Creating Innovative Corporate Cultures
January 1 1989 by Roy Serpa
In his book Innovation & Entrepreneurship, Peter Drucker warns us that “today’s businesses, especially the large ones, simply will not survive in this period of rapid change and innovation, unless they acquire entrepreneurial competence.” Entrepreneurial competence will evolve only if managers encourage innovation within their corporate cultures.
The need for innovation has become more critical as the Western economies face the loss of technological leadership, the elimination of jobs, and the often painful processes of rationalizing and restructuring. Rationalizing involves the closing of noncompetitive or obsolete production facilities, while restructuring is the strengthening of areas where there is the best opportunity to improve performance.
Rationalization and restructuring must be followed by a period of renewal and revitalization if the Western economies are to avoid a greater depression in the 1990′s The keys to renewal and revitalization are invention and innovation. Invention is the process of originating a concept or device, while innovation is the process of introducing something new to meet an unidentified need. The best source of innovation is the entrepreneur-someone who organizes, operates, and assumes risk for new business ventures. Corporations must change their cultures to create climate that will stimulate increased innovation and a more entrepreneurial management style.
SHAPING CORPORATE CULTURE
What is corporate culture and why is it important to managers? Anthropologist Clyde Kluckhohn defines culture as “the set of habitual and traditional ways of thinking, feeling, and reacting that are characteristic of the ways a particular society meets its problems at a particular point in time.” Every developed society has a unique natural culture, industrial culture, and distinct corporate cultures. The industrial culture is influenced by the natural culture, the world economy, government and regulatory institutions, academia, and in the United States -the free enterprise system. A favorable environment can encourage investment, invention, and innovation, while an unfavorable environment can discourage such activities and retard economic growth.
The industrial cultures in many Western countries have placed an inordinate emphasis upon short-term performance, yet innovation requires patience and long-term commitment. The financial community, labor, and management have often pursued short-term results at the long-term viability of industrial resources. If allowed to continue, this situation will pose a serious threat to the long-term economic health of our industries and our companies.
The industrial culture, specific industry, competition, technology, market, and especially the style of past and present management influence each corporate culture. Company values, recognition, rewards, and sanctions shape the beliefs and behavior of a culture. As management recruits, rewards, promotes, and discharges personnel, it sends signals that affect what people think and do. Quantity, quality, service, and value needs of customers shape the culture’s combination of capabilities and limitations. The technology required to participate in the marketplace dictates the necessary skills and types of personnel that are part of a culture. All corporate cultures exist within an industrial culture and must conform to its rules of behavior in order to survive.
Each corporate culture is a product of unique values, beliefs, and rules of behavior. The rules or norms of behavior reflect the perceptions that individuals share of the prevalent values and beliefs of the company culture. Values are the core of organizational culture, influencing the beliefs and attitudes of individuals and groups. Beliefs are the mental convictions about values. They are largely shaped by the consistency or inconsistency between the value statements and actions of superiors within the organization. In the case of consistency, beliefs reinforce the norms of behavior that would be expected to evolve from the stated values. In the case of inconsistency, different beliefs-and therefore different norms-evolve according to the actions of superiors.
DEVELOPING AN ENTREPRENEURIAL MANAGEMENT STYLE
In the years ahead we must modify our management sytles and become entrepreneurs as well as administrators. Our past aversion to risk-taking must be replaced by a greater willingness to invest in new products, new technologies, and new markets. We must focus more on the long-term and the innovative task as well as the operating task if our economy is to provide increased opportunities to a growing work force.
Performing innovative tasks requires understanding the value and benefits of technology. Corporate managers don’t need to be technologists, but they must integrate technology into their approach to the marketplace so that the inventions of technologists can be commercialized. Our ability to combine innovation with invention will determine our success in achieving our economic potential.
How can you tell whether a corporate culture lacks an entrepreneurial management style? Obvious indications are a loss of market and technological position, the lack of new products, new technology, and new business positions, and languishing new product projects. Typical behavior in such a culture would include ignoring or discouraging new ideas; avoiding risk-taking; punishing failure and giving no special rewards for success; focusing exclusively on the present or immediate future performance of the company; and committing all resources to sustain existing products, processes, and markets.
