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Building a Culture of Innovation

Driving Long-term Profitable Growth through Organizational Cultural Change
by Soren Kaplan & Derrick Palmer, Managing Principals, InnovationPoint


ust about every organization wants to be more
innovative. But organizations define
innovation differently. Some see it as introducing
new products, while others measure innovation
success in terms of new services, customer
experiences, business models or internal practices.
And while some organizations are widely revered
as innovative (everybody wants to know the
secrets of Apple, Google and other high fliers),
most seem to continually struggle to find their
stride.

All companies, whether they are successful with
innovation or not, have one thing in common: they
have their own personalities, their own particular
organizational culture the shared experiences,
values, norms, assumptions and beliefs that shape
individual and group behavior, and that (for better
or for worse) ultimately impact their success.

Most leaders recognize the important role of
culture in business success. Accordingly, there are
many popular interventions for shaping culture:
training programs that help galvanize new
employees around vision, mission and values
statements; leadership development programs that
provide high potential managers with tools for
becoming better leaders; and change
management initiatives focused on new processes,
structures and programs that increase

Why do you want to have an innovative culture?
As we peel back the onion, the answer we
eventually get to is: So we can drive long-term,
profitable growth. We typically conclude that
growth is the goal, and an innovative culture is a
critical enabler a means to the end.
So, as we respond to the question of How can I
build a culture of innovation? we then talk about
the several dimensions of the puzzle, the levers,
that must be viewed (and tweaked) holistically.

The Strategic Levers of Innovation
Culture Change

Culture is a soft and fuzzy concept that many
people consider mysterious and impossible to
actually grapple with. But by looking at the set of
strategic levers that influence culture we can start
to get a grip on it, and to see how we can shape it.

The following model shows that culture is shaped
by the ongoing interplay between several variables,
each of which may enable or inhibit innovation.

External Environment

Leadership
organizational effectiveness.
Enabling
Technology
Processes
Culture
The Relationship between
Innovation, Culture and Growth
Strategy &
Business
Model
Metrics,
Incentives,
Rewards,
Recognition

Structures

Results/
Performance
People
Over the past few years, there has been
widespread recognition that innovation is also
critical for business success. However, few
organizations have been able to understand the
explicit linkage between culture and innovation, or
to create strategies for reshaping culture in a way
that enables corporate growth through innovation
or drives innovative thinking and behavior at the
individual level.
Senior executives often ask us: How can I build a
culture of innovation? Before we respond, we ask:
These variables are:
The External Environment The emerging
trends (e.g., demographic, social, competitive,
industry, customer/consumer, technology,
environmental, regulatory, and many others)
that influence the organization and the world in
which it will operate in the future



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Strategy and Business Model The
organizations explicit (or implicit) functional
design, and strategies for competing and
growing given the external environment
Leadership How the organizations leaders
influence strategic direction and day-to-day
operations, both through their explicit
decisions and their more subtle behaviors
Processes How strategies are executed and
how work is accomplished through day-to-day
practices and interactions, both internally- and
externally-focused. This can be very broad,
and includes: the ways the company interacts
with its customers/ consumers; the ways
various internal functions/departments interact
relative to innovation; the ways information is
shared; the ways employees contribute new
ideas; the ways ideas are prioritized, tested,
developed, killed off, and implemented
Structures The formal/informal organizing
principles and functional designs (both internal
and external) that enable (or inhibit)
collaboration and guide employee behavior
People The skillsets and mindsets of
individuals who work together, including
employees, external partners and suppliers,
etc. This has implications for hiring and
training
Metrics, Incentives, Recognition & Rewards






internal, organizational requirements for the
appropriate execution can then be put in place
(i.e., strategy must precede structure). Both
culture and business performance result directly
from the degree of alignment between the strategy
and the way the organization has currently set up
its levers. While this model may appear static,
managing the levers is actually a very dynamic
process that requires ongoing attention.

It is by managing these levers that an
organization has the ability to influence its
culture and to impact its ability to innovate.

Leadership should ensure that both strategic and
tactical decisions around these levers align to (or at
least dont undermine) the organizations specific
growth and innovation goals. Creating new change
efforts that impact any of the dimensions of the
model can make a significant difference to the
organizations culture and its ability to innovate.

