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17 Aug 200572 Views

Back in May, a new strategy plan from Enterprise Ireland (EI) was the latest indicator of how innovation is increasingly seen as a touchstone for success and the way for companies, and indeed countries, to stay competitive. EI chief executive Frank Ryan says he wants a research and development (R&D) department to be as common in Irish companies as a procurement department. But innovation doesn’t stop with products.

Dr Sian Watt is an academic who has found her ideas perfectly in tune with the zeitgeist, having completed a doctorate thesis that explores the links between the innovative capacity in firms and their corporate culture. The difference is that she’s more interested in how innovation can be brought to bear on internal business strategy rather than R&D.

“You can identify different kinds of innovative behaviour,” she explains. “I was not looking at innovation per se; I was looking at the capacity of a firm to be innovative. I wasn’t looking at products or patents; it was about how creative they were in the way they went about their business.”

She elaborates: “Rather than work on innovation, I work on changing the culture of the firm so that creativity becomes more possible. I’m trying to increase the capacity of the firm to be innovative.”

She set about developing a model that would show how a particular corporate culture determines an organisation’s innovative capability. It was a field of work that took her down many pathways as she tried to understand what made companies successful. “Innovation was either incremental or radical; little tweaks or huge momentous change such as the invention of electricity.”

Her research was mostly focused on SMEs in the manufacturing and consultancy sectors. But before she could assess their capacity for breakthrough innovation there were more fundamental questions to be asked, sometimes with surprising effect. “The three basic questions that any organisation has to be able to answer are: where am I now, where do I want to be and how am I going to get there? Most can say where they want to be but they don’t know where they’re getting on the train; they don’t know how to get there,” says Watt.
To make matters worse, for some owner-managers there isn’t even a huge aspiration to jump on a train. They’re quite happy where they are. “I looked at one owner who was incredibly innovative and had fantastic staff but it was a lifestyle thing for him,” recalls Watt. “He perceived the organisation as his own personal piggy bank. In the end he didn’t want to change.”

Another organisation was a strong family business that was thriving with around 100 employees, but the owner-manager was more interested in establishing an enterprise that he could hand over to his sons, all happily employed elsewhere, than anything else. Naturally, this stymied any real innovation and growth. Ultimately it raised questions about the long-term prospects for a company when it was destined to be taken over by individuals with no knowledge of the sector.

According to Watt, uncertainty about the direction a company finds itself heading is a fundamental problem in the majority of organisations. But an inability to answer seemingly obvious questions about where they want to be is not just down to the quirks of owner-managers. Often it’s a question of survival taking precedence. “I’m very aware of this, particularly in small firms,” says Watt, “where they’re trying to get through the day to day, meet the payroll, pay the Vat and PAYE.”

The problem is that too many firms, says Watt, end up sitting on their laurels having negotiated the difficult start-up phase. “When you’re starting up you’re grasping every penny and you take every single customer. The decisions you make are going be about the operations of the organisation, you don’t have time to think of anything further. Then you get into a stability phase. You’ve got a pretty solid turnover and you can pay back the people you borrowed money from to start the business. You’re meeting the payroll and Vat costs. For a lot of small businesses the stability phase is where they stop. It might be a lifestyle choice; they might not want to let go. They might be perfectly happy ticking over. It’s the role of government to encourage some of these firms to grow and develop. That takes a huge cultural shift.”

According to Watt, this is the point where firms that want to grow need to shift their thinking from operational to tactical and then to a strategic vision. This often requires a cultural change. “To achieve this, there are lots of things the owner-manager will need to do,” she says, “and the first is to let go. They will find this very hard to do. They will have to trust other members of the team.”

Once again we are into the cross-departmental politics and people issues that have become a recurring theme. Changing a culture will present different challenges in different departments. “You would expect the culture in the different departments to look quite different,” says Watt, expanding on the point. The upshot is that when she goes into an organisation she defines different culture maps for different departments. “In a marketing department, for example, you would expect it to be quite innovative and more in the egalitarian quadrant. Whereas in the finance department you’d like it to be more rules based, although that doesn’t mean they can’t be more innovative.”

Analysis of corporate culture has inspired mountains of research and more business books than anyone could hope to read. However, it’s generally agreed that a culture encompasses the beliefs and values of an organisation, determining the way it acts and behaves. The classic business book from the early Eighties, In Search Of Excellence by Tom Peters and Robert Waterman, famously explored cultures of excellence in global companies.

The authors were consultants with McKinsey and the book highlighted the firm’s 7-S Model for corporate culture, where the key elements were identified:
1. structure
2. strategy
3. systems
4. style of management
5. skills — corporate strengths
6. staff
7. shared values.

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While much of the book stands the test of time, citing now defunct global giants such as Wang and Atari as prime exponents of successful business cultures undermines at least some of the analysis. Watt is critical of the book’s premise and is strongly opposed to the notion that a strong culture is the answer to everything.

“They talk in the book of a culture of excellence in these great firms, but some of them don’t exist anymore. Strong cultures can be really negative. You want an adaptive culture, one that is positive but you don’t necessarily want a strong one.”

She is similarly reticent to throw the baby out with the bath water in the name of corporate change: “I am very anti the ‘change’ word. When people say they have to change their corporate culture I ask them to tell me why. You may not need to change it, you may just need to make some tweaks. There may be negative values that just need to be manoeuvred.”

She summarises the different types of corporate culture: “There is a myriad of definitions from basic unwritten rules to systems of shared values and what the members perceive as being central to the organisation.”

Explaining these further she talks first of the superficial notion of ‘the way things are done around here’, where indicators of the culture may be as basic as the positioning of desks and how employees address their emails. Going a little deeper, some organisations will define themselves by the way people interact with each other, the way they communicate and get things done. Deeper still are shared values that bring an agenda of informal rules that are widely understood by employees.

“When you get to what an employee perceives critical about being the member of a firm you are getting right down to what the basic assumptions are about that organisation,” says Watt.

Bringing people along with the evolution of a culture shift is a tricky business and an area that Watt specialises in with her consultancy firm ICSC. Its core offering is the InnovoQuest tool kit that helps organisations attain a better grasp of where they are, where they should be going and how employees fit into the jigsaw.

In addition, Watt is a great believer in individual psychometric testing. “It’s very rewarding for organisations. We do it with a leadership team and overlay it with the cultural maps that we devise for the different departments.” But the limitation, according to Watt, is that while the tests tell people what they are, organisations also need to know how you can change people or at least change what it gets out of them.

“People are very often in the wrong place in an organisation,” she says. “You get a lot of square pegs in round holes. If you move them to a different department they might flourish. In one team, for example, it became evident with our culture maps that one guy was just in the wrong job. They just changed his responsibilities slightly and his career took off.”

To get the most out of people and to make them feel they belong to the culture of an organisation communication is key. “Most people are going to be happier in their work if they feel more involved in what is going on,” says Watt, “and one of the key things in any organisation is this fantastic thing called communication. It has to go up, down, across diagonally and over everywhere in the organisation. Otherwise you have this informal communication system of gossiping. You can drop whispers and use it to good effect but you have to be very careful and clever to bring this off. But when a formal communication system breaks down an informal system becomes paramount.”

While Watt can highlight what an organisation needs to do in order to survive and prosper, the reality is that maps, tool kits and models only go so far. “To be innovative you have to be able to take risks,” she says succinctly. “They can be small, they don’t have to be huge but if you want to grow rather than maintain the status quo, which means you will eventually die, you have to take risks. End of story.”

By Ian Campbell