Sunday, December 4, 2016

Innovation Culture - Focus on Climate

Discussion for EA874 Topic 7 > Evaluating Emerging Tech, Innovation, Trends
Post # 3

The six dimensions summarily discussed from Post # 2 are said to be building blocks of innovation (values, behaviors, climate, resources, processes, and success) and are interrelated to each other in helping build a culture of innovation and creativity.

The Rao framework presents “cultural climate” as one of the six building blocks for an innovative culture.  Climate refers to those patterns present in the organization’s environment, essential to building the foundation on which the spirit of innovation is cultivated.  Climate is an intangible notion which is more felt than directly seen. However, the effects of cultural climate are evidently observed. According to the framework, the innovative climate for the organization is influenced by three main factors or themes: Collaboration, Safety, and Simplicity.

Collaboration is the spirit of working with others to achieve shared goals. More important, it is an effort to foster working relationships by sharing knowledge, learning, and building consensus, in order to increase the likelihood of success.

Community.  A sense of community prevails in a collaborative environment.  Individuals or entities tend to affiliate with others who share common interests or goals.  In a large organization, it is not surprising for powerful sub-cultures to develop across the organization and bringing into alignment with different points of view, essential for fostering a healthy climate.  There are organizations which talks about the creation of a start-up sub-culture, and given autonomous power to innovate.  A strong community will also build a rich communal language which facilitates a common way of speaking and thinking about innovation. I have seen how successful companies reinforce the sense of community  through notions of “synchronous and asynchronous rhythms” i.e. good combination of face-times and asynch communications, “brown-bag” sessions, “round table” discussions, and distinguish between invention and innovation. Some companies mention “innovation champions”, “thinking-out-of-the-box” and “empowering failure”.  And some other cultures may even require “forcing people to collaborate”.

Diversity.  In a collaborative environment, differences that exist in the community are appreciated, respected, and leveraged. In global teams composed of different nationalities, it is important to embrace a diverse set of individuals from different countries in order to effectively execute on development and marketing of their products.  Diversity thinking is not only bound within the internal organization, and extend to external consultants who bring their expertise and "outsider" thinking.

Teamwork.  The notion of team emphasizes the healthy empowering behaviors necessary in a collaborative environment.  Collaboration only works towards innovation when team members work well together to capture opportunities.   In places where teamwork clicks, team members end their work days on high energy levels, filled with enthusiasm and laughter, even if the day's problem was elusive and the solution is not yet complete. Good places talk about the relaxed atmosphere of the informal after hour sessions to encourage camaraderie even in the context of technical discussions.

Safety is the second theme or primary factor in an innovative climate. It is an appreciation of the environment which provides its members a general sense of freedom from danger, risk, or injury. Safety is thus the provision of freedom from intense distractions which hinder the innovative process and productivity in general.

Trust. In an innovative environment, members need to feel safe by having mutual confidence that they can rely on each other to be consistent in upholding sustainable values articulated by the organization. In some enlightened companies teams are allowed to go out of their normal environments and are "given the permission" to fail.  And when we speak of hiring best talents, it is not only for intellectual abilities, but also for the maturities needed to work effectively in teams.  Once hired, these talents trust each other to take risks and accept failures as part of their learning realities. They know that failures are just part of the real world, and do not define the team members when they trip and fall from time to time.

Integrity.  Safety  can only be promoted with integrity because integrity is the quality of members that is manifested during conflicted moments, when nuanced scenarios test their steadfast adherence to organizational values and code of conduct.  Integrity is strongly related to trust.

Openness. Creativity and innovation demands an abundant exchange and flow of ideas and opinions.  A respectful environment which is open to suggestions allows its members to speak up and express their ideas -- even those which are unconventional and perhaps controversial. Openness allows the members to feel safe with these expressive freedoms. In good places, members are not afraid of being ridiculed with their ideas, and independent thinking was encouraged by stating that no ideas were 'off the table' and participants are encouraged to use contrarian thinking to spark new ideas.

Simplicity is the third theme or primary factor in an innovative climate. Simply put, it is the absence of the unnecessary.  Simplicity unclutters the playing field for the organization, and brings a sharper focus on what is essential to the mission. Simplicity allows its members to act with minimal restrictions and hindrances.

