5

Connection Provides a Performance and Competitive Advantage to Organizations

To determine America’s best large employer each year, Statista and Forbes survey 30,000 workers at U.S. organizations, asking them questions about their work experience. Costco, a multi-billion-dollar retailer with warehouse club operations in 11 countries, has consistently appeared in the top five. Clearly, Costco is doing something right.

In 2017 I attended Costco’s Annual Managers’ Conference, where I gave a keynote speech based on Connection Culture. Since that time, I’ve learned a lot about Costco. While the level of engaged employees in America is stuck at around one-third of employees and American-style capitalism has fallen out of favor with many younger Americans, I have come to believe that Costco’s culture provides the solution to what ails American business. It provides a model corporate culture that all organizations should strive to emulate. I realize that’s a bold claim.

Looking at Costco through the lens of the Vision + Value + Voice model, I see that task excellence plus relationship excellence is resulting in sustainable superior performance. I’ve met connected members and connected leaders. I believe the high degree of human connection in Costco’s workplace culture helps explain why it is one of America’s best employers. As Brenda Weber, vice president of human resources, told me, “Connection is at the heart of our culture at Costco.”

Let’s start with the connection culture element of vision, which is how employees connect to the organization’s mission, values, and reputation. The vision of Costco is to help people make ends meet, help businesses be more efficient, serve customers better, and be a positive force in its communities.

Costco’s values are summed up in the phrase “do the right thing.” This is elaborated in its code of ethics:

The attitude at Costco is that if people throughout the organization live up to these standards, it will reward Costco’s shareholders. Costco lives this out in the way it faithfully serves its members, the way it treats employees like family, and the positive things it does for local communities. It’s reinforced in stories of Costco doing what’s right even when it hurts.

Because Costco deliberately lives out these aspirations, its reputation is stellar. As a result, Costco employees trust that the company’s leaders will treat them well. Costco members trust the company will provide quality goods and services at attractive prices. This extremely high level of trust and loyalty comes through in the data. Costco’s annual employee turnover is around 5 percent, management turnover around 1 percent, and annual membership renewals are close to 90 percent in the United States and Canada. Such low levels of employee and management turnover combined with a high level of membership renewal rates (which encourages members to shop regularly at Costco) help the company maintain its selling, general, and administrative expenses (SG&A) under 10 percent versus competitors’ SG&A rates, which are in the 18–23 percent range.

The connection culture element of value exists in a culture when people feel valued as human beings rather than being thought of and treated as means to an end. Compared to competitors, Costco provides generous compensation and benefits as well as career opportunities. At the local level, leaders at warehouses hold programs to help employees move up in responsibility, and they teach managers to connect. The fact that many of Costco’s senior executives started out working on the warehouse front lines is a testament to upward career mobility. The job security Costco provides also shows that employees are valued as human beings.

Valuing people has been stress tested at Costco too. In 1993, when Costco merged with a competitor, Price Club, no jobs were cut. The times Wall Street analysts have criticized Costco for its generous compensation and benefits, Costco’s leaders didn’t cave in (Zimmerman 2004). Instead, they continued to do what was best for the long-term by giving raises to Costco’s people. During difficult economic seasons, Costco tightened its belt, rolled up its sleeves, and worked harder and smarter so that its employees would continue getting raises.

In a conversation with Jim Sinegal, Costco’s co-founder and CEO from 1983 to 2011, he emphasized to me that valuing people is the right thing to do, and it’s a good business practice. Costco’s low employee turnover is a case in point. Furthermore, longtime Costco employees develop friendships with each other—a factor which has been shown to boost employee engagement and performance. A word you will hear frequently at Costco is “family.” The intentional attitudes, language, and behaviors at Costco make its people feel like valued members of the Costco family.

Giving people a voice to express their ideas and opinions, and then taking this input seriously, reflects the element of voice. While attending Costco’s Annual Managers’ Conference, I observed the company continuously tapping into the ideas and opinions of its employees to identify methods to improve its delivery of goods and services to members as well as improve efficiencies that could result in reducing costs. Video after video showed employee ideas that have been implemented, along with estimates of the economic benefits associated with each. In highlighting these stories at the conference, Costco leaders celebrated these improvements while at the same time disseminating practices that could be replicated across the company.

In his research on the character of CEOs, Fred Kiel, author of Return on Character: The Real Reason Leaders and Their Companies Win, ranked Jim Sinegal among the top (Kiel 2013). Ever humble, Sinegal made it clear to me he doesn’t like to be singled out for credit that he feels should go to the entire Costco team. Craig Jelinek, Costco’s current CEO, shared with me that he learned much over the years from reporting to and observing Sinegal.

