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Faculty Research

Valuing Culture: Putting a Price Tag on the Priceless

Can you put a price on company culture? That’s the question Steve Marriott, executive vice president of culture at Marriott International, asked a group of Marriott School students. Specifically, he wanted to know if Marriott’s “spirit to serve associates, customers, and communities” added to the company’s economic value.

Every company has a culture and many tout the importance and uniqueness of theirs, yet few actively invest in nurturing a positive culture. A team of Marriott School students set out to determine if the competitive advantage created by a strong culture can, in fact, be measured and ultimately valued monetarily.

The team began its task by looking to a number of benchmark companies that claim a competitive advantage from their culture. The students looked at such cultural icons as General Electric, Southwest Airlines, and Starbucks, as well as other companies with strong and avowed corporate cultures, such as Agilent Technologies, Home Depot, and FedEx/Kinkos.

A thorough search of company web sites and annual reports, outside assessments of these companies (such as Fortune or BusinessWeek articles), and regulatory filings (the annual 10Q and 10K filings) revealed that each of these companies used powerful imagery and direct language to state the importance of culture to their competitive advantage; however, none of these world-class companies sought to substantiate their claim with any kind of numbers.

The student team was made up of Chloe Andersen, from Walnut Creek, California; Annette Christensen, from Gunnison, Utah; Will Harty, from Sylmar, California; J. J. Morales, from Earlmart, California; Felipe Vargas, from Santiago, Chile; Eliza Yi, from Deyang, China; and Lina Yu, from Dalian, China. They spent four months analyzing multiple facets of company culture and presented their findings in August 2007 to Marriott’s executive committee, including CEO Bill Marriott.

Although this exercise was prompted by Steve Marriott, it must be noted that the analysis and conclusions drawn as part of the study described in this article are solely those of the student team and not those of Marriott International, Inc., and should not be attributed to Marriott International, Inc.


Most people think of culture as practices or ceremonies unique to different social groups. Thus, the rain dance of the Hopi Indians or the white shirts and ties of Safeco Insurance seem to capture the essence of culture.

But culture is more than just practice and ceremony; it includes the belief systems and value judgments that underlie those outward practices. The Hopis dance because they believe their dancing supplicates the givers of rain on the Black Mesa plateau. White shirts in the workplace represent the values of professionalism, decorum, and respect, plus a sense of camaraderie and differentiation from the crowd.

The first problem of valuation lies in the links between deeply held beliefs and values and the behaviors they spawn; these links are often unspoken, fuzzy, and circuitous. The second problem is the link between the behaviors and any measurable outcomes. The rain dance doesn’t always bring rain, nor does establishing a sense of esprit de corps among employees always result in better customer service or higher productivity.


Surprisingly, not one of the benchmark companies put a dollar value on culture, and the team realized they would have to come up with their own model. They read internet articles about Marriott, books about the corporation, public regulatory filings (such as 10Qs and 10Ks), and Marriott’s own communications and press releases to identify distinct elements of Marriott’s culture and publicly available measures of financial performance. Then they searched for the connecting lines between the elements to produce the culture value chain model.

The essence of culture—values, beliefs, and practices—gives rise to a clear set of relationships in the organization. This informal yet tangible set of cultural manifestations is often referred to as management style. Culture also drives and shapes formal organizational ceremonies and practices such as human resources policies, approaches to marketing and branding, and formal missions and values.

The link to financial value travels through two key stakeholder groups—employees and customers—who receive satisfaction from the culture and its practices. Satisfied employees should not only be happier, but they should work harder (increased productivity), smarter (better customer service), and longer (lower turnover). Satisfied customers should do more business with the company (more frequent stays), be less price sensitive (willingness to pay for good service), and be more open about their positive view (referrals of friends and family members).

The final element of the model addresses investor concerns. When productivity goes up, wages as a percentage of revenue decline, leaving more for the bottom line. Reducing the costs of turnover (recruiting, training, and lost productivity of new employees) likewise increases income. Customers affect the company’s top line by providing more revenue through both volume and room rates, and this revenue also increases the overall bottom line.


The team faced two hurdles to determining a formal valuation. First, they were limited to only publicly available data; although Steve Marriott posed the question, the team did not have access to any of Marriott’s internal financial figures. However, internet searches and a number of online data sources helped resolve this. Additionally, reports from the American Hotel and Lodging Association provided benchmarking data for the industry as a whole, a number of publications follow Marriott, and the company is required to disclose data about its own practices and performance through SEC filings.

Second, the group needed to find a reference point for the valuation. Conceptually, the valuation would be against Marriott without its culture—a great exercise but not a realistic option. The team chose a “matched pair” method of comparing Marriott to its most similar competitors. The team chose Hilton and Starwood Corporations, both of which have product offerings in segments where Marriott competes but lack the unique Marriott approach and culture.

Culture and revenue

To look at customer satisfaction and revenue gains, the team calculated the RevPar (revenue per available room) for the three companies. RevPar is an accepted industry standard that provides a company with an overall measure of asset efficiency by combining data about its pricing structure and occupancy rate. A RevPar advantage for Marriott would indicate that its customers are (in some combination) willing to pay more to stay at Marriott and are staying more often.

From 1999 to 2006, Marriott averaged a 2.8 percent higher occupancy rate than Hilton for each company’s flagship brand and an average $12.80 advantage in room rates. Combining these numbers into the RevPar figure yields an $8.53 advantage for Marriott over Hilton. Put simply, Marriott earns $8.53 more than Hilton per room per day. With more than 500,000 rooms, that translates into more than $4 million per day in revenue, or almost $1.6 billion in additional revenue each year. Using Marriott’s three-year average return on sales of 5.5 percent, the RevPar advantage creates an additional $88 million in net income.

