encouraging innovation

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Encouraging Innovation

Erin OgleJune 6, 2011

Submitted to Dr. Wally PfeifferPortland State University

[email protected]

V1.3 Updated June 7, 2011


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CONTENTS

Introduction........................................................................................................................................................ 3

Research Methodology................................................................................................................................. 4Innovation and Sustainability........................................................................................................................... 5

Leadership and Culture .............................................................................................................................. 13Interface: Organizational Change in Action ................................................................................................ 16Conclusion ........................................................................................................................................................ 21Appendix A. Key Points in Interface History ............................................................................................. 23 Appendix B. Survey Results ........................................................................................................................... 24 Works Consulted.............................................................................................................................................. 25


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Innovation is not the product of logical thought, although the result is tied to logical structure.~Albert Einstein

Introduction

Innovation is one of those great words, so rich in meaning as to almost become meaningless.

Sustainability is one of those words, too. This paper is an attempt to explore the interstices between

the two concepts, and identify ways in which they are related to and shaped by organizational

culture. The culture of an organization is a complex function of a wide array of factors. These

factors can include: genesis, development, geographic location, industry structure, office

environment, age (of the firm and of its people), racial and gender composition, organizational

structure, and much more. Because it is such a complex and largely intangible organizational feature,

it can be difficult to define concretely. This culture in turn manifests itself in the form of company

policy, level of risk tolerance, capacity to embrace change, the compensation structure, and other

characteristics. Culture also affects the behavior and decision-making habits of individual employees,

as it establishes norms and boundaries.

Because corporate culture manifests itself in the behavior of employees and in characteristics

that could be deemed company personality, it is a critical element to examine when assessing an

organizations capacity for high levels of innovation. We know from many studies that

organizational change is not a simple, unidirectional movement. It is densely layered and must be

approached carefully and intentionally if any of the movement is to become a permanent and useful

part of daily operations. Corporate culture is also function of the personalities and behaviors of top

management, and support from top management is in turn critical to the successful implementation

of any new policy.


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Research Methodology

The body of literature pertaining to innovation, innovation management, and sustainability is

immense, and this is clearly not intended to be a complete investigation. Rather, it is the tip of an

iceberg that will likely become a lifes work. The bulk of the work was secondary research, focusing

on materials housed by the Portland State University library, the Multnomah County library, and

various online academic databases. Primary research was conducted in the form of an online survey

and a small number of personal interviews. The online survey was distributed via email, Twitter,

Facebook and LinkedIn, and garnered 43 responses. The results of the survey can be found in

Appendix B.

Interviews were informal, and occasionally occurred as part of question and answer sessions

with visiting speakers in elective courses at Portland State University. This project evolved into more

of a literature survey than a practical exploration, so interviews became less of a focus once this shift

occurred. The interviews served to reinforce or alter hypotheses, and will not be referenced or

quoted directly.


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Innovation and Sustainability

For the purposes of this inquiry, innovation is defined as the generation, development, and

acceptance of new products, processes or services (not just incremental improvement). In the

context of product innovation, several researchers have examined the role of improvisation

techniques, where improvisation means creating a product while simultaneously adapting to

changing markets and technologies. This improvisation demonstrates two key aspects of innovation:

intense, real time communication within a structure of a few, very specific rules.1 The limited

structure provides a framework, and communication allows the players to coordinate and mutually

adjust within that framework. This enables the accomplishment of tasks in a rapidly changing

environment.2

As competition in the global economy continues to increase, and the call for sustainability

presses new responsibilities onto businesses, innovation becomes increasingly integral to success.

There is some mythology about successful innovation: it has been associated with Eureka

moments experienced by great thinkers toiling in isolation. In reality, this is not the case, and it is

important to distinguish invention from innovation. Invention is still important, but innovation can

be built into an organizational culture purposefully and often with great results.

