Module 9: Factors Affecting Organizational Capacity for Change - Communication, Accountability and Innovation

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Innovative Culture

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Factors Affecting Organizational Capacity for Change

Communication, Accountability and Innovation

Innovative Culture

What Does It Mean to Be Innovative?

Organizations in all developed economies want to be innovative.

While cost control is important to be competitive, organizations in developed economies simply cannot compete with the low cost advantages that developing economies offer. As a result, more and more organizations voice or attempt to embrace the 21st- century mantra, “Innovate or die.” [1]

Many people equate creativity with innovation, and while this is understandable it is also a mistake.

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Remember –
You do not have to be creative to be innovative!


Creativity is the process of generating something new; while innovation is the application of creativity to a new product or service that has value.

Product innovations add direct value to customers; process innovations add indirect value to customers by lowering costs, increasing the quality of new or existing products, or both. Value is generated by taking a creative new idea and moving it through a series of stages in order to yield a practical new innovation.

Therefore, creativity is a necessary, but not sufficient condition for innovation.

What Makes an Organizational Culture Innovative?

The key to making an organization innovative is to cultivate an innovative culture

There are many reasons why creative ideas and innovative projects are killed within organizations. Notably, almost all of them have to do with an overweighting of the risks to existing operations, and an underassessment of the returns associated with new ideas based on the overarching organizational culture.

Clearly, not all ideas should be pursued and the pursuit of new ideas needs to be selective. However, very few organizations know how to fully explore new ideas and develop the best ideas into innovative new ventures.

Next we will examine aspects of organizational culture that are fundamental to innovation!

What Makes an Organizational Culture Innovative? (Continued)

Below are a range of strategies to develop an innovative organizational culture:

Strategy 1

Organizational cultures become creative and innovative when they encourage “combinatorial play.” [2]

In other words, employees need to imaginatively combine ideas in new ways and then play with them to see how the new combination works in reality.

In most organizations, however, imagination and play are not valued, getting work done on time and under budget is; pursuing ideas with unproven merit is frowned upon; and extrinsic rewards are emphasized over intrinsic rewards.

Strategy 2

A second aspect of organizational culture that is fundamental to innovation is the cultivation of diversity of thought.

When the workforce is highly diverse, then misunderstandings are likely. Clearly, none of these outcomes is a pleasant experience and they do not automatically lead to innovations.

However, if diversity of thought is welcomed in an organizational culture, creativity and innovation are more likely. [3]

Strategy 3

A third aspect of organizational culture that can facilitate innovation is the ubiquity of weak ties.

weak ties are those relationships that are more on the surface-people we are
acquainted with but not deeply connected to.

Organizational cultures that encourage flexible working conditions and external networking make innovation more likely. Hence, there is a spontaneous and serendipitous aspect to innovative cultures.

Strategy 4

A fourth aspect of organizational culture that nurtures creativity and innovation is an organization- wide ability to look long term.

Today’s organizations are very lean and short-term focused.

However, organizational cultures that enable the organization to both exploit and explore markets make it possible for its leaders to “fly the plan while rewiring it.” [4]

Strategy 5

A fifth aspect of organizational culture that makes innovation possible is the tolerance of ambiguity and failure. As Woody Allen states, “If you are not failing every now and again, it’s a sign you’re not doing anything very innovative.”

Clearly, not all new ideas will work out as hoped, so ideas that lead to dead-ends are an inevitable part of the innovation process. Unfortunately, most organizational cultures seek to blame individuals who fail, rather than accepting occasional failures and attempting to learn from the experience.

Strategy 6

A sixth aspect of organizational culture stems from the reality that most innovations come from collaboration within and across teams, not the genius or perseverance of a single individual.

For example, in a scientific study of R&D units in the biotechnology industry, Judge and associates found that the most innovative units operated more like goal-directed communities than as a collection of big-name scientists. [5]

Innovative Cultures and Capacity for Change

Some executives believe that the key to being innovative is all about investing heavily in a Research and Development unit; others argue that all innovation stems from hiring the right leaders; still others assert that innovation is largely a matter of luck.

However, the research consensus is that organizational culture is the primary source of comprehensive and sustained innovation. [6]

The reason for this is that innovation is a teachable discipline that involves many different people in collaboration. [7]

Innovation will simply not occur if the organization does not support innovation!

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There is a wide variety of cultural typologies in the organizational sciences, but one of the most popular is the “Competing Values” framework.

