Co.Design

How Do You Create A Culture Of Innovation?

Scott Anthony, a managing director at the innovation consulting firm Innosight, offers a step-by-step guide to building innovation into your company’s DNA.

This is the third part in a series by Scott Anthony, author of The Little Black Book Of Innovation.

It sounds so seductive: a "culture of innovation." The three words immediately conjure up images of innovation savants like 3M, Pixar, Apple, and Google—the sorts of places where innovation isn’t an unnatural act, but part of the very fabric of a company. It seems a panacea to many companies that struggle with innovation. But what exactly is a culture of innovation, and how does a company build it?

While culture is a complicated cocktail, four ingredients propel an organization forward: the right people, appropriate rewards and incentives, a common language, and leadership role-modeling.

The Innovator’s DNA Has Four Components

If you ask most people what makes a great innovator, the most common response is innate gifts from parents or a higher power. Great innovators are undoubtedly different from the general population. However, pioneering research by Hal Gregersen at INSEAD, Jeffrey Dyer at BYU, and Clayton Christensen at Harvard shows that the critical difference is actually learned behaviors.

At the core is what the professors call "associational thinking." That is the ability to make connections between seemingly unconnected things. A classic example of this is how a calligraphy class inspired Apple legend Steve Jobs’s emphasis on typography on early computers. The professors then detail what they call the "Innovator’s DNA," four time-tested approaches successful innovators follow to gather stimuli that spur these connections:

  • Questioning: Asking probing questions that impose or remove constraints. Example: What if we were legally prohibited from selling to our current customer?
  • Networking: Interacting with people from different backgrounds who provide access to new ways of thinking.
  • Observing: Watching the world around them for surprising stimuli.
  • Experimenting: Consciously complicating their lives by trying new things or going to new places.

Most organizations have people who follow these behaviors—even if they aren’t immediately obvious to senior leadership. Frequently they are what software entrepreneur Donna Auguste affectionately dubs "aliens." They don’t quite fit the establishment, and that’s exactly what you want. But importantly these behaviors are skills that can be built through disciplined practice. Companies like Syngenta, Citigroup, Johnson & Johnson, and many more have made substantial investments in innovation training programs, which are critical ways to build an organization’s innovation competencies.

Sometimes the injection of a choice outsider helps shape a company’s culture. Ask for example why Hulu.com serves as almost the singular example of a successful disruptive venture launched by media incumbents (backers include News Corp, Disney, and NBC Universal). At least one explanation is the hiring of a CEO from outside the media industry (CEO Jason Kilar previously worked at Amazon.com). If you are trying to transform your company or your industry you likely need to bring in at least a handful of outsiders who will look at the world in new ways.

The Right Way to Reward and Punish

One of the most common complaints of executives inside large companies is the challenge of recognizing and rewarding successful innovators. It seems like a Herculean task, as the best innovators can choose to work for startups and receive unbounded rewards. How can a large company—especially a publicly traded one—compete? The key is to thoughtfully blend the unique rewards at their disposal with a failure-tolerant culture.

An essential read on rewards is Daniel Pink’s Drive: The Surprising Science of What Motivates Us. In that book, Pink details how performance on creative tasks actually decreases with monetary incentives. And people who have chosen to work for larger, more established companies have already chosen to trade off financial upside for stability and the opportunity to work with a larger group. Pay people fairly, of course, but Pink suggests that other incentives provide people with a sense of autonomy, allow them to master their trade, and give them a sense of purpose.

There are plenty of opportunities for companies to follow Pink’s playbook. What about creating unique career paths for innovators? Maybe someone who brings a great idea forward can stick with it as it winds through the organization. Or get a chance to work on an exciting new product launch. Public recognition matters, too. One media company holds an innovation awards ceremony that they treat as seriously as the Oscars—people get decked out and fete internal success stories. Winning is a big deal. It’s just one way for companies to shine a spotlight on success.

Of course, it is important to make sure you are rewarding the right people. How do you identify successful innovators? It seems like a simple question. But the realities of innovation make it complicated. Innovation is akin to baseball, blackjack, or investing in stock. That is, success comes from a mix of skill and luck. Legg Mason Chief Innovation Strategist Michael Mauboussin argues that instead of looking at someone’s results, you have to look at the process they follow to achieve those results. Look for innovators that invest time to understand their target market, think holistically, design and execute smart experiments, and demonstrate a willingness to change course. Even if an individual effort doesn’t succeed, innovators who follow these behaviors are more likely to succeed in the long term.

