Innovation Follows Culture Follows Structure

Once in a while you run into ideas which are refreshingly thought-provoking, while at the same time seeming to be resonating with your own view. This holds for the key statements in “Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industries”, a worthwile new book by theoretical physicist and entrepreneur Safi Bahcall. Countering a famous saying, he suggests: Culture eats strategy for breakfast. Structure eats culture for lunch.

What does he exactly mean by that? Bahcall explains:

To understand what I mean by structure vs. culture, let’s start with what seems like an odd paradox: Take 100 people each of whom individually might be excited about some wild, crazy idea that could transform their industry. Organize them into a group with a mission, and a reward system tied to that mission, and they will reject that same idea. Why? Why would the same people who individually support an idea, collectively reject an idea? Let’s consider something often overlooked in the thousands of books on culture: their incentives. (…) It may appear that the ‘culture’ has changed: from a four-person team in which everyone rolled up their sleeves to nurture some wild idea, to a 100-person group riddled with politics. But underlying that change in culture is a shift in incentives. In other words, structure drives culture.

A related idea introduced by Bahcall is the application of the physical notion phase transition in the context of corporate innovation. Given my own background as physicist (a soulmate, if you will), this is admittedly quite appealing to me. The line of thought starts off by considering organizations as complex systems. Safi Bahcall elaborates further:

A key feature we wish to understand in any complex system is the sudden change between two types of emergent behaviors. That sudden snap is known as a phase transition. Water, for example, will suddenly change from liquid to solid. Highways will suddenly change from smooth flow to jammed flow. Why? Systems snap when the tide turns in a microscopic tug-of-war. Binding energy ties to lock water molecules into rigid formation. Entropy encourages those molecules to roam. As temperature decreases, binding forces get relatively stronger and entropy forces get relatively weaker. When the strengths of those two forces cross, the system snaps. Water freezes. All phase transitions are the result of two competing forces, like the tug-of-war between binding energy and entropy in water. And that’s how we can begin to apply these ideas to teams and companies: when people organize into any kind of group with a mission, and a reward system tied to that mission, they also create two competing forces – two forms of incentives.

Phase transitions turn out characteristic for complex systems. They exhibit some interesting features:

• Separation of two distinct emergent behaviors (of identical system constituents, i.e people in the case of organizations). The system cannot adopt both behaviors at once.
• Co-existence of the distinct behaviors at the point of sudden phase transition.
• Inevitability of phase transitions for complex systems.
• Manageability through identifying and changing control parameters (e.g. temperature in the case of water).

The preceding thoughts tie in with our proposed Dual Innovation approach (see visual below). Key principles thereof are:

• ‘Optimize the Core’ (focus: exploitation) and ‘Create the New’ (focus: exploration) are to be regarded virtually incompatible, separate corporate settings with dedicated operating models. Both directions of impact cannot be combined in one organizational setting (Safi Bahcall: Do you want innovation? Do you want high quality? You can’t have both).
• Due to their incompatibility, an organizational interface (‘Reshape the Core’) is to be established to ensure proper integration of the two disparate ‘camps’ (Safi Bahcall: artists and doers – love them equally).
• The distinct interfacial operating model needs to balance the inherently opposing characteristics of the outer operating models to enable interplay and exchange (Safi Bahcall: dynamic equilibrium).

Particularly, in the course of ‘Scaling-Up‘, i.e. the transition of validated concepts into an established business (Safi Bahcall: transfer), key parameters along the different operating model dimensions are to be shifted in order to obtain a change in the dedicated corporate environment from ‘Explore’ to ‘Exploit’. This corresponds well with Bahcall’s above ideas of identifying and shifting control parameters (e.g. incentivization) with the aim of transitioning between distinct system phases and their emerging characteristics (e.g. culture).

Takeaway

Establishing and effectively managing an organizational interface between separated ‘Explore’ and ‘Exploit’ systems proves pivotal to corporate innovation success. This is the Innovation Playing Field we call ‘Reshape the Core’. A fundamental aim of corporate innovation leadership encompasses

• Identifying, setting and adjusting sensitive control parameters, related to incentivization and reward, personal fit, organizational setup and other factors, which affect staff behavior and thereby the emergent characteristics of the distinct Innovation Playing Fields. Safi Bahcall offers a set of precisely four.
• Balancing those control parameters such that ‘Explore’ and ‘Exploit’ can co-exist and interplay across the critical interface.
• Shifting control parameters appropriately to ensure innovation can be transitioned from ‘Explore’ to ‘Exploit’ by inducing a required system behavior change.

Bottom line: Integrating explorative innovation activities and core business might pose in large part a structural issue as collective behavior and culture of organizations (as complex systems) tend to be significantly determined by structural system factors. Or briefly put: Innovation follows culture follows structure.