Within this framework, there are four classical types of organizational cultures: (a) hierarchy, (b) market, (c) clan, and (d)adhocracy.

The “adhocracy” culture is reported to be the one cultural type that is most conducive to innovation since it emphasizes flexibility and discretion over stability and control and external differentiation over internal integration. [8]

Practices for Building the Trusting Followers Dimension

If you are interested in building an innovative culture within your organization, the following are some actionable ideas that you can pursue to make that a reality.

Try to implement some of the following practices in order to develop an innovative culture in your organization!

Practice 1: Make Innovation Everyone’s Responsibility

In too many organizations, innovation is assumed to be the responsibility of the top management team, or the research and development unit. [9]

While these two groups of people are essential, this emphasis will fail to capture the “wisdom of the anthill.” [10] Innovation is essentially a collaborative endeavor, where collective imagination yields new business opportunities. [11]

According to Peter Drucker, innovation and entrepreneurship are capable of being presented as a discipline.

In other words, it can be learned and practiced. He asserts that it can be fostered and encouraged throughout an entire organization. [12]

Practice 2: Hire and Retain Creative Employees

All innovation depends on the generation of new ideas, but no new ideas will be generated in the absence of human creativity.

The hiring process needs to emphasize the importance of selecting individuals who have creative potential. More importantly, the human resources system needs to focus on developing that creativity and retaining individuals who show creative promise. [13]

Other individuals, such as “knowledge brokers,” are also essential. Knowledge brokers are individuals who constantly collect ideas and combine them in unique and valuable ways.

They often are not the originators of the ideas, but they have a skill at keeping new ideas alive and seeing where they lead. [14]

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Most organizations are uncomfortable with “mavericks” who shake up the status quo and display irreverence for accepted wisdom. However, mavericks play a vital role in making an organization more innovative, especially larger organizations. [15]

For example, Jack Welch, a relatively famous maverick who led General Electric through a very innovative period, stated, “Here at GE, we reward failure.” [16] Indeed, there is scientific research that demonstrates that when the reward system recognizes and
retains creative employees, the organization behaves more innovatively. [17]

Practice 3: Put as Many Promising Ideas to the Test as Possible

A controversial mantra in innovative organizations is “fail fast, fail cheap.”

The idea here is that it is important to get your new ideas in rough form out into the marketplace, and learn from your customers. This is in contrast to the “go-no go” approach where companies want new ideas to be 95% right before taking any action. [18]

Perhaps this is why IBM’s Thomas Watson, Sr., once said, “The fastest way to succeed is to double your failure rate”. [19]

However, fast and cheap are not enough; the innovative organization also needs to learn from the experience in order to make the “failure” pay off. This is where testing comes in.

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For example, Capital One, a highly successful retail bank, was founded on
experimental design where new ideas were constantly tested. Tests are most reliable when many roughly equivalent settings can be observed-some containing the new idea and some not. [20]

Similarly, IDEO, perhaps the most innovative design firm in the world, is a staunch proponent of encouraging experimenters who prototype ideas quickly and cheaply. [21] In sum, innovative cultures fail fast and fail cheap and learn from their failures.

Practice 4: Use Your Human Resources System to Create Psychological Safety

Organizations operate in increasingly competitive environments. The concept of being labeled a “winner” is usually a key to organizational advancement.

Unfortunately, failure is an part of innovation, so innovative cultures need to create the psychological safety whereby failure in certain circumstances is acceptable. [22]

The human resources system can be designed to permit and even celebrate failure. [23]

The key is to create sufficient psychological safety within a culture so that the organization can “dance on the borderline between success and failure.” [24]

Practice 5: Emphasize Interdisciplinary Teams Throughout the Entire Organization

Innovation is a team sport, one that should pervade the entire organization.

In the 1970s, many organizations tried to create units where they were to make the organization more innovative. This structural approach to innovation failed, either immediately or in the long term.

Today, IDEO is one of the most innovative firms in the world, and their approach to business is centered around interdisciplinary teams. [27]

In sum, the ad hoc interdisciplinary team appears to be the structural solution to innovation, not a self-contained innovative subunit as some suggest.

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For example, General Motors created the Saturn division as a built-from- scratch innovative new way to produce and sell cars. At first, Saturn had spectacular success. However, the lessons learned from Saturn never translated to the rest of the organization and recently the Saturn division was eliminated.[25]

Similarly, too many large organizations try to rely solely on their research and development units for innovation, which greatly constrains the idea production and development process. [26]

Practice 6: Change Cultural Artifacts and Values to Signal Importance of Innovation

Recall from the previous unit that one key way to change a culture is to intentionally shift the cultural artifacts in the direction of the desired change.

