Organizational Culture defines what a company is, why it does what it does, and in many ways sustains a presence and drives perception. Corporate culture reflects the values, behavior, and climate that are instilled and reinforced through an organization. Culture is what directs how people work and think, what creates tangible and intangible restrictions, establishes risk tolerances, and sets attitudes and behaviors. There’s probably no more powerful intangible force in any business than corporate culture.
Innovation is a practice - not one specific output – it is a living breathing entity that produces new solutions, products, opportunities and business model designs. It is a never ending process and a continuation of ideation, collaboration, and planning.
Companies that achieve alignment between their culture and innovation strategy do better financially than those that do not. Jaruzelski, Loehr, and Holman categorized a sample of 1,000 global innovating companies based on the degree of alignment between their culture and their innovation strategy. Companies with a high degree of alignment, when compared with those with a low degree of alignment, saw their enterprise value grow 12% faster per year over a five year period and their gross profit grow 7% faster per year. The significant difference was related directly to a company’s capacity to fund innovation projects.
How do you create a culture that is innovative and that cultivates engagement and enthusiasm, challenges people to take risks within a safe environment, fosters learning, and encourages independent thinking?
Leadership is an important factor for making an organization successful. Leadership transforms potential into reality. An effective leader will initiate positive action/direction, motivate, guide, build morale and empower their organization. Executives see innovation as the most important way for companies to accelerate the pace of change in today's global business environment. Being an innovation leader requires both an intentional, outward-focused attentiveness, and a strong, objective, inward-focused self-evaluation. Innovation leaders make the same demand for risk on themselves as they do on others. When incorporating an Innovative Culture, a top-down initiative must be in play. The way leaders behave sends strong signals to employees. Innovation is inherently associated with change and takes attention and resources away from efforts to achieve short-term performance goals. More than initiatives for any other purpose, innovation may therefore require leaders to encourage employees in order to win over their hearts and minds. Employee motivators of behavior to promote innovation are strong leaders who encourage and protect it and top executives who spend their time actively managing and driving it.
All successful relationships, whether business or personal, are based on trust. The only way a unique and empowering culture will stick is if there is trust present in the work environment. Innovative organizations foster a culture that creates spaces where trust can happen, where risks can get taken. Most organizations are focused on operational efficiency and tend to mitigate and design out as much risk as possible, but if you want to innovate, you have to take risks. In order to have the comfort and ability to take risks, trust within the organization is paramount. If people get penalized for failure, particularly the kind of failure that's most useful which is where you learn a lot, then they're not going to do it, in which case you're not going to get any innovation. An Innovative Culture that has a foundation built on honesty, empowerment, recognition, integrity and consistency will promote trust.
Metrics & System Driven
There is a strong case for companies to incorporate cultural metrics & systems directly into their culture. Every system in your organization is always looking to improve and having a system in place at every level that fosters continuous improvement thinking. Building an innovation culture will increase participation, thus increasing testing and feedback for improvement of ideas and setting performance metrics and targets for innovation. Structure what seems unstructured; free thinking isn’t free, so offer the paid time for side projects, offer rewards in the form of bonuses, training, or promotions for good work on innovation, and rework performance measures to include participation in innovation projects. Leaders should think about two types of metrics: the financial (such as the percentage of total revenue from new products) and the behavioral. What metrics, for example, would have the greatest effect on how people work? One company required that 20% of its revenue come from products launched within the past three years. Another organization established target for potential revenues from new ideas in order to ensure that they would be substantial enough to affect its performance. Leaders can also set metrics to change ingrained behavior, such as the "not invented here" syndrome, by requiring 25 percent of all ideas to come from external sources.
To become an innovating company, the culture, leadership, and metrics need to work together to foster an environment of trust, allowing risk-taking when appropriate, and encouraging new ideas for growth.