Creating an Innovative Organizational Culture

Creating an Innovative Organizational Culture

Innovative cultures are greatly valued because they are not only good for a company's bottom line, but also largely depicted as fun and characterized by easy-to-like behaviors such as tolerance for failure, willingness to experiment, etc. According to a very interesting article by Pisano, as desirable as it is, a sustainable innovative culture is nonetheless hard to create, because the fun behaviors are only one side of the picture, the tougher and less fun side must also be well understood and appropriately managed to make things work. Luckily that is what we like to do at 12manage 😃

1. Tolerance for Failure but No Tolerance for Incompetence

An innovative culture naturally entails tolerance for failure, but it must not be accompanied by tolerance for incompetence, since it requires extremely competent people to make tolerance for failure work. In innovative companies, failures as a result of exploring risky ideas to draw valuable lessons are welcome, but failures due to mediocre skills, sloppy thinking, lousy work habits and poor management are not acceptable; people who don't meet expectations are either switched to roles better suited for them or simply let go—sometimes including those whose skills have been rendered obsolete due to shifting technologies or business models.

To create a culture that simultaneously values learning through failure and outstanding performance, senior leaders need to:

Articulate clearly the difference between productive and unproductive failures: productive ones yield in valuable information for improvement and innovation, while unproductive ones yield nothing but losses incurred by poor performance and incompetence;
Communicate clearly and regularly the expected standards of performance and raise hiring standards when necessary to acquire competent people.

2. Willingness to Experiment but Highly Disciplined

Organizations with a sustainable innovative culture combine willingness to experiment with strict discipline. They select experiments carefully based on the potential learning values of the hypotheses; they establish clear criteria for deciding how to proceed and design the experiments rigorously to yield as much learning as possible; and they take disciplined actions based on the experiments' results, including admitting the invalidity of an initial hypothesis and redirecting or even killing it altogether.

To promote disciplined experimentation, leaders need to:

Encourage people to generate and share "unreasonable ideas" and give them time to formulate their hypotheses, while requiring them to apply scientific and business judgments to figure out which ideas to move ahead, which to redesign, and which to kill.
Model discipline by, for example, terminating low value projects they personally championed or demonstrating a readiness to reformulate or kill an idea in response to the test result.

3. Psychologically Safe but Brutally Candid

Psychological safety is an organizational environment in which people feel safe to speak up honestly without fear of reprisal. It not only helps organizations avoid disastrous mistakes, but also nurtures innovation that requires different views, counter perspectives, and open discussions, all of which depend on unvarnished candor. That means, to be fruitfully innovative, organizations must be psychologically safe and brutally candid at the same time. Providing a psychologically safe environment shouldn't be confused with being "nice and polite" by avoiding debate and argument, which are in truth candid opinions that are a natural product of the safe environment.

To build an innovative culture with unwavering candor, leaders need to:

Set the tone through their own behavior by, e.g. being willing and able to critique others' ideas and offer constructive opinions without being offensive;
demand criticism of their own ideas and proposals, as demonstrated by General Dwight D. Eisenhower in one of his battle-plan briefings: "I consider it the duty of anyone who sees a flaw in this plan not to hesitate to say so…"

4. Collaboration but with Individual Accountability

Well-functioning innovation systems need seamless collaboration. People who work in a collaborative culture have a sense of collective responsibility; in the meanwhile, they also hold themselves accountable for their own decisions and actions. An innovative culture needs to be both collaborative and accountability-focused, as innovation cannot be realized without collaboration among individuals, nor without individuals taking personal responsibilities.

To encourage accountability, leaders can act as role models by publicly holding themselves accountable, even at the cost of taking personal risks. For example, a senior manager can start with a simple promise of "You take the risk; I will take the blame" then urge the audience to cascade the message down the whole organization.

5. Flat Organization but Strong Leadership

Innovative organizations are often featured by not only structural flatness but also cultural flatness that mirrors how people behave and interact despite their official positions. In culturally flat organizations, people are empowered to voice their opinions and take actions; decision making is decentralized and closer to the sources of relevant information. This lack of hierarchy, however, shouldn't be confused with lack of leadership. In fact, flat organizations require stronger leadership than hierarchical ones to set clear strategic priorities and directions so as to avoid devolving into chaos.

Striking a balance between flatness and strong leadership requires great efforts from both management and employees and leaders:

Senior Leaders should get closer to the front line units where actions happen and become better apprised of market reality; top management need to be capable of articulating compelling visions and strategies while concurrently being adept and competent with technical and operational issues.
Employees need to develop their own leadership capacities that allow them to take effective actions and be accountable for their decisions.

Leading the Journey

Building a sustainable culture of innovation can be an arduous journey. Besides the usual things required of leaders, e.g. articulating and communicating values, modeling target behaviors, etc., creating and driving an innovative culture also calls for other specific actions:

First, leaders must be transparent and forthright about the harder realities of innovative cultures. The whole organization need to know that an innovative culture not only entails freedom to experiment, fail, collaborate, speak up, and make decisions, but also demands tough responsibilities to bear fruit.
Second, leaders must be aware that there's no shortcuts in building an innovative culture. Breaking the organization into small autonomous teams to experiment and incubate a start-up culture is enormously challenging; expanding the entrepreneurial spirit to the whole organization is even more back-breaking. Incubating units could be a starting point of creating an innovative culture, but is certainly not a sure-fire recipe for success.
Finally, leaders need to be vigilant for signs of excessive tension between the counterbalancing forces discussed above and intervene to restore balance when need arises. For example, appropriately bridle tolerance for failure so as not to encourage tolerance for incompetence; wisely control willingness to experiment so that risks are taken with disciplined approaches, etc.

Source: Pisano, G. P. (2019), "The Hard Truth About Innovative Cultures", HBR.