How can we create a Culture of Innovation?

One of the more frequent issues clients raise with us is the need to change organizational culture. Culture can be a critical barrier or a true enabler to innovation as it governs the hundreds of daily decisions that senior managers never get to make.

We believe that much of the conventional thinking about creating culture is deeply misguided. Culture is fundamentally a lagging variable, not a leading one. It is the result of a set of decisions, precedents, and supporting leadership behaviors around all aspects of organizational design including strategy, structure, people and processes.

Starting a transformation by focusing only on culture is superficial at best and most likely doomed to failure, somewhat akin to re-launching a failing automobile after changing only the brand. Worse, such efforts can ingrain cynicism about innovation into an organization, making it more difficult for subsequent efforts to move forward.

From our experience, culture can in fact change rapidly, but only if management aligns the hard aspects of organizational change including variables such as how:

• Ideas are sourced
• Opportunities are evaluated
• Risk is measured
• Success (and failure) are rewarded
• Initiatives are staffed
• Experiments are executed
• Commercialization is organized
• Learning is achieved
  

How we do it

Given the fallacies noted above, Innosight does not undertake engagements focused exclusively on culture. Rather, we make cultural change an integral part of our other work on organizational effectiveness. These kinds of engagements are typically undertaken while looking at sourcing, shaping, or commercializing actual innovation opportunities, as developing new behaviors with real projects tends to have far more impact than making abstract recommendations. Organizational issues we examine may include matters such as:

• Front End Ideation: How does a firm find ideas and practice Open Innovation (a term coined by Berkeley Professor Henry Chesbrough) to bring in opportunities from the outside world? Recommended processes vary greatly depending upon the objectives of the firm and the types of innovation being sought.

• Evaluation Process: How easy is it for an idea to get a first hearing? What's the process before the process? What questions should managers ask, and when? Who should be vetting these ideas? What are metrics of success? How can more ideas be evaluated, and more ideas be killed?

• Risk Assessment: Many firms have no good view of the risk in their development pipelines ' its level, timing, correlation, and implications. Managers would insist on this sort of knowledge for their personal stock portfolios, but lack this information when it comes to their engine of future growth. Good risk assessment systems are not only rigorous, but are also easy to implement on an everyday basis, understandable, and flexible. They encourage risk-taking, if it's risk-taking for a good reason. And they encourage ending doomed initiatives early, before too much money and time is wasted.

• Rewards and Career Development: Rising stars typically do not want to be associated with failure, and yet truly innovative projects inherently run some risk of failing. Firms need to reward failure if it is failure for a good reason, in which learning has been achieved. The challenge lies in making that delineation without being unduly subjective. When success occurs, managers need to be rewarded and acknowledged, but the benefits cannot be so great as to inspire intense rivalry or huge numbers of staff to gravitate to winning teams.

• Recruiting and Staffing: Is innovation everyone's job, or just a few people's? Who is to be staffed on project teams? What's the right profile of a project leader? Answers depend on the context, and are sometimes counter-intuitive. For example, someone who is a superstar in the core business may be utterly unsuited to lead an innovation initiative if, for instance, their success has been fueled by extreme detail-orientation and laser-focus on a problem. Also, it can sometimes be advisable to staff a team with people you think might disagree vehemently ' in the right situations, the best ideas can result from such tensions.

• Organization: Frequently, companies find that they need to create a new department focused on finding out-of-the-box ideas and commercializing them. This does not call for large-scale re-organization of the firm, but does require an investment in establishing a repeatable capability to innovate. There are many ways in which such a business unit can be set up, and several options in how closely it can be linked back to the core.

• Learning: All too often, struggling initiatives result in blame and scapegoating, rather than disciplined learning. Firms need to establish rigorous mechanisms to capture insights and recycle them into other efforts.

Regardless of the type of engagement, there are two additional variables that we view as critical for success in achieving cultural change:

• Leadership: Leadership behaviors are an essential part of defining and reinforcing change. For this reason, we always suggest that senior leaders be involved in the projects that we undertake. Senior executives speak through megaphones ' their everyday words and actions can have immense influence on the mindset of others in the firm.

• Training & Coaching: Another important part of culture alignment is training and coaching to promote consistency of 'soft' behaviors with the 'hard' factors alluded to above. Innosight strongly believes in the power of education to supplement consulting in ensuring that culture change is deep and sustained. It is amazing how far 'speaking a common language' can go in terms of propelling an organization behind an initiative such as innovation.
  

Enacting cultural change is a challenge for any organization. However, we believe companies that define supporting elements around strategy, structure, people and processes and follow up with strong reinforcing signals from leadership can inspire an innovation culture in their organization.