The financial and cultural values of an organisation often appear to be two separate and distinct entities. However, simultaneously linking and managing them can have a major impact on the success of both strategy and its execution.
Typically, the financial values of an organisation do not mirror the cultural and behavioural values of the organisation. Financial values are the aspects of financial performance that are measured, rewarded and recognised. Examples such as revenues, return on equity, profit margins and share valuations are all included in here. Internal examples include the setting of targets and milestones, while the market may define price levels or influence market share and investors seek dividends or increases in the share price for example.
Contrast the financial values with the cultural values that firms often use in the form of mission statements, desired behaviours and emotional commitment. Such cultural values are highly likely to be defined internally (either deliberately or casually) and take the form of training programs, grading systems or competencies for instance. Ownership of such values may be with the board, HR, or it may lie with a combination of stakeholders. The point of this comparison is to say that often, financial and cultural values are defined and managed by entirely separate and distinct tools and processes [1].
The following example seeks to contrast two airlines [2]. Table 1 below shows a near perfect match between cultural values, as taken from their respective websites. Yet, despite the similarity, Brand 1 is a low cost, short haul, budget airline whilst Brand 2 flies long haul and emphasises their luxurious customer experience. Comparing financial values, differences are in margins, the cost base, customer segmentation, distribution channels and levels of competition for example.
Table 1 – Comparing the Cultural Values of Two Airlines
| Airline 1 | Airline 2 |
| Dynamism | Fast Moving |
| Open Culture | Inclusive Nature |
| Innovation | Innovation |
| Everyone makes a difference | Everyone… works together |
| Opportunity | Change is a constant |
Why Link Financial and Cultural Values?
If the management of financial and cultural values is typically defined as two distinct and separately owned processes, why would one seek to link them? Ensuring the successful execution of strategy demands that financial and cultural values are aligned and linked. Writing in the Harvard Business Review [3], Kaplan and Norton write of the Office of Strategy Management and that its responsibilities should include; ‘communicating corporate strategy… executing strategic initiatives to deliver on the grand design and aligning employees' plans for competency development with strategic objectives’.
Moving from the Macro to the Micro
Table 2 – Comparing Financial and Cultural Values
| Financial Values | Cultural Values | |
| Defined and owned by | The board The finance function Shareholders | The board The HR function Other internal stakeholders |
| Measured via | Financial statements | Surveys Behaviours and grading Sometimes can't be measured |
| Impact on the bottom line | Direct | Indirect |
| Summary | Economics | Emotions |
| Integration with other indicators via | Balanced Scorecard Other dashboard type tools | Balanced Scorecard Other dashboard type tools |
While table 2 shows the contrast between financial and cultural values, the best place to link them is via the various layers of management within the firm. Given different ownership and the need to marry economics with emotions, managers face a multitude of options and decisions. Understanding what each manager values and what they choose to focus on is critical in combining these concepts. Extending this line of thought, the emphasis of the integration must shift from the macro ideas above to the micro world of managers, team members, single decisions and local prioritisation.
The micro world of managers and their teams is the place where strategy meets execution. It is the point that visions and plans become reality. This boundary is very much the ‘coal face’ of the organisation and represents the place where the core activities of the firm are transacted.
We said earlier that many firms employ the Balanced Scorecard or similar approaches. While these do link financial and cultural values (amongst others), their focus is often on the macro aspects of performance. By definition, they struggle to capture and analyse the micro interactions between individuals, teams and mangers for example. As a result, we feel that such an approach can highlight, in the words of Robert Kaplan, ‘a chronic disconnect in organizations between strategy formulation and strategy execution’ [4].
Top-Down and Bottom-Up
With the need to link the financial and cultural values of the firm and the current challenges in linking strategy and execution, perhaps a new perspective may help? Many management initiatives are lead via top-down approach. This is in part to demonstrate ‘senior commitment’ and ‘sponsorship’ but equally, this then creates its own set of problems, as highlighted by the thinking around the Office of Strategy Management.
By way of contrast, complementing a top-down perspective with a bottom-up view of the organisation opens up a series of new possibilities, especially when looking at the organisation from micro perspective and focussing on the ‘coal face’. Not only does this get to the point at which individuals determine the link between finance and culture for themselves but as a management interface, a new series of tools and techniques can be deployed. Such tools seek to simultaneously define, predict and align the financial and cultural values of individuals, teams and departments. While this perspective demands a bottom-up approach, the ability to then link behaviour to the bottom line begins to fill the gaps left by alternative methods.
