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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]