Building a Culture That Energizes Innovation

by FEI Daily Staff

Creating an innovation culture is notoriously difficult. Here are some fresh insights and a roadmap for tackling the culture conundrum.

Certain companies always appear to be first to market with clever new ideas, while others manage just fine by making numerous incremental improvements on their past successes. Some companies seem to generate one great new product after another, while others depend for years on the same old stand-by offerings. Some companies seem to slide slowly into irrelevance and bankruptcy, while others succeed in emerging reborn from years in the doldrums.

What drives these fundamental differences among companies and how they innovate? All else being equal, there are two things working together: strategy and culture.

Strategy encompasses the conscious decisions companies make regarding how they plan to innovate and take their products and services to market. Some organizations are determined to be first to market with products developed in tight collaboration with customers (such as The Procter & Gamble Co.). Others leverage their technological expertise to develop new products with a singular focus on having a deep understanding of customer needs (think Apple Inc.).

Still others prefer to be so-called “fast followers,” picking up quickly on what’s working in their markets and introducing similar products at less expense to the company and its customers (such as Samsung Group).

Culture, on the other hand, is typically a much less conscious element of corporate life. Within the realm of corporate culture, innovation cultures differ, just as innovation strategies do.

Companies with cultures that strongly support innovation capabilities — such as Google Inc. and P&G — usually combine openness to new ideas from within and without with a healthy respect for the opinions of customers.

Those with cultures that do not support innovation capabilities, by contrast, are frequently the victims of their own past success — when old ideas continue to bring in revenue, even if less and less each year, the drive to innovate can all too often seem little more than a hard-to-justify expense.

The key to success in innovation, of course, lies in making sure these two critical aspects of innovation — strategy and culture — are in alignment and working together. So companies that seek an advantage through innovation are well advised to choose a strategy that fits within the context of its overall corporate strategy.

Perhaps more importantly, leaders in innovative companies must ensure that their culture fully supports and energizes their specific innovation strategies and goals.

It is critical to seek a synchronicity between a firm’s business strategy, innovation strategy and innovation culture. There is no single “right” culture, but rather the one that is aligned with a company’s business and innovation strategy.

That the two elements of innovation work together is critical. Booz & Co. has conducted an annual study of the link between corporate research and development spending and innovation performance. And, for the seventh year in a row, the 2011 study showed that there is no correlation between the amount of money companies spend on R&D and their overall financial performance.

Last year, the survey also looked at how innovation strategy and culture affect financial performance. Here the correlation was considerably stronger. Just 44 percent of companies surveyed report that their innovation and corporate strategies are strongly aligned — and that their innovation cultures support their innovation goals. But those companies significantly outperformed other, less well-aligned companies in terms of growth in both profits and enterprise value over the past five years.

Innovation strategy is, or should be, a deliberate choice on the part of companies, given their industries, products, capabilities, markets and the like — though it is worth noting that 19 percent of companies say they do not have any particular innovation strategy at all.

Culture, on the other hand, is a much more ephemeral variable in the innovation equation. At most companies, culture has evolved over many years out of historical circumstances. As a result, it is very difficult to change much in any realistic time frame. However, it is possible to re-direct how key elements of a culture influence innovative behavior. So how best can companies shape and maintain a cultural influence that accelerates and supports their innovation efforts?

Cultures Supporting Innovation Capabilities

Whether they know it or not, every organization has a culture (or cultures), defined as its self-sustaining patterns of behaving, feeling, thinking and believing that determine “how we do things around here.” At their best, cultures that are supportive of innovation encompass a healthy tolerance for risk, embrace change, are open to new ideas from internal and external sources alike and influence people to think long term.

Trust is key in such a culture, because it promotes a collaborative but challenging working style that aims for constant improvement. And each step of the innovation value chain — from ideation to commercialization — is supported by sustainable patterns of behavior.

Bottom line, culture isn’t just about how people think about innovation, but how they behave. And these two aspects of cultures — the emotional and the behavioral — are mutually reinforcing.

Consider Google Inc., a company that has long been viewed as the embodiment of such a culture. It is famously open to risk and tolerant of failure. As Eric Schmidt, its former CEO and current chairman, said: “Please fail very quickly, so that you can try again.”

Every employee is encouraged — indeed, obliged — to dedicate time to his or her own ideas, ideas that are welcomed and supported through mechanisms such as an idea management system.

Google’s management expects all of its employees not just to think innovatively, or to believe in innovation, but to behave in such a way as to reinforce the perceived value of innovation. That type of approach is the key to generating a culture that supports and aligns with innovation strategy: Work to change employees’ behavior (not mindsets), and mindsets will follow.

