Human beings can be pretty ingenious if left to their own devices. However, with a little effort, they can be stopped.
The exact recipe for turning a company into a champion innovator, like Tencent, the Chinese Internet giant, may be kind of mysterious, but innovation experts have some fairly clear ideas about how to ensure your company doesn’t get there.
“The first thing I would say is you make sure that people are so busy with day-to-day activities and they have so many activities on their plate that they have no time to do anything else,” says Scott Anthony, Managing Partner of the Singapore office of Innosight, a global consultancy that specializes in innovation. Asking them to innovate when it’s “number 19 on their to-do-list, usually works (in killing innovation)”.
There’s more: treat failures with public humiliation. A few public dressings-down and most employees take the hint, Anthony says.
Finally, make sure that your leaders don’t talk about innovation. “People take big cues about what they talk about… it gives a very clear signal about what matters to them,” Anthony says.
Too Big to Think
Big and bossy also tends to be counterproductive if you want to find the new new thing. “If you’re big and you’re command and control and it’s a clear-cut pyramidal structure and mistakes are heavily punished, you’re not going to get it,” says Cary Cooper, an organizational psychologist and Director of Robertson Cooper, a British business psychology consultancy, as well as Distinguished Professor of Organizational Psychology and Health at Lancaster University.
However, Cooper argues that big by itself isn’t the kiss of death, pointing out WPP, the global advertising conglomerate, which has kept the firms it owns operating separately, with their own individual brands, cultures and ways of innovating. “In a way, small is beautiful, so the more an organization allows units within it to have some autonomy, probably the better,” he says.
Going public may be helpful too, because investors like predictability. Accounting requirements may also get in the way of a big idea.
In Does Accounting Conservatism Impede Corporate Innovation?, a paper published this February, scholars at INSEAD in Fontainebleau, France, Nanyang Business School, Singapore, and Xiamen University, China, found that firms that are more conservative in their accounting tend to generate fewer patents and patent citations.
“The principle of accounting conservatism is to recognize losses as they become probable but delay the recognition of profits until there is a legal claim to the revenues generating them and that the revenues are verifiable,” write the authors.
This practices discourages investment in projects that don’t have a positive net present value, but the authors argue that it also discourages all kinds of riskier investments, and encourages investment in projects with fairly limited upside potential.
The team analyzed corporate-held US patent holdings between 2001 and 2003 against company financial data from the Compustat database, and found a direct relationship between the accounting conservatism practiced by the company and the number of patents the company holds: the more conservative, the fewer patents. They also found that the effect is more pronounced in certain situations, however, including how closely CEO compensation is tied to accounting performance, how close the CEO is to retirement, and how great the pressure the company feels from short-term institutional investors.
In the end, the authors conclude that the issue for the conservative accounting company isn’t really money–it’s management. “Overall, these results suggest that accounting conservatism curbs corporate innovation mainly through managerial myopia, not through firms’ liquidity constraints.”
A Lack of Oxygen at the Top
Hierarchy can be an effective killer as well, perhaps particularly in Asia. Anthony remembers working with one Asian company where in six hours, he attended three distinctly different meetings, although they included mostly the same people: the first, with all young people, was very vibrant and freewheeling. In the second, attended by middle management, discussion was more subdued. Then when the senior management arrived, debate ended. “Everybody shut up. The young people nodded their heads and wrote it down in a book,” he recalls.
But it’s not just evil bosses that do in good ideas. Some stifling may already be done before employees ever reach your company. Anthony says he thinks the Asian schooling system, with its emphasis on rote memorization, may discourage lateral thinking–the kind of out-of-the-box thinking that tends to yield fresh approaches.
However, some Asians seem to be better than others when it comes to squelching ideas. Deloitte’s 2013 survey of roughly 5,000 Millennials (people born after 1982) in 18 countries found that only 25% of Japanese respondents said they thought they worked for an innovative company compared to a global average of 60%. Roughly the same numbers consider themselves innovative–24% versus a 62% average. By contrast, 68% of Chinese say they work for an innovative company, and 81% of Indian respondents.
Groups Kill Too
Bad group dynamics may hurt innovation too, Asian or not. W.R. Bion, a pioneering British psychoanalyst and World War I veteran, theorized that group dynamics become unproductive for three reasons, which he called dependency, a shared, deep-seated wish to let someone else take charge, fight-or-flight, a condition in which they turn aggressive or become distracted; or pairing, when they sit back and watch two people carry out the work of the group.
However, even effective groups can be good at stopping innovation, if they are sufficiently entrenched. On the whole, entrenched groups tend to be protective of the status quo. The evidence is fairly strong, for example, that peer-reviewed journals, besides weeding out weak papers, also weed out the most innovative papers as well. Many economists who have gone on to win the Nobel Prize or the John Bates Clark Medal have had some of their most innovative work rejected by their peers, according to a report by the British Academy for the Humanities and Social Sciences.
Nor is this a unique phenomenon to journals. In his book, The Structure of Scientific Revolutions, science historian Thomas Kuhn looked at 400 years of scientific discovery and concluded that for the most part, even in science, only young people are ever convinced of a new opinion–they have too much invested in their own ideas–and progress is always made only after the Flat Earth contingent dies off.
But managers intent on preventing innovation from breaking out should stay vigilant: Anthony believes that companies have many great ideas that never see the light of day. As he wrote in his book The Little Black Book of Innovation, “Large companies are capable of–and often do–amazing things. But these firms just scratch the surface. The talent of their people, the technologies in their labs, and their global capabilities are constrained, held back by a mix of fear and misunderstanding. Too many would-be beautiful businesses that could reinvent markets and create substantial value live only in PowerPoint documents, never to be launched.”