Innovation and Culture

Booz & Company’s Annual Innovation Survey (here) dropped into my inbox this morning and the conclusions are challenging and in many ways bad news for organisations striving to catch the elusive innovation wave.

The results suggest that it is not the amount of money spent on R+D that governs a company’s ability to innovate but something much more intangible and tricky to manipulate, organisational culture.

This is tough for business leaders as corporate culture is something that they as individuals have very little short-term influence over. Unfortunately a culture that encourages sustained meaningful innovation can’t be conjured out of thin air. Clearly, many executives are struggling to fully comprehend this and one of the biggest mistakes is the ongoing belief that strategic initiatives can kick-start innovation:

“Culture matters, enormously. Studies have shown again and again that there may be no more critical source of business success or failure than a company’s culture — it trumps strategy and leadership. That isn’t to say that strategy doesn’t matter, but rather that the particular strategy a company employs will succeed only if it is supported by the appropriate cultural attributes.”

The first mistake that many executives make is not having a firm grasp or understanding of the current organisational culture, without this knowledge, it is impossible to know what is and what is not possible in terms of short-term cultural change:

“The larger lesson for companies that struggle to convert their R&D expenditures into successful products, solid financial returns, and unassailable market positions is that it may not just be traditional factors like the innovation pipeline that need rethinking. Instead, companies should follow the lead of the most successful innovators in ensuring that the company’s culture not only supports innovation, but actually accelerates its execution.”

Clearly, achieving this is much easier said than done, and for many organisations the existing corporate culture may be so far away from one that actively promotes and encourages innovation that a truly innovative culture is impossible to achieve in the medium term. All is not lost however, as inevitably within the organisation there will be sub-cultures within certain department or groups that are more amenable or open to fostering innovation. Again, understanding the existing culture and where these groups exist is key to long-term change.

Once the existing culture and its constraints are understood, executives need to ask themselves whether they really want innovation? This may seem like a no-brainer but a culture of innovation is unlikely to be plain sailing. Many pay lip service to this but for most executives it means facing up to uncomfortable truths. This entails not just an evolution of organisational culture, itself something difficult to achieve but also on a personal level and the behaviours that has made them successful in the first place.

This argument was echoed in a blog posting by Saul Kaplan over at HBR in this piece (here) where he highlights the reluctant executive as a key impediment to innovation:

“The most obvious reason companies fail at business model innovation is because CEOs and their senior leadership teams don't want to explore new business models. They are content with the current one and want everyone in the organization focused on how to improve its performance.”

This inertia also extends to an unwillingness to embrace new business lines or ideas that may cannibalise existing product lines:

“When executives look at new opportunities they see them through the lens of the current business model and view them as competing with the current way the organization creates, delivers, and captures value. Organizations fail at business model innovation because they blindly take cannibalization off the table even if a new business model may have significant upside potential.”

This gets to the heart of the problem, culture within organisations is myriad and many have a hard time understanding this.

A pre-requisite for moving up the corporate ladder should be a willingness to challenge and question what makes you successful. In reality exactly the opposite is in action in most organisations as norms that focus on preserving the status quo are perpetuated. This is touched on in Saul Kaplan’s final obstacle to innovation.

“Business model innovators go against the corporate grain. They see entirely new ways to create, deliver, and capture value. If those that are tasked with sustaining and growing today's business models are allowed to reject those with the perspective and insight to help design the next one, business model innovation efforts will fail.”

The importance of aligning strategy and culture has never been more apparent. However, organisations must learn that before they run they must learn to walk, this means making the effort to understand the underlying cultures within the organisation and the constraints that these place on the ability to innovate and change. Only then can decisions be taken as to how best achieve this.

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