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Embedding a culture of innovation into the fabric of an enterprise – A prescriptive approach: Part 1

We are living in an extraordinary time in many ways. While both industry disruption and environmental disruption are affecting us, we, as a network of individuals, organisations and nations, are trying to find sustainable solutions for a better future. Real innovations hold the key for continued progress of our society and economy.

In philosophical terms, according to Proust, “The real voyage of discovery consists not in seeking new landscapes but in having new eyes”, or as Schumpeter, the prophet of innovation, explained that capitalism can only be understood as an evolutionary process of innovation, the unremitting nature of which wreaks creative destruction in waves favoring those who grasp discontinuities faster. It was 50 years later that Drucker (1985) first championed innovation and entrepreneurship as a purposeful and systematic discipline.

Subhojit Roy
Technology Consultant & Adviser, Ex-CIO
SBI Funds Management

Decoding the evolving nature of innovation

Many innovations are natural or impulsive without any set pattern for its germination. But, at the same time, recent academic research and empirical studies, both at country and enterprise levels, show us that there are multiple congruent elements for accelerating innovation capacity and the factors that promote or constrain the innovation capacity of a society or an enterprise. In India, our ability to create large number of start-ups along with a new breed of entrepreneurs have brought innovation at the forefront for delivering real value to the society. In this context, two interesting questions come up in our minds: could we improve innovation capacity of an enterprise? If yes, what are the strategies & methods to do it and is there any framework to build/ enhance innovation capacity of an enterprise?

Before we can deliberate on these two questions, we need to understand the evolved concept of innovation, contextual meaning of culture and most importantly, relationship between culture and innovation. For an industry, innovation is inter alia seen as the contributing factor for strengthening its competitiveness, meeting customers’ expectations and creating skilled jobs. Or, as pithily summarized in the saying that “You can’t do today’s job with yesterday’s methods and be in business tomorrow.” In the context of an enterprise, we can think of innovation as the heart of a successful entrepreneurship and its purpose is to create a meaningful and focused change in an enterprise’s social or economic potential.

The concept of innovation itself has evolved significantly over the last few decades – from technology-focused innovation to various other types of innovation. At the core, innovation is the process of successfully creating something new with significant value to the concerned individual, group, organisation or society.

Understanding innovation from a business lens

Broadly, we can categorise innovation into four buckets – product, process, oranisational/ management and marketing innovation. Innovation in the areas of services, new market creation and new sources of supply of raw materials are some of the examples of evolution of innovation in recent times. One of the most effective innovation strategies in today’s digital world is “Need-Seeker” strategy, which involves anticipating future needs and uses. As the digital sector allows development of economic models with little or no marginal cost, agile enterprises and start-ups have adapted innovation strategy to involve maximum number of employees and covering diversified functions, approaches & vision.

As many limitations of the earlier models of innovation, which were technology based & worked through centralized R&D centres of large firms, became apparent, they have given way to de-centralised models to enable smaller firms to make outsized innovations. Small-sized companies in digital world can disrupt the industry with breakthrough innovation.

Innovation intensity and its impact on industry

Another very interesting aspect of innovation is its level in terms of performance improvement and its impact on the industry. There are three types of innovation intensity: (i) incremental—innovation as improvement, (ii) radical (next generation)—innovation as change, and (iii) systemic (breakthrough)—innovation as revolution. Traditional structures and management practices allow adapting incremental innovation strategy with small & gradual improvements on the existing products or services.

While incremental innovation has very few implications for the industry, radical & breakthrough innovation can have significant impact on the industry as we have seen in recent times. Disruptive innovation requires different management practices & mindset and can transform established business models. Hence, disruptive innovation in an industry has large negative impact on those firms that are not able adapt, leading to “creative destruction” – a term coined by Schumpeter.

Exploring the innovation capability of an enterprise

Innovation capability of an enterprise means the ability to come up, test and develop new ideas into new concepts or products/ services. We need to understand various determinants of innovation capability and ways to improve it. While the traditional determinants of organizational capability, such as resources (people, technology & equipment), processes & values, are easy to understand to a large extent, but these are not sufficient to ensure innovation. There are quite a few critical determinants of innovation capability for an enterprise, but empirical studies and experiences show that the most fundamental determinant is the organizational culture.

What is organizational culture?

The concept of culture is abstract at many levels as it is difficult to define/ conceptualise and many facets of culture are not visible from outside. The most common answer to orgnisational culture by majority of an organisation’s employees will be “the way we do things around here”. It does not give us much insight. We can describe organizational culture as a pattern of assumptions, invented, discovered or developed by a group, as it learns to handle external & internal problems and as it has worked well, it is validated and taught to the new members as the correct way to perceive, feel and think in similar problems.

Shared assumptions, values, beliefs and trends are key part of culture. Some parts of culture are visible and some are not (like, habits, beliefs & perception). These values and beliefs, often subconsciously shared by an organisation’s employees, is manifested through organisation traits. In order to understand an organisation’s choice of strategy and structure for innovation, we need to understand its culture. Culture has a direct bearing on its innovation capability.

Many studies have shown that there is a direct linkage between culture and economic outcome of a country. In the same way that national culture influences economic development of a country, organizational culture has a direct linkage with its business outcome. All conditions being similar, we wonder why we see different business outcomes between two companies – the answer is organization culture and its ability to influence innovation capability.