No Bureaucracy.  The workplace is simplified when the organization chooses to minimize bureaucracy.  Bureaucracy is the set of layers of administrative elements which can accumulate into many incoherent places over time. Restrictions are reduced or removed when the organization streamlines policies, rules, and procedures. As an example of how traditional bureaucracy is avoided, a company can create a new business area such that it could independently operate without being bound to the traditional ways of doing business. And in certain groups, the weekly round table discussions will always allot time specifically to identify opportunities to simplify processes.

Accountability.  Accountability promotes simplicity when responsibilities and ownership of tasks are clearly defined.  In a reinforcing cycle, the simplification theme itself also promotes accountability and forces the organization for better definitions.  An organization with a healthy level of accountability reduces the clutter and mess of resolving conflicts and avoids counter-productive finger-pointing complications. Good organizations apply RACI charts to major processes, and activities are documented to always identify responsible parties and owners.

Decision-making. The process of innovation in its goal to introduce change can be expected to go through several decision steps and stages.  When the organization adopts simple clear guidelines on how to move the initiatives through the steps, decisions flow smoothly and the innovations are realized expeditiously.  Some companies calls decision facilities as an “innovation funnel” that is used to capture and sift through ideas as these pass stage-gates for reviewing and prioritizing projects and prototyping. Decision-making is also facilitated by what we mentioned as independent operations free from traditional ways of doing business, as well as the use of asynchronous discussions to move actions along in the pipeline.

Conclusion

These building blocks are dynamically linked. Values drive priorities and decisions, which are reflected in how a company spends its time and money. Behaviors describe how people act in the cause of innovation. Climate sets the tenor of  the workplace. An innovative climate cultivates engagement and enthusiasm, challenges people to take risks within a safe environment, fosters learning and encourages independent thinking. Resources comprise three main factors: people, systems and projects. Of these, “innovation champions” are the most critical, because they have a powerful impact on the organization’s values and climate. Processes are the route that innovations follow as they are developed. These may include the familiar “innovation funnel” used to capture and sift through ideas or stage-gate systems for reviewing and prioritizing projects and prototyping. The success of an innovation can be captured at three levels: external, enterprise and personal. Success reinforces the enterprise’s values, behaviors and processes, which in turn drive many subsequent actions and decisions: who will be rewarded, which people will be hired and which projects will get the green light. 

The Rao matrix is thus  a useful tool that gives us another framework in which to view common characteristics that are typically found in innovative companies.  Combined with the other assessment tools from Gartner and Forrester, we can perhaps provide a better profile for our innovation culture, and thus have a clearer set of actions to address deficiencies.

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Innovation Culture - Quick Reference


Discussion for EA874 Topic 7 > Evaluating Emerging Tech, Innovation, Trends
Post # 2

We have often argued that clearly there are cultural dimensions and factors which are conducive to Creativity and Innovation.  The risk attitudes of the culture which I have discussed in Post #1 is actually shaped to one extent or another by certain key cultural elements.

The following discussion depicts the framework developed by Rao and Weintraub (MIT Sloan, 2013), which can be used to evaluate organizational culture if it is conducive to creativity and innovation.  The framework has its roots from the elements defined in Edgar Schein’s model for organizational cultures.

The following Quick Reference summarizes the so-called cultural dimensions, with each dimension having factors, and with each factor dissected for key elements.

I will later select and focus on a few key elements, and discuss my observations on Post #3.


Cultural Dimension: Climate

Factors
Elements
Collaboration
Community.  We have a community that speaks a common language about innovation.
Diversity.  We appreciate, respect and leverage the differences that exist within our community.
Teamwork.  We work well together in teams to capture opportunities.
Safety
Trust We are consistent in actually doing the things that we say we value.
Integrity We question decisions and actions that are inconsistent with our values.
Openness We are able to freely voice our opinions, even about unconventional or controversial  ideas.
Simplicity
No bureaucracy We minimize rules, policies, bureaucracy and rigidity to simplify our workplace.
Accountability People take responsibility for their own actions and avoid blaming others.
Decision-making Our people know exactly how to get started and move initiatives through  the organization.



