Innovation and Culture

Posted on October 28, 2011 by Michael Folkman

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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A Problem with Complexity

Posted on September 21, 2011 by Michael Folkman

If engagement was the buzzword amongst OD and HR professionals last year, the current word du jour seems to be complexity.

HR Magazine recently (here) featured research carried out by Simon Collinson at Warwick University and consultancy Simplicity Partnership that came to the conclusion that the world’s largest 200 companies are foregoing on average £735m ($1.2bn) of profit annually, because they have over time engineered far too much complexity into their organisational structures.

Whilst I am not sure how this figure was arrived at, this makes a certain amount of intuitive sense, especially as history has shown us that as organisations grow, individual productivity tends to fall. As we are dealing with the largest companies, it stands to reason that a huge amount of time and effort is wasted on inefficient and superfluous activities.

Indeed it is not just time and productivity that is lost within the convoluted and complex structures in the largest companies. Over-complex organisational structure also discourages innovation as Steven Johnson discussed in his recent book Where Good Ideas Come From (here), arguing that a more organic approach to organisational structure such as that found in cities can lead to greater innovation.

The authors of the report state that the current situation is down to employees over-engineering systems and processes, incrementally adding steps or actions that in reality add little to the business and reduce the amount of time people can devote to more productive activities. Over time this has a huge cumulative effect on performance. They go on to conclude that in order to increase productivity and profits, it is necessary for organisations to simplify their structures and strategies, paring them back to more easily manageable levels that actually encourage greater output rather than hindering it.

Without doubt this approach could help free up considerable management and employee time that could be devoted to more productive activities. However, personally, I think that this approach does not necessarily lead to a long-term solution to this problem. Without significant changes in how we think and approach organisational design, strategy and culture, it is inevitable that despite the best efforts to simplify and control systems and processes, over time they will revert back to an inefficient state.

Interestingly, the article is entitled; “$1.2 billion each: The hidden cost of people complexity to the top 200”, note the emphasis on the word people. From my perspective the real root of these problems are down to behaviour. This problem is as much about relationships, behaviour and culture as it is systems and processes.

The complex and inefficient systems that riddle our largest organisations stem from the very human desire to simplify, unify and control naturally complex issues. Our innate desire to manage and understand the environment around us leads us to try and measure information in the most basic and simple terms. How else do you explain the cult of metrics in the business? The great mistake is that in the real world and particularly for large systems such as multinational organisations we cannot fully understand the huge amount of variables and cause and effect relationships that permeate throughout the system, instead we have a rudimentary set of measurements that although designed to reduce uncertainty, we can never be sure that are telling us what we think they are or leading to

Secondly, it can be argued that the system actually encourages inefficient behaviour. As managers work their way up the corporate ladder, in many cases they are rewarded for the inefficient behaviour that perpetuates the bureaucratic and inefficient. For instance, activities such as standardisation, predictability and reducing variability are all actively encouraged ye Such rewards and positive feedback become lodged in our minds that any change in this outlook becomes hard to achieve. For instance getting managers to actively look to cede or give up control rather than seek more of it is a necessary step if organisations are going to benefit from increased efficiency, yet this is much easier said than done.

To solve the problem of complexity we need to understand that the methods that have traditionally been used to construct and organise businesses are inherently inefficient and in many cases stifle growth and inefficiency. Unfortunately for organisations the long-term solution requires a re-engineering of attitudes and behaviour.

 

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Rebooting HR

Posted on September 12, 2011 by Michael Folkman

Over at MiX, (here), Luc Galoppin posted an excellent blog that succinctly summarises some of the inherent problems and contradictions present in most HR departments. These can be summarised by HR’s ongoing desire for a seat at the top table and to be seen as a key driver of organisational strategy and change that have been top of the HR agenda since the publication of Dave Ulrich’s 1997 book Human Resource Champions (here).

One of Galoppin’s key assertions is that rather than an agent for change, which many HRD’s like to see themselves as (being able to design, implement and promote organisational change programs). HR is in fact naturally much better placed to act as a stabilising force within the business, as he states an agent of continuity during periods of change. Galoppin states:

“In short, HR does not posses the skills that are required to manage change initiatives. Instead, HR’s strength is that of a ‘Continuity Agent’, a stabilizer if you will.”

This makes sense when one considers HR’s traditional strengths such as developing systems and outlining processes and best practice. On the other hand, to be an active proponent and driver of change requires a much more disruptive and experimental approach, not natural attributes one would think of when describing most HR professionals.

