The values system of any organization is critical in defining the organization's vision and
character, both internally with its employees and externally with its customers and/or shareholders.
Many companies allocate time and resources to develop and articulate cohesive values statements. Other
companies maintain strong and consistent values structures without codifying or formalizing their
values statement. Some organizations refuse to acknowledge the impact of organizational values on
performance and success. Reluctance to embrace values initiatives is largely due to the fact that
measuring the impact of a values-based culture on performance indicators is a difficult and imprecise
science. This article argues in favor of strong values systems, with supporting research in three
areas: Work Environment, Employee Loyalty and Retention, and Organizational Reputation.
Work Environment
A strong values system creates benefits to an organization in several ways. The clearest and most well researched benefit is employee engagement. Employees are more likely to be satisfied in companies with established values systems and leaders who are perceived as living corporate values. The following list of benefits that are generated from engaged employees was compiled by Lynn Sharp Paine for her book,
Value Shift:
Trust, helpfulness, and fairness in rewarding creative work are associated with higher levels of work-group creativity. Less creative work groups are more likely to have experienced dishonest communications and political problems.
Employees are more likely to support management decisions that have been reached through a fair process.
Employees are more likely to engage in discretionary behavior (that is, beyond the defined requirements of the job) to benefit the organization if they trust their supervisors to treat them fairly and perceive that the organization operates fairly.
Employees are more likely to take pride and feel ownership in their organization when they perceive top management to have high credibility and a coherent set of values.
Employees are more likely to share knowledge and learn from one another in an environment of mutual trust and respect.
Loyalty and Retention
Another benefit of values-based cultures is employee loyalty. Employees are more likely to remain with
a company, even if other opportunities exist, if the company is seen as demonstrating strong values.
The immediate gains from employee loyalty are lower turnover and recruitment costs. But retaining loyal
employees also translates to knowledge retention and continuity throughout the organization [Sharp
Paine, Values Shift].
Retaining a committed employee base, in turn, drives service quality within an organization. The
quality of service provided by a company is directly influenced by the quality and commitment put into
service offerings. A stable, engaged workforce will provide better service to customers.
The way employees treat customers is determined by the way employees are themselves treated within the
company. A leadership that demonstrates strong values will be reflected in the interactions between
employees and customers. Service quality is a key component of acquiring and retaining customers, and
a more loyal customer base is a more profitable clientele. This chain of logic is supported by other
research that indicates that a company's set of values contributes to customer loyalty [Sharp Paine,
Values Shift]. So the value added through the loyalty effect of a values-based organization, from
leaders to customers, is dramatic.
Reputation with Customers and Shareholders
A strong values culture will also encourage a strong corporate reputation that will yield tangible
benefits. Economic impacts of a corporation's reputation can be positive or negative. On the
positive side, a strong corporate reputation can produce benefits on several fronts. These benefits
include a greater ability to attract and retain customers which will lead to a larger market share.
Another is that a strong corporate reputation makes a company an attractive employer. This makes it
easier to recruit and retain top-notch talent. Finally, strong corporate reputation makes a company
more likely to attract corporate alliances and close vendor relationships [Sharp Paine,
Values Shift].
On the other hand, a negative corporate reputation will have the opposite effect. While a good
reputation helps to attract customers, a poor reputation will hurt customer relationships. In a
recent survey, 51 percent of North American customers admitted that they had switched product brands
due to a poor perception of a company's values or ethics [Executive Forum, Values: The Critical Link
Summary of Richard Barrett's remarks. October 16, 2001]. Reputation is also critical to bottom-line
indicators like stock price. Studies suggest that the drop in stock prices following corporate crises
has little to do with legal proceedings and fines and penalties but is mostly influenced by the damage
to a company's reputation [Karpoff, Jonathan and Lott, John, "The Reputational Penalty Firms Bear from
Committing Criminal Fraud," Journal of Law and Economics, vol. 36 [October 1993], pp. 757 - 802].
Corporate values will not show up on a balance sheet, but the benefits of a positive and productive
work environment, a loyal, engaged workforce, and a strong reputation will yield real returns in terms
of 'bottom line' indicators.
Matt Stanczak specializes in decision analysis, business modeling, and operations research at THE
HILL GROUP. He can be reached at
412.722.1111 or via email at
mstanczak@hillgroupinc.com.
These materials have been prepared for educational and information purposes only. They are not consulting advice or opinions on any specific matters. Transmission of the information is not intended to create, and receipt does not constitute, a consultant-client relationship between The Hill Group, Inc. and any recipient of this material. Readers should not act upon this information without seeking professional advice.
