Doug Rauch: Profit begins with people
Published: Feb. 21, 2014 Updated: 2:33 p.m.
Many consider culture to be soft, squishy and, hence, a secondary concern for business leaders. In reality, culture is probably the most powerful contributor to a company’s competitive advantage. Culture is the unique DNA of a company; no two companies have identical cultures, the same way that no two people have the same fingerprints.
Your competitors can copy your products or your trade dress or your promotional strategy, but they can never replicate your culture. The most sustaining competitive advantage a company has is a deep, rich, powerful, values-driven culture.
The late Peter Drucker, regarded as the father of modern management theory (with whom I had the pleasure of studying), observed, “Culture eats strategy for lunch.” As leaders, we often spend too much time focused solely on strategy and not nearly enough paying attention to culture.
Culture is simply “the way things are really done” in an organization. It is the whole array of behaviors, from how emails are written to how job promotions are really given. It is the way we treat each other and others within our company’s ecosystem.
Congruence in a culture is critical. When the people in a company reflect the values, intentions and commitments in their actions, there is congruence. People know what to expect, and they get what they expect, which builds trust. Without trust, relationships – personal or business – can’t be secure. And if relationships are not secure, it’s reflected in the marketplace.
Not surprisingly, in the Conscious Capitalism community we talk a lot about Conscious Culture, and we celebrate companies that cultivate Conscious Culture. We recognize the essential role culture plays in supporting successful businesses. (As a result, “Building Fully Human Organizations” is the focus of our upcoming Conscious Capitalism event, CC 2014, in San Diego, April 9-11.) A Conscious Culture embodies the understanding that we are not simply economic agents or units of production, but fully human beings with multiple dimensions, all of which we bring with us to the workplace.
Contrary to the belief that people are “human resources” to be leveraged for productivity, or “used,” in Conscious Cultures we recognize that people are sources of creativity, initiative and success. When we acknowledge the full spectrum of their humanity, and treat them with respect, care and love, when we invest in their ongoing learning, growth and development, people come alive and give their very best. This is true whether they are employees, vendors, customers or investors.
When a business has a clearly articulated greater purpose that informs decisions and actions, and when it orients to creating value for all of its stakeholders, people are inspired and deeply engaged in creating value for themselves and others.
Engaged employees are simply more creative and productive. They show up for work and stay with a company for a longer time, reducing turnover costs and building valuable knowledge, experience and social capital. They bring more of their discretionary effort to the job, giving a company more than it “paid for.” They treat customers, vendors and others with respect and care for the well-being of the company.
A study, reported by Zeynep Ton, an MIT professor, in her recent book “The Good Jobs Strategy,” reveals that every $1 of salary increase for employees generated $4 to $28 in increased revenue for a major national company. Rather than looking to cut costs by squeezing employees, smart companies look to increase revenue by paying their people fairly and treating them with care and respect.
This all sounds good, but some may wonder if a Conscious Culture is soft and squishy. Does love and care take precedent over productivity and performance? On the contrary! Conscious Businesses tend to be led and populated by highly motivated, passionate people, who recognize that results are the key to bringing their purpose to life and sustaining their commitment to creating value. Conscious Businesses are meritocracies and deeply results-oriented.
In addition to their inspiring sense of purpose and Conscious Culture, they also set high expectations and standards for each other. And if performance lags, people and partner companies are given clear indications that they have to elevate their games, and if they don’t, they are removed or replaced.
But this is always a result of a shared standard of high achievement, not from cost cutting or “Top Grading” arbitrary procedures.
Leaders play a key role in establishing a Conscious Culture. As Ann Rhoades, former chief people officer at Southwest Airlines and JetBlue Airways, observes, “Leaders drive culture, culture drives behavior, behavior drives performance, and performance drives results.” How leaders treat others, how they live the values and commitments of a company, and how they hold the company’s purpose and focus on creating value for its stakeholders, sets the tone for everyone else in the organization. From there, everyone in an organization plays a role in bringing the culture to life, every day, through their words and actions.
If business is going to fulfill its potential to elevate humanity and avoid social scorn, business leaders have to build more fully human organizations. Conscious Capitalism can provide a framework and foundation for doing so.
Doug Rauch is CEO, Conscious Capitalism Inc.; founder, The Daily Table; former president, Trader Joe’s.