However, it is not simple. Innovation means incorporating vision, leadership, teamwork,

individual responsibility, proper resource allocation, goal-setting, and many other complex attributes

and processes into a system designed to provide useful output. The factors affecting innovation are

possibly countless, but here is one list:

Commercialization timeline Intellectual property issues

1 Bastien and Hostager, 1988; Hatch, 1997, as referenced by Brown & Eisenhardt.2 Brown & Eisenhardt.


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Market complexity Codes, statutes, regulations Technology transfer The desire, commitment, and resources of the inventor and their team Product similarities and synergies

Expectations of the supply chain Investor support/interest/commitment Government support/subsidy Global competition Education Openness of capital markets Import/export trade balance Net neutrality and cyberspace security Support and networking opportunities for entrepreneurs and would-be entrepreneurs3

There can be very real tension between keeping up with a production and shipment schedule

and allowing teams to test and improve possible innovations. It is important to establish and

maintain a schedule, but it can be just as important to recognize when a product is good enough

to ship. Research has shown that companies who successfully execute multiple-product innovations

combine clear responsibilities and priorities with extensive communication and freedom. They probe

into the future with a variety of low-cost experiments, and they link current products to future ones

using predictable product intervals and choreographed transition procedures.4

The notion of a predictable product interval is an important one. Some engineers, left to

their own devices, would be happy to keep experimenting. Some designers may be unhappy that

they werent able to perfect their design before the idea was sent into production. This tension is

inevitable, but can be managed through careful communication and support from leadership. This is

not unique to a culture trying to become more innovative, but is true of any organization that is

encountering change or uncertainty. Some researchers argue that an innovation might be seen as

minor or routine by some organizations but as major or radical by others.5 For example, the

3 http://permanent.access.gpo.gov/lps121227/LPS121227.pdf p.134 Brown & Eisenhardt.5 Downs and Mohr, p. 704.


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transition from disk drives to flash memory was likely radical for disk drive producers. But for the

other users in the personal computer value network, the innovation was incremental.6 For the end-

user, their device had more memory or executed tasks more quickly, but the device itself and the

way it was used were largely unchanged. This masks the radical nature of the innovation in the disk

drive industry.

Capacity for innovation can also be correlated to the complexity and structure of the

market. Markets characterized by high levels of competition will internalize innovation differently

from those in more monopolistic markets. As Porter and Kramer discuss in their influential 2011

article, Creating Shared Value, the success of any company is affected by the supporting companies

and infrastructure around it. Productivity and innovation are strongly influenced by "clusters," or

geographic concentrations of firms, related businesses, suppliers, service providers, and logistical

infrastructure in a particular field--such as IT in Silicon Valley, Biopolis in Singapore, Research

Triangle, the MIT-Harvard nexus, the cut flower industry in Kenya, diamond cutting in Surat, India,

and many more.

These clusters include businesses and other institutions such as academic programs, trade

associations, and standards organizations. In order to maximize their effectiveness, these clusters

also involve the assets of the surrounding community, such as schools and universities, clean water,

fair-competition laws, quality standards, and market transparency.7 How information flows between

these organizations is a topic beyond the scope of this project, but it is clear that innovation does

not occur in a vacuum. Many players have a role in the game, and the number and type of players

will influence how the game is played.

Interestingly, the literature shows some striking similarities in the language used to describe

the characteristics of organizations successfully moving toward sustainability and those who are

6 Carillo-Hermosilla, p. 10.7 Porter and Kramer, p. 62-77.


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successful innovators. Smaller, more nimble organizations are often better. Flat organizations seem

better adapted to innovation and sustainability. The need for dedicated support from leadership is

self-evident. The success of designating teams to devise solutions is also a characteristic of

innovation cultures and sustainability cultures.

