Company culture has become a very mentioned concept as a potential catalyst for promoting the development of innovative capabilities within companies, and in fact, the management of companies’ cultural context has gained relevance to the same level as strategy and innovation. On the other hand, corporate culture is often cited as one of the most important barriers to innovation and transformation in organizations. It is emphasized that this or that company has a ‘bureaucratic’ culture or that its employees are reluctant to ‘take risks’ developing new projects. What is certain is that corporate culture of a company has a decisive influence on its performance when it comes to developing its business or facing technological change, but to make a precise diagnosis about the interrelationship between company culture and innovation management we must first make a good definition of the concept and explain how culture is formed in organizations.
A definition of company culture
Company culture identifies the way of being and doing of a company and is manifested in the way of thinking, acting and responding of its employees to the problems, challenges and opportunities that arise in the day-to-day business. They are often unwritten rules within the organization, the code of conduct and employee behavior; what people think, say, listen and do when no one is looking. This way of doing is configured as a complex process resulting from years of managing the business in a certain way, depending on the initial approach of its founders, the operations and processes required by the business model, and the defined remuneration & promotion policies.
Employees are not “programmed” to behave in a certain way (each person has his own values), but they all perceive which attributes are important and the aspects that colleagues and bosses value most. It is difficult to be in one place and to work in a way totally opposed to the rest, so the values associated with a company culture end up being more or less shared by all members of the organization. These values are usually stable over time and have a strong foothold in the collective imagination of employees, so changing the culture of a company involves the partial or total modification of habits deeply rooted in the people who make up the organization, and is one of the biggest challenges in business management.
It is clear that for the sustainability of a given business culture, there is a need for consistency between the values attributed to the organization and the practical application of those values, especially by top management. This, which seems obvious, is not so often, and in fact what really defines the culture are not the values that are posted on the intranet of a company, but those that people apply every day. There is nothing worse t of the management of a company than to promote one thing and do the opposite.
Importance of company culture in innovation
There are different types of corporate cultures, and some are little permeable to changes, new products or external influences. The culture ends up being a reflection of the company’s business model, and in environments with a low level of competitive intensity (highly regulated, oligopolies with few market participants, or with high entry barriers), we typically see the emergence of a corporate culture very resistant to change, with a high relevance of politics, and very unreceptive to trends coming from the outside because the management of the business does not require it. Such organizations often penalize risk-taking or project failure, which causes their employees to be unwilling to make risky decisions that may affect their careers.
Innovation is, by definition, a process with a high level of uncertainty and risk, so in companies with the conservative and closed culture described above most innovation initiatives have little chance of receiving support and funding. The problem is that today the pace of adoption of new products and technologies and the level of permanent disruption that affects most industries require company cultures capable of adapting to changing environments.
This leads us to ask what characteristics a company culture should have in order to foster innovation. Although the relevance and influence of corporate culture on innovation is recognized by the academic and business world, there is no consensus on the attributes that define an innovative culture. In the formation of culture, intangible elements are also difficult to measure when establishing an empirical relationship between corporate culture and innovation. In spite of this, a foundational element of a culture that drives innovation is precisely that it is explicitly stated as part of the company’s values. That is, companies that incorporate innovation as part of their mission and values and convey this to their employees are laying the foundation for incorporating innovative behaviors.
Technology companies, in which the development of their own technology is inserted as part of their business model, are more likely to develop innovative capabilities that are eventually incorporated into the business culture. Continuous innovation in technology typically generates a corporate environment characterized by constant change to remain competitive in rapidly evolving technology industries. Therefore, we see that the concept of adaptability to the environment and constant change management appear as a necessary requirement to survive in this age of disruption, and companies that incorporate these capabilities into their culture will have many more options to remain competitive over time.
Common features in innovative companies
Despite the impossibility of empirically demonstrating the relationship between certain attributes of an entrepreneurial culture and its impact to drive innovation, it is possible to state a series of attitudes and behaviors that are often found in the corporate cultures of the most innovative companies:
- They promote risk taking at all levels of the organization. All employees are allowed to take risks in the development of new initiatives, provided they are correctly argued, because the development of new businesses is always, by definition, uncertain.
- All employees are responsible and participate in the innovation process of the company. In this sense, the company allows employees to dedicate time and effort of their workday to the development of new opportunities, in addition to providing the necessary funds to develop them.
- Creativity and an open mindset are stimulated in the organization as part of the process of finding opportunities, both inside and outside the company, paying attention to trends and technologies that can open new lines of income.
- It is possible to overcome the internal barriers to innovation with a clear sense of a mission that all employees share, an organization that makes decisions in an agile way, and with clarity in the roles and responsibilities of the different units and divisions.
- The top management of the company, with the CEO as its main sponsor, strongly supports the development of a corporate environment that fosters innovation and its insertion within the company’s values.
- The company is managed as a business portfolio with a different degree of maturity and contribution to the company’s profit and loss account. Innovative companies are able to manage businesses in different time frames, combining the short term (the current business model that brings much profitability and cash to the company) with the long term (adjacent businesses with potential to grow relatively quickly and disruptive initiatives in the research phase looking for a market fit that can represent the future of the company).