Growth creates challenges for innovative cultures in two ways. First, the strategy of the company can become more complex. For most start-ups, the focus is pretty simple: go for the transformational innovation. It is a make-or-break strategy, and everyone who joins pretty much understands that. Now think about that same start-up once it launches a successful product or service. There is now a whole host of new activities like operations, supply chain, technical support and customer service, marketing, and regulatory and legal issues. The company has to exploit opportunities to grow revenues through incremental innovation and to defend its turf from envious rivals. The company may still want to do transformational innovation, of course, but it has to balance the competing needs of exploiting today’s profit opportunities from tomorrow’s longer-term growth potential. No longer is everyone in the organization focused on transformative innovation. And the company has had to hire a lot more people. As the ranks swell from dozens to hundreds to thousands, it is not automatic that everyone understands or is even aware of the original cultural values. It is one thing to get 10 people on board with your cultural vision of a company—it’s another when you have 20,000 or 541,000 (like Amazon!).
The original founders can have a powerful “imprinting effect” on the culture of an organization over a long time. That is, even after founders leave a company, the original cultural values often live on,3 but there is no guarantee this will happen. Culture is a bit like DNA—it replicates, but sometimes imperfectly. In biology, this type of imperfect replication is called a mutation. In organizations, every time you hire a new person who brings his own values, experiences, and expectations, you introduce a potential mutation.
Of course, as organizations mature and grow, their culture gains a degree of momentum. Think about venerable enterprises like IBM (founded in 1911 and currently employing 380,000 people) or GE (founded in 1892 and currently employing 295,000 people worldwide). Such organizations have deeply rooted cultures, ingrained by decades of operating in specific ways and dealing with specific competitive challenges. Changing long-held norms is challenging enough; now consider the need to change the thinking and behavior of a few hundred thousand employees!
The mutability of cultures is both bad and good news. The bad news is that if you already have a culture conducive to innovation, you have to fight to keep it that way. As noted above, there are a lot of “moving parts” to innovative cultures, and keeping the delicate balance between competing forces is a constant struggle. The good news is that if your organization does not have a culture conducive to innovation, it can change. Deeply ingrained cultures of even the largest corporations can be changed by strong leadership.
In 2003, Sergio Marchionne became CEO of Fiat, the Italian automaker whose market share had been eroding for years because of poor quality and uninspiring cars.4 The culture Marchionne found there was bureaucratic, hierarchical, status driven, and low on accountability. He knew that the only way to save Fiat was to reengineer the culture. He started by replacing 10 percent of the company’s 20,000 managers. He promoted a new generation of talented managers from the company’s ranks and gave them unprecedented levels of autonomy (and accountability). He obliterated layers of management and organizational processes that slowed decision making and through his own behavior made it clear that he demanded fast and transparent communication. No more would fiefdoms be tolerated. He moved his office closer to the engineering group and immersed himself in product development planning and reviews. He authorized risky new development programs like the Fiat Cinquecento. After Fiat turned the corner financially, he acquired then-bankrupt American automaker Chrysler in 2009 and engaged in a similar cultural overhaul. Turning around existing cultures is challenging, but it can be done, and has been done, through strong leadership.
How can a leader preserve or create a culture of innovation? As you might expect by this point, I am not going to offer any simple “three-step” magic solutions. There are, however, some principles that can guide you.
Take Direct Ownership of the Cultural Problem. While many senior executives talk about the importance of having a culture conducive to innovation, they often delegate the actual work of cultural change to human resource departments or outside consultants. There are, after all, quarterly financial results to be reviewed, analysts and investors to be communicated with, major customers to be seen, operating reviews of business units to be conducted, board meetings to get ready for, budgets to be prepared and approved, corporate partnerships to be negotiated, and so forth. The agendas of C-suite executives in large corporations are packed. So it is easy to see how culture, for all its supposed importance, can get short shrift. But cultural change or preservation demands direct intervention from the top. When you look at organizations (of all sizes) that have highly innovative cultures, you tend to find leaders like Ed Catmull, David Kelley, Jeff Bezos, Larry Page, and Sergey Brin, who have an almost maniacal focus on culture. Creating and preserving the innovative culture is their top priority. Is an innovative culture a high priority for you? Ask yourself some hard questions. How much time do you really spend on culture? Of all the meetings on your calendar, how many are focused on culture? How often do you speak about the kind of culture you want to see take hold in your organization? How often do you frankly challenge whether the culture is working the way you want it to? How much of the culture work are you “outsourcing”? How important is cultural fit in your criteria for hiring and promotion?