Below the Surface: Managing the
Mundane

This model of the strategic levers of innovation
culture change provides a holistic framework for
taking action. But shaping culture, especially when
it comes to creating a culture of innovation, is also
a daily task that continually involves looking at the
affect of the mundane on strategic issues.
The formal and informal measures that drive
the kinds of innovation-related behaviors an
organization wants to see from individuals,
teams and departments. An unhealthy tension
Org Structure
Processes
Vision & Strategy
Stated Values
often exists between longer-term corporate
aspirations and short-term metrics
Enabling Technology Capabilities and tools
(e.g., internet-based collaboration/
communications tools, idea management or
idea competition applications, etc.), that allow
employees (and external partners) to connect,
share knowledge, and innovate

The external environment influences an
organizations overall strategy as well as its
culture and the performance/results it achieves.
While managing external forces is challenging if
not impossible, the way an organization chooses to
set up its strategy and business model should
ideally take into account the external influences
that represent opportunities and threats. Once
strategy and business model are defined, the
Symbols & Stories
Shared
Assumptions
Unwritten

Rules

Norms Value


A common metaphor for culture is the iceberg.
Icebergs float on top of the water and are visible to
the eye, but beneath the surface they may extend
hundreds of feet and can be significantly larger
than whats visible above water. As a metaphor for
organizational culture, the part of the iceberg
above the surface is the visible culture, including
such things as the stated vision, mission and
values, organizational charts, policies and
procedures, and formal processes.



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As we look beneath the surface, however, we find
clues as to the way we do things around here
norms, unwritten rules, shared assumptions, taken
for granted beliefs, process workarounds and so
on. Whats above the surface isnt always
consistent with whats below. Often, its whats
beneath the surface that really supports or inhibits
organizational culture and the ability to innovate.

The behavior of leadership is arguably the single
most important factor in driving culture change.
Culture is influenced by just about everything that a
senior leader does. From major organizational
structure redesigns to minor passing comments
that convey a leaders subtle personality and value
judgments, culture is dynamically expressed,
created and re-created every moment of every day.
While it is true that leadership starts at the top, it
is certainly a shared responsibility. To succeed in
the long term, organizations must foster the right
kinds of innovation-focused skillsets and mindsets
not just among the most senior executives, but also
with leaders (and future leaders) at various levels
throughout the organization. In fact, there is often
a frustrating disconnect in which executive
leadership is indeed walking the talk of
innovation, while mid-level leaders are too focused
on their day-to-day activities to spend any time on
innovation.

By developing specific innovation-focused
behaviors behaviors targeted at addressing the
below the surface aspects of culture leaders
can affect change in many ways. For example,
they can begin to shift the organization away from
a CYA mentality/risk aversion toward smart risk
taking; away from an insular Not Invented Here
attitude toward an open-minded curiosity and
willingness to look beyond their usual four walls to
embrace an Open Innovation approach.
To foster sustainable innovation, todays leaders
must take a proactive role in fostering an
organizational culture by pulling the levers that
enable innovation.

Three complementary strategies:
Envisioning, Communicating and
Sponsoring.

Using the innovation culture change model as a
basis, three complementary strategies can be
combined to foster a culture of innovation:
Envisioning, Communicating and Sponsoring.






Collectively, these strategies tap into both the
formal levers as well as into the mundane, less
visible activities that shift innovation culture.


Envisioning




Communicating Sponsoring



Envisioning: Envisioning involves defining a vision
of the ideal future state for the organization that is
creative, unique, compelling and worthwhile. This
future state includes the traditional corporate
vision statement but also ensures that the
business vision is noble, high impact and describes
the unique long-term difference the company can
make for its customers, the community and the
world. But Envisioning is not just about creating a
vision for the business. Leadership must also
outline a vision for the role of innovation itself. This
includes: a statement about why innovation is
important to the organization; a definition of
innovation; what is expected of the employees as
contributors themselves; the specific commitments
that leadership will make to drive innovation; and
metrics for measuring innovation successes.

Communicating: Communicating for culture
change goes beyond traditional corporate
communications. While formal communications
certainly play a key role in driving culture change,
fostering a culture of innovation means also
becoming attuned to the informal communications.
Leaders can begin by first gaining sensitivity to the
informal communications that exist within their
organization.

To assess the true nature of the organizational
culture it is essential to gain an understanding of
the stories, folklore, symbols and rituals that
implicitly direct employees, partners and even
customers. This includes such taboo topics as:
the way we do things around here, what the
company actually values, and what leadership
says vs. what they really mean.

For better or for worse, some of these stories,
folklore, symbols and rituals may be very powerful.
Some will help foster a culture of innovation while
in other cases these messages and assumptions
may be very restrictive, with a very powerful grip,

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and may severely limit employees ability to step up
and move beyond them.

