A Study on the Effect of Organisational Culture on Employee Engagement in SMEs

Abstract

This narrative literature review investigates the role of organisational culture in shaping employee engagement within small and medium-sized enterprises (SMEs). While extensive literature has examined employee engagement in large corporations with formal human resource infrastructures, limited research addresses how SMEs, characterised by informal structures, resource constraints, and founder-led cultures, foster employee engagement through non-institutional mechanisms. Since SMEs represent over 97% of New Zealand businesses and employ a significant proportion of the national workforce, this research addresses a critical gap in organisational behaviour and human resource management scholarship.

This thesis adopts a narrative literature review (NLR) methodology based exclusively on secondary data. The study synthesises findings from 65 peer-reviewed, published studies from 2000 to 2025. No primary data was collected; instead, the research draws solely from existing academic sources. The analysis is structured around three theoretical frameworks: Schein’s (2010) Three-Level Model of Organisational Culture, Denison’s (1996) Culture and Performance Model, and Kahn’s (1990) Psychological Conditions of Engagement. Five core organisational cultural dimensions — values and identity, relational leadership, communication and feedback systems, psychological safety and trust, and inclusive and adaptive practices — are key to employee engagement in SME contexts.

The narrative literature review suggests that employee engagement in SMEs is primarily cultivated through relational and culturally integrated practices such as ethical leadership, value congruence, empowerment, informal dialogue, and psychological safety rather than through structured HR interventions. These organisationally and culturally situated mechanisms drive affective commitment and discretionary effort and sustain organisational resilience amid external pressures and internal growth.

This research contributes to the theoretical advancement of organisational culture and employee engagement studies by contextualising them within the SME environment and the New Zealand economic landscape. It also offers practical recommendations for SME leaders seeking cost-effective, organisationally and culturally authentic employee engagement strategies aligned with their operational realities. Ultimately, the research provides a nuanced, secondary-data-based, evidence-informed framework for understanding how SMEs can leverage organisational culture as a strategic asset to enhance employee engagement and organisational performance.