It’s this knowing who you are and what you believe, and sticking to those values that produce a connection culture—especially in times when you are being stress-tested—that makes Costco a truly great organization, in my view.

This was apparent in early 2020 following the COVID-19 outbreak when Costco experienced a surge of shoppers loading up on groceries and household supplies. Deemed an essential business that should remain open, Costco put practices “too numerous to list” in place to protect employees and members, including enhancing sanitation procedures, limiting the number of members in its stores at a given time, wiping down shopping carts as members entered the store, making hand sanitizer available throughout, requiring social distancing in the check-out area, and adding plexiglass shields between members and cashiers. It also established special shopping hours for individuals who were vulnerable to COVID-19 and provided priority access for healthcare workers and first responders (Costco 2020).

In April, Jelinek made the decision to go further in protecting people, requiring everyone in a Costco store to wear a mask to reduce the risk of virus transmission. Costco was criticized by some who argued this was an infringement on their liberty. However, given Costco’s strong values of caring about members and employees, I was not surprised that Jelinek opted to go the extra mile to protect people from the highly contagious virus (Clarridge 2020).

Jelinek says the Costco leadership team is focused on leading for Costco’s long-run success. As the organization prepares future generations of leaders in the ways of connection, Jelinek encourages their current leaders to be intentional about connecting. These efforts will help ensure that Costco continues to thrive for decades to come.

Six Benefits to Organizations That Have Connection Cultures

Unlike Costco, most organizations show a high degree of variation regarding employee engagement and connection (Fleming et al. 2005). These organizations contain a mixture of subcultures, some of which are connection cultures, but most of which are either cultures of control or cultures of indifference. This variation suggests that most leaders are not intentional about developing connection and connection cultures.

This is a great opportunity. By becoming more intentional about cultivating connection cultures across all levels and teams, organizations will benefit in six ways that my colleagues and I have identified:

Absent connection, not only do organizations miss out on these six benefits, but they also run the risk of developing knowledge traps that sabotage performance. I think of knowledge traps like cholesterol building up in the human body until it clogs an artery and leads to a heart attack. Knowledge traps hinder the free flow of information or know-how, such as a critical piece of data or an insight into a competitor or feedback from a customer. Without it getting into the mix, a suboptimal decision might be made. If more and more knowledge traps build up throughout an organization and less-than-optimal decisions are made, a drag on organizational performance can occur, leading to managerial failure and eventually threatening an organization’s survival.

FIGURE 5-1. KNOWLEDGE TRAPS

Be on the lookout for these types of knowledge traps that act as barriers, blocking information from getting to the person who may need it to make the best decision. Let’s look at an example of each:

The Role of Connection in Engagement

In 2007 the Conference Board asked its employee engagement and commitment working group of 24 human resources and employee communications leaders to come up with a definition for employee engagement. The group offered the following definition, which is consistent with our findings on connection and connection culture:

Unfortunately, since 2000, on average, more than two-thirds of people working in the United States have been disengaged with their jobs (Gallup 2017). To measure engagement, Gallup developed the Q12 survey. Like other employee engagement surveys, the Q12 asks questions to assess your level of connection with your organization’s mission and purpose, as well as with your supervisor and colleagues, such as whether your supervisor or colleagues care about you as a person, make their expectations clear, encourage your development, and consider your opinion. It also assesses whether you feel connected to your work, by asking whether your job is a good fit with your strengths and if you are learning and growing. The Q12 even asks if you have a best friend at work—a question that certainly affects connection but is one that many leaders struggle with because they believe it isn’t reasonable to hold a leader accountable for delivering best friends at work.

In 2016, Gallup performed a meta-analysis of 339 research studies comprising 82,248 business or work units and 1.8 million employees within 230 organizations across 73 countries. Their findings were highlighted in an earlier chapter and bear repeating. The research concluded that top quartile units with higher Q12 scores (in other words, higher connection) outperform bottom quartile units. The units with higher connection and engagement had:

Skeptics argue that favorable organizational outcomes affect employee engagement more than employee engagement affects organizational outcomes. Gallup chief scientist James Harter teamed up with Frank Schmidt, the Gary C. Fethke chair in leadership and professor of management and organizations at the University of Iowa, to put this theory to the test. They and a group of researchers completed a meta-analysis on longitudinal research from 2,178 business units within 10 large organizations working in diverse industries. The research established causation by measuring across three time periods, finding conclusive evidence that engaged employees caused higher employee retention rates, better customer loyalty, and superior financial performance. The evidence for causality in the reverse direction—from performance to employee engagement—was, according to Schmidt, “pretty weak in comparison.” The results of their study were presented in the article “Causal Impact of Employee Work Perceptions on the Bottom Line of Organizations” published in Perspectives on Psychological Science (Harter et al. 2010).