In essence, a companys response to the challenges of implementing sustainable practices is

highly correlated to its capacity for innovation. This is a reflection of the commitment of leadership

and of the cultures capacity to solve problems. The emerging field of eco-efficiency combines these

principles. Proponents of eco-efficiency argue that it isnt necessary to invent new economic models

to measure the productivity of environmental initiatives. Instead, innovative environmental goods

and services will become a source of profit. This approach is also co-regulatory, as markets,

governments and NGOs all have a role to play in industrial transformation.8

There are some distinct advantages to measuring eco-efficiency that relate to both capacity

for innovation and commitment to sustainability:

Monitoring improvement over time and in comparison with others Providing a good knowledge base for setting the stretch targets that eco-efficiency requires Helping set priorities for action Deciding between alternative courses of action Providing information to external stakeholders

Leadership for eco-efficiency must find the right balance between central direction,

challenge from above, and local autonomy. If the culture tends to rely solely on top-down initiatives,

those in the lower ranks will just wait for things to be done. If there is an exclusive reliance on

bottom-up initiatives, there is a risk of fragmentation as each location or subunit will devise its own

solution.9 Preventing redundancy is important when trying to balance leadership and goal orientation

with on-the-ground empowerment and autonomy. However, the eco-efficiency movement is a

powerful voice in the current phase of industrial transformation.

8 Mol, A. p. 138-149.9 DeSimone and Popoff, p. 95.


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The technology adoption lifecycle popularized by Everett Rogers can serve as a useful model

for how companies (and their supply chains) encounter industrial transformation. Understanding the

level of commitment from top management for integrating new initiatives into business strategy will

help determine how to move most productively toward goals. This adoption curve can be used as a

comparison between current commitment and future trajectory. Companies do not necessarily move

through these phases step-by-step. An organization can skip steps to become more focused on

specific initiatives, or can move backwards if certain efforts lose traction.

It is worth noting that top-level support is easier to obtain for organizations within the

Acceptance and Strategic Initiative phase. Management within the Openness phase can be receptive

to the adoption of the new tools and procedures but it will require an individual change agent (or a

small team) to take on the initial process and work towards organizational acceptance.

Figure 1. The Adoption Cycle10

Strategic Initiatives (Innovators)

Acceptance (Early Adopters) Openness (Early Majority) Non-Responsiveness (Late Majority) Rejection (Laggards)

Strategic Initiatives:This organization integrates innovation into its core values and uses it as a

competitive advantage. Innovation management strategies are integrated into everyday processes and

product design.

10 Adapted from Rogers (1962).


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Acceptance:This organization understands that innovation is needed and is working towards or

has already created necessary teams. The company is likely to shifting its focus from high volume,

low price to higher quality and innovation.

Openness:This organization has a culture receptive to innovative strategic initiatives but is unsure

where or how to start incorporating ideas into practice. Executives are supportive of individuals who

are willing to step-up and encourage change, but are not actively seeking out these leaders.

Non-Responsiveness:This organization is content with the way business is currently conducted

and not actively seeking innovations (product, environmental, or otherwise) or is not aware that

such innovations have the ability to improve the quality and attractiveness of a product.

Management is not necessarily closed to the idea but unaware.

Rejection:The organizations primary concern is profit maximization with little or no concern for

environmental initiatives beyond compliance. Top decision makers and executives are not interested

in incorporating innovation into the strategic plan.

The shape of the bell curve suggests that there are limited numbers of companies operating

within each attitudinal stage, but this is not necessarily the case. As initiatives such as Corporate

Social Responsibility gain widespread popularity, it may be more useful to look at a wave theory

rather than a bell curve. A wave theory suggests that there are stages to move through, and while

this model was developed while studying the move toward sustainability, the theory also applies to

the move toward a more innovative culture. Depending upon what an organization wishes to

accomplish, it may move back and forth between the waves. Linear progression is implied, but not

necessary.


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Figure 2. Waves of Sustainability11

In the first wave, organizations are focused on doing what has always been done. There is no

support from leadership for new initiatives, and in some cases there may be outright opposition.

