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Enterprise Innovation
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WEEK 12: Culture Affects Innovation

 Culture Affects Innovation

 A company’s systems and processes are a network of social

interactions – the organizational culture.
 Culture is comprised of unwritten rules, shared beliefs and mental
models of the people – it alters the effectiveness of innovation tools
(e.g. IBM nearly disappeared in early 1990s).
 Culture is not static – it continually evolves.
 New systems and processes, new symbols and organizational values
can be designed to evolve company culture.
 Innovation – the NEW Life?

 Innovation for certain companies, is more than a strategy. It’s a way

of life.
 Virgin Group has embedded innovation into their company culture.
CEO Richard Branson expects innovation and rewards it. He has put
systems in place to keep innovation alive and as part of the business
mentality. Google is another example.
 You can feel the intensity of the energy around innovative people
and teams. They are passionate and have a high commitment to
innovation. (E.g. 3M’s 15% free time policy - employees hold this in
high esteem).
 Harnessing Creativity & Renewing the Company

 Employees who harness creativity celebrate success. For them

creativity in business has an element of luck and certain
organizations ‘are likely to get it’.
 In such organizations you will likely see calendars and signs that
promote ‘an idea a day’ or think and rest areas (e.g. play rooms).
 The mood is very alive and vibrant – innovation in such companies is
a way of life. (e.g. British Airways).
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 Harnessing Creativity & Renewing the Company

 The outcome of innovation is renewal and growth for the

organization and it people.
 Successful innovation creates ongoing life of the company. Without
innovation, a company surrenders to competitors or market shifts
and eventually disappears.
 For some people, innovation is linked to their survival. For them
innovation is respected and protected.
 Innovation can be a vital source of competitive energy (competition
and people who work in the organization).
 The Danger of Success

 Success – the biggest threat to innovation. Innovative organizations

are most ‘at risk’.
 Risk in two forms – complacency and dogma.
 Successful innovative organizations tend to become complacent
and conservative in order to preserve their core competencies.
Advantageous and logical in the short term.
 Also, managers could lose their drive in the long term. (E.g. Intel’s
CEO Paul Otellini realized that fast is not the key – creative and
better would make deeper inroads into consumer markets).
 The Danger of Success (Cont…)

 People do become resistant to change and when complacency

sets in it becomes difficult for new ideas and businesses to attract
enough resources to get off the ground.
 Sometimes complacency results in a shift to Play Not to Lose Strategy
– even if the company’s situation favors a Play to Win.
 Digital Equipment Corporation – very innovative products –
competitor to IBM. Could not adapt to two forces – customers
demanding open architectures and PC’s gaining performance
power and biting into DEC’s mainframe market.
 Decade of losses and turmoil – acquired in early 1998.
 The Danger of Success (Cont…)

 As complacency grows – antibodies do. Good ideas are attacked –

organizations then begin to encourage antibodies rather than fight
them.
 Apple, Google, GE, IBM currently face the challenge of maintaining
their innovation leadership. They need to avoid complacency, fight
organizational antibodies, keep the strategy honed and maintain a
culture that encourages and supports innovation.
 Sometimes the threat is from firmly held cultural values. (E.g. Toyota
challenged the long held culture of lifetime employment in Japan by
rewarding capability and not seniority).
 Organizational Levers of an Innovative Culture

 An organization must be stable in its identity and strategy BUT open

to constant change.
 Focused on the things that make it successful in the present market,
yet diverse in the areas it explores for opportunities.
 Conservative, to continue the best practices that exist, yet willing to
take risks on new and better things.
 Controlling to ensure that the innovation investment is well used, but
trusting enough to allow employees the freedom to create, explore,
take risks and innovate.
 Organizational Levers

 Companies that don’t do this, risk reducing innovation to the

minimum and fail to fully capitalize on their innovation investment.
(Not recommended).
 Some companies may maximize innovation and reduce their
performance, (Not recommended).
 Success requires recognition and management of the levers of
culture that affect innovation.
 1- Balance and Disequilibria

 Managers have different levers to create a culture that innovation

strategy needs. The particular position depends on the culture that
the management wants to create.
 An innovative culture embraces balance and disequilibria. A
balanced culture permits the peace that creativity and value
creation need.
 The organization needs to move forward and only challenges and
surprises can do this.
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 2- Stability and Change