Many other studies confirm the positive effect connection has on organizational health and performance. Here is a small sampling of the largest and most robust studies:

In 1997 Arie de Geus published “The Living Company” in Harvard Business Review. He and his team studied 27 organizations that had been in business more than 100 years, are still important in their industries, and continue to have strong corporate identities. They concluded that those companies’ leaders valued the people in their organizations more than the type of tasks they performed. The study found that each of the 27 companies had changed its business portfolio at least once—chemical company DuPont began as a maker of gunpowder, and Mitsui, which began as a drapery shop, also ventured into banking, mining, and manufacturing. As de Geus (1997) observed, the “case histories repeatedly show that a sense of community is essential for long-term survival.”

Google has conducted two internal studies that underscore the importance of connection for their employees and teams to be successful. The first, Project Oxygen, was a multiyear study of its top-rated managers that was begun in 2005. Google’s people analytics teams used data from performance reviews, feedback surveys, and nominations from top-manager awards to identify the factors that made the best managers. Google has since updated two of the original eight leadership behaviors and added two more to the list. Here are the Oxygen behaviors (Harrell and Barbato 2018):

Laszlo Bock, Google’s vice president for people operations at the time of Project Oxygen, summed up the study by saying, “We’d always believed that to be a manager, particularly on the engineering side, you need to be as deep or deeper a technical expert than the people who work for you. It turns out that’s absolutely the least important thing. It’s important but pales in comparison. Much more important is just making that connection and being accessible” (Bryant 2011). Google took what it learned and incorporated it into training given to managers, resulting in an “improvement in management at Google and team outcomes like turnover, satisfaction, and performance over time” (Harrell and Barbato 2018).

The second was Project Aristotle, a two-year study launched in 2012 of 180 teams across the company with the goal of learning what the best teams had in common. The research identified five traits, listed here in order of importance:

They found that although issues like clear goals and dependability were necessary, most important was how people felt and whether they could be themselves and speak honestly while interacting with the group. Reporting on the study, author Charles Duhigg observed about Project Aristotle that, “Google’s intense data collection and number crunching led it to the [conclusion] that … in the best teams, members listen to one another and show sensitivity to feelings and needs.” He noted that members “seemed to know when someone was feeling upset or left out” and, “by the end of the day, everyone had spoken roughly the same amount” (Duhigg 2016). In a word, it’s all about connection.

Todd Hall (2015), chief scientist at Connection Culture Group, has also written about psychological safety:

Diminished Health When Connection Is Lacking

An understanding of connection can be enhanced by integrating research from Abraham Maslow on the hierarchy of human needs, Mihaly Csikszentmihalyi on optimal experience (or flow), Victor Frankel on meaning, Edward L. Deci and Richard M. Ryan on autonomy, and Teresa Amabile and Steven Kramer on progress. Their works, along with our research, led to the conclusion that there are seven universal human needs necessary to thrive at work. As introduced in chapter 2, the seven needs are respect, recognition, belonging, autonomy, personal growth, meaning, and progress. Meeting these needs helps people feel connected to their work, their supervisor and colleagues, their organization’s identity, and, in many cases, the people they serve (their customers, clients, or the beneficiaries of their work). The sense of connection helps them thrive. When these seven needs are not met, people don’t feel connected and report feeling bored, lethargic, lonely, anxious, sad, or depressed. These emotions diminish their enthusiasm and energy, which undermines their ability to perform well.

When organizational cultures lack sufficient connection, people in the lower end of an organization’s chain of command and status hierarchy suffer. The pioneering Whitehall studies of British civil servants found that government workers who were lower in the hierarchy experienced poorer cardiovascular health and lower life expectancies, even though they had the same access to healthcare services as their higher-level counterparts. The researchers found that “good levels of social support had a protective effect on mental health and reduced the risk of spells of sickness absence,” whereas a lack of support and unclear or inconsistent information was associated with a twofold increased risk of poor general mental health (Ferrie 2004). A more recent study found that nonleaders showed higher levels of salivary cortisol and anxiety, which are physiological and psychological indicators of stress, respectively (Sherman et al. 2012). These studies suggest that people with less power, control, influence, and status are especially in need of connection to protect them from the biological damage caused by chronic stress and the additional damage caused by coping behaviors that may include smoking and alcohol and drug abuse.

