Why Strong Company Culture is Crucial in an Economic Downturn

Inflation. Recession. Debt ceiling. Supply chain. When the drumbeat of worrisome financial news signals a shaky economy, business leaders react. The threatening headlines keep them up at night and affect how they manage their organizations. If they sense a pending downturn, they often put their companies into survival mode to weather the storm, cutting costs and dialing back plans.

While many of these restrictive measures are necessary, there is one area that business leaders can’t afford to minimize during a downturn: their organizational culture. If their goal is to endure, persevere, and rebound, their best defense is to support and strengthen this vital part of their company.

The Trickledown Effect

When economic conditions pinch the business world, CEOS aren’t the only ones feeling the pain. Employees already finding it hard to make ends meet at home are further stressed by troubling trends at work. For example, cost-cutting can reduce the availability or quality of equipment, supplies, or vendors, making it harder for workers to accomplish their tasks effectively. Slow business can also result in a reduction of hours or shifts.

And if the organization resorts to layoffs, the remaining staff faces a heavier workload while worrying about who might be next to go. It’s not an unfounded fear. O.C. Tanner reports that the number of layoffs in January 2023 alone surpassed the total number during the pandemic.

Understandably, morale plummets when employees are uncertain about the future and feel helpless to do anything about it. And an unhappy workforce triggers a host of problems that will compound a company leader’s other woes in a bad economy.

Why Culture Matters When Times Are Tough

A company’s culture is formed by its staff’s prevailing attitudes and behaviors, and it dictates how everything operates in an organization. As articles about improving workplace culture have dominated business news in recent years, most CEOs understand the benefits of strengthening this asset. They can see how a vibrant culture drives every successful organization while a weak one compounds a lagging company’s problems.

At least, that’s their outlook in a stable economy.

But leaders combatting serious concrete issues during a financial downturn often feel they have too much on their plate to focus on something as intangible as culture. With everything else they’re up against, culture may feel like a low priority.

While it might not seem urgent, it’s even more critical for them to fortify their culture in times of hardship. It’s one of the most effective ways to build resilience against adverse conditions.

When tough times hit, all the typical challenges leaders face become magnified. For example, financial strain makes it harder to:

• Stand out in the marketplace
• Retain top employees wanting more stability
• Satisfy customers with increasingly higher expectations

While leaders can’t control economic turmoil, they can address many associated challenges through a strong organizational culture.

Laying the Groundwork

Leaders who have worked to build a strong culture will find this infrastructure to be their lifeboat when hard times hit. In a recent Forbes article, MCK Leadership Talent Group founder Mary Kelly cites the example of Bank of America, where she worked during the 2008 financial crisis. She reports that the staff remained positive and engaged in a highly stressful period and credits the company culture.

“Bank of America always invested in building their culture. During the worst time in the financial history of the company, these employees were doing a very difficult job yet still saw the vision and mission of the company and felt a sense of purpose in their work—to provide solutions for homeownership to their customers.”

Kelly believes leaders should think of culture like a bank account. As much as they hope they won’t face adversity, it’s almost a given that they will. So to best position their companies, they should be making regular “deposits” of time and energy into strengthening their culture so there’s a buffer when times get rough.

“Building goodwill and trust—the emotional deposits you make to your culture—doesn’t happen overnight. But if you put in the work daily in the long-term, your team will be better able to pull together when tough times hit.”

Leaders can build a team of loyal brand ambassadors by creating an environment of belonging, support, pride, and unity. And by reinforcing high-performance behaviors, their dedicated team will excel at service and productivity.

Weathering the Storm

If a company’s finances become too strained, its leadership may be forced to thin ranks to stay afloat. For example, layoffs became an unsettling trend after recent economic uncertainty, starting with the tech industry and spreading to other sectors. While cutting staff might relieve some financial distress, it costs organizations in other crucial ways.

O.C. Tanner cites studies that yield unsettling data about how layoffs affect remaining staff:

• Layoff survivors experience a substantial decline in job satisfaction (-41%), job performance
  (-20%), and intent to stay (-36%).
• Just a 1% workforce layoff can result in a 31% increase in voluntary turnover.
• Other impacts of layoffs include disengagement, lower work quality, and reduced innovation.
• Layoffs can damage an organization’s reputation, making it difficult to attract talent.

Companies forced to downsize should do everything possible to nurture and preserve the culture for the remaining staff. Put simply, the people left behind after layoffs are a company’s most valuable asset.
Leaders can buffer their teams by leaning into some of the strategies they used to build their culture.

STEPS TO SUSTAIN CULTURE AFTER LAYOFFS 

• Communicate

Some leaders may instinctively stop the flow of communications if their company is undergoing stress. They may intend to keep their staff from worrying, but people’s anxiety compounds in a vacuum.

Instead, leaders should be transparent and communicate extensively so people feel they aren’t in the dark. They should be as open as possible about fluctuating business circumstances, new challenges, and how they are trying to forge a path forward. Even if they can’t divulge specific details, they should explain why staff cuts are necessary. Openness and honesty build trust.

• Strengthen Relationships

Leaders can help remaining employees feel valued by taking the time to listen to their concerns. They can begin to build more cohesion by demonstrating empathy to supervisory staff and inspiring them to do the same with their direct reports.

Managers can help reassure their team members by holding one-on-one check-ins to discuss how changes are affecting them. They should make these sessions safety zones to open comfortable conversation channels where employees feel heard. As Mary Kelly noted, “Listening to employees can be one of the biggest impacts leaders can have during tough times.”

• Express Gratitude

Recognition of employees’ contributions is an important way to build culture. Celebrating people’s achievements costs no money and is easy to do, yet many organizations don’t activate this powerful team builder. For example, the Human Workplace Index found that over half of employees only feel somewhat valued at work or not valued at all.

And showing sincere gratitude for staff members’ efforts is even more meaningful in times of hardship. O.C. Tanner reports that cutting recognition during a crisis can lead to a 49 percent decrease in engagement and reinforces the notion that the company isn’t prioritizing its people. Employers who demonstrate genuine appreciation will see a significant uptick in morale and performance.

• Lead by Example

Leaders set the tone for their company culture in any economic era, but their actions and example are especially impactful in a downturn. The way they interact with staff, orchestrate change, or confront challenges can strengthen or weaken their workplace culture in uncertain times.

Employees take note if the boss fails to live up to their expectations when the going gets tough. Leaders who understand the vital role they play can seize this opportunity to support their organization when it needs it most and be the role model their staff needs.

Building Back Up and Looking Forward

Organizations that proactively build a strong culture and nurture it during hard times are poised to bounce back and move ahead when the economy recovers. They’ll realize new levels of employee engagement, productivity, collaboration, service, and quality output because they leveraged their culture to support staff during the downturn.

Additionally, their efforts to reinforce their culture will yield higher customer satisfaction and correspondingly boost their company’s reputation to attract new clients. And their carefully cultivated culture will be a strategic recruiting tool as companies engage in a renewed talent war.

But just as leaders shouldn’t lose focus on their culture when times get tough, they should also not take it for granted after a rebound. They can’t simply put a strategy to strengthen culture in motion and then expect it to function on autopilot.

The work of developing and sustaining organizational culture requires ongoing, consistent effort. Companies that generate a robust culture will be able to maximize opportunities during times of economic strength and withstand the inevitable challenges the future holds.

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Stay ahead of the game and position your company for success in any economy. Schedule a call with a CultureWise specialist to learn more about building a resilient organizational culture.