Core Values: Not Just Words

Core Values: Not Just Words

One of the most rewarding lessons I learned in graduate school was the importance of culture and values in building a brand or company. I co-authored a case study that was eventually published about the Four Seasons Hotels & Resorts, where we studied the company's rise to success looking at traditional business metrics like financials, operations, and strategy, but we also looked at the intangibles. We concluded that one of the core principles of the company's success was its people and the company culture.

Four Seasons' core values revolve around what it calls a "Service Culture" and those are are not just words. The company's hospitality mentality is pervasive in all departments. It is not only meant to guide customer service principles, but also how employees are meant to treat each other. A focus on culture, values, and especially people is not unique to the hotel business. Retailers: LululemonAthletica , Whole Foods Market , and Zappos, a subsidiary of embrace the same priorities, and represent some of fastest growing companies and iconic retail brands in the country.

Each company's culture guides hiring (and firing) choices, strategy, operational decisions. It guides hiring (and firing) choices, strategy, operational decisions. Many entrepreneurs and investors should appreciate the power of the right people, company culture, and the importance of core values in building an enduring brand.

Lululemon is a high-end yoga wear retailer that is now diversifying into other sports and also expanding its offering for men. When I first heard about this company it sounded like a fad. Plus, the stock was extraordinarily expensive on every metric. However, I started to rethink my knee-jerk reaction when I walked past a store in NYC after-hours and witnessed a free yoga class in the middle of the store. I later found out that it also organizes group runs.

What a smart idea. Lululemon was offering a valuable service to its customers, building loyalty and simultaneously catching onlookers' eyes. My interest was piqued. I decided it was time to channel a Peter Lynch mind-set and actually visit a store. I started to rethink my bias after the first visit. The physical layout in these stores is easy to navigate and welcoming. The employees, mostly young women adorned in Lulu clothes, are well-trained, helpful, and pleasant.

Among the company's seven core values are quality, product, integrity, balance, entrepreneurship, greatness, and fun. Lululemon also has a "manifesto" which is a group of quotes that are meant to inspire employees and customers alike and help shape the brand and the culture. The hiring process is extensive, as is the training, where sales people are referred to as educators.

All of that is evident in the shopping experience. It is not surprising to me that 70% of store managers are internal hires that the company empowers to make many strategic decisions about individual stores. When a company starts with one store in 1998 and by 2013 it has more than 4500 stores across the world, it is an incredible accomplishment. I would argue that this type of growth is not possible without people that all buy into the same values, culture and company goals.

Whole Foods
Whole Foods changed the grocery store by focusing on organic foods, locally grown products ( and the people behind them), a better service experience through improved physical design, and most importantly, dedicated employees. The company is annually voted as a top company to work for. Like Lululemon, Whole Foods has experienced an astounding rate of growth without sacrificing quality. In fact, if you look at public companies that receive the highest approval ratings from their internal employees, their stocks generally outperform their peers.

Whole Foods' culture is pervasive, guiding strategy, hiring, operational choices, and ultimately shaping its brand identity. If you visit the company's website, its mission and values have top billing. As a customer, investor, or employee, the company's values show that tangible financial goals and broader community and environmental efforts can coexist.

When bought for $880 million, many investors thought Jeff Bezos was off his rocker. I think Bezos realized that Tony Tsieh and the team at Zappos had created a unique culture, as well as a service approach and delivery system that that would difficult for the world's top retailer to replicate. Instead, as a subsidiary, Zappos can take advantage of Amazon's expertise in customer relationship management and supply chain dominance while retaining its identity.

Employees embrace Zappos' core values with tribal zeal and the fanatical customer base (myself included) appreciates that the company does things differently, with a sense of humor, and always from a customer-focused perspective. In fact, one stipulation that Tony Hsieh made in regard to the Amazon acquisition was that the Zappos management & brand remain independent. He knew Zappos had created something special that might get lost if the company was integrated. In Tony Hsieh's book, Delivering Happiness, he goes into a detailed story of how the culture evolved and why the company's core values and culture, which evolved after it faced many challenges, was the basis for its success.

Final thoughts
I chose the three companies above because they are all retailers, albeit in different areas, and they are all pioneers. All have experienced out-sized growth. Most importantly, while they all embrace culture and values in all aspects of their businesses, each company's value system is vastly different than the others. It isn't about a one-size-fits-all approach; it is about finding the right recipe for an individual company. The common element is the degree of unity, belief and adherence to their respective value sets.

If values are just words and a company makes decisions in a manner that seemingly disregards its core values, this can harm employee dedication and thus have a deleterious effect on the brand and customer loyalty. It is evident from all three stories that instead of attempting to indoctrinate people into a company's culture, the ideal is hiring people whose personal values are already aligned with the values of the company. Values, culture and people are more than just words; they are the soul of a great brand and a smart investment for the investor or fledgling entrepreneur.

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James Fantaci owns shares in AMZN, LULU, and WFM. Please follow James on twitter. The Motley Fool recommends, Lululemon Athletica, and Whole Foods Market. The Motley Fool owns shares of and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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