In his excellent book Dying for a Paycheck: How Modern Management Harms Employee and Company Performance—and What We Can Do About It, Stanford Business School professor Jeffrey Pfeffer (2018) makes a compelling case with an abundance of evidence and examples that workplace cultures today are harmful and unsustainable. He addresses the harmful effect of layoffs, lack of health insurance, work-family conflict, long work hours, lack of job autonomy, and the choice of remaining in toxic work cultures.

Empirical Evidence Supporting Connection Culture

Research from the positive psychology field provides crucial insights into connection and how it works in organizations. In chapter 3, I shared 24 character strengths (or values) that provide a survival advantage to individuals and groups. The Character > Connection > Thrive Chain (Figure 3-1) ties all the pieces together by showing how individual character strengths promote the core elements of a connection culture, which in turn meet the seven universal human needs for individuals and organizations to thrive.

In 2018, a scholarly study conducted by Jon Rugg and supervised by our chief scientist Todd Hall, “The Connection Value Chain: Impact of Connection Culture and Employee Motivation on Perceived Team Performance,” identified two interrelated ideas that are emerging in research, which support the positive impact of connection in organizations. First, organizations comprise a complex web of intricate relationships. Second, effective leaders who foster positive relationships and care about people possess “relational virtues.” Connection is cited as a new general theory of leadership and organizational culture that integrates these broad ideas.

The research follows similar value chain logic based on the Character > Connection > Thrive Chain from my earlier books, Fired Up or Burned Out and the first edition of Connection Culture. The study modifies that chain into the Connection Value Chain (Figure 5-2; p. 106–107).

The study’s rationale is based on this value chain logic:

The Connection Value Chain study examined leader virtues and practices as inputs, organizational culture and employee motivation as mediating factors, and perceived team performance as an outcome. Ideally, three factors would be used to capture organizational effectiveness: market share growth, revenue growth, and customer loyalty and retention. Data was not collected on these variables in the study, although the variables were shown in the model for conceptual purposes and future research. The study’s results supported this value chain model. In other words, leaders influence team performance through the mechanisms of employee motivation and organizational culture.

In addition, the study found that connected leader virtues and practices were positively associated with a connection culture and negatively associated with cultures of control and indifference. Similarly, the results revealed that a connection culture predicted more positive team performance, whereas a culture of indifference predicted more negative team performance and a culture of control showed no association with team performance.

Overall, the results suggest that a connection culture outperforms cultures of control and indifference. This finding is consistent with growing literature affirming that organizations that value their employees produce better performance outcomes and a greater sense of accomplishment. Additionally, the study provides empirical support for the value relationally oriented leaders bring to organizations.

Disconnection: A Hidden Systemic Risk to Organizations

In earlier chapters, I made the case that social connection is a primal human need. Its presence appears to improve the cardiovascular, endocrine, and immune systems’ performance; it makes us happier, healthier, and more productive. Disconnection is associated with poorer cognitive performance, impaired executive control and self-regulation, and lower levels of self-rated health, as well as increased substance abuse, depressive symptoms, and suicidal ideation. I also noted that loneliness is on the rise and disconnection is widespread, with research conducted in 2019 showing three out of five American adults to be lonely. Researchers have also found an association between disconnection and poorer task, team role, and relational performance (Ozcelik and Barsade 2018). It should come as no surprise that when human beings are not thriving, neither do the teams and organizations they are in.

FIGURE 5-2. CONNECTION VALUE CHAIN

Disconnection is a hidden systemic risk to organizations (Stallard 2020). It should be taken seriously. The research on organizations from a wide variety of sources proves beyond any reasonable doubt that connection provides a performance and competitive advantage and that a lack of connection sabotages performance. Following a second set of profiles in connection, I’ll show you how to operationalize connection culture so that you and your organization thrive.

Making It Personal

   What research presented in this chapter really jumped out at you? How is it relevant to your work?

   Research clearly shows that connection provides a performance and competitive advantage to organizations. On a scale of one to 10 (with 10 being fully connected), how would you rate your organization’s current level of connection?

   Organizations often display two or more of the three types of cultures: connection culture, culture of control, and culture of indifference. Which culture describes your team? Which cultures are present throughout the organization?

   If your team lacks a connection culture, what are the causes of disconnection, in your view? Consider contacting a leader in your organization who is an intentional connector and ask for tips on turning your team’s culture around.

   Read through the examples of knowledge traps. Have you observed these traps over your career?