In general, corporate culture is understood to be a system of shared patterns of thinking, feeling and acting as well as the norms, values and symbols that convey them within a company.

The concept of corporate culture has been scientifically researched since the 1980s. Currently, the importance, impact and changeability of corporate culture in science and practice is being given greater attention, as the recognition is gaining ground that a company’s culture can contribute to the success or failure of a company.

In addition to the well-known models of corporate culture – 3-level model by Schein, model by Mary Jo Hatch, model by Geert Hofstede, iceberg model according to HALL, 7-S model according to Peters and Waterman – I would like to go into a model in more detail.

Two-stage model according to Kotter and Heskett

This model consists of:

  • Group Behaviour Norms and
  • Shared Values.

The level of “Goup Behaviour Norms” manifests itself in visible behavior and also the leadership style. These factors are easily visible to the outside world and can be changed relatively quickly. The “Shared Values” level describes values shared by the majority of employees that have existed for a long time. According to the model, these values are seldom visible and explicit. They are more difficult to change and persist even after a change in management or employee exchanges.

The example of Deutsche Bank in the years 2014-2016 shows: The Management Board duo Anshu Jain and Jürgen Fitschen had focused on changing the “shared values”. Work instructions and processes have also been adapted to new regulations; Ultimately, however, investment banking continued to run more or less unchanged as it did before the banking crisis. After three years, the board members were finally replaced because they were unable to focus on the more easily changed level of “group behaviour norms” and thereby convincingly implement the cultural change that they themselves declared.

In line with this finding, McKinsey formulated the core statement in its 2017 study “Culture for a digital age”: Risk aversion, weak customer orientation and thinking in silos – i.e. behaviours – have brought companies into difficulties for a long time. In a digital world, solving these cultural problems is no longer optional.

Scientific knowledge …

At least since the publication of the book “In search of excellence” (Peters & Waterman, 1982/2003) there has been a keen interest in the “success factor” corporate culture. This interest was further fueled in the 1990s, among other things by the publications by Kotter & Heskett (1992) – as already mentioned – and Denison & Mishra (1995), which examined the connection between corporate culture and corporate success.

While the study by Peters & Waterman (1982) concentrated on successful US companies and characterized their specifics, Kotter & Heskett (1992) also compared successful and less successful companies over a period of eleven years. The results of these studies showed that companies with a correspondingly distinctive corporate culture

  • increased their turnover by an average of 682 percent compared to 166 percent for companies with different corporate cultures,
  • their employees by 282 percent compared to 36 percent,
  • the stock value by 901 percent versus 74 percent, and
  • net income by 756 percent versus 1 percent.

The longitudinal studies of differently successful profit centers (Flamholtz, 2005) or companies within a group (Hundsdiek, 2005) as well as the cross-sectional comparisons between successful and less successful companies by Denison & Mishra (1995), Dension (2001) or Van der Post et al. (1998) reveal large differences in the selected success factors that correlate with different corporate cultures.

… toward the pandemic

I now focus on two new studies that examined corporate culture in times of crisis:

Regarding the first study: Two hypotheses are the focus of the text analysis using an algorithm:

  • The positive culture-value connection is stronger during the COVID-19 pandemic.
    In addition to the detrimental effects of the virus on employee safety and well-being, the lockdown and physical distance policies reduce revenue and generate additional costs. Research shows that companies with jobs that require human contact and that would be difficult to implement from work from home are more exposed to the pandemic.
    In contrast, technology and communications companies are less affected and even have the opportunity to grow their business. Given this heterogeneity, the positive association between companies with a strong corporate culture and returns during the pandemic depends on the risks posed by COVID-19 at the corporate level.
  • The positive connection between culture and value is stronger for companies with a higher risk potential in times of COVID-19.
    Companies that invest more in their employees in good times can achieve higher employee productivity in times of pandemic, because well-qualified and appreciatively treated employees are more motivated, more productive and attract more customers.
    In addition, companies that rely more on technology and / or have work arrangements that are robust to physical distancing significantly outperform those that rely less on technology and / or flexible work arrangements during the COVID-19 outbreak.

This study showed that companies with a strong culture performed significantly better in times of crisis. In terms of economic importance, companies with a strong culture saw an average increase in returns of 4.9 percentage points in the first quarter of 2020; i.e. higher sales per employee and lower costs for goods sold per employee.

As a result, the study – using AI – has analyzed ten main topics resp. indicators:

  • six exposures / risks / hazard potentials: business operations, demand (collapses), employees (health), liquidity, lockdown and (interruptions in) the supply chain, and
  • four responses / responses to and strategies for dealing with the pandemic: commitment to the community, cost savings, (introduction) digital transformation, product development.

Regarding the second study: The starting point are the often mentioned five values of the S&P 500 companies: innovation, integrity, quality, respect and teamwork. For each of these values, indicators were defined and assessed.

As part of this study, it could be demonstrated that the corporate culture has a clearly positive correlation with the business results – including operational efficiency, risk tolerance, earnings management, structure of executive remuneration, company value and business execution. The connection between culture and performance is therefore even more pronounced than ever in bad times, as is currently the case with COVID-19.

Including the reactions / responses of companies to current risk potentials listed in the first study, the second study was able to demonstrate that there is a clear connection between cultural strength and commitment to the community on the one hand and the use of digital technologies on the other. Top management plays an important role as a cultural mediator and communicator in the crisis.

Conclusion

In my opinion, the McKinsey study cited above contains key statements: The barriers to digitization, especially non-target-oriented behaviours, correlate with the company result between -0.36 and -0.47. Managers should start with behaviour and act proactively instead of waiting for organic changes and being “overwhelmed” by the consequences.

Current studies in the context of the pandemic show that there is a positive correlation between companies with a strong culture and (stock) returns. This is specifically expressed in the fact that these companies – with a high level of cost awareness – strengthen their commitment to the community, embrace the digital transformation and develop new products. Consistent communication of cultural values is a necessary prerequisite for a positive correlation.

According to the studies, companies that have trained their employees according to strategically necessary competencies and treated them well are better able to withstand negative economic shocks, so that no aggressive cost reductions are required.

The relationship between culture and business results is particularly evident in a challenging operational environment, as a strong culture enables managers and employees to make consistent decisions and efforts based on long-term perspectives.

A pronounced employee-oriented corporate culture is therefore probably the most effective way to mitigate the consequences of the crisis for employees.

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