Unlocking Potential: Culture of Innovation Explained

Have you noticed that some companies consistently develop cool new products while others constantly play the catch-up game?

Some companies have one product that becomes a hit but can never replicate that success. Others have a consistent track record of products that people love.

We tend to attribute that to the leadership skills of the CEO or some other executive. However every now and then, this effect continues and even strengthens after a new leadership comes in.

There must be something in the company that persists beyond the change of command. That thing is the culture of innovation. It has the potential to transform companies and continue to work on background long after the person who set it up is gone.

What is the Culture of Innovation?

The Culture of Innovation is a working environment that cultivates and celebrates creative thinking, new inventions, learning from failures, etc. By working environment, we mean a combination of multiple factors:

• Company values
• Product vision & strategy
• Processes
• Goals & objectives
• Employee incentives

When all of these work together in favor of innovation, magic happens. The company turns into a factory for novel and bold ways to deliver customer value.

There are three precursors to innovation.

Ability to Innovate

Multiple components empower a company to innovate. For an innovative process to happen, certain muscles in the organization must be purposely developed. Those include but are not limited to:

• Rapid learning
• Embracing failures
• High risk tolerance
• Collaboration and communication between cross functional teams

Willingness to Innovate

In innovative organizations, there is a clear understanding of why innovation is essential and such organizations want to invest in it. The majority of the companies avoid innovation due to different limiting beliefs, such as:

• We are a market leader, so we need to protect our successful product
• Our product can be #1 for ever
• Competitors are too far behind to catch up with us

Permission to Innovate

To move from ability and willingness to action, the right environment needs to be created that triggers the innovative process. This may include:

• The appropriate allocation of resources
• A fast and effective decision–making process
• The allocation of the right talent

Let’s look at the impact of a culture of innovation on companies.

Why is a Culture of Innovation Important?

Unfair advantage

Fostering a culture of innovation can turn into not just a competitive advantage but one that is hard to replicate. Your competitors can easily copycat your products once they are out. Still, it would be tough for them to recreate the process that leads to the innovative products that your company produces. That’s an unfair advantage at its best!

Adaptability

Creating a culture of innovation is your insurance against external factors that could put your success at risk. When team are looking for better way to solve problems, addressing changes like:

• new technologies,
• emerging competitors,
• evolving customer expectations,

are part of how the team operates - and not an extraordinary event. It makes innovation baked into the product development process and not a separate motion.

Employee engagement and retention

Most people love working on innovative products, especially the smart people you want on your team. Being part of a transformational product can boost engagement to a whole new level because work becomes much more than an 8-5 job. It’s a mission. That’s how we feel at the Icanpreneur team!

If the culture of innovation is such a hit - why don’t more companies implement it?

Common pitfalls

Multiple aspects make the culture of innovation hard to implement in any organization. Let’s review them one by one.

The curse of success

Innovation is often the hardest at the established market leaders. That’s the culprit of the Innovator’s Dilemma. Companies with successful products in a market are naturally inclined against disruptive innovations as such would cannibalize their existing successful products.

Kodak, for example, delayed the development of digital cameras out of fear that they would cannibalize its traditional business with film cameras and printing consumables.

Complacency

Once a company becomes a market leader, complacency is easy to set in. Product-market fit is not a one-time event that you achieve and have forever. It needs continuous reinforcement and improvement to not loose it.

However, when financial results are over the top Q after Q, it’s easy for employees to think, “We know it all,” and be blinded by success.

Acquisitions

Market leaders often think about acquisitions as a remedy for not having an in-house process of innovation. “Why don’t we buy a company that comes with a more innovative product than ours?”

In reality, just a tiny portion of the M&A deals are successful. One of the reasons is that the often acquiring company relies on the acquired company to be the driver of innovation while at the same time not creating an environment for that to happen.

Acquisitions can win some time and import talent and know-how, but if those assets land on an environment that doesn’t encourage innovation - it will be all in vain.

Wait and see

Other companies prefer to wait for a wave of innovation to gain some traction and see if it catches fire before investing in it. The paradox here is that by the time an innovation proves successful, it’s already too late for the incumbent to start investing in it.

RIM, the Blackberry company, refused to invest in touchscreen devices without physical keyboards during the first years of the iPhone. By the time they decided to jump on that wagon, iPhone 4 was already out. It was too late for RIM to recover the missed opportunities and the lost market share.

Cultural changes are hard

Cultural changes are one of the hardest types of change in an organization. That’s because culture is grounded in psychological behaviors that require time and will to be changed.

Think about how hard it is for you to break a bad habit. Now, think about how much harder it is for an organization to quit bad habits when this needs to propagate to all of its employees.

Sony, in the past decades, turned into a conservative company that is resisting changes and abdicates from being an agent of innovation.

Here is what Sony’s CEO, Howard Stringer, said before stepping down from the company about the culture in it:

Love affair with the status quo continue even after the quo lost its status

Key Characteristics of Culture of Innovation

Open-mindedness

A company with an established culture of innovation fosters open-mindedness in its employees. This comes very natural in the early days when the company still fights to get it’s first successful products and get to product-market fit. Open-mindedness is more and more illusive as company becomes more successful.

Customer-centricity

Companies with a good history of innovation are heavily customer-centric. They understand that a company’s success is not about revenue or stock price but about delivering value to customers. Everything else comes as a consequence of that.

