Introducing the innovation curve

A company’s position on the innovation curve indicates how it thinks about, embraces, or adapts to change. On one end of the innovation curve are Innovators; on the other end are Laggards:

• Innovators: A small percentage (2.5 percent) of companies and decision-makers fall into this category. They break the rules because, as far as they’re concerned, there are no rules. They instigate disruptive technologies, technologies that change how people live and see the world. Innovators brought us downloadable music, Google Maps, and social networking. Innovators are incubators for start-up companies that thrive on the edge of uncertainty and boldly lead where no other company has gone before.

  Question for you: How long did it take you to experiment with social media in your business? When did your business get its Facebook page or start monitoring customer feedback on Yelp.com? The longer you took to explore the effects of new technology on your business, the further behind you become, exposing your company to greater uncertainty.

• Early adopters: Early adopters are people and companies who are quick to grasp a good idea when they see one. They prefer to lead, not follow, and they aren’t afraid to invent or adopt different ways of doing things if doing so gives them an edge. About 13.5 percent of people and businesses fall into this category. They are risk takers.
• Early majority: People and companies in this category are open to change as long as it doesn’t rock the boat too much. They operate in the zone between the early adopters and the late majority folks, veering back and forth between the two. They want innovation, but only after the bugs have been ironed out. Their business culture can be in transformation for several reasons, one of which is that they are moving from a command-and-control structure to a more adaptive and flexible culture.
• Late majority: People in this group, which constitutes 34 percent of people and companies, prefer to wait until they feel absolutely certain about what is going on. Results have to be consistent before they feel comfortable introducing new ideas into their culture. When it’s no longer practical to resist, they’ll transplant an idea from elsewhere but will do so without adapting it to fit. If this quick fix fails, which is highly probable, they blame the idea rather than examine how the implementation process may have sabotaged their success. Late majority companies prefer to avoid risk and prevent mistakes, value perfectionism and predictability, and don’t like surprises. They have a low level of trust in their employees’ abilities and insert tons of controls to ensure that no one colors outside the lines. (Note that some of these characteristics also apply to early majority companies that still have one foot stuck in old habits.)
• Laggards: The laggards are the real old-timers who prefer to use a rotary phone, still fax messages, and don’t know how to turn on a computer. Get the picture? About 16 percent of people and companies fall into this category.

Companies that don’t manage their cultures can unintentionally punish or block the creativity and innovation they expect employees to deliver. In the next section, we tell you how to avoid creating this issue.

Building a culture that values innovation

Over-controlling cultures block innovation, which is a product of flexible thinking and a company’s mind-set, as well as the ability to spot insights.

An unexpected event or a disruption to the routine can be an opportunity to take a serious look at processes that stymie progress, to reinvent how things get done, and to open the door to creative solutions. Answering the following questions can shed light on how tightly you control situations and data rather than allow intuition or insight to prevail:

• Do you have excessive procedures and processes in place to control how things get done? If you or your company put too many controls in place, you foster an environment that isn’t conducive to innovation.
• Do you listen to or ignore information that doesn’t fit the norm or red flags that an employee may raise? If you ignore information that doesn’t fit your or your company’s beliefs or business culture, you are missing the moment to adapt, check for ethical issues, or discover a totally different approach to routine situations.
• To what extent do you trust your employees to do what is required to achieve a goal? Put simply, in low-trust workplace cultures, employees become conditioned to not take initiative or innovate. Conversely, high-trust workplaces foster employee initiative; they trust their employees to get the job done.

• Do you punish mistakes or use failures to learn? Trust and the ability to learn from failure are part of an Innovator’s tool kit; they are also key indicators of whether your organization has the capacity for flexibility.

  Perfectionism can undermine your company’s ability to adapt. Companies that seek perfection squelch creativity and insight. To avoid this trap, try to cultivate a culture that instills higher levels of trust in individuals. This, combined with the organization’s collective talent, can counterbalance fear of mistakes.

When you move closer to the Innovator category, you shift perspective. Instead of seeing a mistake as a failure, you treat it as another step in the experimentation process. Had 3M been locked into perfection, the Post-it Note wouldn’t exist. Post-it Notes came about when a glue that was being formulated wasn’t sticky enough — a happy accident born out of a production mistake. Similarly, Thomas Edison, who was told he was too stupid to learn anything, viewed his 1,000 attempts to invent the light bulb as 1,000 steps rather than failures. When you become an Innovator, you adopt the spirit of patience and perseverance by staying focused on the goal.

Organizational challenges and company size

For effective and participatory decision-making, relationships must be stable and people must know whom to go to — and this is where size comes into play. In theory, at a certain point, an organization just becomes too large to accommodate those kinds of relationships. So what’s the tipping point? According to Robin Dunbar, a British anthropologist, it’s about 150. In fact, there seem to be two points at which companies alter how work gets done: when they grow beyond 50 employees and when they grow beyond 150 employees. In the following list, we outline the organizational challenges businesses of different sizes face:

• From 1 to 50 employees: Companies of this size can take two approaches to organization: They can implement an organizational structure right at the beginning by agreeing on how decisions will be made and what kind of organization would work effectively, and by selecting the clientele profile they want to work with. Or they can wait until things get so dysfunctional that the business is at risk of failure and they’re forced to put systems in place.
• From 50 to 150 employees: If you haven’t made clear decisions on how you’ll decide or whom you’ll engage in different kinds of decisions, you must do so now. Consider this your company’s awkward teenage stage. By putting in place systems and processes, you help your company graduate from winging it to being more organized. Gaining employee engagement in gathering or relaying market intelligence keeps a company current with new developments. Similarly, supplier relations become an integral part of reputation-building, so making sure your employees have shared commitment to quality and customers reduces risk as your company continues to grow.