The Ulrichian logic that the best way for HR to increase its influence is by being at the heart of decision-making and having greater influence over strategy and decision-making is according to Galoppin the wrong way for HR to think about its position within the business.

All is not lost however and Galoppin charts a three-step process that could help improve matters. By focusing on developing credibility and embedding HR within the business rather than an independent support function, things can change:

“The third step for HR is empowering the business by outsourcing the core part of their activities … to the business. Whereas step 1 may include the outsourcing of administrative tasks to a shared service center, this step will require a handover of activities to the business. That way, HR processes get managed where they live and exist: on the shop floor among the people.

Only by abdicating power and embedding HR practice directly within the business can HR prove its value. For many HR professionals still committed to the idea of a seat at the top table, this is unlikely to go down well. Many HRDs argue that to be influential they need to have control over all these people issues, when in actual fact the opposite is true. For HR to be seen to add real value to the organisation, the HR department needs to devolve as much control as possible.

It is however important to emphasise that the current predicament is not solely down to the inability of HR departments to demonstrate value. In many cases senior executives are guilty of failing to appreciate the complexity and importance of human behaviour, relationships and collaboration when it comes to organisational performance. As Galoppin puts it:

“The attitude in most projects is exemplified by this statement: "We’ll take care of the process re-engineering and the technical stuff; HR will do the soft stuff."”

The compartmentalising of the “soft stuff” is a very damaging attitude to have and highlights why many change projects are doomed to failure from the start. What many senior executives fail to appreciate is that it is actually the intangible people-side of things that is the hardest and most complex element of any change program that cannot be effectively sub-contracted to HR. In fact it can be argued that people-based issues represent the greatest risk to the success of any project. For this mindset to change, arguably it is going to require more than HR to prove its value, instead it will require senior executives to prioritise the naturally intangible, woolly and complex issues that surround the behavioural aspects of change.

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Steve Jobs – Culture and Innovation

Posted on August 30, 2011 by Michael Folkman

Amidst all the comment about last week's announcement from Steve Jobs, many commentators have been in a rush to speculate on the future for Apple and the key elements of Jobs’ legacy.

Although it is far too early to fully appreciate how Apple will deal with the departure of it’s charismatic chief executive, amidst all the chatter and hyperbole there are some interesting viewpoints emerging that have focused on Jobs’ ability to achieve what so few leaders ever manage, the ability to develop and maintain a strong organisational culture.

In fact it can be argued that Jobs’ greatest achievement has been his ability to meld Apple’s organisational culture and commercial strategy into a clear set of core values that are well understood by everyone throughout the organisation.

A couple of excellent blog posts from HBR have touched on this. Firstly a post by Horace Dediu (here) and a second piece by James Allworth, Max Wessel, and Rob Wheeler (here) both discuss the importance of Apple's consistent culture.  

Unlike many CEOs, Jobs has not been afraid of placing something as intangible and tricky as culture at the heart of his decision-making at the expense of the more tangible metrics and quarterly numbers that cause so many other CEOs to lose sleep. It doesn’t matter how you feel about some of Apple’s practices and they certainly polarise opinion, they are consistent and crucially innovation has come about through a willingness to experiment internally and seek disruption that may come at the expense of existing product lines.

Jobs has also been able to take advantage of his position of company co-founder in being able to dictate Apple’s culture. There is no doubt that this has helped Jobs habituate his own behaviour into the mindset of Apple employees.

The paradox is that by making his own personal imprint on the culture so absolute, Jobs has probably gone as far as possible to ensure that Apple is in the best shape possible to prosper in the future. In fact the key danger facing Apple in the medium term is likely to come from events that may dilute the existing culture. For example, a large acquisition may hold more dangers than would ordinarily be perceived. For the medium term however, it would appear that Apple is well placed to flourish, not because of Jobs' brilliance as an individual but the collective values he has been able to instill in the organisation.

 

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Gary Hamel – Reinventing Management

Posted on August 23, 2011 by Michael Folkman

For those not familiar with Gary Hamel’s work (there can’t be that many), there is a great short presentation over at HBR (here). This makes a good listen, touching on many of the ills inherent in early twenty-first century organisational behaviour.

Hamel is nothing if consistent in his criticism of traditional management practice, particularly its potential for negative impact in today’s knowledge based economy. I believe that he is right in his assertion that management by command and control inevitably leads to a “race to the bottom” at exactly the time when long-term prosperity is going to require a move in the opposite direction with the emphasis on innovation and agility.