This is not to suggest that these firms are ornery or illogical. They may have many good reasons to

reject innovation, such as:

Costs and cost savings Potential benefits (greater revenues) Complexity May require additional training May need specialized, highly skilled human resources May require a closer relationship between the supplier and the firm Compatibility with existing system Existence of an installed base High up-front costs Complementary innovations Sector-specific technological opportunities Expectations of cost reductions and quality improvements Criteria for assessing new technologies12

Over time, however, as either forced by compliance, encouraged to do so for efficiency

reasons, or through strategic vision, an organization may find itself moving into the second wave

and toward the third wave. Both in the context of sustainability and in the context of innovation, a

true Third Wave organization is something of a figment. It is a goal that can never truly be attained,

11 Adapted from Dunphy (2010).12 Adapted from Koloupoulos, p.46-49.

First Wave

IgnoranceOpposition TransformationCompetitiveAdvantageRisk Cost

Second Wave Third Wave

Rejection ComplianceNon-res onsiveness

Efficiency Strategicroactivit

The sustainingcor oration


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as pure innovation or true sustainability are not end points. The value lies in the process, and not at

a fictional finish line.

Interestingly, research has shown that companies who are making a concerted effort toward

being a third wave organization are inclined to form alliances with like-minded companies whose

activities are complementary to their own. In some cases, the organizations in these alliances will co-

locate their production facilities to form what are known as industrial clusters or industrial

ecosystems.13 This reinforces the idea that successful innovation is often characterized by clusters,

alliances, and high levels of internal and external cooperation. By demonstrating how ideas can be

commercialized, businesses also drive other firms to innovate, allowing organizations with different

technical capacities and market insights to take the next steps. In fact, most innovation does not

stand alone but complements other innovations.14

13 Tibbs, p. 191-21614 A Strategy for American Innovation, p. 9.


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The question is not whether or not to innovate, but at what cost.

~ Tom Koulopoulos

Leadership and Culture

Encouraging innovation requires clear expectations, committed leadership, and the

appropriate organizational structure and hierarchy. Leaders who expect their organization to achieve

high levels of sustained innovation have to overcome organizational inertia and enable teams to

focus on clearly articulated objectives. These objectives will be different for each organization

depending upon their values and goals, but can generally be divided into four categories:

1. Separate the core competencies of the organization from its core business modelEssentially, this asks the question What are we good at? rather than How do we generate

profits? In an increasingly information based economy, it is necessary to separate the profit-drivers

from the activities that enable improvement and innovation. In the information-based economy,

corporations are looking to long-term survival through the development of knowledge systems,

stores of social capital and a culture of innovation.15

This step also relates to the vision of the organization. In this arena, Collins and Porras

found that visionary companies had an ideology made up of core values and purpose. Employees

identified with and committed to these values. Profit is important but it is not the defining feature of

visionary organizations.16

15 Dunphy, p. 58.16 Collins and Porras.


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carefully paced periods of smaller, organic change.19 Contemporary corporations need to be

ambidextrous, that is, with the flexibility to move between and manage both incremental and

revolutionary approaches to change in order to stay in alignment with market conditions.20

4. Create an organizational structure that fosters innovation throughout the organizationOrganizations must be prepared to implement innovative organizational structures. Such

structures can consist of creative combinations of dotted-line and solid-line reporting relationships

that mix formal authority with informal oversight. Councils and oversight committees can also be

useful, as the idea is to work collectively toward goals with a team approach.21 Team-based work

can also facilitate cross-functional communication, enhance worker involvement, and develop or

better utilize talent to serve strategic aspirations.22 As seen before, flexibility can combine with

communication, teamwork and informality to enable the creation of new and novel ideas.

There are many examples of companies that have successfully implemented innovation in

combination with sustainability initiatives. Successful companies have found that askingpeople to

look at their work through an environmental lens can lead to innovation around waste reduction,

resource productivity, significant cost savings, and increased employee satisfaction.23Interface is a

well-studied example of a company that has excelled at the intersection of innovation and

sustainability.

19 Abrahamson, p. 75.20 Dunphy, p. 22721 Garvin and Levesque, p. 9.22 Galia and Legros, p. 5.23 Esty and Winston, p. 108.


