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Executive Summary

Culture and Innovation: The Secret Sauce

by Michael Grant and Hope Shamonda

It is easy to talk about innovation culture, yet hard to truly understand it and even harder to do something about it. For many organizations, it is “soft” and unmeasurable. In this era of “what gets measured gets managed,” categorizing innovation culture as unmeasurable effectively relegates it to the dark corner of management.

In this study, we advocate that companies take a systematic approach to the management of innovation culture.

Culture Matters

Culture matters because it affects the innovation process. We see this repeatedly in survey findings. 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 per cent faster per annum over five years and their gross profit grow 7 per cent faster per annum.1 That significant difference was related directly to a company’s capacity to fund innovation projects.

Toward an Innovative Culture

A key managerial challenge relates to being able to assess the innovation culture objectively. It is easy for companies to draft mission and vision statements that give innovation prominence—but how do managers actually know they are managing toward an innovative culture? In an era of “what gets measured gets managed,” it is important to put innovation culture on the same analytical plane as other metrics-based managerial systems.

Every company is different in the way it manages innovation. But all innovative companies need to define the cultural traits that support their innovation strategy. Each must also decide the extent to which these traits need to be shared throughout the company—either by all employees or by particular groups of employees tasked with specific roles in the innovation cycle.

Based on Centre for Business Innovation survey findings, cultural metrics can be placed in four broad categories:

  1. Human Resources: These include metrics such as staff turnover, promotion, and the management of failed projects. Such metrics are easy to gather because they are derived from existing human resources data systems. The only problem is that they are likely to be a lagging indicator of a poor innovation culture. Staff turnover, in particular, is a sure sign that an organization may have sold recruits a culture that differs from its day-to-day operational realities.
  2. Idea Management: Openness to ideas both internally and externally is indicative of companies that manage and measure innovation culture. Risk tolerance could also be considered an important factor in idea management, as a risk-averse culture tends to eschew unproven ideas.
  3. Walking the Talk: A metric like “alignment of mission with innovation goals” gauges whether senior management follows through on linking a broad statement of purpose and innovation goals in the day-to-day management and operations.
  4. Collaboration: Collaboration is revealed in metrics that measure different types of collaboration—such as internal and external, both of which are relatively high in firms that measure innovation culture.

There is a strong case for companies to incorporate cultural metrics directly into their innovation metric system. Our report shows that culture matters to performance. Therefore, efforts to measure culture can be justified in terms of returns on effort. This is especially the case when cultural metrics can be incorporated into existing data collection systems at minimal cost. In addition to leveraging existing data systems, companies may also want to focus metric collection on the areas that are most likely to impact innovation performance. To do this, they must have an idea of how specific cultural traits support their innovation system.

We advocate that companies use a variety of surveys to understand and change their innovation culture. Depending on the innovation model, these may include employee, customer, and stakeholder surveys. Innovation culture is at issue when survey findings show:

  • low scores for questions about the company overall or the leadership of the company, and/or
  • consistently low scores across the lower levels of management or between colleagues.

A Five-Stage Process for Innovation Culture Management

We suggest a five-stage process for innovation culture management by businesses.

1. Recognize the importance of innovation culture to performance.

There is clear evidence of the relationship between innovation culture and performance. The first step in managing your company’s innovation culture is simply to recognize this connection and how it relates to your business. Culture management needs to be viewed as a strategic imperative and a driver of managerial decisions, or there is little reason to expend efforts on understanding it.

2. Connect your innovation system to your culture.

One reason culture is widely ignored, except when things go wrong, is that it is a broad concept that may be difficult for managers to grasp. It helps to build the culture approach off your existing innovation model. This involves understanding the connections between high-level statements of purpose (mission, vision) and your company’s values, strategy, the innovation system, and innovation elements. By parsing these relationships, companies can begin to understand how cultural traits relate to innovation elements and, ultimately, to innovation performance metrics.

3. Develop data collection and analytical tools to measure and interpret culture.

The advantage of developing a model that describes the relationship between culture and innovation in your company is that it helps economize on data collection and analysis. It makes it possible to know who needs to be surveyed and what needs to be asked. Companies can easily build on existing data gathering tools to make the task easier, modifying existing employee performance, employee satisfaction, customer satisfaction, and stakeholder surveys. As data are gathered, it becomes easier to make statistical connections between cultural traits and innovation performance metrics.

4. Do something about your innovation culture before it’s too late.

Culture is the underpinning of innovation and is simply too important to leave to chance. You can manage your innovation culture if you systematically set out to do so. As we have shown, you can single out behaviour problems and isolate them. It is only when anti-innovation behaviours become widespread that companies have a cultural problem. The more these behaviours are widespread or endemic at the highest levels (i.e., in leadership culture), the more difficult they are to change through management. Yet companies that develop early warning systems of cultural failings can take corrective action.

5. Broadcast your culture.

Culture is a key differentiator for companies. That being the case, your company needs a way to communicate how its culture is important to its success. Stakeholders need to understand the cultural characteristics that distinguish your company. Not only will this help you attract leading talent but it will also help you attract capital from financiers.

1  Jaruzelski, Loehr, and Holman, The Global Innovation 1000.

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Michael Grant Michael Grant
Director, Research
Centre for Business Innovation
Hope Shamonda Hope Shamonda
Researcher
Centre for Business Innovation

Read the Full Report

Image of the cover for The Secret Sauce reportInnovative organizational culture needs to be directly managed if Canadian companies want to improve their innovation performance. Find out how in this report, which provides a framework and suggests effective managerial approaches.

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