• More than 150 employees: At this stage in a company’s growth, whatever decisions a company has made about how it gets things done stabilize and settle. Dunbar’s rule, noted earlier, states that in groups with more than 150 members, relationships destabilize. One solution, used by W. L. Gore, a sportswear manufacturing company with 10,000 employees, is to work in units of 150. This structure enables the company to gain flexibility without sacrificing growth.

  Not all companies run into the 150 rule. Companies that use a self-management model organize around how work gets done. They set up clearly defined roles and accountabilities long before they reach the 150 employee stage. Self-managing companies, such as the world’s largest tomato processing company, Morning Star (400 employees), has strong processes and agreements in place that allow them to grow while maintaining clear guidelines for internal relationships and decision-making.

Reviewing organizational options for small and medium-sized companies

Basically, you can organize people by their relationship and expertise to a specific function, or you can organize how work gets done. The distinction separates a traditional structure, which aims to manage people, from one that organizes how each person contributes to the achievement of the overall mission of the company. Autonomy and self-managing are built in to a governance approach that centers on individual and collective achievement of a mission.

Organizations are made of relationships, so you have options around how to arrange the relationships in your company so that decision-making is participatory and effective. If you run a company that has fewer than 150 employees, you have several organizational options; which of these options will work best for your company depends on what you hope to achieve for employees and customers:

• Establish a self-management structure. This self-managed approach brings in more structure, not around who has power but around how each person contributes to the mission.

  Follow the lead of Morning Star, which has worked out the agreements and accountabilities necessary to operate with 400 employees. You’ll find sample contracts on http://www.self-managementinstitute.org.

• Create job titles to designate areas of responsibility, and then decentralize the decision-making, using clearly defined participatory decision-making processes. The functional lead accepts accountability but works as a peer with his or her team to bring value to the company and customer. Remaining open to hearing feedback from employees and customers keeps your decision-making in stride with emerging requirements.
• Designate job titles, areas of responsibility, and accountability, and then delegate specific levels of decision-making authority to each level of management. This is the organizational structure that most businesses are accustomed to. It centers on an organization in which a manager exercises control over people to get work done.

At the very least, give some thought to your decision-making structure. If you don’t make the decision intentionally, the traditional hierarchical business structure (the one where decision-making resides at top echelons and is handed down from on high) becomes the default decision-making structure. In this situation, areas of responsibility, such as marketing or human resources, are often assigned to a lead. Competitive silos and groups of power can form, distracting attention away from performance goals.

Choosing a structure conducive to fast growth

The traditional approach in pyramid-style company organizations is to assign decision-making authority to each level of command and to mandate that each lower level must ferry the decision up to the next before approval is granted. This structure is too slow to be effective when change is occurring quickly.

To combat this, some growing companies purposely select a decision-making process that fits their values: They either decentralize or use participatory decision-making processes in which the final decision rests with the lead person. These approaches, which promote making decisions as a community, give a company greater flexibility and match company growth with company values. This kind of structure works well for small companies and, if done well, it can also work well in medium-sized companies that prefer the flexibility that comes with self-organizing and the autonomy that comes with personal responsibility.

Morning Star is a pioneer of the flat organizational approach. (You can read more about the flat organizational approach at http://www.self-managementinstitute.org.) Another innovative company is gaming company Valve, which employs a self-organizing structure based on the wisdom of crowds, the idea that the many are collectively smarter than the few. Valve has turned this concept into a uniquely creative approach to customer and employee relationships and decision-making. To read more about this theory, check out James Surowiecki’s book The Wisdom of Crowds (Anchor).

The strongest innovators are found in the technology sector and come from young entrepreneurs who haven’t gotten locked into a conventional way of thinking. If you’re looking for new ways of thinking that also seem to scale nicely, explore what companies such as Cocoon Projects in Italy are doing, for instance. For more information visit http://cocoonprojects.com/en/ or http://LiquidOrganization.info.

Putting together your decision-making structure

The best organizational structure is one that offers clarity, flexibility, solid processes, and agreements about how decisions are made; clear communication regarding goals; and ways to monitor and provide feedback. Such structures create the stable framework upon which working relationships can function effectively.

The methods you put in place must be clear, thoughtful, and intentional, and you must be willing to adjust as your company’s relationships evolve. To agree on the decision-making process you want to work with internally, follow these steps:

1. List all the decisions you typically make in a day, week, month, or quarter.
2. Identify who is best positioned to make the decisions you list in Step 1, based on speed, access to information, or other key criteria.

3. For each type of decision, create guidelines for which people to include, which process to use, and which shared company values apply to the decision-making process.

   Include the following kinds of information in your guidelines:

   • The decision-making tools to be used: Select and apply your own principles to fit your business. If a decision-making tool such as dot voting will work, use it. If you need something more sophisticated, select a tool that fits the importance of the decision and the need for employee input. Cocoon Projects, for example, applies the principle of using the smallest tool possible to get the job done.

     By matching the decision-making tool to the kind of decision, you replace random decision-making with a process that ideally ensures employee contribution, resolves issues quickly, and is relevant to the situation. In short, you gain speed and accuracy.

   • The amount of time allocated for each level of decision: This timeline marks the time available from input through to the final decision. Some decisions, depending on their magnitude, may take no more than a few minutes; others may take weeks or months.
   • Guidelines regarding employee involvement: These guidelines would cover how long and in what capacity employees participate in the decision-making process.

As you create your process, keep these suggestions in mind:

• Decentralize decision-making so that the people with real-time information are the ones making the decisions.
• Use technology to ensure that internal information flows openly.
• Let go of decisions that are better made elsewhere. Doing so frees your desk of decisions that frontline employees are better qualified to make. If you find it difficult to give away control, read the upcoming section “Developing the Decision-Maker: To Grow or Not.”