Since May 2016, we have led an academic research project to develop a new approach to measuring corporate culture. This research has produced the Unobtrusive Corporate Culture Analysis Tool (UCCAT).
UCCAT is a theoretically based and scientifically tested methodology for analysing and benchmarking corporate culture. Uniquely, rather than gathering employee interviews and questionnaires to assess culture, UCCAT analyses publicly available data (e.g. annual reports, financial records, press releases and databases) indicative of a company’s cultural ‘footprint’. These data points are termed “unobtrusive indicators of organisational culture” (UICs). Each UIC represents an observable and measurable aspect of organisational activity indicative of culture (e.g. research spending, customer engagement), and can be understood as a ‘dipstick’ into a company’s culture. When aggregated in terms of cultural dimensions, UICs allow corporate culture to be assessed from the ‘outside’.
This approach is original, because academics and practitioners have tended to study corporate culture through employee self-report methodologies. Yet, these have numerous limitations: for example, social desirability, subjectivity, sampling errors, and limited longitudinal analyses. UCCAT aims to overcome these, and to provide new insights for the academic corporate culture literature, alongside a novel scientifically evaluated approach for supporting investment decisions.
The Unobtrusive Corporate Culture Analysis Tool (UCCAT) was developed through the following phases:
- Systematic review of the organisational culture literature
We reviewed 2,047 academic papers, identifying 329 unobtrusive indicators of culture (UICs). These UICs were then conceptualised in terms of the core dimensions of organisational culture outlined as predictive of performance in the academic literature. For example, employee satisfaction (an outcome of an employee-focused culture) has been unobtrusively measured using reviews left by current and former employees on Glassdoor (a website on which current and former employees provide unsolicited reviews of companies and company management) and shown as positively associated with firm performance.
- Initial analysis of two companies
The above-identified UICs were applied to two companies in order to examine the feasibility of externally assessing corporate culture. Furthermore, through analysing publicly available company data such as annual reports, earnings call transcripts and press releases, we identified new UICs not previously specified within the corporate culture literature. were identified. For example, a focus on long-term growth in the quarterly earnings calls was conceptualised as indicative of long-term planning.
- Generation of a preliminary cultural framework
From the above phases, we developed an initial UCCAT framework (76 UICs belonging to 8 dimensions). This was applied to assess the culture of 10 case companies. Seven of the companies were considered to be high-performers, and three were not. Blinded to the prior assessments, we evaluated the corporate culture of each company. (I may have added a distortion by using the active voice in some sentences – introducing the subject “We”. The idea is to make ideas a little easier to understand. But maybe it wasn’t you who did some assessments.)
- Item Analysis
High reliability, statistical variance, face-validity and ease of use are essential to a robust culture analysis tool. For UCCAT, we tested whether, when applying the initial UCCAT framework to the 10 companies, different coders would evaluate the same companies in a similar way. Overall, with an average co-efficient of 0.65, this preliminary testing showed UCCAT to be highly reliable. Based on this analysis, and further statistical assessments of each UIC (e.g. their variance and time-taken to code), we further refined UCCAT.
- Discriminant Analysis
Using the refined tool, we developed cultural profiles for each company. The profiles were assessed to determine whether they i) reflected the companies being reported on, and ii) distinguished between high and low performers. The outcomes of this assessment, and the final version of UCCAT, are reported below.
The Unobtrusive Corporate Culture Analysis Tool (UCCAT)
The final UCCAT tool consists of 60 unobtrusive indicators of culture (UICs) which are grouped into 6 dimensions of corporate culture (with 10 UICs used to measure each dimension). Table 1 presents the definition for each dimension, and a single UIC indicative of it.
|Corporate culture dimension||Example UIC||How it is assessed|
|Adaptability: A company's innovativeness, willingness to take risks, and overall ability to respond to changes in the market through strategy and leadership.||R&D intensity: R&D expense as a percentage of net sales over 3 years (source: annual report). This is indicative of an organisation's willingness to innovate.||Positive indicator: Above industry competitors' average over the past 3 years.
Negative indicator: Below industry competitors' average over the past 3 years.
|Customer focus: A company's emphasis on engaging with customers and responding to their wants and needs.||Responsiveness on phone: Whether it is possible to get a human operator on the customer service line. This indicates accessibility to customers.||Positive indicator: The caller gets through to a human operator.
Negative indicator: The caller doesn't get through to a human operator OR it's not possible to locate a customer care number.
|Employee focus: A company's treatment of its employees in terms of support, opportunities for professional growth and concern for well-being, as well as employees' subsequent alignment or non-alignment with its business direction.||Employee strikes: Occurrence of employee strike action over a 5-year period (source: press releases). This indicates an unhappy workforce, or a lack of ability to negotiate settlements.||Positive indicator: No strike in the past 5 years.