Cultural Dimension: Values

Factors
Elements
Entrepreneurial
Hungry.  We have a burning desire to explore opportunities and to create new things.
Ambiguity.  We have a healthy appetite and tolerance for ambiguity when pursuing new opportunities
Action–oriented.  We avoid analysis paralysis when we identify new opportunities by exhibiting a bias towards action.
Creativity
Imagination.  We encourage new ways of thinking and solutions from diverse perspectives.
Autonomy.  Our workplace provides us the freedom to pursue new opportunities.
Playful.  We take delight in being spontaneous and are not afraid to laugh at ourselves.
Learning
Curiosity.  We are good at asking questions in the pursuit of the unknown.
Experiment. We are constantly experimenting in our innovation efforts.
Failure OK.  We are not afraid to fail, and we treat failure as a learning opportunity.



Cultural Dimension: Behaviors

Factors
Elements
Energize
Inspire.  Our leaders inspire us with a vision for the future and articulation of opportunities  for the organization.
Challenge.  Our leaders frequently challenge us to think and act entrepreneurially.
Model.  Our leaders model the right innovation behaviors for others to follow.
Engage
Coach.  Our leaders devote time to coach and provide feedback in our innovation efforts.
Initiative.  In our organization, people at all levels proactively take initiative to innovate.
Support.  Our leaders provide support to project team members during both successes  and failures.
Enable
Influence.  Our leaders use appropriate influence strategies to help us navigate around  organizational obstacles.
Adapt.  Our leaders are able to modify and change course of action when needed.
Grit.  Our leaders persist in following opportunities even in the face of adversity.



Cultural Dimension: Resources

Factors
Elements
People
Champions We have committed leaders who are willing to be champions of innovation.
Experts We have access to innovation experts who can support our projects.
Talent We have the internal talent to succeed in our innovation projects.
Systems
Selection We have the right recruiting and hiring systems in place to support a culture of innovation.
Communication We have good collaboration tools to support our innovation efforts.
Ecosystem We are good at leveraging our relationships with suppliers and vendors to pursue innovation.
Activities
Time We give people dedicated time to pursue new opportunities.
Money We have dedicated finances to pursue new opportunities.
Space We have dedicated physical and/or virtual space to pursue new opportunities.



Cultural Dimension: Processes

Factors
Elements
Ideate
Generate.   We systematically generate ideas from a vast and diverse set of sources.
Filter We methodically filter and refine ideas to identify the most promising opportunities.
Prioritize. We select opportunities based on a clearly articulated risk portfolio.
Shape
Prototype. We move promising opportunities quickly into prototyping.
Iterate. We have effective feedback loops between our organization and the voice of the customer.
Fail smart.  We quickly stop projects based on predefined failure criteria.
Capture
Flexibility. Our processes are tailored to be flexible and context-based rather than control- and bureaucracy-based.
Launch. We quickly go to market with the most promising opportunities.
Scale. We rapidly allocate resources to scale initiatives that show market promise.



Cultural Dimension: Success

Factors
Elements
External
Customers.  Our customers think of us as an innovative organization.
Competitors.  Our innovation performance is much better than other firms in our industry.
Financial.  Our innovation efforts have led us to better financial performance than others in our industry.
Enterprise
Purpose.  We treat innovation as a long-term strategy rather than a short-term fix.
Discipline. We have a deliberate, comprehensive and disciplined approach to innovation.
Capabilities Our innovation projects have helped our organization develop new capabilities that we did not have three years ago.
Individual
Satisfaction. I am satisfied with my level of participation in our innovation initiatives.
Growth. We deliberately stretch and build our people’s competencies by their participation in new initiatives.
Reward.  We reward people for participating in potentially risky opportunities, irrespective of the outcome.


References:
Jay Rao and Joseph Weintraub "How Innovative Is Your Company’s Culture?". MIT Sloan Management Review. Spring 2013 pp. 29 - 37.

Hogan SJ, Coote LV. "Organizational culture, innovation, and performance: A test of Schein's model." Journal of Business Research. Volume 67, Issue 8, August 2014, Pages 1609–1621

Innovation Culture - Risk Attitudes

Discussion for EA874 Topic 7 > Evaluating Emerging Tech, Innovation, Trends
Post # 1

The entrepreneural spirit is often invoked in discussions of innovation, hinting at the the related risks inherent in pursuing such.

It is said that entrepreneurs are calculated risk takers -- and not just merely risk takers per se. Experts say that the difference between risk takers and calculated risk takers is the difference between failure and success.  As it were, "risk takers bet it all on one roll of the dice.  And if they fail, they fail spectacularly and in such a way that they DON’T live to fight another day. They literally go out in a blaze of attempted glory."  On the other hand, that is not what the best entrepreneurs do. Rather, they figure out a way to reduce risk with every step they take. "They follow the Act. Learn. Build. Repeat model that we have talk about throughout, a model that shows that not only are they not risk takers, they are actually risk averse." It is important that they only take small careful steps toward their goals, so they are not out much should they slip and stumble.  Plain risk takers are NOT successful, as a rule -- because these folks leave too much to chance.