I have no doubt that Hamel is right in his assertions. However with all structural changes, things are easier said than done. This is especially true for any initiative that looks to change organisational culture or values. Furthermore, the lack of credible change agents (I’m thinking about you HR!) make Hamel’s vision all the more difficult to achieve. Thinking about it, radical change is also unlikely to come from senior management in organisations, who in the majority of cases owe their success to these outdated methods that are by now hard wired into their brains.

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Getting the Right Numbers

Posted on August 18, 2011 by Michael Folkman

The trailer came out recently for a new Brad Pitt movie (here), Moneyball, an adaptation of Michael Lewis’ book about the rise of the Oakland A’s baseball team, where General Manager Billy Beane was temporarily able to use innovative statistical analysis of players performance to gain an advantage over the opposition. Unfortunately for the A’s the benefits lasted only until the other teams caught on and started using Beane’s methods.

The use of data and statistics to understand performance in professional sport is not new and as technology improves the options to develop a sophisticated insight into performance increases. This has led to more and more teams hiring professional statisticians to develop a deeper understanding of the fundamentals of success on the field. At the forefront of this trend English football teams are making significant investment in technologies that enable the breakdown of the minutiae of the action on the pitch, this trend was recently documented in the Financial Times by Simon Kuper (here).

Whereas applying statistical analysis to baseball is a relatively straightforward process, the nature of the game makes it well suited to breaking down into to easily digestible chunks. Clearly, football is more complex, there are far more variables involved and the outcomes of different actions are less clear cut, however this increased complexity doesn’t mean that statistical analysis can’t work. Interestingly, what the analysts at football clubs are discovering is that the most obvious indicators of individual performance have little bearing on outcomes. Instead, a more sophisticated understanding of the game is required.

Kuper discusses this in terms of the evolution of statistics and analysis over the past 15 years, where clubs have moved on from looking at the more obvious indicators such as the distance covered covered by a player over the course of a match, where there is little correlation between the amount of running or effort a player puts in and results to more subtle but perhaps more meaningful indicators such as the amount of distance covered at maximum speed, which may have a greater correlation with positive outcomes.

Furthermore, there are many more variables in football that are harder to measure such as the ability to run into and find space and other aspects of positional awareness that are much more intangible than a completed pass or tackle which can be easily catalogued. For me the most important development cited by Kuper is a short sentence that indicates a potentially very interesting new avenue of analysis;

“And football’s data revolution has only just got going. Fleig thinks there is an exciting future in sociograms: who passes to whom, who tends to start a team’s dangerous attacks?”

By analysing the interaction of players and the role of team composition on performance, we can begin to move away from focusing on individual performance or excellence and instead begin to understand the much more important role of collaborative performance. What is really important in a team sport such as football is not who your best individual players are but what combination of players is best suited for a particular game. It is easy to measure who scores the goals, who has the hardest shot, who has the greatest athletic ability, makes goal saving tackles etc. What is key is to understand the effect of different players playing together has on the overall performance. For me, this understanding goes way beyond the football pitch and ultimately to the heart of organisational behaviour.

If Moneyball has taught us anything it is that it is possible to punch above your weight and compete against bigger, better funded and more powerful competitors. What this boils down to is the ability to create teams that perform at a far greater level than the sum of their individual parts.

Unfortunately the current reality is that most organisations are still tied to measuring performance in terms of individual behaviour and actions, what they need to do is take a leaf out of these football clubs and begin to analyse the social element of performance. By continuing to focus on the individual rather than what factors govern collective performance, organisations will remain stuck with the numbers that have little or no correlation to success. Unfortunately as has been proven on the football pitch, having a team of highly paid superstars is no guarantee of success.

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Creating Sustained High Performance

Posted on August 9, 2011 by Bruce Lewin

Ilaria Vilkelis gave us a nice write up on her blog yesterday when she spoke about success in an uncertain economy. The part of her piece that really struck a chord with me was this section on exploring the space that exists between people.

At the end of the day in a very uncertain environment the most important asset of any organization lies within its team; and the team’s commitment and sense of mission, its resilience and especially the chemistry between team members: for sustained high performance the space between people often matters most than people themselves.

In the past these inter dynamics where hard to predict and you could benefit only from the wisdom of hindsight. Experience and gut feelings were possibly all we could count on. Thankfully we have new tools coming on the market that can help.

