Most attempts to change organisational culture fail because they address the wrong level. They produce new values statements, new communication campaigns, and new leadership principles — and then discover that behaviour has not changed, because the level at which behaviour is governed was never touched. Edgar Schein’s three-level model explains why this happens with more precision than almost any other framework in organisational psychology.

The three levels and why the visible ones are not the real ones

Schein’s (1985) Organizational Culture and Leadership introduced the model that has remained the most rigorous available framework for understanding what culture actually is at the psychological level. The three levels are structurally distinct and operate through fundamentally different mechanisms.

Artefacts are the visible surface: the physical environment, the way people dress, the stories that circulate, the rituals that mark significant events, the observable patterns of behaviour in meetings. They are the first thing an outsider sees and the thing most culture change programmes spend their time adjusting.

Espoused values are the explicitly stated beliefs and priorities: the mission statement, the articulated values, the official policies, the leadership principles published on the intranet. They are what the organisation says it believes and what leaders sincerely endorse when they are being reflective.

Basic underlying assumptions are the taken-for-granted beliefs about reality, human nature, authority, time, and relationships that operate below conscious awareness. They are never examined or questioned because they have become so self-evident to the people inside the culture that questioning them would feel like questioning whether gravity is real. They are the cognitive default settings through which every situation is automatically interpreted and every behavioural response is automatically generated.

When espoused values and underlying assumptions conflict — and they frequently do — the assumptions win. Every time.

Why the gap between stated values and actual behaviour is not dishonesty

The gap between what organisations say they value and how they actually behave is frequently interpreted as hypocrisy. Schein’s model offers a more accurate and more useful diagnosis: the espoused values were adopted sincerely, and the underlying assumptions were never surfaced, so the older assumptions continued running the organisation while the new values were announced at every all-hands meeting.

The leader who genuinely believes in psychological safety and who unconsciously shuts down dissent in every meeting is not being dishonest. They are demonstrating the Schein prediction: when the underlying assumption is “authority figures should not be challenged in group settings,” no genuine endorsement of the psychological safety principle will change the meeting behaviour — because the behaviour is governed by the assumption, not the espoused value. The assumption operates through System 1 automatic processing: it does not require deliberate activation, and it is not visible to the person it governs.

This is why direct culture change interventions aimed at the artefact or espoused value level consistently underperform: they are addressing the symptoms while leaving the generative mechanism intact.

How culture is actually created and maintained: the reward pattern

Skinner’s (1938) operant conditioning framework and Wood and Rünger’s (2016) habit research together establish the mechanism through which culture is created and sustained in practice. People learn what the culture actually values by observing what behaviours get rewarded and what behaviours get tolerated or punished — not by reading the values statement.

The organisation that states “we value innovation” and then fails to promote the people who challenge established processes, tolerates the people who punish creative dissent, and rewards the people who deliver predictable results through conventional methods is communicating, through its reward pattern, that predictability is what the culture actually values. The assumption being installed — through the reward structure rather than through the stated values — is that innovation is approved of in principle and risky in practice.

The research thematic analysis across organisational behaviour studies confirms the mechanism: accountability systems and clarity systems are the primary determinants of actual organisational behaviour, with leadership modelling and reward and recognition systems as the next most consequential drivers. The values statement does not appear in the list, because the values statement is an artefact — it exists at the wrong level to change behaviour without accompanying changes to the accountability and reward structures that operate at the assumption level.

How leader mood becomes cultural assumption

Sy, Côté and Saavedra’s (2005) emotional contagion research established the specific mechanism through which leader emotional states translate into cultural assumptions over time. Leader mood is transmitted to team members through automatic emotional contagion — the same mechanism documented in the interpersonal relationship articles in this series — producing a shared affective tone that becomes the team’s emotional climate.

