Organizational culture and SMEs – How to create a healthy corporate culture

The creation of an SME is rarely based on a business model. Generally, it will develop through an emergent strategy or a current strategy. The specific character of SME comes from a set of elements that are fundamentally determined by the founder’s personality. For that matter, during the company’s first years, the founder will mainly be the one in charge of communicating a set of values, rules of conduct, rites, codes, beliefs, and standards to employees, which will penetrate and become part of their mind and heart. These elements will be the components of the corporate culture.

Organizational culture is a learned product of group experience. Therefore, culture is found where there is a definable group with a significant history. An organization’s culture is initially formed as a result of early group experiences and the influence of early leaders. Myths are popular in corporate cultures, and in SMEs a myth about the founder is often present. His successor must be able to establish himself without destroying the aura surrounding the first leader, who was able to instill in his employees decisive elements of corporate culture: boldness, innovation, creativity, ability to reflect, and the adoption of a “less linear” business model. Organizational culture is therefore a variable that is absolutely necessary to explain the day-to-day experiences and strategic choices achieved by an organization.

Organizational Culture as a Strategic Resource

Some researchers have suggested that organizational culture is a strategic resource that has value in ensuring the continuing existence and success of organizations. This assertion is supported by various studies that have linked organizational culture to broad strategic outcomes such as an organization’s ability to manage knowledge, innovation capability, and strategic management of information technology.

From a strategic point of view, an organization’s culture can also represent a motivation lever for employees as well as a way to increase productivity and team cohesion. However, problems with the corporate culture can play a major role: it can inhibit a company’s growth or even contribute to hinder innovation in terms of products and services.

Developing a Culture that works within an SME

Culture is a set of attitudes, beliefs, behaviours and customs. These cultural cues are ingrained in the members of the business, team or group and then accepted as the norm. Beliefs about the role of the business and how the business activities fall into this understanding of culture is typically dictated by how employees interact within their own cultural boundaries. Small business culture will determine what kind of customers it attracts, the service it delivers, and its growth.

Large businesses have usually established - through expensive media campaigns and large cash outlays for remodels – all sort of “markers” for their brand and culture. However, despite these investments, they may be challenged by employees who don’t buy into the campaign.

Small businesses on the other hand may not have the resources for expensive media campaigns, etc. but – since they are smaller in employee numbers – the employees tend to be more invested. Employees in small businesses tend to share the same understanding of goals, processes, and expectations.
Following are several main principles that small business owners should consider in order to create a healthy corporate culture:
  • Prevailing corporate culture begins at the top. Entrepreneurs need to explain and share their vision of the company’s future and objectives with their workers, and set good examples;
  • Treat all employees equally and with respect, without showing favouritism for family members, since many small businesses are family-owned and operated;
  • Hiring decisions should reflect desired corporate culture, and promote workforce diversity;
  • Two-way communication is essential to stimulate employee engagement and commitment.

Organizational culture is becoming a key managerial instrument to enhance performance and can become a definitive factor to assure the survival of small firms. The innovative culture is based on values that enhance a shared view of the organization. Managers and employees feel part of a unique project, where benefits and individual improvements return directly on benefits and improvements of the team and, in short, of the whole organization. Thus, implementing a culture lead to promote innovation could help SMEs gain a competitive advantage.

By weaving a healthy corporate culture (and governance) into the business model, companies are not just contributing to the overall success of their own business, but creating the conditions and demonstrating the capacity to become rigorous, transparent, reliable, and self-conscious organizations which also pay a great deal of attention to other workforce considerations (safety, laws, regulations).

These are the SMEs who will benefit from the enormous potential of specific innovative instruments to boost their financing possibilities, such as PROSPECTS (www.smeprospects.com), the multilateral trading facility managed and regulated by Malta Stock Exchange, progressively creating an environment on which investors can rely and sustained growth in the economy.

Mr Fulvio Degrassi
Director - Demetra Corporate Advisors Ltd

This article appeared in the FinanceMalta Insight newsletter. Subscribe to the newsletter here.