Innovative Cultures and Cultures of Innovation

Organizational cultures help achieve the goals of an organization by developing and maintaining certain behavioral patterns in its employees. Great leaders begin by clearly defining and communicating why[1] their organizations exist and then they create a culture to achieve that purpose. Thus culture is a means to an end, not the end in itself.

Abstract: This paper explores different types of organizational cultures. It considers the pivotal role of the paradigm in which an organization operates, and how its leadership supports acquiring and applying knowledge and skills consistent with this paradigm, or recognizes the need for a new paradigm. We define three cultural types based on their openness to paradigmatic shifts: 1) Ideological Cultures, 2) Innovative Cultures, and 3) Cultures of Innovation and explore the differences and consequences for success, failure, and disruption.

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Organizational cultures help achieve the goals of an organization by developing and maintaining certain behavioral patterns in its employees. Great leaders begin by clearly defining and communicating why[1] their organizations exist and then they create a culture to achieve that purpose. Thus culture is a means to an end, not the end in itself.

To give the reader some sense of where we are heading, we will ask the question: if you were setting out to build a great company would you rather be like Kodak or Apple? We think we know what that answer is, but we will approach it from the standpoint of organizational culture and receptiveness to paradigm change.

The power of organizational culture lies in its ability to create a collective intelligence that can acquire and apply knowledge and skills at a rate far exceeding that of any individual. This enables the organization to achieve objectives beyond the grasp of the individual. Following Kuhn[2] we assert that the acquisition and application of knowledge and skills is guided by an organization’s paradigm. This paradigm enables the organization to efficiently solve its problems. It does so by limiting the questions that will be asked, the approaches to answer them, and the solutions that will be found acceptable. In this way the paradigm will profoundly influence the organization’s ability to acquire and apply knowledge and skills, i.e. the organization’s collective intelligence[3].

We define innovation broadly as the acquisition and application of knowledge and skills that changes behaviors and creates value in a society. This definition acknowledges that the perception of an innovation and its value are relative to the society (and its inherent culture) in which it occurs. One society’s valuable innovation might be of no value to another. This definition recognizes that innovations change behavior patterns and affect relationships, which in turn changes the underlying social structure of an organization, and thus its social capital[4].

Leaders of what we call “Innovative Cultures” promote the acquisition and application of new knowledge and skills within their paradigm(s). But having a paradigm does not guarantee the organization will be innovative. Consider what we term “Ideological Cultures” such as cults and religions. History has shown that such cultures routinely reject innovation and even punish those that dare to acquire and apply new knowledge and skills. Instead such cultures use their paradigms to control and contain their members. The attitudes of early China and Meiji Japan offer examples of how different attitudes towards acquiring new technology led to the growth of Japan and the stagnation of China[5].

But Ideological Cultures are not limited to cults and religions, for example they can be economic or political. Consider the fate of many resource rich nations whose cultures value their physical resource over their human resource. In such cultures the people are valued for their labor and not their ability to acquire and apply knowledge and skills. In such cultures the collective intelligence, if any, resides in the “inner circle” of leadership. While such cultures can amass great wealth they often lack the larger collective intelligence that would enable them to survive changes in how the world values their physical resource.

Likewise in extreme political cultures people are valued for their blind adherence to the paradigm and not their intelligence. People have to “toe the party line”, and if they don’t they risk being ostracized and losing support of the party. Instead of creating a collective intelligence a lobotomized culture is produced that is limited by the thinking of a few individuals.

In Ideological Cultures things are “black and white”. There are few gray areas, little room for question or compromise. The cognitive dissonance of such cultures is so high that they either cannot or will not see “the handwriting on the wall”. Festinger’s theory of cognitive dissonance[6] tells us that when members of such cultures are presented with new information that does not fit their paradigm they will at first ignore it. If the non-conforming information persists and accumulates they will next look for countering information that will allow them to discount the new information. It is only as a last resort that they will admit their paradigm is wrong and change. And as Kuhn notes, at least for scientific cultures, often the shift to a new paradigm is only complete after the adherents of the old paradigm die off. We believe this is a characteristic of all human organizations, not just scientific communities.

But are Innovative Cultures that acquire and apply knowledge and skills relative to a given paradigm the best that leaders can aspire to? We think the answer is no. We define a higher-order culture as a “Culture of Innovation”.

To understand the difference between an Innovative Culture and a Culture of Innovation we need to consider the role of a paradigm in an organization’s ability to acquire and apply knowledge and skills.