 Innovation requires periods of stability and change. Constant

revolution is unproductive because the company cannot fully
capture the value of its innovation effort.
 Periods of incremental innovation should follow each radical
innovation to maximize the value extracted from the radical
innovation.
 The challenge for top management is to time periods of stability and
periods of change.
 Periods of stability give organizations the opportunity to regroup and
regain energy. However, the organizations must be constantly ready
for change.
 Stability and Change (Cont..)
 Sometimes, the environment may not create the sense of urgency
because of market stability – in this case the disequilibria (to create a
radical innovation) must come from inside the organization.
 Management plays a critical role in moving the company out of a
stable equilibrium and challenge it to innovate.
 This sense of urgency could mean stretched goals (financial or non-
financial) supported by a credible strategy that devotes adequate
resources and systems that encourage innovation.
 3- Focus and Diversity

 Focus and diversity is another paradox successful companies master.

 Focus provides the efficiency and speed that keeps a company
ahead of competitors.
 In stable environments, winning companies are able to serve
customer needs more efficiently.
 Being overly focused also leads to bias (inability to see important
changes in the environment or you could become inflexible and
unable to react to changes). (E.g. Levis Jeans).
 Focus and Diversity (Cont…)
 Embracing diversity in people, ideas and methods ensures that the
organization will thrive in periods of change.
 Companies need to invest in opportunities – must diversify from what
it knows well and try promising ideas – experiment outside their
traditional markets.
 4- Discipline and Surprise
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 An innovative culture embraces discipline and surprise –

surprise creates value and discipline captures it.
 Every innovative company follows great ideas with
disciplined processes that translate them into value.
(E.g. Philips).
 6- Other Levers
 An innovative culture is conservative but also risk-taking at the same
time (E.g. Vodafone has strong financial control – every investment
and expense is viewed from the perspective of ROI). A conservative
culture values risk but carefully evaluates the pros and cons of each
innovation opportunity.
 Innovation also requires freedom but with the right guidance
(balance).
 Control and trust – innovation requires both elements. Control is
required to make informed decisions on resource allocation, strategy
development and performance evaluation. Top management also
needs to trust the systems, people and culture of the company to
nurture ideas with good potential.
 Different Country Cultures – Different Innovation
Cultures
 A new dimension when your organization crosses geographical
borders.
 Managers need to understand how local cultures affect the values
and beliefs people hold – and this affects how they think, behave
and contribute.
 It is important to be aware that a person’s cultural background has
an impact on how he or she responds to organizational culture.
Different Country Cultures – Different Innovation
Cultures (Cont…)
Most of the elements that make up a culture are not easily visible.
 Asian Companies – technology leadership is important.
 American Companies – product performance is most challenging.
 European Companies – time to market is the key strategic dimension.
 Europe and America also attach more importance to product cost
than Asian companies.
 America follows a pull strategy – innovate when market demands
 Asian companies innovate within and then drive it to market.
 Recruiting to build an Innovative Organization

 A need to attract and recruit innovative people. The interplay

between the person and his/her environment determines the level of
innovativeness.
 It is difficult to be innovative in a culture that does not support
creativity.
 Organizations usually recruit ‘right people with the right fit’ – could
hiring the wrong people be worth it…? (these people could
challenge the status quo, increase diversity and creativity and bring
higher levels of innovation for the company).
 Recruiting to build an Innovative Organization
(Cont…)
 Such people explore ideas and see opportunities that other cannot.
 Hire people
 who will not fit but will contribute to creative tension,
 who you don’t like but have significant capabilities and knowledge,
 invite people as visitors and let them tell you what is right and wrong
with your innovation,
 look for people who have compensating qualities –
 hire those who question rather than accept.
 In short – turn your recruitment UPSIDE DOWN.
 Innovation Leadership should provide:

 An aspiration that challenges complacency and demands that the

organization go beyond its current performance, to search, create
and surprise the customer.
 A vision that tells the organization where it is going.
 A leadership commitment in terms of resources.
 An innovation strategy and a set of processes and management
systems to support the strategy.
 Leadership by example.
 A clear sense of command.
 A culture receptive to new ideas and change.
 Culture and the Innovation Rules

 Leadership is one of the most important components of organizational culture.

 CEOs have a significant impact.
 The innovation culture provides the business mentality for innovation.
 Performance measures and incentives are crucial management tools for
changing and forming innovation behavior.
 Even antibodies have a cultural component and these need different types of
responses.
 You cannot change culture by going at it directly.
 You get people to change how they do things, how they think about things and
how they talk about things. These changes then become the new culture.
 It is culture that separates the innovation leaders from the others.
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Questions?