How to Encourage Innovation and Mitigate Risk: Start With Organizational Culture

“Creating and integrating new products and services within an existing structure doesn’t have to be impossible”.

- R. Bogosian

Innovation is a key competitive advantage. If you do it well the bottom line will improve. If you fail at it the top line could suffer all the way to every quarterly Analyst call. All organizations should innovate to stay ahead of their competition. Why then, are some firms more innovative and first to market when others are not? Why are some managers capable of encouraging innovation and others not? Creating and implementing newer, faster, more accurate and cheaper products and services requires coexistence between those who protect existing products and services and those who create the new and different.

To Manage or Not to Manage – That is the Question

Do your managers know they might be behind? Do they know they are behind but don’t know how to push operations and new products and services ahead to stay ahead of your competition? In the current world, is it possible for those who manage existing products and services to collaborate with those responsible for new and different solutions? This may seem like the ultimate paradox but it is a solvable conflict. Coexistence will not necessarily happen by chance or with a team-building exercise or by reading a book or case studies. These resources can be interesting but it is illogical to think that using them increases the chance of innovating your way to a sustainable competitive advantage.

Copy and Paste Won’t work

Thousands of articles and books have been written about Toyota, for example, but only recently have auto manufacturers been able to get a handle of their edge. Why did it take so long? It’s no secret that innovation requires idea flow and a tolerance for divergent thinking. This means that managers must be willing to listen and encourage alternate views, even the half-baked ones. But divergent thinking alone cannot lead to innovation in an organization with embedded processes and routines any more than owning a great pair of running shoes makes one a marathon winner. Basically, the innovation process goes like this: someone has an idea, they believe that it has merit and want to “sell it” to those who have the power to influence up in the organization. I have witnessed many global organizations that try to reinvent themselves, to innovate; stay relevant and too often new ideas reach a certain level and then die. Clearly, every new idea cannot be funded and implemented. The key is to embed values and norms that encourage voice, knowledge transfer and idea generation at all organizational levels.

How Much Does the Work Force Really Know?

Let’s say that 10% of your workforce has a “better idea” or they know when something is wrong with a current process that could represent risk to the organization. Would you want to know about it? Of course you would. Why then, do employees keep important work-related information and new ideas to themselves?¹ The image below shows how much problem information actually moves up in the hierarchy.

Research (shown above) suggests that frontline workers know 100% of work related problems but only 4% of that information reaches executive levels. This small percentage may be just fine if the problems are insignificant and solvable at lower levels. However, consider the most recent events at a global financial services institution with embedded competing strategic priorities. Clearly, at least 5000 employees knew about the issue and went about their business as usual. They were clear about what needed to be done. The risk exposure was realized because no one was able to question the process nor did they raise their hand to say, “this could be a problem”. Or worse, if they did, no one listened or took action. This inaction turned out to be a multi-billion dollar problem and a brand crisis.

Innovation research shows that when cultural norms accept and encourage divergent thinking it leads to a competitive advantage. Divergent thinking requires openness which is a measurable personality trait. When leaders are open to ideas they tend to encourage voice.

It Takes a Culture of Voice

When leaders fundamentally believe that every voice has merit, they encourage input, which results in a Culture of Voice. One important Culture of Voice characteristic is the rapid pace at which tacit knowledge moves around the organization. Innovation, efficient problem solving and risk reduction all require knowledge transfer at lightning speed. When tacit knowledge—the stuff that is in employees heads—moves at lightning speed, it informs problem solving, fuels innovation and informs others about risk exposures. A Culture of Silence on the other hand, is characterized as the willful withholding of important work-related information. Cultures of Silence are highly risky. In case after high-profile case (in auto manufacturing, food manufacturing, and financial institutions), crises could have been averted with a Culture of Voice. If you have hopes of leading a highly innovative organization with unwavering sustainable competitive advantage, you should start by shaping a Culture of Voice.

The Mirror Test: Are You Operating in a Culture of Voice or Silence?

To see whether you are operating in a Culture of Voice or Silence, answer these questions:

1. In the last month, how many employees presented a solution to a problem when you didn’t have one to offer?

a. How did you respond?
b. How did they respond to you?

2. Within the last six months, in how many staff meetings did you get the “Bovine Stare”— a blank look—when you asked people to share their opinions and views?

a. How did you respond?
b. How did they respond to you?

3. Within the last week, who were the employees to call you or show up at your office (unsolicited) with a new idea?

a. How did you respond?
b. How did they respond to you?

4. Within the last week, who were the employees that openly disagreed with you?

a. How did you respond?
b. How did they respond to you?

Your answers to the questions above may indicate whether you are operating in a Culture of Silence or Voice. Organizations that have Cultures of Voice tend to embrace and encourage innovation and change and successfully implement ideas, products, and services in the market it serves. To what extent do your leadership practices elicit silence or encourage voice? Evaluating your organization’s Culture of Voice or Silence should be a critical part of your innovation, problem solving and risk mitigation processes.

¹ Sydney Yoshida. Adapted from Quality Improvement and TQC Management in Japan and Overseas.

About the Author:
Dr. Rob Bogosian is the founder and principal at RVB Associates, Inc., and has been featured in Business Insider, CNN Money, Fortune, CEO Magazine, San Francisco Chronicle and more. The firm offers a range of consulting services focused on linking leadership development and culture shaping to business strategy.
www.rvbassociates.com
rob@rvbassociates.com