RevPar has its own set of problems as a measure because the trail backward from customer revenue to cultural practice is long, winding, and often indirect. Satisfaction driven by the cultural value of the spirit of service clearly explains part of this number; however, hotel location, franchisee actions, and the accumulated value of the brand also explain part of this revenue difference.

Culture and cost

On the cost side of the ledger, the team explored employee productivity using regulatory filing data on the number of employees for Marriott, Hilton, and Starwood. For each year in the study, Marriott enjoyed much higher productivity than its competitors, although Hilton has substantially narrowed the gap. Using data for 2006—the smallest gap between Marriott and Hilton—the average Marriott employee generated $80,744 in revenue compared to $77,733 for Hilton, a difference of almost 4 percent.

If Marriott’s productivity were the same as Hilton’s, revenue would decline by $453 million (net income would go down almost $25 million). If productivity were the same as Starwood, revenue would decline by almost $6 billion (net income reduction of $330 million). Again, there are more factors than culture driving productivity—Marriott’s franchise-based business model and its use of technology, for example—but the numbers help expose the dollar value of the Marriott culture.

Employee turnover costs may be the most sensitive to Marriott’s cultural values, beliefs, and practices. For the hospitality industry as a whole, which encompasses more than merely high-end hotel chains, turnover in 2004 (the last year of available data) averaged more than 46 percent. Marriott’s turnover rate is estimated at 30 percent, 33 percent less than the industry average.

Estimates of the cost of turnover range between 150 and 300 percent of an employee’s annual wage. New employees must be paid and trained and must work themselves into productivity—all of which are more costly than a retained employee. Using the lower figure of 150 percent, the team estimated that Marriott spends about $150 million less in employee costs because of higher retention. Reductions in employee outlays flow directly to the bottom line. Marriott’s spirit to serve their associates appears to generate bottom-line profits for the company.

Culture and income

Combining the three areas of analysis provides the company with an income statement–based valuation of the culture. The conceptual link between culture and turnover seems the most robust, so the team estimated $150 million as a low-end anchor of a range of the culture’s value. Of the $113 million in additional net income that Marriott enjoys over Hilton due to productivity and RevPar, some amount is due to culture, but not likely all of it. Thus the team settled on a range of value between $150 and $260 million per year.

Culture and stock price

The team wanted to try another valuation method to see if their estimates were really reasonable measures of the culture’s value. They chose an event analysis of Marriott’s stock price before and after the 9/11 terrorist attacks.

The notion driving this analysis is that a firm’s reputation, arguably one outcome of a firm’s culture, will be most valuable when other signals of value are difficult to interpret or are nonexistent. That is, when we don’t know much about the future, past performance counts for a lot in our estimation of who will succeed and who won’t.

The days following the attacks were filled with uncertainty. Airlines did not fly for three to four days, the stock markets were closed, and the possibility of further attack could not be discounted. What investors and the general public could reasonably predict, however, was that travel-related industries, including hospitality, would be adversely affected. Given that, how would each company fare?

When the markets opened on 17 September 2001, Marriott lost 21 percent of its value, about $2.1 billion. Hilton and Starwood both fared substantially worse, losing 24 percent and 28 percent, respectively, of their total value (the dollar losses were less because these companies had smaller market capitalizations than Marriott). Had Marriott stock fallen the same percentage as Hilton, shareholders would have lost an additional $253 million—and $743 million if the decline had equaled Starwood’s.

For the week, Marriott lost almost a third of its value, and Hilton and Starwood lost almost half. Marriott’s daily loss averaged almost 8 percent, Hilton’s 12 percent, and Starwood’s 11 percent. Marriott maintained a 3 to 4 percent value advantage over its nearest rivals during the crisis. Again, investors likely considered a number of business-related factors in their valuation in addition to culture-based reputation, such as liquidity, debt exposure, and business model; however, some of that price premium should be due to assumptions of better customer and employee satisfaction and loyalty.

Based on Marriott’s market cap in August 2007, a 3 to 4 percent stock price premium translates into a cultural valuation of between $495 and $660 million. Of course, determining the future value of an asset through stock price should lead to a different, though not widely divergent, valuation of the culture.


During the presentation to the executive committee, several Marriott executives noted that whether the actual value of the Marriott spirit of service culture is exactly $150, $250, or $500 million was less important to them than the students’ work that showed how Marriott and other companies can quantify the value of their culture.

The team’s work produced two valuable outcomes. First, they developed a model that helped put a dollar value on Marriott’s culture, something each of the benchmark companies did not do, or at least did not disclose. Second, they linked the model to available data sources that can be used to measure and quantify the value of culture—easing the task for others wishing to do the same.

Marriott executives acknowledged that putting together a model to fully explain the value of culture is challenging. “We truly believe our corporate culture does give us a competitive advantage. This is very difficult to quantify on an objective basis, although we applaud the BYU graduate students’ efforts,” says Carl Berquist, executive vice president of finance.


Article written by Paul C. Godfrey
Photography by Bradley Slade

Paul C. Godfrey is an associate professor of strategy at the Marriott School and associate academic director of the Economic Self-Reliance Center. He earned his PhD and MBA from the University of Washington. He served as the faculty advisor to the student team on this project.