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Interface: Organizational Change in Action

Interface, Inc. was founded in 1973 by Ray C. Anderson to manufacture carpet tiles. After

twenty profitable years in business, Interface was confronted with a question about environmental

sustainability. A potential customer asked about the companys environmental policies, and

Anderson was initially somewhat annoyed. By his way of thinking, the company was compliant with

all environmental regulations and nothing more should be required. However, Interface employees

asked Anderson to give a presentation on the issue. In a moment almost too serendipitous to be

believed, Paul Hawkens (1993) bookEcology of Commercelanded on Andersons desk as he was trying

to figure out what to say during this presentation. This became the spear in the chest moment that

anyone who has studied this case is familiar with.

Hawkens book challenged Andersons previously unexamined opinions about the role and

responsibility of business in protecting the environment. Anderson quickly underwent a complete

reversal in his way of thinking, and a new vision of ecological sustainability emerged. In his

presentation to his company, he charged the entire organization with devising ways to become more

sustainable. This had important and immediate implications for changing the core values at

Interface, and how this was accomplished is an excellent example of leadership enabling culture

change at a fundamental level.

At Interface, sustainability became an organizational value that defines and directs all

decisions and behaviors. Interface operates based on the principle that one cannot create a

sustainable organization without addressing the issues of identity and cultural values. As an

employee puts it:

Each time we have a decision to make around here, we have to consider three questions: Is

it good for the environment, is it good for people and will it make us money. We are


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constantly juggling these three questions. As new processes emerged, and successes

generated more success, understanding grew into belief.24

The re-orientation toward purposeful innovation at Interface was accomplished through a series of

changes in philosophy and policy. Each employee was presented with targeted challenges that were

linked to incentives. While education was (and continues to be) a part of the movement toward

sustainability, this education focuses on the impact of incremental change. Sustainability training

emphasizes the effect of small behavior changes, and emphasizes that everyone can make a

difference. The training also encourages creativity in the problem-solving process. As important as

Andersons leadership and vision were in setting a direction and establishing expectations and

structures, they were no substitute for commitment and action by everyone in the organization.25

Anderson did several important and effective things as the leader of this movement. First, he

sought help from external parties who had more knowledge than he did (The Natural Step, his

Dream Team of consultants). Second, he worked with his management team to devise goals and

work-plans that enabled employees to rise to the challenge (stretch goals with flexible hurdle rates).

Third, he established incentives and competitions that made problem-solving and innovation into

rewarding activities. Fourth, he set the tone for the entire organization by being deeply,

fundamentally committed to the cause. Fifth, as a result of his deep commitment, he did not hesitate

to allocate resources to the cause. In addition, placing the sustainability programs under the

direction of the companys research arm was pivotal, signaling the issues links to product

development, innovation, and the future competitiveness of the firm.26

In terms of organizational practices, Interface implemented a program called QUEST:

quality utilizing employee suggestions and teamwork. This is a formalized suggestion box program

24 Pasmore, p. 110.25 DeSimone and Popoff, p. 100.26 DuBose, p. 200.


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that has been instrumental in problem identification and problem solving. Suggestions can be

submitted through QUEST boxes or through conversations with a team leader. QUEST problems

are generally large, and teams meet once a week for several weeks. This eventually evolved into

REQUEST, which has a slightly different format - people meet for a concentrated period of time,

for a few consecutive days or solid week, to work on problem. REQUEST generally deals with

smaller issues than the QUEST format. But the main idea behind both is to engage employees

problem-solving and innovation skills. Interface was able to get high levels of employee engagement

through these types of programs.27

It could be said that Interface went through a virtual metamorphosis. Researcher Mona

Amodeo catalogued the following phases in Interfaces path toward sustainability:

Phase 1: Awakening

Andersons spear in the chest moment was the beginning. However, change did not

happen quickly or without resistance. Initially, some of the companys employees and managers were

skeptical, and the prevailing attitude was: We like that we are doing, we are successful: dont monkey with it.

