Culture reporting: Alignment and linkage to business model
A key challenge for companies when defining and shaping the right culture is how to articulate it in a meaningful way; one that is aligned with how the business operates, its strategy, business model, KPIs and risks.
The business model should reflect how the company makes money, the key inputs, processes and outputs, and how its assets – physical, IP, people, technology and culture – are engaged in the process of creating value.
In reporting on culture, companies should go further than just stating their values, rather they should demonstrate the role all aspects of the culture play in business operations or performance. Best practice reporting specifies how culture is relevant to the business model and strategy and how the board measures and monitors the extent to which the culture is embedded. Boards should strive to ensure that they understand their existing culture, and have a clear vision of what it should be, reflecting the nature and values of the organisation.
Many new companies, such as Skype, Netflix, Uber and Spotify, have developed innovative business models to create a truly differentiated company. They also share a common attribute in that a unique culture is often at the centre of business performance. The Netflix culture code is a standout, and influential, document, which not only defines their company culture but, according to the Harvard Business Review, is “compelling because it derives from common sense”.
Employees are usually considered a key source of value creation. The environment and culture in which people work influence how people behave and ultimately define whether employees add value. So, if the business model describes value creation, culture builds on it and helps to deliver.
Corporate scandals over the past few years have often pointed to corporate culture and its impact on value creation as well as hefty fines for ethical breaches. Many of these are a result of poor ways of working, poor judgement by leaders from a lack of focus on values, lack of clarity on practices, systems or behaviours that drive the right culture, or the absence of a feedback culture that allows employees to speak up.
There might be an aspirational culture that is not truly embedded, and so becomes at odds with the way the company really operates, or a toxic culture that is all too intertwined with the day-to-day business.
To better understand the difficulties facing companies on culture reporting – and identify best practice – Emperor has researched 75 annual reports to understand how companies are currently reporting on the role and importance of culture in supporting and driving business success. We looked across FTSE 100, FTSE 250, different sectors and markets.
What we found in our research
As few as 7% of companies align values to purpose, vision and mission. Only 16% of companies include their values and culture as part of the business model in a meaningful way. We also looked a whether culture or employee engagement is a stated business risk, with only 10% fully identifying it as such.
This is evidence that too many companies either focus solely on values as being their culture, or are yet to consider how culture and people help to differentiate business.
Some best practice examples from our research:
- Greencore's vision is to be a fast-growing leader in UK convenience food.
Their core expertise is in manufacturing processes that are high-volume and high-touch (people intensive) and in environments that are high-care (in terms of complexity and food safety). Central to their business model, on which their business relies, are exceptional people. Underpinning this is ‘The Greencore Way’, a model that defines who they are and how they succeed: ‘people at the core’, surrounded by ‘great food’, ‘business effectiveness’ and ‘cost efficiency’. Investing in people, employee engagement and retention policies are also a core element of the strategy, with relevant KPIs for each aspect.
- Experian’s business model focuses on how they are different.
An innovative culture is one element, as they state ‘we embed innovation into our culture through investment in our employees and new technologies’. Experian has a unique way of working called ‘The Experian Way’, informing how people act and behave which shapes the culture. People are identified as a key stakeholder, with a clear description of how Experian create value for them by fostering a great place to work, embedding purpose and beliefs, developing talent and focusing on diversity and inclusion.
- BT’s annual report discusses how culture is a resource that sets them apart and underpins the business model.
Embedding the values, focusing on more diverse thinking and employee development programmes all come together in ‘The BT Way’, a three-part guide that reflects how they work together as a company, how they treat each other and how they expect everyone to behave. This is reflected in positive percentage increases in engagement scores against previous years.
Top tips and questions to consider
What kind of culture do you need to help you differentiate?
Are your people and culture identified as a strategic input into the business model?
How are you measuring and reporting on the way you do business to create value?
Follow our culture reporting research
Over the next few weeks we'll be releasing the findings of our research and tackling the topics that matter:
- Performance and strategic progress
- Measuring and demonstrating culture
- Alignment and linkage to business
- Engagement and employee voice
To receive the full research findings, email Sarah Eklund at [email protected].