When creativity and innovation is desired, it is important to be more flexible in the work environment. So flexibility in working arrangements, and organizational titles becomes important.

Fundamentally, cultures are not changed by new thoughts or words, they are changed by new behaviors that reinforce the cultural attributes that are desired.

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New myths and rituals are required that focus on creativity and innovation. For example, some organizations celebrate failed experiments based on imaginative new ideas. Other organizations promote individuals who took a risk on a promising new idea that did not work out.

And changing the formal values statement to incorporate an explicit statement about creativity and innovation highlights its new importance. Still others change the metaphors used in the organization. For example, creating a “blank canvas” culture evokes an image of artists operating without artificial constraints.


[1] Peters (2006). Innovate or die. Enterprise Media [Videotape]. Retrieved on July 21, 2010 from http://www.enterprisemedia.com/product/00245/innovate_die.html

[2] Shames (2009). Einstein called it “combinatorial play” [Blog entry]. Retrieved on June 21, 2010 from http://innovationonmymind.blogspot.com/2009/04/einstein-called-it-

[3] Basset-Jones (2005). The paradox of diversity management, creativity and innovation. Creativity and Innovation Management, 14(2),169–175.

[4] Judge and Blocker (2008). Organizational capacity for change and strategic ambidexterity: Flying the plane while rewiring it. European Journal of Marketing, 42(9/10), 915–926.

[5] Judge, Fryxzell, & Dooley (1997). The new task of R&D management: Creating goal- directed communities for innovation. California Management Review, 39(3), 72–85.

[6] Garvin (2004). What every CEO should know about new businesses. Harvard Business Review, 18-21.

[7] Drucker (1993). Innovation and entrepreneurship. New York, NY: HarperCollins.

[8] Cameron and Quinn (1999). Diagnosing and changing organizational culture. Reading, MA: Addison-Wesley.

[9] Hargadon and Sutton (2000). Building an innovation factory.Harvard Business Review, 157–166.

[10] Hamel and Prahalad (1994). Competing for the future. Boston, MA: Harvard Business School Press.

[11] Hammer (2004). Deep change: How operational innovation can transform your company. Harvard Business Review, 82(4), 85–93.

[12] Drucker (1996). Innovation imperative. Executive Excellence, 13(12): 7–8.

[13] Mumford (2000). Managing creative people: Strategies and tactics for innovation. Human Resource Management Review, 10(3), 313–351.

[14] Hargadon and Sutton (2000). Building an innovation factory.Harvard Business Review, 157–166.

[15] Stringer (2000). How to manage radical innovation. Why aren’t large companies more innovative? California Management Review, 42(4), 72–88.

[16] Farson and Keyes (2002). The failure-tolerant leader. Harvard Business Review, 80(8), 64–71.

[17] Chandler, Keller, & Lyon (2000). Unraveling the determinants and consequences of innovation-supportive organizational culture.Entrepreneurship Theory and Practice, 25(1), 59–77.

[18] Hall (2007). Fail fast, fail cheap. Business Week, 32.

[19] Edmondson (2002). The local and variegated nature of learning in organizations: A group-level perspective. Organization Science, 13(2): 128–146.

[20] Davenport (2009). How to design smart business experiments.Harvard Business Review, 87(2), 69–76.

[21] Kelley and Littman (2005). The ten faces of innovation: IDEO’s strategies for defeating the devil’s advocate and driving creativity throughout your organization. New York, NY: Doubleday.

[22] Edmondson (2008). The competitive imperative of learning.Harvard Business Review, 86(7/8), 60–67.

[23] Bowen and Ostroff (2004). Understanding HRM–firm performance linkages: The role of the “strength” of the HRM system. Academy of Management Review, 29(2), 203–221.

[24] Wylie (2001). Failure is glorious. Fast Company, 51, 35–38.

[25] Hanna (2010). How GM destroyed its Saturn success. Forbes, 28.

[26] Stringer (2000). How to manage radical innovation. Why aren’t large companies more innovative? California Management Review, 42(4), 72–88.

[27] Kelley and Littman (2005). The ten faces of innovation: IDEO’s strategies for defeating the devil’s advocate and driving creativity throughout your organization. New York, NY: Doubleday.


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