such as when a well-known brand was found to lack integrity and has lied to its clients, or maybe has treated its employees unfairly.

How to get corporate culture on the agenda.

Regulators are becoming increasingly nervous about businesses not managing their culture, and they are asking boards and executive teams to start acting. You may therefore be asked to put together a business case for culture work. Where do you start, and how do you do it?

  • Rationale

First, build a credible story about the importance of culture for your business outcomes. What is critical is to position the culture work from a strategic perspective? Here are some pointers for you:

  • Establish a clear link between the business imperatives and how people need to behave to deliver on the strategy. Describe how the behaviours you want to shift in the organisation are going to impact outcomes. For example, how by creating empathy, we will truly be listening to clients and increase their satisfaction and reduce the number of dissatisfied clients leaving.
  • List all tangible and intangible benefits. For example:

Tangible benefits (financial or not):

  • Increase in revenue or in profit
  • Decrease in recruitment costs
  • Number of projects delivered on time and on budget
  • Number of new products taken to market in a certain period

Intangible benefits:

  • Improved reputation
  • Long-term sustainability
  • Increased customer satisfaction
  • Increase in employee engagement
  • More effective leadership
  • Reduced culture risks
  • Clearly identify the risks of not proceeding with the culture project / activities.
  • Investment

This is the easy bit, because it can be more easily costed than returns. The investment will often have the following components:

  • Culture assessment costs (for example, surveys and focus groups). This is better done by an external provider, who can be more neutral than internal actors.
  • Leadership development activities (time of employees and costs of any providers).
  • People development activities (time of employees and costs of any providers).
  • Cost of time spent on realigning systems and processes with the target culture.
  • Any costs linked to the use of software or tools to measure behaviour shifts (e.g. pulse surveys).

It is essential to distinguish between business as usual activities and specific investment. Business as usual activities should not be considered in the business case. The investment may also need to be taken into account over time to represent phasing of activities.

  • Return

The return on investment part is the one that most organisations struggle with, but it is not as hard as everyone thinks it is. The approach is to focus on the behaviours you are trying to shift. First, identify the business outcomes the most directly linked to the behaviours about to change, and then simply calculate the financial impact. For this to work well, you need to make sure there are few factors impacting the business outcome in question.

Follow the steps below by asking specific questions:

  1. What is the business imperative?
  2. What behaviours are we trying to shift?
  3. What evaluation question are we trying to answer?
  4. What is the measure of success?
  5. What is the right metric for the business outcome?
  • Example of ROI

The table below illustrates the calculation of a detailed return.

Question

Example

Return

What is the business imperative?

Increase value add for our customers

 

 

What behaviours are we trying to shift?

Empathy / Seek to understand

What evaluation question are we trying to answer?

Are our employees putting themselves in the shoes of our customers?

What is the measure of success?

1.     Customer satisfaction

2.     Customer churn rate

3.     Profit per customer visit

What is the right metric for the business outcome?

1.     Increase in % of customers who declare themselves 100% satisfied after having their complaint processed è Decrease in number of customers lost

For a business with 250,000 customers: Customers lost = 8% /year

 

Decrease in numbers of customers lost: 10% (2,000 customers)

 

Cost of customer acquisition = $100 / customer

 

Savings = $200,000 / year

2.     Increase in number and value of cross-sold products è Increase in profit per customer visit

Profit per customer visit = $ 50 (1 visit / year)

Increase in profit per customer visit: + 6% = $3

 

Return = $750,000 / year

The full Return on Investment will be calculated across a few years, typically five. Here’s an example of what this looks like (in this fictitious example, the return happens at the beginning of Year 3, only by considering two business outcomes).

 

Year 1

Year 2

Year 3

Year 4

Year 5

INVESTMENT

Culture assessment

$110,000

 

 

 

 

Top team work

$100,000

$100,000

 

 

 

LD work

$300,000

$300,000

 

 

 

People cost

$50,000

$50,000

 

 

 

Total cost

$560,000

$450,000

 

 

 

RETURN

Savings from reduced customer churn

$0

$200,000

$200,000

$200,000

$200,000

Increase in profit from cross-selling

$0

$750,000

$750,000

$750,000

$750,000

ROI

Financial return

 - $560,000

 +$500,000

+$950,000

+$950,000

+$950,000

Cumulated return

 - $560,000

 -$60,000

+$890,000

+$1,840,000

+$2,790,000

If the appropriate behaviours have been identified in alignment with the strategy, the calculation of the return is easier. I strongly suggest focussing on a very small number of behaviours, one or two, and choosing a small number of significant metrics. If the business imperative is compelling, the financial return will be significant.

Your turn. Let me know how you go.

 

Download 'Building Confidence in your Culture' Report

 

Topics: Business case for culture, Corporate culture, Jerome Parisse-Brassens

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