Diagnosis on the organizational health and corporate culture of Korean companies

| Report

As Korean companies enter an era of low growth for the first time, they are faced with two challenges—a business challenge to perform amid this new growth trend and an organizational challenge to take those in the organization who believe in different values from older generations who ‘gladly made sacrifices for a better future’ in the past, to generate competitiveness.

The Korea Chamber of Commerce and Industry (KCCI) and McKinsey together carried out a study titled Diagnosis on the organizational health and corporate culture of Korean companies of some 40,000 employees working at 100 Korean businesses to understand exactly where corporate culture in Korea is today and their level of organizational competitiveness.

The result unveiled the poor state of organizational health in ‘Corporate Korea’ which was in the bottom quartile (4th quartile when grouping global companies from the top by 25%) compared to their global average (median), with the main issues in Korea’s unique corporate culture also being at a serious level. More than 60% of respondents pointed to a “regressive” work style represented by frequent late hours, and inefficient meetings and reports as problems while unfair organizational culture for female workers continued to be an issue, as well.

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What was interesting was that the problems identified in the organizational health were the exact causes that triggered issues in Korea’s corporate culture. These were namely the 1) unilateral and authoritative leadership style and lack of capabilities, 2) unfair evaluation and reward systems with weak culture of meritocracy, and 3) rule of thumb work processes with being less operationally disciplined. On top of this, a serious gap in perspective was found between different age groups and staff levels which raises concern over potential conflict within the organization.

Moreover, a “Korean way of execution” that was in contrast with global best practices was found in the operations of Korean companies. According to the Archetype (Recipe) analysis from McKinsey’s OHI Solution, when compared against global benchmarks in terms of organizational health and performance, both Korean conglomerates and large/medium-sized firms were found to be weak in ‘meritocracy’, ‘top-down innovation’ and ‘knowledge sharing and viewing established process as an important asset’. This goes along the same lines as the three primary causes described above and can be characterized as a “Korean workstyle” that has become a part of Korean companies over the years of rapid growth in the past but is now what is undermining its competitiveness and culture.

Based on the result of the diagnosis, the following steps are proposed to strengthen the fundamentals of companies to secure sustainable competitiveness. First, the bad habits that represent the inefficiencies in Korean companies must be fixed immediately. It will take time to address the root causes in organizations and systems, but change in behavior can start right away once people are aware of such issues. Second, focus on the primary causes that are deteriorating Korea’s organizational culture by treating it steadily to recover its health. Third, secure distinctive competitiveness based on a healthy organization and find a breakthrough for the new market paradigm by concentrating on ‘innovation leadership’, ‘a culture of meritocracy’ and knowledge sharing and viewing established process as an important asset’ to bring businesses to top global levels.

Above all things, top management must first recognize the problem and take the initiative to change. Leadership plays an integral role in organizational health and corporate culture, so showcasing a role model and displaying continuous determination are imperative. In order to break away from existing leadership practices, leaders must reflect on themselves and also empower frontline managers to take leading roles of this change initiative. Second, solutions should focus on the root causes rather than relying on allopathic remedies and handling issues superficially such as ‘turning out office lights at 6pm.’ Last but not least, if issues on the social side are to be improved, efforts not only by individual companies, but also from society and the government are called for. KCCI and McKinsey will implement activities to help corporate efforts and create a supportive social atmosphere. When this is coupled with strong will from individual companies to also make improvements, Korean companies will be able to find a breakthrough for the low growth era based on a more healthy culture and sound competitiveness.