Assessing The Real Cost Of Core Values

In a Forbes article titled How to Define Your Organization’s Values, writer Greg Satell makes the case that values cost something. Whenever Satell talks with business leaders about their core values, he asks them an astute question:

What do these values cost you?

This is a brilliant question! If values are serving any real purpose, they must have a cost associated to them.

For example, Satell highlights how Nucor and Southwest Airlines state that they really value their employees, pledging never to do layoffs. And when the market proved to be difficult, both companies paid a price for that policy (e.g. in 2009 Nucor lost $294 Million). But they stuck to their commitment, proving they value their employees more than shareholders.

The test if values have substance only occurs when they are put under pressure. This is when the real costs show up.

When the leaders of an organization are committed to the stated values, they should be prepared to assess these costs.

Different Methods of Assessing the Cost of Values

In cost accounting, there are different types of costs. Here are four cost types and how they can be used to assess the cost of values.

1. Direct Costs. These are costs directly related to producing a good or service. When assessing the cost of values, these are costs evident in the day-to-day operation of running the business.
   For example:

• Teamwork – direct costs associated with supporting various teams.
• Quality – direct costs associated with QA initiatives.
• Service – direct costs associated with all customer service initiatives.
• Community – direct costs associated with all community involvement.

2. Indirect Costs. These are costs that cannot be easily traced to a product, department, activity or project. When assessing the cost of values, such costs are incurred to support the overall strategic direction.
   For example:

• Leadership – costs associated with preserving a leadership position (e.g. buying a competitor, or a strategic hire to advance the organization forward).
• Respect – costs associated with preserving a respectful environment (e.g. employee training on respect, firing people who are not a good fit).
• Accountability – costs associated with systems that hold people accountable, plus fixing mistakes and making things right (e.g. an employee dong whatever it takes to fix a problem).
• Achievement – costs associated with doing whatever it takes to achieve stated results, over and above running the normal business operation.

3. Opportunity Costs. These are costs for a potential benefit foregone. When assessing the cost of values, these are all the missed business opportunities because of the stated values.
   For example:

• Integrity – missed revenue opportunities where paying bribes are a normal part of business (e.g. in many non-Western countries).
• Excellence – missed revenue opportunities of selling a cheaper product or faster service.
• Safety – missed revenue opportunities where workers are required to work in a riskier (e.g. unsafe) environment.
• Sustainability – missed revenue opportunities from selling products or services that “might” be harmful to the environment.

4. Relevant Costs. These are costs that will make a difference in a decision or future costs that will differ among alternatives. When assessing the cost of values, these are costs between various operational choices and/or strategic decisions.
   For example:

• Trust – the difference in cost between choosing a more expensive but trustworthy supplier over a cheaper but less trustworthy supplier.
• Fun – the difference in cost between choosing a workspace environment that is more fun vs. less fun for employees (or even choosing between two fun venues for a holiday party).
• Care – the difference in cost between providing a procedure for a patient that makes it less painful vs. choosing a lengthier, more painful but cheaper procedure.
• Learning – the difference in costs for a superior training solution vs. cheaper option.

Whatever method – or combination of methods – you choose to use, the key point is this: assess the cost of your values.

Here’s why:

If you know the true cost of your values, you will treasure them, embrace them, promote them, and use them in ever part of your operation.

This is what creates competitive advantage.