Corporate Culture and Organizational Fragility.

For a large organization to successfully complete a complex project, many constituent tasks must all be successfully completed. A typical such task can be completed only if several other, tailored input tasks are completed. Thus a complex project, such as designing a new product and bringing it to market, requires many collaborations among workers to succeed, both within and across business units. Some collaborations succeed, while others fail. Corporate culture---a broad notion that entails many aspects of the working environment---supports collaborations by establishing norms and reducing miscommunications or misunderstandings. However, the strength of a corporate culture is endogneous. Individual actions of workers that run counter to it undermine it and adhering to the corporate culture in a given situation can be costly to a worker. 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. Indeed, a standard analysis would suggest that workers' incentives to make voluntary contributions to the corporate culture vanish as an organization becomes large, because their marginal impact becomes negligible while their marginal cost does not. This raises an important question: Why do workers exert voluntary effort to enhance the corporate cultures of large organizations? We propose a perspective on this question based on a network model of complex production within a large organization: The productive activity of the organization occurs via the completion of tasks, where a given worker in charge of a task relies on the completion of several types of essential subtasks, which are incorporated into the task via collaborations with other workers. We find that voluntary contributions to culture can be sustained, because an organization's equilibrium productivity is endogenously highly sensitive to individual contributions. This implies a new mechanism generating incentives for voluntary, decentralized investment in culture even as an organization becomes large and the free-rider problem becomes severe: the marginal impact of contributions becomes large enough to compensate. However, the completion of complex tasks is then necessarily fragile to small shocks that can disrupt the organization's culture, such as a merger or a change in the company's top management. [ABSTRACT FROM AUTHOR]