The science of neurology teaches that it is easier to act your way into new ways of thinking than to think your way into new ways of acting. Thus, a framework for promoting and evolving a more supportive and energizing culture emphasizes working to change behavior first and foremost (see the chart above).

Innovation Strategy                                     

First, no attempt to change the culture of a company will succeed outside the context of its innovation objectives. Rather, the goal of most successful cultural evolution programs is to realign the culture in step with evolving objectives, perhaps as market conditions change.

Indeed, the program should be tied specifically to measurable business objectives, as it keeps the effort focused, allows for the demonstration of successes along the way and helps to rally people around the effort and gain buy-in.

Former IBM Corp. CEO Louis Gerstner’s well-known effort to transform IBM in the 1990s depended for its success on carefully aligning the cultural side of the equation with the company’s new strategic emphasis on services.

Culture, Before and After

The next step in promoting and evolving a more supportive and energizing culture involves identifying the existing culture at a deep enough level to recognize its strengths and weaknesses and then determining how the future state of its cultural situation should differ from the present.

The current-state analysis should reveal both the pain points of the culture and indicate which aspects need to diminish or be counter-balanced — whether it be lack of collaboration, lack of customer focus or something else.

At this stage, it is critical not to ignore cultural attributes that are working well, as these will likely become critical building blocks of the future state of the culture. And over time, of course, important missing elements can be added to the culture if the focus is on the key behavior required.

That future state needs to be defined in terms of realistic aspirations — the traits most likely to promote the company’s innovation efforts. Here, simply choosing a wide variety of positive attributes won’t work. Instead, the relevant traits (and the behavior they imply) must be decided on deliberately keeping in mind the company’s vision, mission, strategy and business objectives.

It is critical to build on current strengths, rather than trying to create an entirely new culture out of whole cloth. This will help accelerate the culture evolution process.

By the same token, it is likely that some of the negative aspects of the current culture will have to be counter-balanced by positive ones, at least for the time being, as the effect of trying to do away with them may be too drastic this early in the game.

Critical Behavior

Only by changing how people behave can the culture have a positive impact on innovation — changes in thinking, feeling and believing will then follow in ways that sustain the innovative capability over time.

But it is best to focus on changing just those few kinds of behavior that will have the greatest effect on promoting the desired cultural influence. Determine which behaviors to concentrate on and what “reminder mechanisms” can help ensure those behaviors. Perhaps peer interaction groups can accelerate the cross-organizational sharing of ideas and information; creating focused informal networks can enable collaborating more actively across functions, or connecting more regularly with customers.

The 3M Corp., for example, makes technical collaboration across divisional boundaries a normal way of operating, having become such a standard practice that sharing talent and cross-silo collaboration does not entail the battles common in other companies.

Then decide which ones to work to change first, using such criteria as support of senior leadership, impact on business objectives, receptivity to emotional influence and relative ease of implementation. The behavior chosen must also be differentiated by the roles and responsibilities of all employees affected by the change.

The Cultural Evolution Program

Once all of the above elements are in place, it is time to develop a specific program for promoting a longer-term cultural evolution. This will involve choosing the proper mix of formal and informal elements. On the one hand, it will likely be necessary to informally identify employees who can serve as role models for productive innovative behavior.

On the other hand, more formal processes, such as the introduction of an idea management system, complete with incentives for its use, will help promote and perpetuate the desired behavior over time.

Here, the right message is critical: Making a rational case for changing behavior will likely be necessary, but it will only work if it also produces positive emotional support among peers and colleagues at multiple levels.

Ultimately, it is the emotional appeal that will generate sustainable change, by altering how employees think and feel about innovation and what they believe about its value.

Measure Progress

The only really effective way to know that the program is working is to actively measure its progress in terms of both innovation and business performance, and whether behavior is actually changing, as well as the accompanying shifts in thinking, feeling and believing. The use of quantitative metrics is essential to ensure accurate and repeatable measurement results, and the metrics chosen must be relevant, specific and achievable.

The most successful programs go well beyond the normal financial, operational and engagement metrics to track behavior changes that matter most.

Companies such as Apple, Google, 3M, the Palo Alto Research Center Inc. (PARC), Pixar Animation Studios, P&G and dozens more have demonstrated strong records of innovation success and the cultures needed to support that success. But culture evolution does not simply happen. These companies have worked hard to create their culture, as well as to maintain and nourish it.

And they understand that doing so is a combination of the rational and the emotional, formal and informal, top-down and bottom-up.

Changing a culture is hard, but by keeping in mind both sides of the equation and measuring the results carefully it can be done — with profound innovation gains the result.

This article first appeared in Financial Executive magazine.