Employees Who Identify with the Company Boost Financial Performance

05 Dec. 2011 | Comments (0)

This post is part of the HBR Forum, The Future of Retail.

Executives spend a lot of time worrying about their companies' products and prices, but they don't spend nearly enough time worrying about corporate character. Why would they? A lot of them don't believe companies even have a character, and others don't see what difference it could possibly make.

But your company's character can earn you — or cost you — real money. Our research on thousands of managers, frontline employees, and customers of a U.S. retailer shows that there are connections between customer spending and what's known as the organizational identification of the people who work at the company. The greater the OI, as researchers like to call it, the greater the spending. And organizational identification is, to a great extent, about company character.

Corporate character is like corporate reputation, but it's a deeper and more nuanced concept. It has little to do with advertising or marketing. Like your own character, it's judged by actions more than words. If your company sticks its neck out for a principle, it will be seen as having integrity, just as you're seen as having integrity when you stand up for the employee who's being scapegoated by some other manager. A long history of admirable moves builds an impression of a solid character. A history of missteps does the opposite. You can probably name companies with solid character as easily as we can: Zappos, Ritz-Carlton, and USAA, to name just a few.

Fine, you might say. So what?

The most desirable managers and employees — those who are smart, capable, and conscientious — have the ability to choose, to some extent, where they work, and they tend to self-select into companies that they identify with. Just to be clear on what we're talking about, identification means that the individual's view of himself or herself overlaps with his or her perception of the company. We test this psychologically by asking people their level of agreement with pairs of statements about themselves and their companies — for example, "'A leader' accurately describes me," and "'A leader' accurately describes my company." If there's a lot of agreement in the responses to these pairs, it means the person strongly identifies with the organization.

In a study of 306 store managers, 1,615 employees, and more than 57,000 customers of a women's-clothing retailer, we found that organizational identification is directly related to employee performance and indirectly related to customer evaluations and store performance.

Not all employees, especially in retail, arrive with fully formed views of the company's character, of course. Many pick up their sense of organizational identification — or lack thereof — from their managers. We found that there's a chain reaction from managerial OI to employee OI and on to customer spending: Raising managerial OI by a value of 1 on our seven-point scale increases employee OI by 0.29 of a point; raising employee OI by one point increases customer OI by 0.25 of a point; and raising customer OI by one point is associated with customers' spending $71 more per year per person at the retailer. So in retail, at least, managerial OI is a crucial part of how companies can differentiate themselves and improve their sales. And managerial OI tends to be high in companies with characters that people identify with.

Executives are constantly having to decide what actions their companies should take, and in doing so many of them carefully consider stakeholders' expected reactions. Our research suggests a further step: Consider what a given move would reveal about the company's character. The stronger the character, the more likely the company is to attract managers who can say, "I am the company, and the company is me," an attitude that can spill over to frontline employees and customers and improve the bottom line.

This blog first appeared on Harvard Business Review on 12/07/2011.

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