Negative indicator: One or more strikes in the past 5 years.
|Governance: The practises, composition and stability of a company's planning surrounding their results, their responsibilities and the future.||Adjusting CEO bonus: Adjusting CEO bonus payments according to actual company performance (source: annual report). This is indicative of whether rewards are calibrated to performance.||Positive indicator: No/reduced bonus
Negative indicator: Full bonus.
|Planning: The extent and effectiveness of a company's planning surrounding their results, their responsibilities and the future.||No profit warnings: Presence of profit warnings in the past 2 years (source: Google news). This indicates inaccurate forecasting||Positive indicator: No profit warning issued in the past 2 years.
Negative indicator: One or more profit warnings issued in the past 2 years.
|Transparency: The transparency of a company's communications in terms of its annual report, responses to analysts' questions in earning calls, and press releases.||Responding to questions: Adequacy of responses given to analysts' questions in the earnings call (source: earnings call). This indicates openness to directly answering about the organisation's performance.||Positive indicator: At least 50% of questions directly answered.
Negative indicator: Less than 50% of questions directly answered.
As can be seen in table 1, each UIC is scored in terms of being positive or negative. If the data is not clearly positive or negative, then the UIC is scored as indeterminate. If data is not available, it is coded as missing. Where all 60 UICs are scored for a company, this leads to two key scores.
First, for a given company, each corporate culture dimension is scored in terms of positive UICs minus negative UICs (so 6 positive indicators minus 4 negative indicators would derive a score of 2). This provides an insight into those aspects of corporate culture for which an organisation is strong or weak.
Second, for a given company, an overall corporate culture score is derived through calculating the total number of positive UICs minus negative UICs (so 40 positive indicators minus 20 negative indicators would derive a score of 20). This provides both an overall assessment of corporate culture (in terms of positivity), and is used to benchmark companies against one another.
Findings from the case studies
Three key observations can be made from the results of the case studies. The anonymity of the companies examined is reserved.
First, the corporate culture profiles generated through UCCAT appear to discriminate between companies. For example, the sample’s two joint overall top performers had 23 more positive than negative indicators compared to the sample average of 7.3. They were also top performers in the dimensions of transparency, governance and customer focus, for instance with online archives of accessible company documents going back 28 years. Conversely, the company with the sample’s poorest overall performance had 28 more negative than positive indicators: with governance, transparency and planning being particularly problematic.
Second, UCCAT provides specific insights for understanding the culture of companies. For example, one of the strongest performing companies (e.g. in terms of employee focus and transparency) performed poorly on the dimension of customer focus. Conversely, one of the weakest companies (e.g. in terms of governance, customer- and employee focus) performed well on transparency. Thus, UCCAT is able to identify cultural dimensions that should be monitored and potentially investigated for both weak and strong performers.
Third, some comments can be made about the patterns of UICs for each company. UICs such as “adapting to a negative event” focus on signs that a company is improving its culture: for example, by admitting and demonstrating willingness to learn from negative events. Other UICs focus on rarely-occurring but highly-concerning indicators. For example, the UIC of “adjusting CEO bonus”, which reveals problems in governance whereby failure is rewarded. Crucially, no single UIC or culture dimension can be used to determine corporate culture. Rather, overall patterns are telling, and paint a picture of corporate values and practices.
Overall, UCCAT is a reliable, theoretically derived, and easy-to-use tool that has huge potential for supporting investment decisions, and addressing important academic questions on the nature and manifestation of corporate culture. Our ongoing research will focus on testing UCCAT on a wider sample of companies, over time, in order to determine whether it can predict independent measures of organisational performance.
- This blog post appeared first on Psychology@LSE.
- The research is funded by the AKO Foundation, a UK charity.
- The post gives the views of the authors, not the position of LSE Business Review or the London School of Economics.
- Featured image credit: Image by geralt, under a CC0 licence
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Tom Reader is an Associate Professor in Organisational Psychology, and deputy head of LSE’s Department of Psychological and Behavioural Science (Research). His work examines the relationship between organisational culture and risk management, and he is an expert on the topics of safety culture, decision-making, teamwork, and incident reporting.
Alex Gillespie is Associate Professor, at LSE’s Department of Psychological and Behavioural Science, and an Editor of the Journal for the Theory of Social Behaviour. He is an expert in cultural psychology, focusing on trust, communication, misunderstanding, and research methods