Encouraging innovation isn’t just about what companies reward—it is what they choose to punish. In my book The Little Black Book of Innovation, I suggest that companies need to be more tolerant of failure. The most successful businesses come out of a process of trial-and-error experimentation. Failure and false steps are natural parts of that process. What kind of message does it send if you punish people who take well-thought-out risks that don’t pan out?

Which Definition Of "Innovation" Is the Right One?

In a recent column at HBR.org, I detailed a heated debate between me and my colleague Piyush about one of the portfolio companies in which Innosight’s venture investing arm had invested. At one point I said Piyush’s argument was "utter baloney." That drew a blank stare. I thought the brilliance of my argument had stunned him into silence. Then I thought perhaps it was because he is a vegetarian and didn’t appreciate the meat reference.

Then it dawned on me. "Baloney" as a shorthand way of saying "that’s not correct" was vernacular that hadn’t made it to Singapore. It’s a lesson I’ve learned painfully over the past two years as I’ve had to slowly remove sports metaphors that just don’t translate globally from my speech. These seemingly trivial examples of how things can get lost in translation even when people appear to speak the same language serve as an important reminder of how subtle miscommunications can impair a company’s effort to move in a common direction.

Start with innovation itself. Next time you are in a group meeting, ask everyone to write down how they define innovation. Odds are you will have as many different definitions as meeting attendees. Having everyone understand what innovation is—and what it is not—is critical for culture change.

The next step is to identify the specific categories of innovation that matter to your company. For example, in 2011, financial services leader Citi decided its innovation portfolio would balance core innovations that involve improving existing offerings and processes, adjacencies that extend Citi products to new markets or leverage current capabilities to create new-to-Citi solutions, and disruptive innovations that create entirely new markets.

These definitions matter because different forms of innovation should be measured and managed in distinct ways. As an analogy, think about how you evaluate an investment in emerging market equities versus a real estate transaction versus buying a car. You approach each transaction very differently.

If you approach all innovations in the same way, odds are you are either sub-optimizing vital efforts to strengthen your core business or bungling efforts to create tomorrow’s core business.

You’re Lost Without Highly Engaged Leadership

Organizations take substantial cues from senior leaders. They carefully listen to what those leaders say, but, more importantly, watch what those leaders do. The most senior leaders seeking to make their culture more tolerant of innovation need to regularly demonstrate that intent with their words and actions.

One great example of this is the work A.G. Lafley did to change Procter & Gamble’s culture during his reign from 2000 to 2009. During various discussions related to the launch of his 2008 book The Game-Changer (with consultant Ram Charan) Lafley alternatively described his role within P&G as P&G’s co-chief innovation officer (with his chief technology officer), P&G’s chief "external" officer ("selling" the importance of innovation externally), Dr. No (helping to make prudent decisions to shut projects down), and an innovation cheerleader.

From work I did advising P&G during that time period, I know this wasn’t lip service. While serving as CEO, Lafley actively participated on the board of P&G’s internal innovation fund, and regularly conducted innovation and strategy reviews with each of P&G’s business units. He frequently proselytized about the importance of innovation and worked hard to select and nurture leaders that had the right stuff for innovation.

Studying leaders driving innovation in their organization, such as Mark Zuckerberg at Facebook, Indra Nooyi at PepsiCo, Jeff Bezos at Amazon.com, Ernset Cu at Globe Telecom, and Clark Gilbert at Deseret Digital, reveals similar patterns. These aren’t lean-back leaders that wait for change to happen. They roll up their sleeves and lean forward into specific innovation efforts. Active participation helps them spot inflection points that team members might otherwise miss—and gives them deeper intuition that helps when it is decision time. Active participation also speeds decision making. Many companies review critical innovation initiatives at quarterly or biannual meetings. But key strategic decisions can’t always be scheduled. Finding ways to interact with teams more frequently can help to expedite the iterative process that so often typifies innovation.

Leaders also help shape the context in which innovation occurs by making clear strategic choices. Specifically, they identify areas that are of strategic interest to the company, and areas that are not of strategic interest to the company. Many organizations waste tremendous time and money exploring ideas that, when push comes to shove, are destined to get shut down by senior leadership. Making explicit choices is a critical part of leadership.