Clearly, the key to solving this conundrum is to enable organisations to develop a framework within which they are able to reconcile and align the goals of financial performance and cultural identity. Rather than developing a grand plan or unified program in isolation, developing a complementary approach which also tackles these issues on the micro level is far more likely to result in a successful outcome.
Footnotes and references
1. Balanced Scorecard and ‘dashboard’ tools do of course seek to collate numerous organisational variables, financial and cultural values being a part of this. This said, the utility of these tools will be examined in more depth later in the article.
2. The names of each airline were deliberately left out in order to make a more meaningful comparison and emphasise the different financial but near identical cultural values. If you would like to know which two airlines have been used, please get in touch.
3. Robert Kaplan and David Norton. The Office of Strategy Management. The Harvard Business Review, October 2005.
Q&A with Robert Kaplan. The Office of Strategy Management. Harvard Business School Working Knowledge, March 2006.
4. Q&A with Robert Kaplan. The Office of Strategy Management. Harvard Business School Working Knowledge, March 2006.
By John Rushton October 1, 2006 - 8:56 pm
It was interesting what you said in your attachment and I agree, with today’s business becoming more competitive and culturally aware and emotionally dependent, long since gone are the days when you joined a company and worked, and that was it. People want a say whether it’s good or bad. And cultural differences cannot be quashed so easily so it’s better to integrate them as opposed to oppress them unless you live in the Middle East.
The quest for good management is ever present and that’s in part one of the main failings in many businesses and one of the biggest gripes. OK, staff often become armchair experts at what needs to be done and why, but don’t know the implications of what such changes make, but fundamental issues that stand out and are not identified (because the manager hasn’t been on a course to identify them !!!) remain quite large. That goes for HR who sometimes are Gatekeepers from hell, inept, incompetent and without original thought, just ploughing through the mechanics of what internal company structures demand.
I’ve recently been interviewed by a number of publications this last couple of weeks as to what “Manners and Etiquette” have on the workforce in companies, and indeed in how we communicate and how it may affect the bottom line by having grumpy and grudging work forces who would rather cut short work than extend it thus losing out bottom line revenue. Whilst this is not quite the same as your document, it does highlight a trend to glaring gaps in company culture, arrogance from managers, agendas of various levels of management and staff being at loggerheads or not having an interface to appease or address it on a ‘human’ base to give that ‘comfort’ factor. Often accountant lead incentives are cold, without thought and repressive even if they have the effect of raising the bottom line. But by default it’s only a short time that such pathways need urgent rectification which is a costly exercise and if all the pro’s and con’s are added up the overall benefit is negligible and the moral benefit is negative.
Whilst there are millions of courses that all sound fantastic and wonderful and are seeminly the answer to making staff better and wonderful, and that it will all make companies fabulous and wonderful, it’s still people who have to enact and take on board what they learn. If people are not in themselves receptive then no matter how good the course is it won’t work, it’s a chore and taken as “yet another bloody course”. If however staff are “happy” both in themselves and in work (and that’s not so difficult to do – despite the enormity it may appear to be) then they will actively cooperate and even add to the course in ways and values over and above it’s designed function. This has the greater effect of promoting ownership management and allowing staff to cope better especially in difficult situations such as in trading when say an overseas market collapses and the monitors start to flash red, the adrenalin rush is a boost rather than an emotional hindrance as to how they react..
By Tony Banks October 2, 2006 - 9:38 am
I agree with John Rushton’s comments about the importance of employees being happy in their work and in themselves and with his views on ownership management and coping in difficult situations. I recall an experience where an organisation was able to reach superb standards of excellence and achieve outstanding results in a fraction of the time they would normally have taken to perform such a task. In essence they achieved in 2 weeks what would normally have taken them months. How did they do this? By shared values and a shared vision. They had leaders who were responsive to their needs, that listened to them and acknowledged their concerns and took action to resolves issues. It was by achieving excellent standards in normal times that the organisation was able to tap into the creativity and intuition needed to work through an extremely tough challenge with confidence.
By Bruce Lewin October 2, 2006 - 9:49 am
Hi Tony,
I think you are absolutely right about the importance of shared vision and values. Extending this, the key question has to be how does one define, create, model and manage vision and values? Also, how do these map to the business and the market?
Historially, there have been many approaches to define these ideas, but in the example above with the two airlines, I would be very surprised if either had a geunine means to ‘create, model and manage’ their vision and values, despite the nearly identical definition!