Once the existing informal communications are
understood, it becomes possible to identify
opportunities for reinforcing positive messages and
overcoming those that impede innovation. This
includes demonstrating new behaviors, and
creating new stories, symbols and rituals that
establish a fresh dialog, and that promote values,
norms and assumptions more consistent with a
culture of innovation. For example, one company
interested in addressing a serious deficiency in
risk-taking established a Golden Turkey Award
that was given quarterly, with a light-hearted yet
serious spirit, to the individual or team with the
greatest innovation failure. Given publicly by the
CEO, the award became a symbol of the
importance of embracing risk and proactively
learning from failure as an essential part of the
innovation process.

Sponsoring: Sponsoring a culture of innovation
means taking specific, tangible, and visible actions
using any (or all) of the strategic levers for
innovation culture change. The depth and breadth
of this set of actions will vary, depending on the
organizations situation.

When leadership visibly sponsors an initiative
focused on supporting innovation (such as holding
an innovation offsite, or investing in idea
generation software), this sends a strong message.
It can establish positive, new stories that create
energy, enthusiasm and optimism throughout the
organization. The bad news is that if the
commitment is not 100%, if the supporting systems
have not been developed, or if follow-through is
lacking, things fall flat, which causes employee
disillusionment and a credibility issue. The bottom
line: dont sponsor innovation unless you are really
committed and fully prepared to see it through.

Getting Started: Conducting an
Innovation Culture Assessment

The first step is to conduct a candid assessment
based on the innovation culture model to
understand where the organization is doing well in
its innovation efforts; to identify the enablers/
inhibitors of innovation; and to capture some
stories of the organizations innovation successes
and failures. This assessment is conducted
through interviews with a broad set of key
stakeholders/leaders from different functions,
businesses, etc., and may also include key






customers/partners. Sometimes these interviews
may be supplemented with an online survey that
engages employees across the organization.

The interview data is used to craft a set of
preliminary recommendations on which levers
should be pulled and how to deliver the most
impact. For many organizations, the most critical
levers are Leadership, Structure, Processes and
Metrics. For example, a recommendation might be
to set up a new, formal organizational structure
(e.g., create an Innovation Council to support
enterprise-wide strategic innovation; or establish a
fund for small, accountable incubator teams to
pursue promising new ideas). Another
recommendation might be to develop a cohesive
program of innovation metrics, incentives,
recognition and rewards to help foster smart risk-
taking and to drive a healthier balance between
short- and longer-term corporate goals, or to
motivate employees to actively and frequently
contribute innovative ideas.

Each set of recommendations is accompanied by a
simple Roadmap that includes: actions, milestones,
roles/responsibilities, high-level resources, success
metrics, next steps, etc.

Culture & Long-term Profitable
Growth

By examining and pulling the strategic levers of
innovation culture change, and by practicing the
strategies of envisioning, communicating and
sponsoring, it is possible to foster a culture of
innovation that will drive long-term, profitable
growth.

________________________________________

About InnovationPoint

InnovationPoint is a non-traditional consulting firm
that helps its Fortune 1000 clients take a strategic
approach to innovation. InnovationPoint blends
traditional and unconventional methodologies to
identify breakthrough opportunities, develop growth
strategies and consumer-inspired new products,
and to align organizational strategy and design in a
way that supports sustainable innovation. Clients
include: PepsiCo, Frito-Lay, Dean Foods,
Kimberly-Clark, Cisco, Agilent, Hewlett-Packard,
Colgate-Palmolive, Hill's Pet Nutrition, Schwab,
Visa, JP Morgan/Chase, Mayo Clinic, Alegent
Health, Kaiser, Medtronic, Hoffmann-LaRoche
(Switzerland), Philips (Netherlands).












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Creating a Culture of Innovation
Posted by Edward Goldman on October 11, 2013 at 9:36am
View Blog

