Across the globe, the attention of business leaders is turning to the budget for the next financial year. This will no doubt feature much head-scratching and pencil-sharpening to achieve the right number. Confronted by financial constraints which are an ever present, the question is one of priorities.
Taking a hypothetical but very realistic example, the priorities could include:
- Investing in that new piece of machinery to remedy the production bottleneck.
- The extra sales person who is viewed as the silver bullet to achieving rapid revenue growth.
- Or, perhaps the sometimes-neglected finance team who could add so much value with additional system or people, to free up the key people within that team.
All are very valid and deserving causes. Unfortunately, the pot of money to be distributed is not bottomless. And, there is of course one key exception many of you will have spotted: Where is the mention of HR?
The challenge for HR professionals (and the profession as a whole) is that demonstrating return on investment is not straight forward. The areas of spending are not as tangible as that new machine, nor can its output be as easily measured. However, investment in HR is critical to the success of the business. A part of that is investing in culture.
Culture is receiving an increased focus. Board rooms and non-executives in particular are being challenged by the FRC (Financial Reporting Council) to put this high on their agenda. This attention is deserved, as highlighted by the quote attributed to Peter Drucker; “culture could eat strategy for breakfast”. The most well-crafted strategic plan could be underdone by a culture that neither embraces nor recognises its purpose. Therefore, the FRC within the UK’s Corporate Governance Code states:
‘One of the key roles for the board includes establishing the culture, values, and ethics of the company. It is important that the board sets the correct “tone from the top”. The directors should lead by example and ensure that good standards of behaviour permeate throughout all levels of the organisation. This will help prevent misconduct, unethical practices, and support the delivery of long-term success.’
So, for those of you who are converted to the idea, but unsure of how to make it happen, the good news is that this is firmly on the radar of those present in the Board room. The focus, therefore, is deepening the business case and then the "how"!
Introducing the cost of the three "R"s
The business case can be underpinned by what I would like to introduce as the cost of the three “R”s: Recruitment. Retention. Replacement. We are fortunate that we live in a period of high employment. It is a candidate’s market at present in many areas, with more roles than the right people to fill them. Businesses are competing against one another for the very best people. The cost of recruitment and replacement is high. Some costs are very visible: the advertising, the temporary staff costs and, ultimately, the recruitment agent’s invoice when it lands through the door. Less visible costs exist though: Unum published an estimate that it took 23 days for a new recruit in the retail sector to reach the optimal performance level. This grows to 32 weeks in the professional services sector, impacting upon productivity. These costs include, but are not limited to, the training time, the diversion of focus of management, and people just becoming familiar with “how we do things around here”; another quote regularly attributed to culture. The loss of key staff results in the loss of all this previous investment in that person. Having spent a considerable part of my career with finance professionals, I can testify to the fact that these costs are not lost to them. In fact, the difficulties in foreseeing them causes the greatest frustration. You might be able to predict a movement in exchange rates, or a drop in product sales pending a launch of a replacement, but did we really know that James in sales was so unhappy and about to hand in his notice? The impact on the bottom line is just as pervasive for the reasons described above. Culture may not prevent this from happening every time, but it builds that connection and identity that makes it easier to recruit, then retain, and hopefully not have to replace.
How do we know where to invest, and in what should we invest?
Invest in time
The key area is potentially the least costly (at least it shouldn’t require the cheque book): the investment of time. Whilst we can broaden it out to include activities which might elicit a financial cost, the key point is establishing that tone from the top. Anyone can pay lip service to supporting our culture, but it needs to be consistent to ensure it is viewed as both sincere and authentic. Culture is a fragile thing. Imagine the creation of a beautiful vase; it needs to be done with great care, but can look spectacular when it is done with true artistry. It will gain attention and crowds from far away. The director who describes an environment of listening to the wider team can quickly see this undermined by something as simple as not turning the mobile off during meetings, or working from home wherever possible, and not seeking out alternative opportunities to engage with their team. Equally, the role of business leaders is not to spread themselves too thin. Establishing the right management structure, ably supported by the lieutenants that share your view, is critical. Picture an inverted pyramid. At the very top is the CEO and below that is the executive team who then have their respective management team. Each layer within the structure shares the same message down through the business. The result: a new starter who joins the business straight from school is greeted with the same principles as the CEO himself did on his induction. Championing employee engagement activities - and directing the response to the employee surveys - should be the focus of business leaders. As should ensuring the required tools are at the fingertips of the teams. Remember, no general sent their soldiers into battle unarmed and with only good intentions.
Communicate your culture
The most powerful tools are those that facilitate communication. Within Benefex, our engagement team has experienced this first-hand through the support they provide to clients. This comes in the form of facilitating focus groups, attendance at roadshows, and engaging with champions of the businesses; the desire to make their respective businesses a great place to work. As highlighted in the United Nations Human Development Report published in 2015, “work is the means for unleashing human potential, creativity, innovation, and spirits”. It is a major part of each of our lives and therefore employees want that connection underpinned by the culture of a company.
I recently was reminded of a quote by Simon Sinek that described the fine balancing act for business leaders seeking to drive performance. The quote proposed that motivating your team using financial reward as a basis only drives a desire for financial reward. If you emotionally engage and connect with an employee, you will drive the desire in them to contribute. Investment in the culture of a company is difficult to get right but when it is done well, it gets right to the heart of this very issue. So when you’re finalising that budget and you see that picture of the shiny new machine, just pause for a second, as there is something that may be just as deserving, but is just harder to see!
Adam is Consulting Director at Benefex.