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CHAPTER 1
More Revenue, More Profit
Great Places to Work For All are better for business. A consistent high-trust culture is quickly becoming critical for business success.
To see the way a Great Place to Work For All wins in business, look at how a For All culture wins on the basketball court.
That is, look at the Golden State Warriors. The professional basketball team of the San Francisco Bay Area has a motto of "Strength in Numbers," and they live up to it. In contrast to the conventional style of play that isolates the most talented players for scoring chances or defensive stops, the Warriors pass the ball incessantly on offense. And their defense involves all five players working together as a unit, constantly helping each other out and switching assignments.
For the 2016–17 season, they ranked as the second-most stingy defense in the NBA. The Warriors also ranked as the most efficient offense the past two years. They have finished first in assists each of the past three years — a sign of the cooperative, unselfish play that leads to easy baskets. These include the many three-point, long-distance shots that earned Warriors guards Stephen Curry and Klay Thompson the nickname "the Splash Brothers."
Overall, the Warriors' success over three seasons is unprecedented. They won 207 games amid just 37 losses — the best regular-season record in a three-year stretch in NBA history. The team won the league championship in 2015, came within a hair's breadth of winning it in 2016, and won the title again in 2017.
To be sure, a key to the Warriors' strong performance is the individual talent of their players, including two-time Most Valuable Player Curry as well as all-stars Thompson, Kevin Durant, and Draymond Green. But the players are thriving in a culture that consciously builds trust and a strong, inclusive community. Coach Steve Kerr took the reins of the team in 2014, and one of his first acts was to establish a set of values that ran counter to business as usual in pro basketball. Kerr, a former player and NBA champion himself, declared "competition" to be one of the team's four guiding principles. Nothing shocking there. But here were the three others: joy, mindfulness, and compassion.
In effect, Kerr wanted to bring a human touch to a sport that has at times taken itself too seriously and too often treated players more as machines than people with a love for the game. The compassion piece also signaled a level of caring and vulnerability rarely heard from a leader in any professional arena, let alone athletics.
The values aren't just words on a wall for the Warriors. The team has stood out for team chat threads, group dinners, goofy pranks on each other off the court, and giddy celebrations during games.
Much of the esprit de corps flows from Kerr himself. He has proven to be a leader who respects everyone associated with the team and is willing to diversify his talent pool. For example, Kerr made a key strategy shift in the 2015 finals series based on a recommendation from one of his lowest-ranking coaching assistants. His staff includes a 70-year-old assistant coach — Ron Adams — and a female head of physical performance and sports medicine. And while Kerr is not shy about instructing his players, he is known for hearing them out as well. "Steve is a very good listener and because of that is able to solicit good ideas from his players," Adams says. "They know what they say is going to be listened to and respected."
Sports are always about teamwork, but the Warriors have pushed the concept to a new level. They are reaping the rewards of that push, including in the key area of talent attraction. Crucial to the 2017 title win was adding Durant, a former league Most Valuable Player, who was drawn to the Warriors' camaraderie and winning ways.
Those winning ways are fueled by a culture that consciously brings out the best in everyone.
In effect, the Warriors are a perfect example of how Great Places to Work For All are better for business. Most organizations aren't trying to win basketball games. But the same For All culture found in the Warriors will allow any business to enjoy more revenue and more profit.
Trust Fuels Performance
Central to a For All culture is a high level of trust. Our data and other evidence have demonstrated that high-trust cultures win in business.
For more than 30 years, Great Place to Work has studied and recognized organizations with high-trust cultures, in part through the Best Workplaces lists produced in partnership with FORTUNE magazine. For these companies, a defining feature of being recognized as a great workplace is a high level of organization-wide trust, as reported by employees. This research, along with findings from various independent research groups, illustrates that high levels of trust pay off. Among the business benefits of high-trust cultures are:
* Stock market returns two to three times greater than the market average (see Figure 2).
For more than a decade, an independent investment firm has tracked the stock performance of the publicly traded FORTUNE 100 Best Companies to Work For. In a simulated portfolio that is reset with newly named list companies each year, the research shows Best Companies have a cumulative return nearly three times the benchmark Russell 3000 and Russell 1000 indices.
A separate, independent study came to similar conclusions. Alex Edmans of the London Business School conducted a complex four-year study that proved a high-trust culture precedes the Best Workplaces' strong stock market performance, and not the other way around. He also found the 100 Best Companies delivered stock returns that beat their peers by 2 to 3 percent per year over a 26-year period.