Risk appetite is defined as the level of risk that an organization is prepared to accept, before action is deemed necessary to reduce it. It somehow represents a balance between the potential benefits of innovation and the threats that change inevitably brings.  It is interesting to read through the discussion in the article correlating trends in “risk appetites” and factors driving such changes in an organization’s appetite for risk.
Levels of appetite have been classified as follows:  Averse - Avoidance of risk and uncertainty is a key objective for the organization.   Minimal - Preference for ultra-safe options that are low risk and only have a potential for limited reward.   Cautious - Preference for safe options that have a low degree of risk and may only have limited potential for reward.  Open - Willing to consider all potential options and choose the one most likely to result in successful delivery, while also providing an acceptable level of reward and value for money.  Hungry - Eager to be innovative and to choose options offering potentially higher business rewards, despite greater inherent risk.
It is also possible to find that the appropriate risk approach may vary across an organization, with different parts of the business adopting an appetite that reflects their specific role, but providing an overarching risk appetite framework to ensure consistency within the whole organization.
·         Interestingly, and not often noted, that at the strategic level, leaders may view risk as opportunity – the greater the risk, the greater the potential return and, necessarily, the greater the potential for loss.

I found a great conceptual discussion of risk tolerance and appetite from CMU:
It shows that risk appetite and risk tolerance are tightly related to performance over time. While risk appetite is about the pursuit of risk, risk tolerance is about what you can allow the organization to deal with. Organizations have to take some risks and they have to avoid others. 
The following illustrations show the conceptual relationship between risk appetite, tolerance and performance. 
Figure 1 shows the expected direction of performance over the coming period. 




Figure 2 illustrates the range of performance depending on whether risks (or opportunities) materialize. 
















The remaining diagrams demonstrate the difference between:
  • All the risks that the organization might face (the "risk universe" - figure 3)
  • Those that, if push comes to shove, they might just be able to put up with (the "risk tolerance" - figure 4), and 
  • Those risks that they actively wish to engage with (the "risk appetite" - figure 5).







































Summary:
The paper notes that the appetite will be smaller than the tolerance in the vast majority of cases, and that in turn will be smaller than the risk universe, which in any case will include "unknown unknowns."  Translating these concepts into operational processes is done within the context of each organization’s culture and structures.  While various mechanisms may be used to set and communicate risk tolerance and risk appetite, they share common characteristics: 
·         Risk tolerance is often is expressed in terms of absolutes, for example "we will not expose more than x% of our capital to losses in a certain line of business" or "we will not deal with certain types of research."
·         Risk appetite, by contrast, is said to be about what the organization does want to do and how it goes about it.  The paper underscores that "this appetite therefore becomes the responsibility of leaders at each level to define this all-important part of the risk management process and to ensure that the exercise of risk management throughout the organization is consistent with that appetite, which needs to remain within the boundaries of the risk tolerance." Moreover, it further argues that different leaders, in different circumstances, will take different views on the relative importance of appetite and tolerance. We see evidence of this from experience often enough.

·         We are advised to integrate risk appetite with the control culture of the organization, for both the propensity to take risk and the propensity to exercise control. 
  • The strategic level is proportionately more about risk taking than exercising control, while at the operational level the proportions are broadly reversed. 
  • Risk appetite is delegated downward through the organization using various means such as policies, procedures, training, and supervision.
  • With risk appetite defined, staff can better understand how they should react to emergent issues, and when they should escalate a concern for consideration further up the line (figure 6). 





References:


Entrepreneurs Are 'Calculated' Risk Takers -- The Word That Can Be The Difference Between Failure And Success. 2013 November 06. Retrieved from http://www.forbes.com/sites/actiontrumpseverything/2013/11/06/entrepreneurs-are-not-risk-takers-they-are-calculated-risk-takers-that-one-additional-word-can-be-the-difference-between-failure-and-success/

The Institute of Risk Management. (2011). Risk Appetite & Tolerance Guidance. White Paper. Retrieved from   http://www.cmu.edu/erm/concepts/tolerance.html