This is how culture forms at the assumption level, below any deliberate culture-building activity: the consistent emotional state of the leader — their habitual anxiety, their emotional availability, their genuine enthusiasm or concealed cynicism — is processed by team members as information about what this environment is like. Over time, this information consolidates as the cultural assumption about what working here feels like, about whether the environment is safe or threatening, about whether effort is seen or invisible. The leader’s emotional state is the culture’s primary input, independent of anything the leader explicitly says about culture.

The Enron case and what assumptions actually govern

Enron’s stated values were respect, integrity, communication, and excellence — displayed prominently on a values board at their Houston headquarters. The underlying assumptions that actually governed the culture — that financial targets justified any means, that questioning senior executives was dangerous, that reported performance mattered more than actual performance — bore no resemblance to the stated values. The assumptions won, as Schein’s model predicts. The collapse that followed was not the failure of the values statement; it was the manifestation of assumptions the values statement had never engaged with.

The Enron case is the most dramatic available demonstration of the Schein prediction, but the pattern it illustrates is not extreme — it is the normal condition of organisations that have adopted espoused values without surfacing and examining the underlying assumptions those values were intended to replace.

What changing culture actually requires

The Schein model’s practical implication is that culture change requires working at the assumption level — which means examining what the organisation’s reward pattern is actually reinforcing, what the leader’s consistent behavioural modelling is actually communicating, and what the psychological contracts that team members carry implicitly assume about what this organisation values. None of these are addressed by a values statement, a culture deck, or a leadership offsite.

They are addressed by changing what gets rewarded, by changing what leaders consistently model in the moments that matter, and by naming the assumptions — which requires the kind of deliberate examination that Schein’s model identifies as the most difficult and most necessary work of culture leadership.

Books worth reading on this

An Everyone Culture by Robert Kegan and Lisa Laskow Lahey. Kegan and Lahey’s account of deliberately developmental organisations — cultures that make the development of people’s full capacities part of the business model itself — provides the most structurally ambitious available treatment of what it looks like to build organisational culture at the assumption level rather than the artefact level. Their specific account of the immunity to change — the invisible psychological commitments that prevent organisations from behaving in accordance with their stated values — is the most directly applicable available treatment of the Schein gap from the perspective of what actually closes it. Organizational Culture and Leadership by Edgar Schein. The foundational text itself remains the most rigorous available treatment of the three-level model and the specific interventions that reach the assumption level. The fifth edition, published in 2017, includes Schein’s own account of the specific leadership behaviours and organisational conditions through which underlying assumptions are surfaced and examined — the most authoritative available treatment of what culture change at the right level actually requires.

If the dynamics described here are significantly affecting your wellbeing, speaking with a psychologist is the right next step. UK: Samaritans (116 123, free, 24/7). Mind (0300 123 3393). BACP: bacp.co.uk/search/Therapists. Crisis Text Line — text HOME to 741741 (US, UK, Canada, Ireland). International: internationaltherapistdirectory.com.

This article is for educational and informational purposes only. Sources: Schein, E.H. (1985, 5th ed. 2017), Organizational Culture and Leadership, Jossey-Bass. Kahneman, D. (2011), Thinking, Fast and Slow, Farrar, Straus and Giroux. Wood, W. & Rünger, D. (2016), Psychology of Habit, Annual Review of Psychology, 67, 289–314. Skinner, B.F. (1938), The Behavior of Organisms, Appleton-Century-Crofts. Ekvall, G. (1996), Organizational Climate for Creativity and Innovation, European Journal of Work and Organizational Psychology, 5(1), 105–123. Sy, T., Côté, S. & Saavedra, R. (2005), The Contagious Leader: Impact of the Leader’s Mood on the Mood of Group Members, Group Affective Tone, and Group Processes, Journal of Applied Psychology, 90(2), 295–305. Rousseau, D.M. (1989), Psychological and Implied Contracts in Organizations, Employee Responsibilities and Rights Journal, 2(2), 121–139. Coyle, D. (2018), The Culture Code, Bantam Books. Kegan, R. & Lahey, L.L. (2016), An Everyone Culture, Harvard Business Review Press.