Welcome to Research Friday! As part of a continuing series, we invite a nonprofit scholar, student, or professional to highlight current research reports or studies and discuss how they can inform and improve day-to-day nonprofit practice.

It has often been said that organizational culture trumps strategy. An organization’s culture is composed of the values and behaviors practiced inside the organization, and it can be positive or negative. Culture is strongly influenced by relationships, as well as formal policies and informal practices. A healthy culture can inspire individuals to bond together and weather difficult challenges in pursuit of a common goal. A weak culture can leave individuals and the organization damaged and unsuccessful1.

Culture is not an “off the shelf” product, it must be cultivated. Achieving a strong culture requires intention and commitment, but the investment can pay off: a strong organizational culture can be a competitive advantage that strengthens the organization’s ability to achieve its mission and strategic goals. And, most of us find it much more pleasant to work in a positive work environment full of people who enjoy their work and their co-workers.

In 2009, The Bridgespan Group published a report titled "Finding Leaders for America’s Nonprofits". The study asked nonprofit CEO’s what they considered to be the most important criteria when hiring for nonprofit staff positions. Seventy-nine percent of responding nonprofit CEOs rated “functional experience” as the most important criteria, however, 75 percent of them rated “fit with the culture of our organization” as equally important.2

It appears that the organization’s culture also impacts clients. In a 2011 Baldrige study, respondents were asked which elements of workplace commitment were the most beneficial, and 80 percent of them ranked culture as the most important. In the same study, 70 percent said that customers are the most important external audience for understanding a company’s commitment to being a great workplace.3

So, is culture an intangible asset—like good will, or a blue sky? Actually, one way to measure the cost of a weak culture is through employee turnover. The cost of turning over one paid employee is estimated to be between one-half to five times their salary, depending on the position.4 Replacement costs include recruitment, advertising, interviewing and training. For example, let’s say an organization with 40 staff members experiences 25 percent turnover, at an average salary of $35,000. This turnover costs the organization a minimum of $175,000. The organization will also experience a decrease in performance quantity and quality, due to the time required for recruitment and hiring, and decreased productivity as new employees face the learning curve.5 During this time, excess work is taken on by remaining staff, and there can be resulting overtime costs, potential burnout and reduced morale. Turnover can also include loss of volunteers, and while this cost is usually calculated separately from employee turnover, the effects can be similar.

Staff members in a strong culture demonstrate alignment with organizational values, even in the absence of enforcement policies. People do things not necessarily because they’re asked, but because it’s the right thing to do. A healthy culture also fosters appreciation of diversity: a respect and regard for fair treatment of each other. Employees working in a strong culture also tend to show pride and enthusiasm for the work they do, have a better sense of purpose and direction, as well as good communication about company issues.

If you’re not quite sold on the importance of a healthy culture, consider what the late Brian O’Connell, author and co-founder of the Independent Sector, said: “If I were not sure of a person’s fit with the organization, I would rate that piece as about 50 percent negative. It would take almost an unbelievable rating on all the other items to overcome that negative on culture. That’s how strongly I feel about the cultural aspects6."

A positive culture is modeled at the top, and executive directors set the pace. Values can help to guide the creation of a positive organizational culture. I recommend that an organization establish its values and expect commitment to the values by incorporating them into hiring, decision making and performance reviews. Talk about your values and reward and recognize behaviors that demonstrate commitment to them. Maintain transparent and frequent communications. Establish a conflict resolution process and teach leadership how to manage the inevitable relationship conflicts. Hold people accountable and acknowledge and celebrate team success.

The nonprofit sector is based on acts of kindness and charity, and let’s remember that charity begins at “home” in the organizational cultures we create.


Mary Hall is a Master of Nonprofit Studies graduate from the ASU Lodestar Center, and a Certified Professional Accountant. On top of being the Chief Operating Officer at Take Charge America, Mary is also the current Vice Chair of the Better Business Bureau.

Sources:

[1]  Silverthorne, S. (2011). The Profit Power of Corporate Culture, Harvard Business School, Working Knowledge.
[2] "Finding Leaders for America’s Nonprofits," The Bridgespan Group.
[3]  Baldrige.com
[4] "The Real Costs of Employee Turnover," The Rainmaker Group.
[5] “US Annual Employment Turnover Rates.” US Department of Labor, September 05-August 06
[6]  "Cultural Fit in the Nonprofit Sector: A Conversation with Brian O’Connell ," The Bridgespan Group.

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