How to develop an innovative culture?

It’s an extraordinary time for innovation. Technological change and industry disruption seem to be accelerating. And digital information networks are linking individuals, organizations, and nations as never before.

A culture conducive to innovation is not only good for a company’s bottom line. It also is something that both leaders and employees value in their organizations. I have informally surveyed hundreds of managers about whether they want to work in an organization where innovative behaviors are the norm. I cannot think of a single instance when someone has said “No, I don’t.” Who can blame them: Innovative cultures are generally depicted as pretty fun. When I asked the same managers to describe such cultures, they readily provided a list of characteristics: tolerance for failure, willingness to experiment, psychological safety, highly collaborative, and nonhierarchical. And research supports the idea that these behaviors translate into better innovative performance.

But despite the fact that innovative cultures are desirable and that most leaders claim to understand what they entail, they are hard to create and sustain. This is puzzling. How can practices apparently so universally loved—even fun—be so tricky to implement?

The reason, I believe, is that innovative cultures are misunderstood. The easy-to-like behaviors that get so much attention are only one side of the coin. They must be counterbalanced by some tougher and frankly less fun behaviors. A tolerance for failure requires an intolerance for incompetence. A willingness to experiment requires rigorous discipline. Psychological safety requires comfort with brutal candor. Collaboration must be balanced with individual accountability. And flatness requires strong leadership. Innovative cultures are paradoxical. Unless the tensions created by this paradox are carefully managed, attempts to create an innovative culture will fail.

1. Tolerance for Failure but No Tolerance for Incompetence
Given that innovation involves the exploration of uncertain and unknown terrain, it is not surprising that a tolerance for failure is an important characteristic of innovative cultures. Some of the most highly touted innovators have had their share of failures. Remember Apple’s MobileMe, Google Glass, and the Amazon Fire Phone?

And yet for all their focus on tolerance for failure, innovative organizations are intolerant of incompetence. They set exceptionally high performance standards for their people. They recruit the best talent they can. Exploring risky ideas that ultimately fail is fine, but mediocre technical skills, sloppy thinking, bad work habits, and poor management are not. People who don’t meet expectations are either let go or moved into roles that better fit their abilities. 

The truth is that a tolerance for failure requires having extremely competent people. Attempts to create novel technological or business models are fraught with uncertainty. You often don’t know what you don’t know, and you have to learn as you go. “Failures” under these circumstances provide valuable lessons about paths forward. But failure can also result from poorly thought-out designs, flawed analyses, lack of transparency, and bad management. Google can encourage risk taking and failure because it can be confident that most Google employees are very competent.

Building a culture of competence requires clearly articulating expected standards of performance. If such standards are not well understood, difficult personnel decisions can seem capricious or, worse, be misconstrued as punishment for a failure. Senior leaders and managers throughout the organization should communicate expectations clearly and regularly. Hiring standards may need to be raised, even if that temporarily slows the growth of the company.

Managers are especially uncomfortable about firing or moving people when their “incompetence” is no fault of their own. Shifting technologies or business models can render a person who’s very competent in one context incompetent in another. Keeping people who have been rendered obsolete may be compassionate, but it’s dangerous for the organization.

2. Willingness to Experiment but Highly Disciplined
Organizations that embrace experimentation are comfortable with uncertainty and ambiguity. They do not pretend to know all the answers up front or to be able to analyze their way to insight. They experiment to learn rather than to produce an immediately marketable product or service.

A willingness to experiment, though, does not mean working like some third-rate abstract painter who randomly throws paint at a canvas. Without discipline, almost anything can be justified as an experiment. Discipline-oriented cultures select experiments carefully on the basis of their potential learning value, and they design them rigorously to yield as much information as possible relative to the costs. They establish clear criteria at the outset for deciding whether to move forward with, modify, or kill an idea. And they face the facts generated by experiments. This may mean admitting that an initial hypothesis was wrong and that a project that once seemed promising must be killed or significantly redirected. Being more disciplined about killing losing projects makes it less risky to try new things.

A willingness to experiment does not mean randomly throwing paint at a canvas. Disciplined experimentation is a balancing act. As a leader, you want to encourage people to entertain “unreasonable ideas” and give them time to formulate their hypotheses. Demanding data to confirm or kill a hypothesis too quickly can squash the intellectual play that is necessary for creativity. Of course, not even the best-designed and well-executed experiments always yield black-and-white results. Scientific and business judgments are required to figure out which ideas to move forward, which to reformulate, and which to kill. But senior leaders need to model discipline by, for example, terminating projects they personally championed or demonstrating a willingness to change their minds in the face of the data from an experiment.

3. Psychologically Safe but Brutally Candid
Psychological safety is an organizational climate in which individuals feel they can speak truthfully and openly about problems without fear of reprisal. If people are afraid to criticize, openly challenge superiors’ views, debate the ideas of others, and raise counterperspectives, innovation can be crushed.

We all love the freedom to speak our minds without fear—we all want to be heard—but psychological safety is a two-way street. If it is safe for me to criticize your ideas, it must also be safe for you to criticize mine—whether you’re higher or lower in the organization than I am. Unvarnished candor is critical to innovation because it is the means by which ideas evolve and improve. In some organizations, people are very comfortable confronting one another about their ideas, methods, and results. Criticism is sharp. People are expected to be able to defend their proposals with data or logic.