* Turnover rates approximately 50 percent lower than industry competitors (see Figure 3).
* Increased levels of innovation, customer and patient satisfaction, employee engagement, organizational agility, and more.
A Great Place to Work study of the hospitals that made the 2016 FORTUNE 100 Best Companies to Work For list found that, on average, these high-trust hospitals have Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) patient satisfaction scores that are significantly higher than the U.S. average for overall hospital rating and whether patients would recommend the hospital (see Figure 4). As patients are the end "customer" in a health care setting, these results demonstrate the positive impact a high-trust culture can have on the overall customer experience.
For All Accelerates Performance
So, high-trust workplaces outpace business rivals. But our latest research shows organizations must clear an even higher bar to reach their full potential.
As great as the 100 Best Companies are, they typically have had significant gaps in the employee experience between groups of people. For example, there are sizeable gaps in the work experience between men and women, salaried workers and non-salaried workers, and executives and individual contributors, to name a few of these differences. These gaps mean not everyone is having a positive experience, which means they are not likely to bring the best of what they have to offer to the organization.
At the same time, we are entering a new frontier in business. This largely uncharted territory is about developing every ounce of human potential, because every employee matters in an economy that is about connectivity, innovation, and human qualities like passion, character, and collaboration.
Societal and technological changes are creating new opportunities and challenges for organizations in the competition for loyal customers and talented employees. The millennial generation, in particular, is a highly diverse group that expects meaning, growth, and balance at work. A reputation for developing employees and for welcoming people from all backgrounds and walks of life is increasingly crucial to attracting and retaining the best team possible. In short, the emerging business climate compels organizations to create an outstanding culture for everyone.
Our latest research backs the idea that organizations must create Great Places to Work For All to thrive. For one thing, we found Great Places to Work For All leave competitors in the dust. In studying employee surveys from the 2017 100 Best and the non-winning contender companies, we found the more consistent an organization is on metrics related to innovation, leadership effectiveness, and trust, the more likely it is to outperform peers in revenue growth. In particular, companies in the top quartile on these metrics — which we call our For All Score — enjoy more than three times the revenue growth of companies in the bottom quartile (see Figure 5).
We also found Great Places to Work For All grow their revenue faster than companies that simply show high levels of trust on average.
Up until this past year, we measured the employee experience by examining the overall, average response to our Trust Index Employee Survey. This "old" approach — which has been the foundation of our ranking of the FORTUNE 100 Best Companies to Work For list for the past 20 years — didn't take into account statistically significant gaps that may exist between demographic groups.
In 2017, the organizations that ranked highest according to the new For All methodology proved to be a different set of companies than those that ranked highest when using the traditional methodology. And the top tier of these new For All companies grew faster than the best companies determined by our traditional methodology. We found 13.7 percent median annual revenue growth for the top quartile of companies on the For All Score ranking. That compares to 12.5 percent annual revenue growth for the top quartile of companies ranked by our traditional way of gauging the employee experience (see Figure 6).
This follows other evidence from us and others that inclusive cultures provide more value to shareholders and all stakeholders:
* In a 2015 report, consulting firm McKinsey examined 366 public companies across a range of industries in Canada, Latin America, the United Kingdom, and the United States, and found companies with more diverse workforces perform better financially. Gender-diverse companies were 15 percent more likely to outperform peers with little gender diversity, while ethnically diverse companies were 35 percent more likely to outperform less-diverse peers.
* A 2016 study by the Peterson Institute for International Economics involving nearly 22,000 firms from 91 countries found "the presence of women in corporate leadership positions may improve firm performance" and that "the payoffs of policies that facilitate women rising through the corporate ranks more broadly could be significant."
* Our own research in producing the 2016 Best Workplaces for Diversity list showed that the most inclusive workplaces experienced average annual revenue gains 24 percent higher than their peer companies certified by Great Place to Work.
Our study suggested that just hiring a demographically diverse workforce will not by itself boost results. Simply increasing headcount diversity did not show a strong connection to revenue growth. Instead, our data showed that employees' experience of genuine workplace inclusion — as seen by high, consistent survey scores in areas such as fair treatment and a caring environment — is a better predictor of revenue growth than diversity alone.
Leading companies, including many FORTUNE 100 Best Companies, are on the path to For All workplaces. They are working to close the gaps in the employee experience. And they are seeing payoffs.