Finally, lean-forward leaders break dysfunctional processes. A couple of years ago, a team was reviewing its progress with a key senior stakeholder. The team mentioned that their progress would be accelerated as soon as the company’s usual assignment process provided them with a critical scientific resource. No one was doing anything but following standard procedures, but the team was paralyzed. The senior stakeholder left the room, made two phone calls, and got the team the resource it needed. Sometimes only senior leaders can remove the roadblocks that constrain success.

Your Strengths Are Also Your Weaknesses

Every company’s culture is different—that’s what makes them so interesting, and what makes paint-by-numbers recommendations painfully insufficient. Start by building what I call an "innovation balance sheet" detailing your innovation strengths and weaknesses. When building this balance sheet, remember the dual-aspect concept that has served as the cornerstone of accounting since its development in 16th-century Italy. Every debit has a corresponding credit. Every asset has a claim against it. Every strength has a corresponding weakness.

An honest understanding of organizational capabilities and disabilities helps to determine the right mix of people, rewards, common language, and lean-forward leaders that can help make innovation an everyday occurrence at your organization.

Buy The Little Black Book of Innovation at Amazon.

[Images: svkv, woaiss, Junial Enterprises, and maridav via Shutterstock]

Add New Comment

23 Comments

  • Cleanshooter

    I think Pink's concepts need to be addressed after the more traditional one are first taken care of.  Autonomy, Mastery and Purpose alone are very empty rewards.  If you have all of these things to varying degrees but still never get competitive compensation or recognition from superiors you will be consistently disappointed with your job and find a new one. -Spoken from experience

    If you study Maslow's Hierarchy of needs you'll quickly realize that these motivators primarily focus on the top level (self actualization) of the pyramid.  If the previous level are ignored these concepts become much less meaningful. 

    For example if you detract from an employee's level of safety by: demanding to much over time (affecting time with loved ones), paying to little (less resources), having no health insurance ect... your employees will be more woried about these things than innovating. 

    On another level of the pyramid "Esteem".  If an employee receives no recognition for the innovation they do what good is Autonomy, Mastery or Purpose?  Yeah I feel great when something I write saves the company thousands of dollars a year, but after all that savings the only benefit I see is that they no longer need to hire a temp worker this year.  So I just put someone out of a job... AWESOME... :( now my co-workers really want me to write more time saving applications.  All of this and the only thanks I get from management is a pat on the back from every supervisor but mine and her boss.

    Anyway... mostly agreeing with your article.  And don't take me wrong Pink is great, "A While New Mind" changed life in college.  I just think the key concepts need more development.

    Lastly your advertising is causeing a bug on your "LEAVE A NOTE" section here.  While the Dell ad was floating on the bottom of the page in a static location I could not type into this box.... went away after I clicked the close button.  Might want to look into it anyway.  (Browser FF 18).

  • Georgio Romano

    This is a great article and reminds me of something written by ENPC
    PHD Deisgn and Innovation professor Gregory Polletta, www.enpcmbaparis.com/polletta-... . In a recent blog post
    called " Great Innovations
    Fail due to Ecosystems? No. Chasms" www.ignitiate.blogspot.co.uk/2... . The intent is clear, when the whole
    ecosystem is prepared from day 1, great "innovations" are much more
    likely to turn into profitable NPD endeavors.

  • kevincain

    Great article. Would be curious to get your thoughts on this piece
    from Steve Blank in which he discusses the challenges companies face
    during the transition from the
    startup to the expansion stage:
    http://labs.openviewpartners.c...

    I encourage you to check it out and to leave a comment. Our readers would really benefit from your perspectives and insights.

  • Victor

    Really interesting read indeed! I also want to refer people who are interested in the innovation-leadership relationship to a recent topic called 'Ambidextrous Leadership'. Ambidextrous leadership behaviour combines the skills necessary to manage the balance of exploration and exploitation in a firm. This is a very interesting point of view as it recognizes that firms have to be able to recognize the strengths and weaknessses of both exporation for new possibilities and the exploitation of proven models. For more information, try searching the academic library for Rosing, Frese, and Bausch (2011). 
    Cheers.

  • Andrew Toomey ☼

    Great article and rightly states that leadership is key.  Setting a culture from scratch is one thing but working within a solidly retro culture is the real challenge.
    Can anyone point me the "how-to" for breaking the road blocks placed by less progressive leadership?  The ability to create and inspire a new culture from the bottom up - now THAT would be true innovation. 