I think this is the gap… there is lots of definition, but then lots of ‘dust-gathering’ post definition (generally speaking) which doesn’t reflect the individuals concerned, or the organisation as a whole, or the organisations financial values, or the market, etc. etc.!
By John Rushton October 2, 2006 - 10:23 am
Hello Bruce,
The trouble lies often with a company wanting to define or enhance or whatever its remit is their product, and thus take on the services of outside organisations to define this and work out strategies etc. However, such strategies are often beyond what the companies work force and even senior managers can cope with, even if they full understand and get excited about what’s been presented. (Airlines are a perfect case of this – making staff go on courses to be friendly etc, without taking into account the frailties and temperaments of indviduals who are almost always sullen – low success rate and indignation).
Also for most employees that whilst trying (hopefully) to integrate what they have just been exposed to, real work actually gets in the way and they often revert to the old tried and tested ways just to keep the work flow moving, otherwise they have additional problems and burdens on their hands.(This varies from industry to industry)..
The “emotional” aspect of how people work is rarely taken into consideration, and like Tony mentioned above it’s not everyone who’s capable of interfacing on an emotional aspect with staff or employees or even directors who often feel they are above such things. It takes a certain kind of person who neither the company nor the consultants have on board or can do it with their present staff.
Furthermore, many managers can be really good at what they do at a certain level, but thrown way off course by structures and ideologies which mess up their own defined entrepreneural abilities which they put into their own job role, this is what makes people excell, putting themselves into it, and not ‘text book’ following which by its own virtue is strictly defined and narrow.
If people, assuming they are the right people for the job, are allowed to be the people they are and not semi-forced ,coerced or under duress cajoled into being something else for the sake of a written report and a company structure that knows no difference, then excellence has a chance of happening.
John…..
By Bruce Lewin October 2, 2006 - 10:32 am
John,
I agree… I think it is a need to ‘do the right thing’ regardless of where one is in the organisation, in terms of values, cultures, profits and getting them all working together.
The flip side in my mind is, can this extend beyond goodwill and the intentions of the few (whoever and wherever they are) to the many? This is true if there is the involvement of external consultants, or not.
From what you are writing, it seems that while current intentions are good, current methods are lacking? Have I got that right?
By John Rushton October 2, 2006 - 11:02 am
Hi Bruce,
I’m not a management consultant nor a business consultant nor anything else in that genre. I deal with people’s emotions at all levels whether it’s one-2-one or in groups.
But what I see more and more is that “technicalities” are being implemented (and not all are bad by any means)as if they just have to put a new chip in the drones that are called the workforce, and all will be well, and everyone feels pleased that they’ve done something and expended such monies for such developments etc. Assuming everyone comes into work every day feeling exactly the same having no up’s nor down’s, moods, constraints, illnesses, bereavements, loss, plus all the rest.
Whilst it’s good and noble to expend money on research or outside compaies to ‘see’ what’s what within a company and hopefully get it to grow better and more healthily, often the people who actually have to ultimately ‘pay’ or ‘accept’ what’s been produced or the ‘decision makers’ can’t ‘see’ outside of what’s been presented, and it’s often too late when things don’t quite go according to plan, and like the Japaneese culture often let it continue because of lack of face.
Strange old people human beings, often feeling they know a lot, and can back up their thoughts, deeds, actions with paper from half a forrest, often leaving out the bit that makes us all tick. we are human and have feelings too. If you upset me, I’ll get over it, many don’t, and then there’s a permanent stigma and a stigma culture slowly brewing that all new comers will take on board and start with a jaundiced view before they even get to the start line. (Airlines again a great example)…
Cultures don’t start on their own, like MRSA it can strike anywhere anytime, best intentions are just that, mean well – develop badly. The people who I’ve met in many multi-national companies that can bamboozle me with science have themselves the most horrific up hill down hill personal lives and thus their views are reflected in their delivery of everything they do. So close is the need for ‘real’ understanding that even the best produced strategies can be floored by the last phase – how to deliver and execute it that will give a ‘comfort’ factor to those who will have to take it on board.
People are fed up of being told it’s for your ‘own good’, or it will make the company grow thus it will be more secure. Employees dreams and not those of consultants nor anyone else’s nor do they follow the Board’s dreams either as their incentive is a fraction in remuneration terms.
Hidden agenda’s account for nearly half of what goes wrong and why, and if strategists don’t follow humanitarian lines within their structure and find out ‘why’ regarding those who are to hopefully benefit then they ae writing a technical course based upon how good they ‘think’ they’ve got to grips with things as opposed to the reality of how things really are.
John….
