Investing In Company Culture Is An Investment In Intangible Assets!

Michael D. Moberly    January 10, 2014    A blog where attention span really matters!

David Lapin projects the next big wave of growth in business will come from businesses whose leaders and management team members know how to convert this low-cost intangible asset, i.e., company culture, into high bottom-line value!

Investing in building and nurturing a company’s culture is the wisest investment any business leader or management team can make!  Financially, it is a low-cost investment with a high probability of economic – competitive advantage returns.

A company’s culture is somewhat akin to a garden, that is, a culture will develop whether or not business leaders or management teams put forth the time and effort to actually design it.

So, like the garden analogy above, if a company’s culture is ignored or neglected, that is, absent regular management, oversight, and nurturing, it’s very likely it will continue to grow regardless, but probably not as intended or preferred and in ways which are not particularly helpful to the company and its mission.  Adverse examples of this include inhibiting innovation or manifesting as employee under-performance. Company cultures that evolve in this manner are said to be akin to an ‘invisible force’ that can not only undermine company – employee productivity but sap leader’s energy.

Cultivating a positive company culture…

Let there be no question, developing, cultivating, and sustaining a desired company culture requires thought, wisdom, time, and some intellectual curiosity and emotional investment to understand what motivates employees to perform consistently well, even beyond expectations.   I am respectfully confident there is no specific, one-size-fits-all methodology or strategy to achieve this, but there is ample anecdotal evidence and examples that ‘good to great’ leaders do pay attention to it.

As David Lapin pointed out in his research, an authentic (company) culture is something competitors will find challenging if not impossible to imitate.  And yes readers, company culture is an intangible asset which, in most instances, can be commoditized and converted to real value. In fact, David Lapin projects the next big wave of growth in business will come from businesses whose leaders and management team members know how to convert this low-cost intangible asset, i.e., company culture, into high bottom-line value.

The knowledge-based global economy has allowed many leaders and managers to acquire a better understanding and appreciation for ‘home grown’ intangible assets like intellectual, structural, and relationship capital and their potential for conversion as specialized commodities into value, revenue, reputation, and goodwill, etc.

Many would agree with the view that Southwest Airlines (headquartered in Phoenix, Arizona) is a prime example of a leaders’ ability to not only create a very open and transparent company culture, but also turn the intangibles emanating from this culture into commodities with substantial monetary value.

Southwest Airlines has long been a dominant player, particularly upon airline deregulation occurred in the U.S. and now in the ever shrinking (merging) U.S.-based airline industry. For SWA’s their growth was in part due to its operating culture built upon genuine efficiencies, e.g., flying only one model of aircraft, creating a no-frill travel experience, no food service or pre-assigned seating.  Ultimately SWA stripped most of these ‘tangible commodities’ associated with conventional airline travel.  In return, SWA’s customers received something of relatively equal value in return, at least in the eyes of their growing number of customers that is, a good flying experience underwritten by a culture embedded with intangible assets, i.e., joke telling entertainment from flight attendants coupled with a felt sense of care that apparently compensated for any loss of those ‘tangible commodities’, i.e., complimentary food and beverage service for one.

There are three well known secrets that underlie SWA’s travel experience and its overall financial success since its inception, i.e., (1.) the company and its leader, ala Herb Kelleher built a culture that incorporated the properties of fun, entertainment, and felt care became embedded in the company’s core, (2.) the culture had to feel authentic and genuine by passengers, and (3.)  SWA had to be able to convert its now intangible asset based company culture into tangible benefits, including market share growth which, as we know, it did.

Numerous business schools today use SWA and its founder Herb Kelleher as a case study of commoditizing a company culture and its intangible competitive advantages balanced with tangible operational efficiencies.

While SWA was investing in and building its intangible asset based company culture, numerous competitors were cutting financial corners that indeed reduced costs that frequently eroded their own culture. Kelleher and SWA, on the other hand, only cut those (financial) corners which the y presumably believed would have little or no impact on the culture they were building and a passengers’ overall travel experience. In fact, SWA continued to invest more in its culture even during periods when the airline industry, as a whole, was struggling. Kelleher and SWA management teams obviously recognized safe and on-time flights for passengers were, in essence, common commodities that competitors also provided to their passengers.

So, for SWA to be competitive in a deregulated environment, Kelleher and his management team purposefully built a company culture that would offer ‘intangibles’ that competitors couldn’t or wouldn’t.

The intangibles SWA’s culture began offering became well publicized differentiators that were embedded in the company’s values rather than directly in its products, processes, or structures. Products, processes, and structure, it’s said, Kelleher recognized could and would be copied, but intangible assets such as an authentic company culture cannot be readily copied providing it is genuinely embedded in company and employee values.

Any company can build its own culture; one that is unique and innate to its people and strategic objectives. But when a company tries to copy another company’s culture they quickly find it difficult, if not impossible to replicate.  Numerous SWA competitors have tried, over the years, to imitate those SWA, but, most all fell short, generally it’s assumed, because they were unable, for whatever reason, to embed it in company – employee values.

Admittedly, I never had the opportunity or pleasure of making Mr. Kellehers’ acquaintance. I did however regularly fly on SWA in it earliest days, not for its’, at the time, emerging culture, rather because (a.) it was less expensive, and (b.) I didn’t mind its business model of securing gates at first generation airports, which in many instances were actually closer to city centers’.

Professionally speaking, I’m unclear whether SWA’s company culture, which in my recollection became obvious and noticeable, from a passenger perspective, beginning in the mid-1980’s and continuing through much of the 1990’s.  Was this culture a well thought through component of Kelleher’s ‘grand plan’, or was it like most other company cultures which appear and grow by accident or merely good luck?  Frankly, what makes me slightly skeptical is the now common relationship between intangible assets and company culture only slowly acquired traction in business operations following the publication of the Brookings Institute’s report (study) on intangibles in late 1990’s.

There is absolutely no question that Kelleher was the ‘dynamic’ driving SWA’s rapid growth and passenger satisfaction, which in part was due to the company culture that evolved.

This post was inspired by David Lapin’s book ‘Lead by Greatness, Character, Success’ published by Avoda Books, 2012.

Comments regarding my blog posts are encouraged and respected.  Should a reader elect to utilize all or a portion of my posts, full attribution is expected and appreciated. While visiting my blog readers are encouraged to browse other topics (posts) which may be relevant to their circumstance or business transaction.  I always welcome your inquiry at 314-440-3593 or [email protected].

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