  • marianne doczi

    As an 'alien' I had most success with innovation when supported by a leader who "got" innovation. And, success is a mixture of skill and serendipity.  

    I like your point about separating out distinct categories of innovation, as they need different approaches. 

    I think there's still some way to go before organisations embrace 'innovation from everyone and everywhere' rather than just from the 'alphabetically enhanced' levels. For innovation to succeed an idea/invention needs to be translated into ongoing products and services.  And that requires support and understanding from everyone in an organisation.  So the culture of innovation has to be one where everyone can see they have a role. . http://www.dol.govt.nz/service...

    @KnowNOW_KnowHow:twitter 

    Marianne Doczi

  • Guest

    Don't make me look up words - Speak like someone actually trying to appeal to a mass audience rather than someone with an ego.

    "panacea" - come on.

    Otherwise - Good article

  • Reg

    Good article.. Creating right culture is very important to the success of an organization..   I liked the concept of 'innovation balance sheet'.. will start compiling one for my startup.. Thanks Scott..

  • Brice Auckenthaler

    Thanks for providing another excellent contribution to the innovation day to day challenge.
    If i may, a company's top managers could also create a strong and specific culture of innovation by asking its people within the organization to help you do 3 things.
    1/ Identify scenarios of the future (of your market, of your company...), ie. inventing ways of questioning your existing business; that doesn't mean you only get long term innovations, it means you better check along the process that your innovation ambition is high enough. Quick wins are ok. Breakthrough ones are much more difficult to copy and paste. 
    2/ Define your brand's VFV [ ''Vision Fight/nail and Values''], ie. the frame in which all new initiatives will be built consistently. The fight is the specific promise your company is engaged for its customers, it may be sumed up in one word [the ''nail''] which will be embodied in all your brand's products, services... eg. ''Nutrition'' for Nestlé or ''Simplicity'' for Philips. All new initiatives must deliver that nail, day to day; it could also help you get rid of non consistent offers which dilute your brand's perception from customers.
    3/ Outside your company, invite your early adopters, brand fans... to join the innovation kitchen in order to co-create new solutions they will be ambassadors for. At Tilt ideas, we call it ''crowdstorming'', and believe us, it forces your staff to raise the bar a little bit :)
    By doing this, not only you strenghthen your people's involvement and pride to belong but differentiate specifically your company's initiatives.

  • TheArchetypist

    Good post Scott.

    You hit a number of points I came to when considering culture.  I am more skeptic though.  Every Fortune 50 company I have consulted for either had top leadership who had that culture to start with, or had to have a major shock to move leadership there.  

    Check out my post on this, I think you will like it.

    http://thearchetypist.com/1514... 

    I also did a summary of  the Lego story, which relates because they needed to create a major culture shift or risk insolvency.  

    http://thearchetypist.com/1587... 

  • Themandus

    Thanks Scott. Do you know of any companies that have successfully (over the long term) become way more innovative as a result of process change alone and not as a result of hiring in a Steve Jobs?

  • Nosybear


    @Ifilomia:  Here's how you overcome it:  Highlight everything in the article.  Starting from the bottom up pretty much means you can get everything and not the unwanted stuff at the right.  Copy it.  Open a Word document and paste.  Print as you'd like.
    @FastCo:  A print button would make life a lot easier.

  • Louis House

    great read Scott! thank you. Excellent insight. I feel that getting the C Level behind it all 200% is key, too many initiatives fail before they even get a chance due to lack of drive from those leading the ship. Cheers!

  • Suleman Ali, Holly IP

    Depending on what sort of innovation you're interested in, 'geeks', for want of a better word can do things non-geeks cannot.  Certainly personality types can make breakthroughs which are beyond the usual and beyond what can be learned. If one needs that, then they need to be found and the right conditions must be created for them to do their stuff (sheiding from criticism, the money side, etc).  So diversity (sometimes extreme diversity) might be what's needed.

  • Duncan MacDonald

    You're joking, right? Shielding people from criticism and leaving them out of the loop on financial issues are two sure fire ways to alienate them. 

  • Jerry Paulison

    Fantastic article re Innovation; TY Scott Anthony!  -  jerry paulison #Sodexo