Every paradigm is limited in applicability, no single paradigm will solve all newly arising problems and enable an organization to continually acquire and apply new knowledge and skills. The adoption rates of all paradigms follow an S-curve, starting slowly with only a few adherents, then climbing the curve as the community working within the paradigm grows rapidly, finally approaching the limit of diminishing returns as a large community of believers exhausts the value of new knowledge and skills that can be gleaned from the paradigm or the paradigm faces an anomaly and cannot solve it. This may take months, years, or even centuries, consider Internet-based business paradigms at one end and science paradigms such as astronomy or mechanics at the other, but all paradigms eventually reach the top of the S-curve in terms of its adherents or its ability to solve new problems.

As an example consider Kodak. Kodak’s paradigm was filmed-based photography and relative to this paradigm they were a very innovative culture, but Kodak was not a culture of innovation. Even though Kodak had some of the earliest patents in digital photography they could not accept that the new paradigm could provide better solutions to any of their problems. They finally declared bankruptcy in February of 2012. This is all the more amazing when you consider that 110 years earlier Kodak disrupted the photographic market with technology that disintermediated the professional photographer and allowed anyone to create a “Kodak moment”[7]. Had they realized that their real reason for existence was to enable people to capture and share their Kodak moments by any means possible, they may have dominated digital photography and invented the social applications for sharing those moments with friends and family.

Next consider the Sony Walkman®. Sony like Kodak challenged an existing paradigm. They allowed us to take our favorite music with us unchained from the radio stations’ choice of melodies. But over time Sony became a media company and its basic paradigm changed as they faced new types of problems. As a technology company they should have invented the iPod, but as a media company a device like the iPod violated their paradigm. Our paradigms can at once be our greatest strength and our Achilles heel.

Finally, consider Apple. Apple’s business paradigm has changed from desktop computers with a proprietary operating system to iPods, iPhones, iPads, iTunes and the App Store, leveraging the enormous collective intelligence of thousands of developers. Along the way it disrupted several industries while changing its name from Apple Computer Inc. to Apple Inc. Apple has a Culture of Innovation.

A Culture of Innovation is an Innovative Culture with at least one major difference. A Culture of Innovation constantly exposes itself to new paradigms and challenges its existing paradigms so it can continuously solve emerging problems. In this way, the Culture of Innovation is constantly prepared to acquire new knowledge and skills, creating still more ways to generate value.

So in conclusion we see is a spectrum of cultures. At one extreme is the Ideological Culture that follows a fixed paradigm and discourages the acquisition and application of new knowledge and skills. It seeks behaviors and social relationships that remain rigid and unchanging, trading value generation for stability. Next is the Innovative Culture that also follows one or more paradigms but encourages the acquisition and application of new knowledge and skills that change behaviors and the underlying social network, enlarging their social capital and creating more value. Finally, there are Cultures of Innovation that follow one or more paradigms acquiring and applying new knowledge and skills, but simultaneously actively expose themselves to new paradigms. In this way they expand the range and volume of new knowledge and skills they can acquire and apply, maximizing the value they can create and generating a sustainable competitive advantage.

What type of culture characterizes your organization? Do you promote the acquisition and application of knowledge and skills? Do you proactively seek out and expose yourself to new paradigms exploring how they might increase your ability to create value? As the leader it is up to you. Holding fast to the same paradigm, even in the face of newly emerging problems is far easier than exploring new ones. New paradigms generate cognitive dissonance and challenge the organization’s beliefs. But it is far better to make yourself uncomfortable than to be disrupted by someone else using the paradigm you ignored. When you prepare your next strategic plan will you search for and embrace new paradigms? Failure to do so may relegate you to the dust bin of previously great organizations.

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[1] “Start with Why – How Great Leaders Inspire Everyone to Take Action”, by Simon Sinek and his TED video “How great leaders inspire action

[2] “The Structure of Scientific Revolutions” by Thomas Kuhn

[3] Google’s online dictionary defines intelligence as “the ability to acquire and apply knowledge and skills”. By analogy we define collective intelligence as the organization’s collective ability to acquire and apply knowledge and skills.

[4] “In Good Company – How Social Capital Makes Organization’s Work” by Don Cohen and Laurence Prusak.

[5] “The Lever of Riches: Technological Creativity and Economic Progress”, by Joel Mokyr.

[6]A Theory of Cognitive Dissonance” by Leon Festinger, Stanford University Press, 1957.

[7]The Demise of Kodak: Five Reasons”, by Kamal Munir, The Wall Street Journal, February 26, 2012.

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