Take software giant Salesforce, a perennial 100 Best Company. CEO Marc Benioff and his team invested $3 million in 2015 to address a gender pay gap at the company. The move, along with a host of other equality efforts, has reaped rewards. Salesforce is becoming a beacon for talented women in technology, and it's enjoying the fruits of a more fully engaged workforce. The percentage of women employees who say they want to work at Salesforce for a long time jumped from 85 percent in 2014 to 93 percent in 2016. And 92 percent of female employees in 2016 said people look forward to coming to work at Salesforce, up from 85 percent in 2014.
Salesforce has not rested on its laurels on the gender pay issue. It conducted a similar pay equity study in 2017, investing $3 million more to close compensation gaps. Perhaps not surprisingly, the company has been growing faster than its rivals, and it dominates the customer relationship management software market.
But the Golden State Warriors may be the winningest of them all these days — and not just on the court. With its "Strength in Numbers" culture as a foundation, the franchise has been raking in business rewards as well. The value of the team rose an NBA-high 37 percent to $2.6 billion in 2017, leapfrogging from sixth place to third place in the league.
With their season ticket renewal rate at 99.5 percent, the Warriors felt confident enough in 2017 to raise season ticket prices by 15 to 25 percent. And the organization landed a $300 million deal with Chase to name the Warriors' new stadium — a record price for a U.S. arena.
Warriors co-owner Joe Lacob caught some flak for boasting in a 2016 New York Times profile that the organization, with its "Silicon Valley precepts" such as open communication and collaborative decision making, is superior to its peers. "We're light-years ahead of probably every other team in structure, in planning, in how we're going to go about things," Lacob told the Times. Lacob may be guilty of bravado, but there's little arguing with the way he and his partners have seen their investment blossom. They bought the team for $450 million in 2010, meaning their ROI as of 2017 was a gain of nearly 500 percent.
The Warriors culture is where businesses must go as well. The business case for a Great Place to Work For All isn't merely a two-point slam dunk. It's better. It's a three-point splash.
CHAPTER 2
A New Business Frontier
Social and technology changes require a new way of doing business.
The rules of the road in business have changed. Just ask Uber.
In a few short years, the ride-sharing service both transformed the transportation industry and found itself crashing against new standards related to leadership, transparency, and fairness.
With its phone-based app for arranging car trips, Uber pioneered a new, cheaper, more convenient way of getting around. It jump-started the "gig economy" by tapping independent contractors rather than traditional employees and quickly became a global force. Eight years into its existence, Uber's revenue in 2016 had raced to $6.5 billion and it was valued at $70 billion — $15 billion more than General Motors.
But its brash CEO Travis Kalanick also steered into one accident after another. In January 2017, Kalanick and the company were slammed for allegedly seeking to profit when taxi drivers protested the Trump administration's refugee ban. Fueled by a #DeleteUber campaign on Twitter, roughly 500,000 users reportedly asked to delete their Uber accounts in the wake of that incident.
The negative publicity continued in February 2017. Former Uber engineer Susan Fowler published a blog post claiming a culture of sexism at the company — including her charge that Uber refused to punish her manager after he made sexual advances, in part because he was a "high performer." There were legal troubles as well, including a U.S. Justice Department probe. Kalanick's reputation was further bruised by a video of him losing his temper with an Uber driver over fare policy. Several executives departed amid all the troubles.
Along with the scandals came a financial warning sign: Uber was burning through cash at an astounding rate. It posted net losses that rose to nearly $1 billion in the last quarter of 2016 — an amount that may have been the largest quarterly deficit in business history. Meanwhile, rival Lyft added more than 50 cities to its operations, and other companies were considering entering the ride-share market.
Uber tried to course correct in early 2017. The company put a plan in place to fix its culture, and fired 20 employees in June because of harassment, discrimination, and inappropriate behavior. And Kalanick pledged to get leadership coaching in the wake of his altercation with the driver. But it wasn't enough to prevent investors from pushing him out of the driver's seat. Kalanick stepped down as CEO on June 21, remaining on the company's board of directors.
What a Difference 20 Years Make
Whether Uber's culture flaws, scandals, and executive shake-up amounted to minor potholes or an insurmountable roadblock remained to be seen as of mid-2017. But the company's valuation undoubtedly backtracked amid all the trouble. And the very fact that it careened so wildly speaks to the way the business world has changed in the past two decades.
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Excerpted from "A Great Place to Work For All"
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