Aligning dimensions of culture and innovation capability

Before we analyse different dimensions of organizational culture to suggest a framework for building innovation capability, let us look at national cultural components and how it can influence innovation capability of an enterprise. To measure the role of culture in innovation capability of an enterprise, we can consider the model developed by Geert Hofstede through his research project done initially between 1967 and 1973. Hofstede’s “dimensions of culture” model provides a framework for assessing the differences between nations and cultures. We can extend this framework to validate the impact of organizational culture on innovation capability of an organization.

Hofstede model has six indices to measure culture – power distance, individualism, uncertainty avoidance, masculinity, long-term orientation and indulgence.

Power distance

Power distance index is defined as “the extent to which the less powerful members of organisations and institutions are likely submit to authority and accept and expect that power is distributed unequally”. Higher power distance means power is centralized, people tend to take less initiative & do what they are told to do, and leaders resolve difficult problems & make difficult decisions.

Individualism

Individualism is giving more importance to the needs of individuals than needs of group or organization. Individualistic societies value personal goals, whereas collectivistic societies value goals of group.

Uncertainty avoidance

Uncertainty Avoidance measures general tendency of a society’s tolerance for ambiguity/ chaos and their likeliness to avoid such situations.

Masculinity

Masculinity focuses on the degree to which masculine values like competitiveness and wealth acquisition are valued over feminine values like relationship building & quality of life.

Long-term orientation

Long-term orientation means more focus on traditional values and emphasis on future than present.

Indulgence

The sixth dimension “Indulgence”, which was added to the model in 2010, means people’s tendency to control their behaviours and attitudes. While weak controls mean indulgence, relatively strong controls mean restraint.

Three cultural dimensions of Hofstede Index – Power distance, Individualism and Uncertainty Avoidance – have stronger and direct influence on innovation capability.

An empirical study of the model among eight countries (Germany, India, Indonesia, Italy, Mexico, South Korea, Turkey & USA) show that USA & Germany have low power distance scores as compared to others, whereas India’s score is among the top three. India’s high score on power distance is reflected in the structures & management practices of most of the traditional companies. For individualism, USA, Italy & Germany have highest three values with India having moderate score on this index. On uncertainty avoidance index, India scores the lowest and all others’ score is on or above moderate level. India’s lowest score on uncertainly avoidance index tells us that people can work in chaotic situations, are willing to take risks and more likely to be entrepreneurs, often out of economic compulsions.

Cultural dimension scores as foundation for Global Innovation Index ranking

When we compare cultural dimensions scores of Hofstede index for these selected countries with their Global Innovation Index rankings, we can conclude that innovation is much more related with power distance than other dimensions. This empirical study concluded that the societies, which have higher innovation capacities, are characterised by low power/ status/ hierarchy (low power distance), higher individualism, willingness to take risk, readiness to accept change, long-term orientation, weak uncertainty avoidance, positive attitude towards science and value of education for society. Often, the same is reflected in the innovation capability and inclination of industry and organizations towards innovation, suggesting that culture forms the basis for innovation.

Key takeaways for building innovation capability for CXOs

  • It is not necessary to bring a new technological element to innovate; new applications with the existing technologies can lead to innovation
  • Every employee should be motivated to get involved in innovation efforts and dedicated time for experimentation can be good idea
  • Environment of control and centralized decision-making authority is not conducive for innovation
  • Encouragement for risk-taking and mechanism for identifying (and accepting) failure at early stage of innovation are essential
  • Leaders & managers are key elements in shaping innovation culture in an enterprise
  • Innovative companies have small, well-structured project teams with complementary discovery skills
  • Innovative individuals with superior discovery skills act as innovation catalyst
  • Some implicit rules of Start-ups are: ‘Break the rules & dream”, “Open door & listen’, “Trust and be trusted”, “Experiment & iterate together”, “Err, fail and persist”

Innovation at all levels – national, group or organisation – is a key for our future growth and sustenance. With the understanding of the importance of innovation culture in our society & enterprises, we can endeavor to find the strategies & methods to improve innovation capability along with establishing a framework for innovation culture for the enterprises.

About the author

Subhojit Roy, Technology Consultant & Adviser, Ex-CIO, SBI Funds Management
Subhojit Roy is a Technology Consultant & Adviser. He specializes in the areas of technology & digital strategy for business, product development, project management, info & cyber security consultancy & training. He has been CIO of SBI Funds Management, the largest Mutual Fund in India, for more than 14 years. He has vast experience in the Asset Management/ Mutual Fund domain in technology leadership role. He worked in software consultancy & services companies in different capacities. He also worked in the USA for one of the largest USA headquartered home loan mortgage company.

Subhojit Roy is a post-graduate from University of Calcutta. He has also accreditations in the areas of systems management, project management, information security and agile project management. He is certified PMP and CISSP. Subhojit has been visiting faculty to leading management institutes and also, he is a regular speaker in various industry forums. He is passionate about writing on various current technology issues with social and economic relevance. Teaching and mentoring are some of his areas of interest.

Disclaimer: The views expressed in this feature article are of the author. This is not meant to be an advisory to purchase or invest in products, services or solutions of a particular type or, those promoted and sold by a particular company, their legal subsidiary in India or their channel partners. No warranty or any other liability is either expressed or implied.
Reproduction or Copying in part or whole is not permitted unless approved by author.

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