By Richard Paton October 3, 2006 - 6:59 pm
All,
this has been an interesting discussion and one that I am familiar with. My build on what has been said so far is that to really get values enshrined at the “coal face” one must monitor there application and reward good adherance to the values through financial gain or loss. The only way you can ever instill values is to create this link.
Richard
By Bruce Lewin October 3, 2006 - 7:53 pm
Hi Richard,
I think you are right and the financial rewarding of behaviour plays its part. From my side, I think there is another step that can be taken in terms of linking these, namely that people’s values (both behavioural and financial, in a broad sense) can be defined and modelled in advance and managed accordingly.
While this is an attempt to push the envelope a little, I do think that via some of our methods, both types of values are definable, measurable and predictable.
If one carries this idea forward, it really marks an attempt to bring the argument/article full circle. The pages below introduce some of this thinking;
Organisational Strategy
An overview of 4G
By Joe Healy October 4, 2006 - 11:18 am
As a point of discussion I would agree with the premise that is it difficult to connect the two dimensions. However, in my experience what most companies would value is to find a way of capturing and linking the emotional commitment with financial return. (For what it is worth, I suspect that the answer lies in the fact that cultural vales / emotional commitment creates long term sustainability and value rather than ‘short run’ profit)
By John Rushton October 4, 2006 - 12:03 pm
The whole structure of worker / employee relationships is changing rapidly, sometimes beyond rational thought – or at least from observers, it’s often rational from the individual’s point of view.
This past year I’ve been working with companies from Board level, senior executives, managers etc,downwards, mainly from international / multi-national companies (USA / UK / Africa / Far East) and whilst they sing the corporate hymn together they individually add verses to their own hymn sheets when they return to their respective countries.
Employees whilst always in the market for a greater salary find that just earning more isn’t always enough. Indeed with annual bonuses alone being in the order of 10 times (or substantially more) than an executives salary, the loyalty factor remains low in certain areas. The common thing is for many employees to keep their names with Recruitment Agencies live, as opposed to just seeking them when a change is needed.
Where shareholder value outweighs employee value and the short straw is a more frequent draw today people are not going to wait for things to happen but be always alert and pro-active.
Middle management suffer greatly from this, sometimes unfortunately but by default, as promotion is given by merit of age / longevity / current knowledge as opposed to future ability, and the “promotion to level of incompetance” still reigns, often with disasterous results.
Keeping staff / employees happy is a job in itself today and HR seem to read manuals hacked out from glacial deposits as their own ingenuity is sadly lacking. Also the short term gain mentality stifles progress in many ways.
With everything becoming just so technical, logistics requiring complex designs, psycho analysing, courses offered on every subject known to man, dicovering your feminine and masculine sides,facing your fears, and the list continues, is it any wonder why people find themselves is a void of ‘does anyone actually know’, and this is disturbing.
Updating, restructuring to meet conditions, re-assessing, etc, is par for the course with most companies, but once you pressurise people outside of how they personally think and feel then a tide of internal unrest starts to appear, and groups fragment into smaller groups and then those start to develop a life of their own. It’s far more common today for companies to be taken to court because of the way individuald feel they are treated by their peers as well as the company as a whole, even if spurred on by avaritous lawyers.
Some major companies are really worried about the “happiness” of their staff. Even the US Government has identified that some 15% of Americans are unhappy all the time which is epedemic prportions. The “feel good” factor is crutial in everyone’s life in making it work for them, taking the daily struggle or “stress” (feigned or otherwise)out is paramount to acheiving that bottom line result that’s king of the current agenda.
Statistics pertaining to the mental health of certain work groups is not good reading at all, and the fact that many companies are enabling the services of both selected individuals and companies to administer therapies to keep them on an even keel whilst might sound very laudible is a sign that all is not that well, and being pro active in treating situations is far better than treating the results of negligence.
John…
John..
By James Tay October 4, 2006 - 5:44 pm
The true approach is breaking down to the inner core of the human attitude, disregard whatever, religion or philosophy. Mind can only excel without its self imposed limitation of attachment to things and choices
Values cannot be fragmented through national boundary, status, position and interest. This is the common conflicts today. I believe that your work is aimed at excellence
By Ajit chouhan October 4, 2006 - 8:49 pm
Hi Bruce,
This was really interesting.I feel that that one of the reasons why culture and finance linkages are difficult to be taken up senior level or at key levels is the fundamental objective of the organisation.
Finance and profit is the purpose of firms existence however culture becomes important only as one of the factors which builds great and long lasting organisations which develope people with a larger objective which goes beyond the tangibles.
