Corporate Culture and Organizational Fragility

TL;DR

This paper models corporate culture as an organizational public good, highlighting its role in facilitating collaboration and the fragility of complex task completion due to small shocks affecting organizational culture.

Contribution

It introduces a model where corporate culture is an endogenous public good, demonstrating how voluntary contributions can be sustained despite free-riding, but also revealing its fragility.

Findings

Voluntary contributions to culture can be sustained in large organizations.

Organizational productivity is highly sensitive to individual contributions.

Complex task completion is fragile to small shocks damaging culture.

Abstract

Complex organizations accomplish tasks through many steps of collaboration among workers. Corporate culture supports collaborations by establishing norms and reducing misunderstandings. Because a strong corporate culture relies on costly, voluntary investments by many workers, we model it as an organizational public good, subject to standard free-riding problems, which become severe in large organizations. Our main finding is that voluntary contributions to culture can nevertheless be sustained, because an organization's equilibrium productivity is endogenously highly sensitive to individual contributions. However, the completion of complex tasks is then necessarily fragile to small shocks that damage the organization's culture.