Model the Behavior You Want. At its roots, an organization’s culture is a system of shared values defining expectations and norms of behavior. Behavior is how values are expressed. Values may be abstract, but behaviors are not. Behaviors are the expression of values. While leaders should communicate clearly and consistently the critical values underpinning the culture, the best way to influence behavior is to model it for others. For instance, when Paul Stoffels became chief scientific officer of Johnson & Johnson, he set about creating a significant cultural change in how the corporation conducted innovation. J&J has been an extraordinarily successful corporation over its long life. The company had always been good at introducing new products (or acquiring companies with good products) and then using its operational and marketing expertise and global reach to grow sales. What the company had not done as well in recent years was to launch truly transformative innovations. The problem though was that the culture at J&J had historically discouraged significant risk taking. J&J was known as a company that could hit its quarterly growth targets and never surprise analysts with bad news. Business unit leaders were focused on meeting the short-term demands of their markets. A critical challenge was getting managers throughout J&J comfortable with taking risks and overcoming skepticism that things were really changing—that it really was okay to take thoughtful risks and that failure would not be punished. Stoffels was an excellent role model for encouraging this behavior. An MD by training, Stoffels joined R&D at Janssen Pharmaceuticals (J&J’s pharmaceutical division) in 1990 but then left in 1996 to start Tibotec and Virco, two biotechnology firms focused on AIDS treatments and diagnostics. When J&J acquired Tibotec and Virco in 2002, he became a senior executive within J&J pharmaceuticals and eventually rose to the role of worldwide chairman of pharmaceuticals. During his second tenure at J&J pharmaceuticals, Stoffels had a major late-stage clinical program fail. Such failures are costly, and, as he describes it, the senior leadership and the board asked him, “Who is at fault?” Stoffels replied, “I am accountable. If I let this go beyond me, and I point to people who took the risk to start and manage the program, then we create a risk-averse organization and are worse off. This stops with me.” Over the years, I have seen Paul retell this story countless times to audiences of managers throughout J&J, and he finishes the story with a simple but powerful line: “You take the risk, I will take the blame.” And then he urges his audiences, “Cascade this principle down the organization, and you will create an entrepreneurial organization.”
In a corporat
ion where people historically were afraid of the consequences of failure, these were powerful words. They sent a signal. I have your back. Even more importantly, they laid out his expectation of leaders throughout the company—you need to have the backs of your people. Of course, these words were powerful because they had been backed by consistent actions over the years.
If you are in an organization whose historical cultural norms were antithetical to innovation, then it is important to send strong signals that things have changed. In a medical device company I consulted for, the historical norms put primacy on managers meeting their quarterly sales and profit targets. When the company decided strategically that it needed to undertake longer-term, more transformational innovation efforts, it knew that it also had to change its culture. Many veterans of the company were skeptical. Sure, the company’s senior leaders, right up to the CEO, were talking about the importance of innovation, but many believed that “hitting the numbers” still mattered more than anything. The corporation’s real emphasis on innovation, however, became quite apparent when the chief operating officer conducted the next round of reviews with business units. Rather than asking to go over the quarterly results, he asked all the business unit managers to explain their long-term innovation strategy and to show him their portfolio of innovation projects. He then peppered them about the balance between their short-term routine innovation and their longer-term outside the home court projects. As one business unit leader mentioned to me, “That’s when we knew things were changing.”
Incubate and Protect “Revolutionary” Pockets. Cultures compete vigorously for preservation and dominance. Such competition has, of course, led to terrible wars between nations, regions, and ethnic groups. Given how important values are to people, it should come as no surprise that intraorganizational conflict over culture is common. Cultures not only define what is important in an organization, but they also define who is important in that organization, and specifically who has influence. For instance, in a culture that prioritizes scientific prowess, power and influence are more likely to lie with employees with strong scientific skills and credentials than those with a strong finance background. We are all keenly aware of the culture we work in and, even more importantly, how we fit in.
Being a good fit within the culture is very comforting. It means we are valued. It means we have influence. It means that we tend to behave in ways that are not only accepted by others but also celebrated. It means we not only understand the unwritten “rules of the game” but that we actually play that game exceptionally well. The opposite is equally true. If you have ever been part of an organization where you are not a good cultural fit, you know well that it is usually a lousy experience.
This explains why cultural changes are brutally difficult. They are, in many ways, an act of organizational war. Those who have enjoyed the status, power, influence, and rewards that come with being part of the dominant tribe will usually (and often correctly) view significant cultural changes as threatening. They usually fight back. Not, thankfully, with the instruments of warfare but through various kinds of passive-aggressive behaviors designed to suffocate the new culture. You may think it would be wonderful for the company to develop a more innovative culture, but recognize that not everyone inside the company will view themselves as better off under new rules of engagement.