In other places, the climate is more polite. Disagreements are restrained. Words are carefully parsed. Critiques are muffled (at least in the open). To challenge too strongly is to risk looking like you’re not a team player. 

Building a culture of candid debate is challenging in organizations where people tend to shy away from confrontation or where such debate is viewed as violating norms of civility. Senior leaders need to set the tone through their own behavior. They must be willing (and able) to constructively critique others’ ideas without being abrasive. One way to encourage this type of culture is for them to demand criticism of their own ideas and proposals.

4. Collaboration but with Individual Accountability
Well-functioning innovation systems need information, input, and significant integration of effort from a diverse array of contributors. People who work in a collaborative culture view seeking help from colleagues as natural, regardless of whether providing such help is within their colleagues’ formal job descriptions. They have a sense of collective responsibility.

But too often, collaboration gets confused with consensus. And consensus is poison for rapid decision making and navigating the complex problems associated with transformational innovation. Ultimately, someone has to make a decision and be accountable for it. An accountability culture is one where individuals are expected to make decisions and own the consequences.

There is nothing inherently inconsistent about a culture that is both collaborative and accountability-focused. Committees might review decisions or teams might provide input, but at the end of the day, specific individuals are charged with making critical design choices—deciding which features go and stay, which suppliers to use, which channel strategy makes most sense, which marketing plan is best, and so on. 

Accountability and collaboration can be complementary, and accountability can drive collaboration. Consider an organization where you personally will be held accountable for specific decisions. There is no hiding. You own the decisions you make, for better or worse. The last thing you would do is shut yourself off from feedback or from enlisting the cooperation and collaboration of people inside and outside the organization who can help you.

Leaders can encourage accountability by publicly holding themselves accountable, even when that creates personal risks. 

5. Flat but Strong Leadership
An organizational chart gives you a pretty good idea of the structural flatness of a company but reveals little about its cultural flatness—how people behave and interact regardless of official position. In culturally flat organizations, people are given wide latitude to take actions, make decisions, and voice their opinions. Deference is granted on the basis of competence, not title. Culturally flat organizations can typically respond more quickly to rapidly changing circumstances because decision making is decentralized and closer to the sources of relevant information. They tend to generate a richer diversity of ideas than hierarchical ones, because they tap the knowledge, expertise, and perspectives of a broader community of contributors.

Lack of hierarchy, though, does not mean lack of leadership. Paradoxically, flat organizations require stronger leadership than hierarchical ones. Flat organizations often devolve into chaos when leadership fails to set clear strategic priorities and directions. 

Here again, the balance between flatness and strong leadership requires a deft hand by management. Flatness does not mean that senior leaders distance themselves from operational details or projects. In fact, flatness allows leaders to be closer to the action.

Getting the balance right between flatness and strong leadership is hard on top management and on employees throughout the organization. For senior leaders, it requires the capacity to articulate compelling visions and strategies (big-picture stuff) while simultaneously being adept and competent with technical and operational issues. For employees, flatness requires them to develop their own strong leadership capacities and be comfortable with taking action and being accountable for their decisions.

All cultural changes are difficult. Organizational cultures are like social contracts specifying the rules of membership. When leaders set out to change the culture of an organization, they are in a sense breaking a social contract. It should not be surprising, then, that many people inside an organization—particularly those thriving under the existing rules—resist.

Beyond the usual things that leaders can do to drive cultural change (articulate and communicate values, model target behaviors, and so on), building an innovative culture requires some specific actions. First, leaders must be very transparent with the organization about the harder realities of innovative cultures. These cultures are not all fun and games. Many people will be excited about the prospects of having more freedom to experiment, fail, collaborate, speak up, and make decisions. But they also have to recognize that with these freedoms come some tough responsibilities. It’s better to be up-front from the outset than to risk fomenting cynicism later when the rules appear to change midstream.

Second, leaders must recognize that there are no shortcuts in building an innovative culture. Too many leaders think that by breaking the organization into smaller units or creating autonomous “skunk works” they can emulate an innovative start-up culture. This approach rarely works. It confuses scale with culture. Simply breaking a big bureaucratic organization into smaller units does not magically endow them with entrepreneurial spirit. Without strong management efforts to shape values, norms, and behaviors, these offspring units tend to inherit the culture of the parent organization that spawned them. This does not mean that autonomous units or teams can’t be used to experiment with a culture or to incubate a new one. They can. But the challenge of building innovative cultures inside these units should not be underestimated. And they will not be for everyone, so you will need to select very carefully who from the parent organization joins them.

Finally, because innovative cultures can be unstable, and tension between the counterbalancing forces can easily be thrown out of whack, leaders need to be vigilant for signs of excess in any area and intervene to restore balance when necessary. Unbridled, a tolerance for failure can encourage slack thinking and excuse making, but too much intolerance for incompetence can create fear of risk taking. Neither of these extremes is helpful. If taken too far, a willingness to experiment can become permission to take poorly conceived risks, and overly strict discipline can squash good but ill-formed ideas. Collaboration taken too far can bog down decision making, but excessive emphasis on individual accountability can lead to a dysfunctional climate in which everyone jealously protects his or her own interests.

There is a difference between being candid and just plain nasty. Leaders need to be on the lookout for excessive tendencies, particularly in themselves. If you want your organization to strike the delicate balance required, then you as a leader must demonstrate the ability to strike that balance yourself.

Check out my related post: How to inspire employees with a bottom up culture?

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