Why Culture Matters More Than Ever in a Tough Economy 

Culture is an organization’s “single most powerful advantage,” especially during strained economic times, according to Forbes strategists. Why is this?

As organizations try to innovate, solve problems, and grow in a difficult market – an effective corporate culture and uniting teams to improve results are needed now more than ever.

In this blog post, we will break down:

  • What organizational culture means
  • How culture has evolved in the wake of global crises
  • What organizations can do to improve culture

Let’s get to it.

What is Organizational Culture?

Culture has many dimensions spanning from values, beliefs, assumptions and norms.

Organizational culture is a set of shared beliefs and values that define the way employees are expected to behave within an organization. When organizational culture is reinforced, it can shape employees’ perceptions, behaviors, and well-being—making it incredibly delicate and symbiotic in nature.

Culture began getting associated with work at the start of the 40-hour work week, and “corporate culture” became a common phrase in business discourse by the mid-1980s. Today, culture is seen as a business imperative, but it can be difficult to define and even harder to achieve.

When over 1,300 executives were asked, “What is corporate culture?” in a 2022 study for the Journal of Financial Economics, their responses spanned from “a standard of behavior” to the “tone for what type of company this is.”

Although those answers seem vague, the study found seven “cultural values” that individuals typically consider when evaluating a company’s organizational culture. They include:

  1. Adaptability/flexibility
  2. Collaboration
  3. Community/cohesiveness
  4. Customer orientation
  5. Detail orientation
  6. Integrity
  7. Results orientation

These central values are critical to understanding:

  • How an organization prioritizes new projects
  • How they manage conflict
  • How they value their employees/customers

Employees seek out organizations with values that align closely with their own. Employees also deliver output based on how inspired they are by the shared culture and the level of clarity and alignment that exists.

In the same study by the Journal of Financial Economics, 92 percent of surveyed executives agreed that strong corporate culture improves their organization’s value. Yet only 16 percent believed that their culture was where it needed to be.

The Impact of Organizational Culture on Employee Well-Being

When companies and employees are misaligned on values, or the organization doesn’t live up to its cultural promises, it can create a toxic environment where employees feel devalued and discouraged.

Toxic cultures can have a massive impact on organizations. Whether it stems from a lack of diversity, equity, inclusion, and belonging (DEIB) or minimal opportunities for growth, the result is the same. A lack of cultural alignment leads to:

In fact, nearly half of millennial workers say they left a job specifically due to burnout.

Poor organizational culture results in employees feeling less motivated, more disengaged from their work, and 14 to 18 percent less productive on average, according to a recent Gallop Workplace report.

Culture and results are inherently linked. When additional societal or economic stressors influence the employee well-being and culture, they look to see how their employer will help them navigate and maximize results, and that is especially true in 2023.

Culture Needs to Be Considered a Long-Term Strategy

Company culture is always important, but it has become even more critical in recent years thanks to a combination of societal, climate, and financial changes taking place globally.

Coming out of the COVID-19 pandemic, roughly 25 percent of individual contributors and 30 percent of managers are actively looking for jobs, and many organizations report being uncertain about their talent pipeline, according to a Paycor study.

Retention has become a top priority for organizations. Along with that comes a focus on cultural components of retention, such as:

  • Employee compensation
  • Comprehensive health and wellness benefits
  • Flexibility
  • Ample career growth opportunities

Organizations are realizing that it’s a better investment to improve culture than replace their workforce. Why? According to a Gallup study, replacing workers costs anywhere from half to double the employee’s annual salary.

What Can Organizations Do to Build Culture in Tough Economies?

Given the state of our global economy, workplace culture is more important than ever. One way to invest in company culture is to practice habits that drive retention and engagement. Compass teaches these four culture habits:

  • Connecting to each other and the results that matter the most
  • Defining what is helping and hurting results
  • Taking action and creating change
  • Implementing to learn and evolve

Here are some ideas on how to try out these culture habits, all of which can improve your company culture during a recession.