Like any cultural change, creating an innovative culture is a competitive process, pitting old habits and behaviors against emergent ones. In this competition, the status quo usually has the upper hand. There is, after all, strength in numbers. In general, old cultures usually only fall if an organization is going through such an extreme crisis that its very survival is at stake (e.g., IBM in the early 1990s, or Fiat early 2000s, or Chrysler post-bankruptcy 2009). And, even under these circumstances, old cultural habits continue to fight for their own survival. Since waiting for the organization to be on death’s doorstep is not a particularly effective leadership strategy, what can leaders do to affect cultural transformation in the face of vigorous competition from the status quo?
To survive and thrive, emergent cultures need protection, access to resources, and an internal network of champions. One potentially effective strategy is to use quasi-autonomous teams or units where new cultural norms can be incubated and isolated from the status quo. Many larger companies today utilize some form of internal venturing to nurture outside the home court innovations. But these internal quasi-independent ventures can also be used as “safe spaces” to incubate new cultures. That is, internal ventures should have two goals: create a transformation innovation and create a template for a new culture (we will return to this second theme later).
Isolating the venture from the parent organization helps, but keeping it “safe” requires direct senior management intervention and protection. Even if they are isolated, internal ventures can be seen as a threat to the prevailing culture. They are often perceived jealously as “spoiled children” who get to enjoy unusual privileges (differences in pay scales, procedures, resources, work environment, etc.). Leaders should be prepared to intervene directly on behalf of new ventures to protect pay scales, processes, systems, work environment, and other perceived privileges. This is substantially important both to protect the emergent culture from threats but also to send a very powerful signal about leadership’s intentions. In larger organizations, the new culture requires a network of champions who will act as protective “godfathers.”
Note, an alternative means to incubate a new innovative culture is to acquire a company with such a culture. In general, such acquisitions wind up destroying the culture of the target company, but they certainly do not need to. This happens when the leaders do not explicitly manage the cultural tension and do not take concrete steps to protect the culture of the acquired company. When the Swiss pharmaceutical giant Roche acquired biotechnology superstar Genentech in 2009, many observers expected that Genentech’s innovative culture would be crushed. But Roche senior leaders, starting with CEO Severin Schwan, were adamant in protecting the Genentech culture because they saw it as critical to Genentech’s own innovative success and a potential stimulus for cultural changes within Roche.5 They took concrete steps to protect Genentech. Only two Roche executives were transferred to Genentech (a CEO and a CFO). Genentech’s former CEO and chairman, Art Levinson, joined the Roche board of directors (where he stayed until 2014). A number of Genentech executives were promoted into key leadership positions at Roche. Roche kept Genentech’s vaunted research operations completely independent. Genentech employees stayed on their own compensation packages. I am sure not all Roche employees welcomed these decisions. There were likely some feelings of resentment that Genentech was getting “special treatment.” But this is the reality of cultural transformation. It is messy, and it is never conflict-free.
Get the Right People. Because cultures are ultimately embodied in people and expressed through their behaviors, cultural transformation cannot happen without the right people. Many writings on culture emphasize the need for persuasion and “getting everyone on board.” Certainly, it helps to win over skeptics rather than fight, and, as a leader, you should do everything you can to make the case for cultural change, persuade skeptics, and seek converts. You may be surprised by how many people are willing to embrace a new culture. But, as pointed out above, cultural transformation is ultimately a competitive process yielding winners and losers. And the people who stand to lose are not usually anxious to go along. Hard decisions will have to be made regarding people, particularly people on the senior team. Recall that Marchionne had to replace much of the Fiat senior leadership team when he took over.
We often think of innovative cultures stemming from the vision of charismatic and inspired leaders like Jeff Bezos or Steve Jobs. Certainly, these inspired leaders exert a powerful effect on the cultures of their organizations. But even these leaders do not work alone. They build teams of people who share their values of organizational culture. Cultural transformation require
s a team of well-placed supporters throughout the organization who can carry the message, model the behavior, and recruit like-minded people to the effort.
The wrong person in a position of power or the departure of a champion can stop a cultural transformation in its tracks. I have watched this dynamic unfold many times in my career as a researcher and consultant. In one case, a fairly senior member of the management team was the focal point for driving the implementation of a culture for innovation. Given his experience (he had led cultural transformation previously), his position of power (all the business unit heads reported to him), and his status (he was exceptionally well respected for his track record), he was the ideal person to drive the innovative cultural transformation. He engaged both the business unit leaders and various corporate functional groups like R&D in a process of learning about innovative cultures and in developing systems to reinforce new behavioral norms. Progress was excellent for three years until he retired. After that, progress essentially halted. No other leader in the organization stepped forward or felt empowered to step forward to fill the void. There was no other cultural champion. A cultural transformation in a large company is too complex to be the burden of a single individual, no matter how talented or energetic that person is.
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