By Bruce Lewin October 5, 2006 - 10:00 am
Hi Ajit,
I think you are right. Equally, it is those firms that can manage the bottom line together with culture and behaviour that marks those that are more successful, adaptable and sustainable.
Many examples abound but perhaps the most stark is the hard drive industry and Clayton Christensen’s research around company growth (see The Innovators Dilemma) and the impact of new waves of innovation.
By David White October 5, 2006 - 11:51 am
Fascinating and something that maybe in part addressed by simple increased communication within the company.
KM techniques such as Blogs, Wikis and the emerging Mashup make the opposite views of corporate life and purpose available to all and what is more help to achieve a sense of belonging to the corporate purpose
By Jerry Hayter November 5, 2006 - 5:12 pm
I think (in summary) what you are saying is that these things cannot be managed in isolation. HR values, financial (commercial) objectives etc etc are all ‘part of the machine’, cannot possibly be separated and something that I strongly subscribe to.
This being the case, one reads the latest headlines in Personnel Today with utter amazement:
By fergal Coleman November 6, 2006 - 2:17 am
We are about to release a research report on Australians’attitudes to work which might be of interest to readers of this blog. We are certainly interested in getting feedback.
the research will be released on 8th november and the exec summary will be available for free on http://www.1stexecutive.biz
By Meriel Winwood November 21, 2006 - 12:57 pm
Hi Bruce
Your premise is spot on. Having working at exec level in large organisations, running my own business and working with clients in small, medium and large companies – I completely agree. Simplistically, this is a hearts and minds discussion, where hearts can be won by emotional values and minds by economic values. The majority of companies don’t educate their staff as to the economic values. Lets face it, most employees do not understand finance and finance people like to keep it that way. In successful organisations that I have witnessed, the combination of an open approach to financial targets and rationale linked with a fair reward system works the best.There is generally a deep mistrust of manufactured cultural values, especially when it is obvious that senior management only pay lip service to it. There is also a deep mistrust of finance departments, who are perceived as “the business prevention department” and capable of manipulating the numbers to suit.I would actively support a campaign that brought in legislation to prevent FDs from participating in share schemes or profit share – the conflict of interest is asking for trouble!
By Organisational Value System « Just Business April 22, 2007 - 11:31 pm
[…] 26th, 2006 · No Comments Came across this article by Bruce Lewin on linking Financial & CulturalValues […]
By Bruce Lewin December 17, 2007 - 11:21 am
Test
By Scott McArthur January 20, 2008 - 12:36 am
Interesting theme – especially the thread about FDs. I once had an interesting time in the Board Room when I challenged the FD to show where his metrics went beyond looking backwards. HR metrics if well designed are excellent predictive numbers and can even help the FD by pointing out that his numbers are about to take a dip!
By Ian Knowlson March 17, 2008 - 9:42 am
I agree with your statement Bruce and find it very interesting. If we look at corporate history it is true to say that the business’s that have linked these in the past remain large business’s today; Marks & Spencers, Unilever, Boots, etc it certainly builds strong brand loyalty but requires vision and true leadership which not all our CEO’s can manage.
By Mike Bell March 18, 2008 - 4:59 pm
A study by Kotter and Heskett of 207 top firms over an 11- year period demonstrates the effect of organisational culture on performance.
The difference between an adaptive or constructive culture (goal- focused, accountable, ethical, encouraging and open) and an unadaptive or defensive culture (maintaining bureaucracy,dependence, and punishment of mistakes) is staggering.
See graph of results here
By Four Groups’ Blog » Managing Intangibles April 13, 2008 - 11:50 am
[…] The definition and measurement of culture and values (Social Groups) […]
By Laura September 23, 2009 - 5:37 pm
I think the post above made some interesting points, on a related side note I found a used version ofFinancial Reporting, Financial Statement Analysis, and Valuation: A Strategic Perspective which is directly related to this topic for lessthan the bookstores at http://www.belabooks.com/books/9780324302950.htm
By Organisational Value System « Unjustly February 8, 2010 - 5:16 am
[…] October 26, 2006 in Biz/Tech, Business, Links Came across this article by Bruce Lewin on linking Financial & Cultural Values […]
By Financial values | Supernaturalro January 23, 2012 - 5:05 am
[…] Linking Financial Values and Cultural Values Four GroupsSep 29, 2006 … The financial and cultural values of an organisation often appear to be two separate and distinct entities. However, simultaneously linking and … […]