However, Anderson refused to budge and a more inclusive management approach was adopted with

the aim to involve people and create a better place for them to work.

Phase 2: Cocooning

Intense internal reflection and research commenced as the company tried to understand how

move forward. A Dream Team of external sustainability experts was formed to help, and Anderson

was central in translating the ideas from the Dream Team into application. This is where the seven

27 http://www.chemicalspolicy.org/downloads/InterfaceCaseStudy4.pdf, p.3


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faces of Mount Sustainability were mapped, and where the culture began to embrace incremental

change. The prevailing attitude in this stage was of inquiry and experimentation.

Phase 3: Metamorphosis

Experimentation led to a succession of small successes. The marketplace responded

positively to the innovations and initiatives. Collaborative work toward sustainability had

demonstrated benefits. The mindset of asking whether a decision is good for people, profits, and

environment, all at the same time, became rooted in the organizations operations. This made

continuously seeking new solutions for sustainability possible.

Phase 4: Emergence and Engagement

The company now relies on ideas and practices relating to sustainability to emerge from its

employees. It is understood that every employee can contribute in his or her own way.28

While Interface reports being only about 60 percent of the way toward achieving its Mission

Zero 2020 goals, the company has come a long way in its 15-year journey to sustainability:

Net greenhouse gas emissions reduced by 71 percent Water intensity reduced by 74 percent Landfill waste reduced by 67 percent Total energy intensity reduced by 44 percent 175 million pounds of old carpet diverted from landfills Invented new carpet recycling technology Sold 83 square kilometers of third-party certified, climate-neutral carpet.

28 http://blogs.worldwatch.org/transformingcultures/wp-content/uploads/2009/04/Changing-Business-Cultures-from-Within-Anderson-Amodeo-Hartzfeld.pdf


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As a result, Interface has generated substantial business value in its brand and reputation, saved over

$405 million, increased its capacity for attraction and alignment of talent, and established itself as an

industry leader in product innovation.

The cultural change at Interface can be characterized as a balancing act between practicality

and emotional commitment. Strategic decisions were implemented in a highly team-oriented

environment, with full support and resource allocation from above. As the incremental changes

were implemented, belief systems were also changed. There was a distinct progression from

skepticism to understanding, belief, commitment, and advocacy. This progression was supported by

the strategic decisions (vision, road map, alignment, integration, and influence), resulting in deep and

abiding culture change.

The Interface case is a example of a highly successful shift toward sustainability through

innovation as a result of the commitment and leadership of top management, combined brilliantly

with high employee involvement and well-designed incentives. Resources were allocated to the

cause, programs were implemented, and education was provided. Additionally, the sustainability

programs were tied heavily to research, emphasizing the link between sustainability and product

development, innovation, and Interfaces competitive advantage.29 The path that Interface took

demonstrates the level of commitment and teamwork necessary to implement change successfully.

29 DuBose, p. 200.


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Appendix A. Key Points in Interface History

1973 Interface, Inc. is founded by Ray Anderson in LaGrange, Georgia.

1991 62% drop in net income.

1994 Anderson reads Paul Hawkens Ecology of Commerceand sets sustainability as a strategic goal

for the company.

1994 Anderson recruits a turnaround specialist to improve internal relations and establish a new

corporate culture.

1994 Company creates a structured bonus plan based on specific waste reduction targets (QUEST:

quality utilizing employee suggestions and teamwork).

1995 Paul Hawken joins the team of experts guiding the change at Interface.

1996 Interface becomes the first company in the United States to commit to The Natural Step

principles.

1996 A new incentive plan is launched, including sustainability initiatives (QUEST/EcoSense

2000)

1996 Company sales increase by $200 million with a 0% annual increase in raw material use.

1997 Company branches out into the service sector by creating an experiential learning company,one world learning, inc., and creates a network called Re:Source Americas.


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Appendix B. Survey Results


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