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Leadership

How Intangible Corporate Culture Creates Tangible Profits

Imagine a person from another planet turning up at a funeral here on Earth. Without having to be told, he would know that a funeral is not an appropriate place to tell jokes. This, Professor Michael Tushman tells his class at Harvard Business School, is the meaning of culture. But culture does more than inform every individual in an organization what attitudes and behaviors are expected of them. Culture reflects an organization's soul and is responsible for generating human energy. Investing in culture is the wisest investment any corporation can make.

Like a garden, organizational culture develops whether or not you design it. If you ignore it, it continues to grow, just not necessarily in the ways you might have hoped. Without attention to culture, office politics can proliferate, becoming cancerous and blocking the free flow of information. Fear can inhibit innovation, and people may try to do as little as they can in return for as much as they can get. An unhealthy culture is a pervasive, invisible force that undermines what you do and drains your leadership energy. If you build your culture with care and you nurture and sustain it, it will help you to engage the best talent and lure the most loyal customers.

Although cultivating a great culture demands a lot of emotional investment, leadership wisdom, and a genuine care for people, it is a financially low-cost investment with a high economic return. This is why great leaders pay attention to it. An authentic culture, at the very soul of a business, is something competitors cannot imitate. Like soul, culture is intangible. Yet given a little inspiration, this intangible commodity can be converted into untold wealth. Incredibly, the next big wave of growth will come from businesses whose leaders know how to convert low-cost intangibles like culture into high bottom-line value.

We are accustomed to thinking that the intangibles of life exist separately from tangible things; material things separated from spiritual, personal things distinct from commercial. This is not so. The knowledge economy has taught us how intangibles like intellectual property and design can be converted into money. Consider how much of the cost of a computer covers its tangible components versus how much you are paying for its technology and software. Tangibles and intangibles are often interchangeable. Material wealth can buy intangibles like lifestyle, time, rich human experiences, and education. In the same way, intangibles like knowledge, wisdom, culture, and caring can generate tangible wealth, too.

Southwest Airlines is probably the greatest success story in American airline history in terms of turning intangibles into monetary value. Southwest's decades-long dominance of its segment of the airline industry was the product of more efficient operations, flying only one model of aircraft, and removing the frills of travel such as food and pre-assigned seating. However, if those factors alone were responsible for its astounding success even in the toughest of times, then others could have successfully replicated it. Southwest's success was possible because although it stripped the tangible commodity of its offering (airline transportation) down to a "no-tangible-frills" minimum, it gave customers something equally valuable in return: a superior intangible experience. Southwest gave its customers fun, entertainment, and some genuine human care that compensated for their loss of the tangible features and benefits. The secret, though, is that for this experience to feel authentic, the company's leader, Herb Kelleher, had to build an airline culture that had the properties of fun, entertainment, and genuine care at the very core of its soul.

Southwest converted its intangible culture into tangible benefits, including market share growth. In the two years between 1991 and 1993, it increased its market share in California from 26 percent to 45 percent. The energetic commitment of Southwest's employees achieved a flying cost of 7.1 cents per mile compared to over ten cents for other major airlines. They used only 81 employees per aircraft compared to more than 150 needed by competitors. They handled 2,443 passengers per employee compared to only eight hundred to nine hundred by their competitors.

Business school case studies often focus on Southwest Airlines and its founder. However, they seldom acknowledge the most important key to Kelleher's success: his commitment to building intangible competitive advantage with as much vigor as he built tangible operational efficiencies. He invested relentlessly in his company's culture, and guarded and protected it like a fortress. Southwest's competitors cut corners that saved costs but eroded their cultures. Herb only cut those corners that did not impact the culture inside his company. In fact, he invested even more in the Southwest culture when the airline industry was struggling. He knew a safe flight was a commodity that others provided just as well as he could. So he made sure that he offered something they couldn't.

Why could other airlines not do what Southwest did? Because the intangible offering that truly differentiates a company resides in its corporate soul and is created by the company's culture and its values, not by its products, process, or structure. Products, process, and structure can be copied, but authentic culture and values cannot. 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, it usually fails because culture, as part of the soul of a business, cannot be replicated. Southwest's competitors have at times tried to imitate instead of innovate by copying Southwest's processes, but they haven't been able to replicate its soul. They cannot imitate its values.

Southwest's caring for people, both employees and customers, was not conceived merely as a strategy for success. Southwest cares for its people because it believes that is the morally right thing to do. People are not a means to an end (profit), but an end in and of themselves (satisfied customers, happy employees). Success was the outcome of caring, not the reason for it. 

Leadership philosophies like these build up a large accumulation of trust and respect between employees and management. When time and time again management demonstrates its trust in and respect for its people, they in turn put the company first. This two-way trust and respect unblock channels of communication and liberate the human energy that can make a company succeed.

Excerpted with permission of the publisher Avoda Books from Lead By Greatness: How Character Can Power Your Success by David Lapin. Copyright © 2012 by David Lapin.

David Lapin, rabbi and corporate advisor, is CEO of Lapin International, a leadership consulting company that helps organizations develop inspirational leaders and self-driven teams that outperform the competition. Lapin has earned the respect of global business leaders for his unique ability to identify a business's most current strategic opportunities and operational challenges while understanding and unraveling the complex dynamics of the human spirit. Follow him @DavidLapin.

[Image: Flickr user lecercle]