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01/01/2012

Cultivating a Better Corporate Culture

At Pennsylvania-based convenience store chain Wawa, employees are reminded that they're not just making sandwiches–they're helping friends and neighbors have a better day.

The company's statement of values encourages employees to "value people, delight customers, embrace change, do the right thing, do things right, and (display) passion for winning."

"We don't want individual wins," chief executive officer Howard Stoeckel said in a September 2011 lecture at Delaware Valley College in Doylestown, Penn. "We want team wins. That's our culture, and we look for people who want to fit that culture."

The positive impact on the privately owned company, with 16,000 employees and more than 570 outlets, is evident in its performance: Wawa sells 195 million cups of brewed coffee annually, for example, or one in every five cups sold in its five-state region.

Such winning cultures can't be copied, but they offer lessons. Their leaders clearly communicate guiding principles that tell employees "what they need to know and how they need to behave, very specifically in service to the business strategy," says Antonia Cusumano, a partner in the Advisory People & Change practice of global consultant PricewaterhouseCoopers. "It's about improving the way people think, behave and perform."



"It's about improving the way people think, behave and perform."

–Antonia Cusumano,

PricewaterhouseCoopers

But leaders have to practice what they preach to see results. "Values are important, but it's not the statement of core values that drives the culture," says Thom McElroy, human capital leader for Deloitte Consulting's retail practice. "It's how those values are lived within the organization."



"Values are important, but it's not the statement of core values that drives the culture. It's how those values are lived within the organization."

–Thom McElroy,

Deloitte Consulting

Culture and the bottom line

Daniel R. Denison, a leading authority on the subject of organizational culture, has developed a culture model and diagnostic tools that assess behavioral traits in four areas: involvement, consistency, mission and adaptability. As a professor at IMD Business School in Lausanne, Switzerland and founding partner of Denison Consulting in Ann Arbor, Mich., Denison has conducted research spanning 20 years that demonstrates a clear link between culture and financial performance. Companies that scored in the top quartile for effective cultures showed a premium of nearly 2 percent on return on assets, more than 15 percent higher sales growth, and a 90 percent greater market value compared with those scoring in the bottom, according to a research summary published by Denison Consulting in 2006. The findings were based on data from 102 companies in 29 industries included in annual surveys from 1996 to 2004.

"These results indicate that culture has not only a short-term impact on performance but lasting effects as a competitive edge in the industry," the research summary states. "Culture makes a difference in bottom-line performance. As a measurable and controllable aspect of your organization, it is a lever that can improve future performance."

Benefiting employees

Retail consultant Bill Bishop, chairman of Willard Bishop in Barrington, Ill., says top-performing cultures always value their employees. "Managers who have created wonderful cultures understand that since they can't take good care of every customer, they have to take good care of their people, who will take good care of their customers," Bishop says. "They show the employee that they're doing everything they can to help that employee be successful."

Employees appreciate the approach too. "When that happens, it really lights a fire," Bishop says. "It's the only way to create a truly sustainable advantage because it taps a truly abundant resource: the time and energy and constructive activities of your people.

"[Success] isn't really all about money," Bishop adds. "There's a pride component, a sense of accomplishment, development, being in control of your life. That's what these cultures do."

For example, Rochester, N.Y.-based supermarket chain Wegmans, with $5.6 billion in sales in 2010, 77 stores and 41,000 employees, routinely makes "best employer" lists. The family-owned company is known for strong employee benefits, including a scholarship program that provides nearly $4.5 million in tuition assistance annually.

The retailer empowers employees to do whatever it takes to please customers. "We set our goal to be the very best at serving the needs of our customers," states the company's five-sentence code of beliefs. "Every action we take should be made with this in mind."

The result is a service culture that wins not just loyal customers, but "raving fans," Bishop says. Customers celebrate new stores with tailgate parties in the stores' parking lots. A Facebook group, "Build A Wegmans Market in Berks County, PA," attracted more than 5,000 members in six months in 2010.