It is easy for many organizations to say that they support innovation. They discuss how they are going about it and how they
are providing some resources towards the effort. But when you pull back the surface the support is lacking. Their reward
systems that do not support innovation just stifle it. They have review systems designed to ensure only completed projects and
programs are recognized and they only reward success. Lastly, they only look at today's results and not towards the future. The
talk says "goinnovate," but the walk clearly supports only taking risks that will ensure success.
By only supporting the incremental improvements within the organization, we take no risks. This will force teams to think
about small next steps and will in turn hamper our organizations ability to drive innovative thinking. The answer is possibility
thinking - starting with a clear definition of where you want to be and then spending time trying to figure out what has to
happen to make it true. Not focusing on the next single improvement, but rather the whole picture first. This frees us from the
constraints of the current system and processes and allows for a more open field of possible routes to get to a solution. I like to
think of it as the difference between a great sprint hurdler and a fair one... A great one focuses on the finish line and the
hurdles are where they know them to be; a fair one only focuses on the next hurdle.
This helps set the mindset, but does not always lead to success. In order to drive towards innovative thinking, failure has to be
an option. Understanding that the lessons that you learn from failure leads to success is the key to any learning organization.
When you are a child, you do lots of things you should not, but through learning the hard way, you find the paths that work.
Within companies, we need to do the same. If every project was exactly the same, every issue was exactly the same, all the
same people were involved and no human error possible, then maybe we could follow exactly the same method to get to the
same result. But in my experience, that is seldom the true. Budgets are different, new people come onto the projects, new
businesses are being driven, new capabilities are desired, and these force us into coming up with new capabilities and
solutions. Also, in my experience, any successful project or innovation is made up of lots of failure to achieve the results.
Support of these failures is critical to their ultimate success. Innovation happens more frequently.
Support of failure does not mean that you need to build out a new reward system that provides monetary compensation for
each failure, Congratulations Bob that is your third failure this week, here is your bonus!" It means that you recognize it, don't
spend time looking for who is at fault and penalize everyone, but focus on what was learned from the failure and how to
overcome it. How can you avoid it in the future and strive for better results? This is one reason that small companies or newer
companies caninnovate faster in many cases. They do not have the time to search for all the guilty parties and punish them in
their reviews, they have to continuously evolve and deliver quickly, which forces them to adapt and learn from these mistakes.
They are also very focused on the goal and not always married to the path to deliver. This frees them from the constraints and
allows for more dynamic approaches.
The hardest part of any innovation culture is to simply stop things. When innovationsare not panning out, delivering the
results expected, or driving to the capability you thought, you need to stop the work and simply move on. This is much harder
for people and organizations to do as any innovation begins with a passionate individual or group that truly invests in the
direction. Stopping this is a bit like stopping an aircraft carrier in that it takes time and much directed energy to stop. While
very difficult, it is a critical step in managing those critical resources you have directed towards innovation

Developing a Culture of Innovation
Posted May 20, 2014 in Change, Culture





















by Amanda Kaiser

Kodak, a once a $10 billion dollar company, failed. Just when they needed to innovate the most, they focused on optimization
instead.Innovation and optimization are at either ends of the spectrum. Its hard to do both. The most innovativeorganizations
dont optimize well, and the most optimized organizations dont innovate well.
Some optimization projects work well for big manufacturing firms. ISO, Kaizen and EMAS help large industry remove
inefficiencies from processes allowing them fewer employees, less waste and more profit per piece. We expect this type of
thinking will benefit our non-manufacturing organization as well but this is not always the case.

Optimization is a trap.
Optimization projects promise gains in efficiency but in a non-production based environment those gains can be really hard to
measure. Was the work to do the project worth the gain in the long run? Optimization projects themselves create a lot of busy
work and can make us feel productive even though were not getting a lot done. Its easy to sign up for and approve these
kinds of projects; they feel safe. Additionally while staff is working on an optimization project they are not doing the work that
adds value to customers, members or attendees. Finally some companies are so single-mindedly focused on optimization they
ignore that the very products and processes they are optimizing are going extinct.

Optimization influences culture.
It seems far safer to focus on doing what you are already doing faster, better or cheaper. When staff is in that safety zone for
too long getting out of it becomes a monumental undertaking. Hierarchy, processes, bureaucracy are all established and firmly
placed in the name of optimization. Optimization creates a special kind of culture, a culture resistant to innovation.
Innovation needs a culture of innovation.
Collaboration and openness are two essential ingredients for innovation. To be able to collaborate you need trust. To trust you
need time and some interesting projects for the team to work on. The best innovative teams are able to generate tons of
solutions to a problem and together come to a consensus about the handful of ideas that will move forward to be tested. This
organic process can feel haphazard and risky not tolerated well by efficiency-driven cultures.

Moving from optimization to innovation.
You will have to make a choice. Do you want more optimization or moreinnovation? If you want innovation the way staff think,
work, interact and are rewarded needs to change. This will take time and constant determination.
Had Kodak pulled back a bit from optimizing their already ridiculously profitable film business they may have been able to see
that all those efforts were futile. That business was going away. Instead they could have spent their resources on changing
their culture and embracing innovation while they still had time.
Amanda Kaiser is Chief Path Finder at Kaiser Insights LLC. You can find her at www.SmoothThePath.net