Today’s executives want their companies to be more innovative. They consume stacks of books and articles and attend conventions and courses on innovation, hoping to discover the elixir of success. They are impressed by the ability of comparatively young companies such as Google and Facebook to create and market breakthrough products and services. And they marvel at how some older companies — Apple, IBM, Procter & Gamble, 3M and General Electric, to name a few — reinvent themselves again and again. And they wonder, “How do these great companies do it?”
After studying innovation among 759 companies based in 17 major markets, researchers Gerard J. Tellis, Jaideep C. Prabhu and Rajesh K. Chandy found that corporate culture was a much more important driver of radical innovation than labor, capital, government or national culture.1 But for executives, that conclusion raises two more questions: First, what is an innovative corporate culture? And second, if you don’t have an innovative culture, is there any way you can build one? This article addresses both questions by offering a simple model of the key elements of an innovative culture, as well as a practical 360-degree assessment tool that managers can use to assess how conducive their organization’s culture is to innovation — and to see specific areas where their culture might be more encouraging to it.
Six Building Blocks of an Innovative Culture
An innovative culture rests on a foundation of six building blocks: resources, processes, values, behavior, climate and success. (See “The Six Building Blocks of an Innovative Culture.”) These building blocks are dynamically linked. For example, the values of the enterprise have an impact on people’s behaviors, on the climate of the workplace and on how success is defined and measured. Our culture of innovation model builds upon dozens of studies by numerous authors. (See “About the Research.”)
When it comes to fostering innovation, enterprises have generally given substantial attention to resources, processes and the measurement of success — the more easily measured, tools-oriented innovation building blocks. But companies have often given much less attention to the harder-to-measure, people-oriented determinants of innovative culture — values, behaviors and climate. Not surprisingly, most companies have also done a better job of managing resources, processes and measurement of innovation success than they have the more people-oriented innovation building blocks. As many managers have discovered, anything that involves peoples’ values and behaviors and the climate of the workplace is more intangible and difficult to handle. As one CEO put it, “The soft stuff is the hard stuff.” Yet these difficult “people issues” have the greatest power to shape the culture of innovation and create a sustained competitive advantage.
Values drive priorities and decisions, which are reflected in how a company spends its time and money. Truly innovative enterprises spend generously on being entrepreneurial, promoting creativity and encouraging continuous learning. The values of a company are less what the leaders say or what they write in the annual reports than what they do and invest in. Values manifest themselves in how people behave and spend, more than in how they speak.
Behaviors describe how people act in the cause of innovation. For leaders, those acts include a willingness to kill off existing products with new and better ones, to energize employees with a vivid description of the future and to cut through red tape. For employees, actions in support of innovation include doggedness in overcoming technical roadblocks, “scrounging” resources when budgets are thin and listening to customers.
Climate is the tenor of workplace life. An innovative climate cultivates engagement and enthusiasm, challenges people to take risks within a safe environment, fosters learning and encourages independent thinking.2
Resources comprise three main factors: people, systems and projects. Of these, people — especially “innovation champions” — are the most critical, because they have a powerful impact on the organization’s values and climate.
Processes are the route that innovations follow as they are developed. These may include the familiar “innovation funnel” used to capture and sift through ideas or stage-gate systems for reviewing and prioritizing projects and prototyping.
The success of an innovation can be captured at three levels: external, enterprise and personal. In particular, external recognition shows how well a company is regarded as being innovative by its customers and competitors, and whether an innovation has paid off financially. More generally, success reinforces the enterprise’s values, behaviors and processes, which in turn drive many subsequent actions and decisions: who will be rewarded, which people will be hired and which projects will get the green light.
Building Blocks at Work
While our six building blocks may seem abstract, we find that truly innovative companies always have at least one of the building blocks solidly in place.