Top-down leadership

Top-performing cultures are almost always driven from the top, says Neil Stern, senior partner at Chicago-based retail consultancy McMillanDoolittle LLP. Yet strong leaders aren't necessarily rock-star personalities who take center stage. Instead, they put employees and customers first, Stern says.

An example is Costco's legendary co-founder and chief executive, James Sinegal, who was set to retire Jan. 1, 2012. He grew the warehouse club from a single location near Seattle in 1983 to one of the country's biggest and most successful general retailers, with $76.3 billion in net sales for the year ended Aug. 30, 2011.

"It's the cult of Costco, not the cult of Sinegal," Stern says. "The cornerstone of his leadership was always about his people and taking care of the customer. They have an incredibly clear mission as a trusted buying agent for members. He never wavered from that. He reinforced it even [when] it was unpopular on Wall Street."

To bolster cost discipline and to continue to earn customers' trust, Sinegal's approval was required to price items at margins above 14 percent to 15 percent, which is still well below mass retailers' markups. "When Beanie Babies or Nintendo Wiis got hot, Costco kept the same margin even when people were turning around and reselling the products on eBay," Stern says.

Companies with winning cultures focus on customers before financial metrics, Stern adds: "Discussions are not about EBITA, but about what we can do to take care of customers. A lot of companies say that, but these companies live it."

Stern recalls his firm's discussions with several clients last August when Hurricane Irene threatened the Atlantic Coast. "The discussion was first about the safety of associates–they closed about one-third of stores in advance of the hurricane–and then, 'What can we do to help the people in our market areas who are impacted?' There wasn't one discussion about how much money they were going to lose, or how much they could make up if they closed fewer stores."

Tomato teamwork

At tomato processor Morning Star Co., a private company based in Woodland, Calif., a culture of teamwork and accountability grew from founder Chris Rufer's conviction that people are happier and more productive when allowed to organize themselves rather than following a formal manager. Rufer started with a one-truck operation in 1970 and built up the company to about $350 million in annual sales last year, with tomato farming, harvesting, trucking and processing operations.

Yet none of Morning Star's 400 year-round and 2,000 seasonal employees has a title. Every employee describes his or her job responsibilities in a letter developed with colleagues. There is no formal hierarchy. Instead, leaders emerge by consensus based on the quality of their performance.

Business Benefits

Companies that score in the top quartile for effective cultures also have:

• nearly 2 percent higher return on assets

• more than 15 percent higher sales growth

90 percent greater market value

compared with those scoring in the bottom.

Source: Denison Consulting, 2006

"It's not egalitarian in that everyone has equal say," says Paul Green Jr. of the Morning Star Self-Management Institute, the company's "human R&D" arm. "Rather there's a hierarchy that comes about because people acknowledge who is a performer. It's not static; it's dynamic."

Employees are free to disagree when they lose faith in a colleague's direction. "People can say, 'I'm sorry, I'm not going to listen to you because it's not worked out the last three times,'" Green says. "It's not unheard of for somebody to conceive a project and call meetings, and over time nobody shows up."

As Morning Star grew, paper-based letters of agreement became cumbersome and the company adopted a web-based communication system, which was recognized in September in a management innovation contest sponsored by McKinsey & Co., the Harvard Business Review and Management Innovation eXchange (MIX). The Morning Star system offers real-time scrolling updates of colleagues' performance.

At year's end, Morning Star makes a salary survey available to employees, and each employee makes a case for what he or she ought to be paid. Green says salaries average 15 percent to 18 percent above industry and regional averages. "We have mechanics making $100,000 to $105,000 a year," he says.

Elected committees at each plant review salary requests and work out any disagreements. "It's really about direct communication," Green says. "There aren't too many situations where people make a case for something absurd."

Barbara Rose is an independent journalist who writes about trends in business, work and life. Her background includes more than 15 years as a reporter, editor and columnist at Crain's Chicago Business and the Chicago Tribune.