The business case for values

Apple

Photo by Pontus Edenberg

Business is the art of bringing different people together to create commercial and wider value out of their interaction. Do values help that?

There is plenty of evidence that businesses with strong sets of values perform better than those without. Research on around seven hundred firms, using five years of data compiled by the Great Place to Work initiative, suggests that while there is no performance link with firms that have simply published a set of values, there is a strong positive link with those firms whose values are seen within the company to be prominent.

Interestingly, the same research concludes that going public reduces the extent to which companies can focus on “integrity as short-term decisions can carry undue weight. Privately-owned companies (including venture capital-backed organisations) tend to have higher levels of integrity than publicly-quoted companies.”

What the research can’t prove, though, is whether this is correlation or causation. Is it the case that the best performing firms are so well organized that, as an illustration of their high performance, they have strong, embedded values? Or is it the case that those values help to reinforce and even drive that high performance?

A different way to approach the case for investing in values is the extent to which they can drive positive norms and behaviours, such as loyalty or ideas for innovation, in customers, suppliers or employees. The extraordinary success of open source or free software, the importance of volunteering in the third sector, the power and reach of faith communities, are examples of institutional activity that are dependent on the free and willing collaboration of people on the basis of sufficient overlap of values and purpose.

In commercial business, where participation is subject to contract and compensation, there are times when that same voluntarism is critical to the enterprise. An example is staff retention. For larger firms, staff recruitment is one of the clearest cost variables – and if strong values can mitigate high levels of staff turnover, the financial gains are significant.

One report in 2014 from Oxford Economics puts the total cost of replacing a member of staff at £30,000.  It is less in retail, at around £20,000.  Mostly these are hidden costs through looking at lost productivity. But even just stripping down their numbers just looking at advertising, backfill, interviewing and administration, they show more than £5,000 on average.

In the retail sector, labour turnover is estimated to be at the extraordinary level of 40% staff turnover per year.

There are many commentators predicting that labour turnover is now set to increase, if unemployment continues to fall. So, for UK consumer retail co-operatives, even if they already have a lower staff turnover rate, if investing in values led to greater staff retention, then for every one per cent turnover reduced, the businesses would benefit to the tune of £21 million. £14 million of that would be for The Co-op Group.

A reasonable target over time for the co-operative retail sector would be to realize £100 million worth of gains on an annual basis, through reduced staff turnover.

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2 thoughts on “The business case for values

  1. Pingback: Basque Transformational Narratives

  2. Pingback: Basque Transformation Narratives | Gorka Espiau blog

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