Connect Learning and Results

Culture pioneer, Edgar Schein, once said, “Culture is created and evolves through shared learning and mutual experience.” Why not steer that shared learning at the results that matter the most for your team or organization? Use the Culture Habits of Connect-Explore-Improve-Learn as the design for your next leadership meeting or team off-site.

“Connect” to each other and to a critical result, priority, or project you need to improve. Dive deep and transparently “explore” what’s helping and hurting progress with input from all participants. Unite the team as you prioritize what must be different to “improve” and make progress together. Commit to regular reviews or check-ins for tracking progress and “learn” what’s necessary to overcome your biggest challenges.

Build Long-Term Trust and Confidence

During the pandemic, trust was built or broken based on how organizations responded to the health crisis. Employees want to see their employers demonstrate core values through economic crises by offering support and care instead of abandonment.

You can build trust through small, thoughtful gestures like setting individual time aside for open and transparent dialogue that acknowledges workplace challenges. Another option is large town halls where leaders transparently talk with teams. Transparency has been proven to build trust, elevate employee engagement, and strengthen interpersonal workplace relationships.

Be Flexible and Agile

As a result of the pandemic, we’ve seen sizeable growth in remote work, with most industries now offering at least some remote or hybrid jobs.

A recent McKinsey study found that 58 percent of employed respondents work remotely at least part-time, and 87 percent of employees with flexible options take advantage of the opportunity. Gartner even predicts that this trend will extend to frontline workers and allow up to 2.7 billion manufacturing and healthcare workers to adopt flexible work structures in the coming years.

Flexibility can be achieved in a variety of ways, including:

  • Control over work schedule
  • Weekly schedule stability
  • Flexible paid leave
  • Parental leave
  • A four-day work week

With flexibility comes trust—trust that employees will work diligently without taking advantage of the flexibility and trust that the employer will provide a culture of positive accountability.

Emphasize Employee Well-Being

According to Indeed’s 2022 Work Wellbeing Insights Report, 90 percent of employees agree that how they feel at work should matter, but only 49 percent felt their companies actively measured employee well-being.

As people continue to recover from the fallout of the COVID-19 pandemic, we are still facing economic uncertainty, and that has led individuals to more intently apply for jobs that prioritize employee well-being. Employees want organizations that treat them with respect and see them as individuals instead of cogs. Organizations can prioritize employee well-being by focusing on mental health support and openly acknowledging mental health issues in the workplace to reduce stigmatization.

Think About the Employee Experience

As a Gartner analyst notes, “This translates into soul searching over whether you feel valued in your work or whether you are merely creating outcomes and value to benefit others. Dissatisfaction with the answers increases intent to leave your job. People are motivated when they feel valued and create an impact. Employees increasingly want to bring their authentic selves to work.”

How can organizations invest more in the employee experience? By creating a connection-based environment that starts from the top down and is enforced by guidelines. Organizations should emphasize employees’ vital role in the businesses’ overall success and meaningfully acknowledge employees’ individual contributions.

Value Continued Learning, Mentoring, and Upskilling

Lastly, establishing a culture based on continuous learning, self-improvement, mentoring, and upskilling will attract talent interested in long-term career growth. This will satisfy internal employees looking to grow. Upskilling internal talent is a rising cultural trend that helps employees feel challenged and valued at work while helping companies build a culture that retains and attracts top talent.

A 2018 PwC study found that 77 percent of CEOs viewed underdeveloped soft skills as the biggest long-term threat to business. To combat this issue, organizations need to foster a culture around improving soft skills such as:

  • Negotiating
  • Networking
  • Note-taking
  • Delivering results
  • Interpersonal communication

These soft skills enable employees to flourish in a culture built to help them succeed.

The Future of Corporate Culture

The tight labor market may ease for the remainder of 2023, but the World Bank population projections show that the U.S. will see a decline in working-age people over the next decade. Fewer eligible workers heading into a possible looming recession means that companies need to harness the power of organizational culture now to channel it for the future.

If you’re ready to invest in your company’s culture, Compass can help. Our most popular free workshop teaches participants how to build a thriving culture.

How to Build a Thriving Culture