Thanks to Ilaria who has put her finger on the gap that we try to address at Four Groups. As we have often said ourselves, the quality of people's relationships can account for anything between 20 - 40% of performance. In a startup situation (Ilaria's speciality), one suboptimal relationship can spell disaster for a fledgling venture.

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The Apprentice: A rocky road ahead?

Posted on July 25, 2011 by Michael Folkman

Those in the UK will no doubt be aware that last Sunday saw the finale of The Apprentice, where the nerdy inventor Tom Pellereau triumphed over the hyper-organised and arguably more capable Helen Milligan (here).

In contrast to previous series’, where the winners were “rewarded” with a job at one of Lord Sugar’s subsidiaries, this time round the prize was the opportunity to go into business with the peer as a 50/50 partner.

Out of curiosity, let’s see what lies in store for this particular partnership:

Starting with the 4G profiles, although there should be a caveat that we cannot say for sure what someone’s profile is without first taking the 4G questionnaire, we can make an educated guess in this case.

Tom’s profile would seem to be 1Ti, this means he is naturally curious and innovative, likely to be at his best when given freedom and few organisational constraints. He is also analytical and enjoys acquiring specialist knowledge of subjects. Furthermore, Tom is likely to seek out situations which are undefined or where the variables and outcomes are unknown.

This contrasts with Lord Sugar’s likely 4G profile of 3Se. This means that he is primarily focused on the here and now. He is also likely to be much more drawn to dealing with practical and tangible issues as well as searching out for quick and tangible returns.

From first glance we can see that both individuals are quite distinct from the other and for many this would indicate that both individuals bring contrasting yet complementary skills to the table. So what happens when 1Ti and 3Se come together to start a new company?

We know by using 4G that this gives us a Relationship of Discovery. The key aspect about this particular relationship are the high expectations of productivity at the beginning of the relationship, yet as time goes on it becomes harder for both partners to reconcile their own interests and motivations.

It is these high initial expectations that often lead to problems as both partners exert more and more energy in terms of trying to understand and effectively collaborate with their colleague. Inevitably this can lead to a certain level of dissatisfaction as the relationship fails to yield the productivity that was initially envisaged.

In terms of specifics, within this relationship problems are likely to come if Tom feels under pressure to compromise or not fully develop his ideas because of time or other pressures. Likewise he may find that Lord Sugar is making decisions in a hasty or rash manner.

From Lord Sugar’s perspective, his frustration is likely to come from situations where he believes Tom fails to seize the commercial initiative or takes too long to develop or perfect his ideas. A further source of frustration may also arise if Lord Sugar believes that Tom has not done all that is imaginably possible to maximise the returns from a certain product or service.

In terms of contextualising this information, clearly there is a seniority dynamic at play here which means that the pressure will be on Tom to adapt more to Lord Sugar’s natural working style than the other way around. Likewise a key issue is the amount of contact between individuals on a daily basis. Close personal contact is likely to result in frustration and disagreement, whereas a more “arms length” relationship may in the long-term prove more productive.

In summary, here is what we would suggest to Tom and Lord Sugar; firstly don’t expect too much from the personal relationship, this means that the composition of the team is likely to be particularly important in terms of making this venture work. Finally, both partners need to be aware of the natural dynamics of this relationship and understand that it will be very difficult for either individual to fully adapt to their partner’s natural working style.

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Leadership, Intangibles and Talent Review Q4 2010

Posted on February 2, 2011 by Bruce Lewin

Welcome to the final round-up of 2010. In this issue we have brought together an assortment of provocative articles focusing on;

Featured in this issue are articles from: Steven Johnson, John Hagel, Peter Senge, Richard Donkin and examples include HCL, the NHS, Minnesota public schools and the Roman Empire!

Leadership, Intangibles & Talent Q4 2010 - Four Groups.pdf

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Social Cognition Research Initiative

Posted on January 10, 2011 by Bruce Lewin

Stowe Boyd is starting a long-range research initiative into Social Cognition. The main thrust seems to be around;

  • Clarifying the elements of social cognition like learning, performance, decision making, affiliation, sense making, and others.
  • Assimilating research from anthropology, sociology, cognitive science, linguistics, behavioral economics, media studies, education, and basically anywhere else that sheds light on social cognition, and interviewing the researchers to get them to extrapolate on their results, especially in the context of the social business.

It will be interesting to keep an eye on it. Good luck Stowe!

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