MAKING THE TRANSITION
The presence of such indications and behavior in a company does not necessarily mean that innovation is not a value of the culture. As Fritz Steele, author of The Open Organization and a noted authority on innovation states, “Sometimes, they [people] are just blind to the lack of congruence between their expressed values and their behavior.” An isolated incident or series of incidents can cause discontinuity between the concept and the norms of behavior.
An example of discontinuity and continuity is illustrated in the diagram. Innovation is an expressed value of the corporate culture. The sequence on the left outlines the actions of superiors that are inconsistent with the value. The resulting belief fosters a short-term, maintenance management style. This creates a “doom loop” in which the stated value is not realized. In the sequence on the right, superiors’ actions are consistent with the value, creating a “success loop” which fosters entrepreneurial behavior.
A “doom loop” can be broken and an innovative culture created when the senior executive becomes aware of the need for change. He or she must provide an example consistent with the value of innovation and must nurture the process of changing existing behavior. This commitment must be communicated to other top managers with the explicit direction that their participation will be required to create new norms of behavior. The first step is to ask managers to submit new ideas for products, processes, and markets on a regular basis in their monthly reports. They should also be prepared to discuss these new ideas at monthly management meetings. A part of each meeting’s agenda should be devoted to ideas for improving the future performance of the corporation, and the senior executive should acknowledge all contributions with positive comments and with specific assignments for subsequent evaluation.
Next, the management team debates the evaluations, which must be accompanied by proposals for the commitment of resources. Those approved for action are implemented, and the manager who originally submitted the idea acts as executive sponsor. Each manager’s performance should be judged both on his service as executive sponsor and on his short-term performance in the assignment. Special recognition, cash bonuses, and promotional rewards should be given to everyone involved as well as the executive sponsor. If the project is unsuccessful, other opportunities should be assigned without any punishment or loss of prestige.
As these new norms of behavior become evident to those in the corporation, their belief that only short-term performance is recognized will be gradually replaced by the belief that both short and long-term performance will be rewarded. An innovative corporate culture will evolve as the success loop takes hold.
One company that has improved productivity and profits through innovation is Ameritech, one of the seven regional companies spun off from AT&T. Employees have submitted ideas that have reduced expenses, generated new revenue, and developed new lines of business resulting in $2 million of increased net income. A more dramatic example of innovation occurred at the SMH Group, makers of Omega, Longines, and Hamilton watches. In the 1970′s, when the Swiss watch industry was on the verge of extinction, a team of engineers at SMH created an innovative design that reduced the number of parts in the average quartz watch from 90 to 51. The result was the Swatch watch, a consumer product phenomenally successful throughout the world.
WHAT CEOS CAN DO
What specific contributions can we make to create more innovative corporate cultures? First, we can try to better understand our own corporate culture. We can identify the true values, beliefs, and rules of behavior rather than the espoused non-operational ones, then determine the gaps and act to close them. Special attention to fostering belief in innovation and entrepreneurial behavior can make them operational values. Secondly, we can encourage better management of our technical resources. We need to focus on technologies that fit our organizational capabilities and strategy, then facilitate their transfer to the marketplace. Thirdly, we can encourage teamwork within our function, across functions and divisions, and between related companies. Recognition and rewards should be given for team as well as individual performance. Most importantly, we must better understand our customers’ existing and potential needs and be responsive to them.
The creation of innovative cultures in our large corporation demands priority attention if the Western economies are to reach their economic potential and create jobs for a growing labor force. Management, labor, and government must work together to strengthen our industrial cultures through the cooperative long-term commitments of resources and the willingness to make short-term sacrifices.
Roy Serpa is president and CEO of InstaMelt Systems, Inc., manufacturer of the InstaMelt Rotary Extruder and affiliate of Midland, Texas-based oil and gas producers, Wagner & Brown. Involved in the plastics industry for more than 20 years, Serpa has worked extensively in developing new business ventures, technology transfer and acquisitions.