Long-term focus

Innovative companies are in for the long game. They understand that short-term results produce incremental improvements that is needed but will wear out eventually.

Sony, the creator of the Walkman, which is an iconic product from the late 80s, lost its market dominance only 15 years later. They had all the needed resources and credibility to develop the next generation of portable music players based on the MP3 format.

However, Sony got entrenched into the demand of music labels and its own revenue stream from song royalties. This led to a mediocre product that nobody wanted to use and eventually lost the battle to the iPod.

High-risk tolerance

Highly innovative products often require significant upfront investment in R&D. That investment will, in most cases, not pay back except in a few cases, which will pay for all the rest.

Risk-averse companies often have some sporadic innovation attempts that expectedly fail, which discourages them from continuing further, and they focus on their current way of doing things.

Risk-tolerance companies consider unsuccessful attempts as learning opportunities and move on to the next experiment, creating learning momentum that eventually produces a successful product.

If you want to succeed, double your failure rate.
Thomas J. Watson, the former Chairman and CEO of IBM [source: Wikiquote]

The bigger the company, the more it has to lose, hence the lower willingness to take risks.

Readiness to cannibalize own successful products

Google Ads’ revenue is more than 75% of its whole revenue [source: Statista]. Have you heard about “keywords”? Microsoft had a product just like Google’s ads bidding platform. Keywords got good initial traction but was shut down because of fear of cannibalizing MSN’s income from banners.

Today MSN is not even a thing and this move sounds entirely out of sense, but Microsoft didn’t want to risk its successful revenue stream for a new one that at the time seemed to have limited potential. What a missed opportunity!

What are the Components of a Culture of Innovation?

Purpose and values

Building products based on sense of purpose provides solid foundations for your business. Entrepreneurship on its own is hard. Entrepreneurship based on innovation is even more challenging due to the significant upfront costs required.

Founders that don’t care deeply for what they are building can easily be discouraged by the hardships on the way.

Supportive leadership

Due to the significant investments needed, innovation is almost impossible without the support of leadership. Even when innovation is driven bottom up, the leadership must provide the right space for employees to innovate.

Do you know the story of Tony Fadell? Tony was CTO and Director of Engineering at Philips’ Mobile Computing Group. He had this idea of building hard-disk-based portable music player paired with an online music store. The year was 1999.

You haven’t heard about his music player because it was never approved at Philips. Instead, Tony left to join Apple and create the iPod. Imagine the enormous opportunity that Philips missed on this one.

Experimentation Process

Building successful products is too often left to gut feeling and luck. To increase its chances of getting to product-market fit, a company needs a structured approach to innovation. One that is based on proven methodologies and provides all the needed guidance and examples for the team to validate their idea. This is where Icanpreneur comes handy.

Instead of reinventing the wheel every time, a company can use the Icanpreneur platform to establish a disciplined approach to entrepreneurship. Icanpreneur empowers teams to get from an idea to successful products.

Innovation Champions

Each company has talented, bright, and curious employees who ponder technologies, challenge limiting beliefs, and come up with creative ideas.

The energy of those people has to be channeled towards creating experiments and new products. Otherwise, these people leave for a different place that appreciates their inclination to innovate.

Best Practices for Driving a Culture of Innovation

Preemptive Cannibalization

Successful companies realize that the lifespan of their successful products is limited. So, instead of waiting for competitors to displace them, they displace themselves.

Gillette is a great example of a company that ships new products while the previous product is still at its peak. We might not think about a company producing razors as particularly innovative, but Gillette became obsesses with their product. They shipped multiple innovative technologies on the attacking angle of the blades, turning heads, moisturizing agents, and what not. Just look at the amazing product series.

Instead of waiting to maximize the returns from each development, they cannibalize it with the next great technology to ensure market leadership. This worked in their favour for more than half a century.

Incentives

Incentives are one of the most powerful tools leadership has to steer employees' behavior in the desired direction. Intrinsic and extrinsic incentives can be the factor that makes innovation flourish or frown.

Companies that rewards failures and extract learnings create the right stimulus to nurture successful innovation. They encourage employees to dream big and go beyond what is considered possible.

It’s important to find the right stimuli that will motivate your team members to innovate. Often those might not be material and most certainly will be different for each individual. Some are motivated by public recognition. Others enjoy being empowered, etc.

Internal Competition

No company has the luxury of operating in its market unchallenged. Sooner or later, the competition will come up with something better than what you have.

If that’s the case, why don’t you recreate the same model internally in your company? This will increase your chances to disrupt yourself as opposed to another company doing it for you.

Of course, left unchecked, internal competition can be detrimental to your culture. But within collaborative boundaries and with the needed psychological safety, it can boost the company's innovation efforts.

Do you know that Google internally develops two different technologies for cross-platform mobile development—PWA and Flutter?

At first, it doesn’t make much sense to have alternatives for the same thing. On the other hand, this strategy increases the chance of having at least one successful product in that segment. In reality, those two products serve the same purpose for different groups of mobile developers and each have its own market share.

Wrap Up

Fostering a culture of innovation is not merely an option. It is a necessity for companies aspiring to achieve sustained success and market leadership.

Culture of innovation turns creative thinking, risk-taking, and problem solving into a stream of exceptional value to customers.

Creating an innovative culture takes time but is one of the best investments you can do as a leader of your company.