IDEO: Values and Behaviors
For example, few companies better exemplify innovative values and behaviors than IDEO, the Palo Alto, California-based global design consultancy. IDEO puts a high value on productive creativity, which it links to playful behavior. And it supports both in tangible ways. Its work routines model children’s playfulness: exploration that generates many ideas; learning through hands-on building; and role playing to build empathy for users. Placards placed around the company’s workspaces proclaim IDEO’s principles for “diving deep” into problems:
Encourage wild ideas,
Build on the ideas of others,
This play is just the first stage of IDEO’s innovation process. Next, its employees begin to make decisions regarding a product’s design and implementation. This range of behavior styles — from playful to businesslike — has contributed to hundreds of products that combine the best of form and function, from the computer mouse to medical equipment.3
Climate Safety is an important factor in an innovative climate. A fearless workplace frees people to take the risks innovation requires. W.L. Gore, the Delaware chemical products company famous for Gore-Tex and other high-performance products, provides an instructive example of safety. Here, mistakes made in the pursuit of novel solutions are accepted as part of the creative process. When a project is killed, staff celebrate its passing with beer and champagne. When a project fails, a post-mortem is conducted. Flawed concept or poor execution? Bad decisions? The goal of these post-mortems is not to punish, but to learn and improve.4
Rite-Solutions: Processes and Success
Recognizing that they have no monopoly on brainpower or good ideas, the founders of Rite-Solutions, a Rhode Island systems and software development company, developed a process for drawing on their employees’ collective creativity.
Dozens of project ideas are listed and described in detail on the company’s internal “market.” All new listings begin trading at $10 per share. Every employee is given $10,000 of play money with which to invest, and each uses his or her judgment in allocating that money among the available “stocks.” Employees can also volunteer to work on projects they favor. Management uses their collective wisdom to make decisions on which projects will be funded. Play money is redeemed for real cash if and when a project turns into a commercial product.5
A cadre of innovation experts who know, teach and implement innovative practices is one of the most important innovation resources a company can have. For decades, Whirlpool, the world’s largest appliance maker, was an engineering- and manufacturing-oriented company fixated on quality and cost. Its products were mostly commodities sold at large retailers, such as Sears and Best Buy. In 1999, the Michigan-based company embarked on a mission to be recognized as being an innovation leader as well. The company started by enlisting 75 employees from across the company to brainstorm about innovative products. The group came up with one hit product, but most ideas were viewed as too far-out or insignificant. Like many first-time innovators, people had a difficult time seeing how a more far-reaching idea could turn into an opportunity. That’s when Whirlpool decided to try a different tack.
First, every salaried employee was enrolled in a business innovation course. Second, the company trained certain employees, called I-mentors, who were similar to the Six Sigma Black Belts who worked on quality in the company. The I-mentors still kept their regular jobs but brought to those roles special training on how to facilitate innovation projects and help people with their ideas. An intranet portal offered employees a common forum for learning principles of innovation, keeping abreast of recent research and tracking the progress of ideas toward realization. Innovation teams comprised of employees from all levels of the company screened and vetted new ideas.
Two years into the program, Whirlpool had 100 business ideas, 40 concepts in experimentation and 25 products and business ideas in the prototype stage. By early 2006, Whirlpool had hundreds of ideas in the pipeline, 60 in the prototype stage and 190 being scaled for the market. By 2007, new products stemming from the innovation areas contributed nearly $2.5 billion in worldwide revenue, and approximately $4 billion of $19 billion in 2008 revenues. In 2008, Whirlpool had 61,000 employees and nearly 1,100 volunteer I-mentors worldwide who helped facilitate innovation throughout the business. Executives at Whirlpool ascribe their success in part to the way this investment in innovation and training has changed the company’s culture.
Whirlpool’s focus on resources demonstrates that a critical starting point for a deliberate, systematic and comprehensive innovation initiative begins by building a community of innovation experts. Most innovations happen within a community, and the core of any community is a common language. All disciplines — management, medicine, law — have their own lingua franca.6 So does innovation. Creating a community of innovators requires a good understanding of the language of innovation and its concepts and tools.
Assessing an Enterprise’s Innovation Culture
Each of the six building blocks in our model is composed of three factors (18 in all), and each of those factors incorporates three underlying elements (54 in all). As we move from those abstract building blocks toward more concrete elements, the innovative culture becomes more measureable and manageable — for example, the abstract building block of climate involves the factor of safety, which can be further divided into openness, integrity and trust.
After developing our building-block framework, we designed a test around these 54 elements to enable managers to assess the innovation culture of their company.7 Over the past three years, we have given the test to 1,026 managers at 15 companies, diversified by sector and geography. (See “The Building Blocks of Innovation Survey.”)