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The Role of Organizational Culture and Innovation in Change Management

Access the drivers of innovation for corporate sustainability

Whatever the reason for change, be it internal or external influences, innovation is at its heart. It is innovation that leads to exciting changes in the products and services that an organization provides, the processes it employs to provide them, and the experience of its customers.

Innovation can have a dramatic impact on an organization. It can lead to a sudden step-change in markets (as in the case of digital photography versus old-style film), or a gradual adoption of adaptation (Apple’s iPhone, for example). Whatever the style of innovation, without it, change would not take place.

However, innovation doesn’t just happen. It must be embedded as a corporate functionality by an organizational culture that encourages, fosters, appreciates and celebrates innovation.

Why is organizational culture key to innovation?

Organizational culture impacts the process of innovation. Where culture is aligned with a business strategy that encompasses innovation, organizations perform better. Where organizational culture and innovation are not aligned, the ultimate sacrifice is the business itself.

In the 1970s and 1980s, Kodak was the world’s leader in photographic film and cameras. It spent highly on R&D, and it invented the first digital camera. However, it failed to capitalize on this innovation because its culture was one of ‘safety first’. Instead of leading the market in the new technology, Kodak rested on its laurels. Ultimately, Kodak’s cultural bias to forego courage in favor of comfortable resulted in its total demise.

When analyzing Booz & Company’s Annual Innovation 1000 study in 2011, Jaruzelski, Loehr and Holman found that spending on research and development does not drive results. They found that the most important element in successful innovation was not business strategy, customer insight, great talent, or capabilities in execution, but rather the “role played by corporate culture — the organization’s self-sustaining patterns of behaving, feeling, thinking and believing — in tying them all together”.

Their analysis concluded that companies in which organizational culture was highly aligned with an innovation strategy experienced:

  • 12% faster enterprise value growth per year over five years
  • 7% faster profits growth per year over five years

than companies where culture and strategy are poorly aligned.

The 2013 Culture and Change Management Survey by PwC found that 84% of its 2,200 participants considered culture to be critically important to business success. Among its key conclusions was that there is a strong correlation between the success of change programs and leverage of culture in the change process. It found that organizations should use a “holistic, culture-oriented approach to change for the best results”.

What prevents organizational culture from supporting innovation?

Culture is the softer human element of business. It is how people think and feel, their internalized values and beliefs. It follows that what blocks organizations from innovative success are human traits that resist experimentation and change. Such traits include:

·       Reluctance to imagine a new future

This often manifests itself as complacency, and fear of ‘changing what isn’t broken’. The more successful an organization, the more likely this is to embed itself in organizational culture.

·       Experts discriminating against new ideas

Experts – those with a deep specialization in their subject matter – tend to be highly critical of new ideas. Businesses which are highly specialized and focused on single technologies, products or processes – which may well have been developed by an innovative approach to begin with – are more likely to evolve adversity to innovation as they become more mature.

·       Short-termism

Innovation invariably requires investment into research and development. This is spending that must be made upfront. The payback may take years to materialize. This is a compromise that many organizations are not willing to make. People crave answers to which they can then take action. Innovation asks questions that must be explored.

·       People preferring predictability

People are nervous about uncertainty. They fear it. They like to be able to predict outcomes. This is not to be confused with risk. Known risk can be dealt with: we measure the losses, consider the impact, and continue. With uncertain outcomes, we tend not to take action – and consequently miss opportunity.

The levers that drive an organizational culture of innovation

The question that organizations must answer is, how can they shape their organizational culture to drive innovation? What might be the “holistic, culture-oriented approach to change for the best results” recommended by PwC?

Successful innovative organizations shape their organizational culture using three levers: leadership, governance, and administration.

1.      Leadership and organizational culture

Leadership must be committed to innovation, and to show this by a willingness to back innovation projects based not on financial expectations, but on other metrics of success. Management should encourage sensible risk-taking, and find ways to incentivize and reward experimentation.

2.      Governance and organizational culture

The methods by which projects are governed within an R&D environment impact the culture of those conducting experimentation. If the first question asked is, “How much will this cost?” the likelihood is that innovation will be derailed. A more flexible approach to innovation budgets and project definitions is needed to foster the desire to innovate and create solutions.

3.      Administration and organizational culture

Finally, we come to administration. This is about the processes used within workplaces, the KPIs adopted to measure innovation projects, and the extent to which an organization encourages collaboration between internal teams and departments and with external stakeholders and others.

Does your organizational culture encourage innovation?

Organizational culture is embedded through years of “This is how we do things around here”. To evolve this culture and encourage the innovation that will drive sustainability of your organization, your leaders must act proactively.

To develop the skills, strategies and techniques that will drive your organization’s change leadership capabilities, and to discover how a Change Agent Bootcamp and coaching in consulting and facilitating will help your organization and leaders produce lasting change, contact Forward Focus today.

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