Culture of innovation and trust in times of change
Digitalization is on everyone’s lips. We know: Our world is constantly changing. The speed at which things are changing is constantly increasing. Disruptive innovations have fundamentally changed numerous markets – and, above all, our lives. A single innovation can completely transform more than one market: for example, since the invention of the smartphone, not only has how we communicate changed, but also how we take photos, listen to music, find our way, read newspapers – and far more industries than the telecommunications sector have had to adapt. The intervals between such revolutionary innovations are getting shorter and shorter. The next changes have already begun: The Internet of Things, the sharing economy, artificial intelligence. No one can predict how the world will change and what awaits us next. This unpredictability in which we live is also described by the acronym VUCA. VUCA stands for Volatility, Uncertainty, Complexity and Ambiguity.
The changes that Covid-19 has brought about in companies have made the world feel even faster. These days it seems practically impossible to guess what will happen in 6 weeks’ time.
So how can we – how can companies – respond to these rapid changes that we neither know when they will come, what they will involve, nor how they will change our lives and the markets? The conventional structures of most companies are geared towards predictable, plannable events, but not towards permanent change. This overwhelms the existing structures: if changes are necessary, most companies can only react very slowly. However, in order to keep up in an ever-changing world, companies must also change. And because it is not about reacting to a single, future change, but rather about facing change again and again in the long term, companies must become one thing above all: Adaptable. Companies must position themselves in such a way that they can react flexibly and agilely, because they cannot know what lies ahead. It doesn’t help to prepare for what might happen in a year or two, because the idea that you can foresee what will happen then has become completely illusory. No matter what happens, we have to be able to react to it. And not only that. In order to help shape things ourselves, we need to be able to take an active role. To achieve this, we need a high degree of innovation potential. Our companies need the ability to generate ideas and innovations themselves.
But what does it take to make a company innovative, agile and flexible?
In short, we need fast and flexible units and employees who decide, think and act independently. This is because the necessary information about rapid changes and the need for action is provided by the people who are aware of what is happening, i.e. those who are directly involved with the market and the customer. These are usually not the managers, but the employees. They must therefore be put in a position to actively participate and think for themselves. In the following, we will look at what you can do to make your organization and your employees capable of innovation.
How you can support the transformation to an innovative company.
Innovation culture: What organizational structures are needed?
Radically decentralized decisions
It is only possible to react flexibly if not every step has to be coordinated and therefore has to pass through different hierarchical levels. This means that decisions should be made at grassroots level wherever possible, not by the management. To achieve this, the company should organize itself in a radically decentralized manner in all areas where this is possible. We need units that are as flexible as possible, for example teams that think and act independently. More and more companies are recognizing this. Today, only 24% of all large companies (over 5,000 employees) still adhere to their traditional functional organizational structures. Most companies have already introduced team structures. Dieter Zetsche, CEO of Daimler AG, remarked in an interview with DIE ZEIT at the end of 2016 about the organization of the automotive group: “…that … in the short term, within half a year or a year, around 20% of employees… will be working on projects without strict hierarchies”. When it comes to organization, it is important that everyone working together on a process is organized in a single unit, so that there are no lengthy coordination processes across hierarchies and departmental boundaries. To enable quick decisions to be made, the framework conditions and requirements to be taken into account are clarified in advance so that the team or individual can make the necessary decisions independently and on their own responsibility.
Examples of flexible organizational structures
Let’s take a look at how companies implement the team structure and how this results in the ability to act and innovate. The US service company Uber is an example of flexible, innovative organizational structures. Uber offers online transportation services in many cities around the world. To achieve this, all functions are organized regionally. Uber employs regional city managers who, together with their team, are responsible for regional marketing, for example, or also provide regional “government support” in order to be able to respond to the local situation and react flexibly. Another example of radically decentralized corporate structures is one of our customers – a company that is active in project development in the real estate sector. The so-called “workbench” has been established as a central working platform for collaboration: Everyone working on a real estate project, including the financier and property manager, meet at a virtual workbench, forming a team that drives forward project development in the properties. Under the leadership of the project manager, the team decides together what to do next. Decisions do not have to be coordinated with other departments or managers across several hierarchical levels. The project manager decides within clearly defined framework conditions – even when it comes to amounts in the millions.
At this point, Scrum should not go unmentioned as an important example of flexibility and innovation. Scrum is a process for agile project development that we will not describe in full here. However, the following elements of this process are interesting: detailed planning is only ever carried out for the next time unit, let’s take a 14-day sprint as an example. In this way, the process takes into account the need to be able to react flexibly to any changes. 14 days is a sufficiently short phase to take another look and make adjustments. Another element of agility: so-called tickets, i.e. project assignments, are defined jointly by the team instead of being specified by a manager. The project assignments are placed on an imaginary shelf and within the two-week cycle, team members self-organize and take on the project assignments that they want to work on or that they feel are particularly suitable. All orders should be completed by the end. It takes a lot of trust not to dictate who does which job, but to let the employees decide for themselves. There is definitely someone who makes sure that all orders are awarded – the Scrum Master. This person acts as a coordinator, but not as a manager. All these flexible, decentralized structures of the new world require something that is lacking in many companies: trust.
We have described Scrum clearly in these articles:
Culture of trust
In his book Work Rules!: How Google is changing the way we live and work, Google’s head of HR Laszlo Bock talks about what is considered fundamental to an innovative culture at Google. Here’s a quote: “Give your people a little more trust, freedom and authority than you’re actually entitled to. If you don’t get nervous about it, you haven’t given them enough.” Laszlo Bock explains this culture of trust using an example: when he started at Google, he was given a credit card with a credit limit of €10,000 on his very first day. He was told that every employee would receive this automatically. This is of course very convenient for the employee: when he is traveling, he doesn’t have to spend everything out of his own pocket, nor does he have to apply for funds when making decisions. They can make flexible and free decisions and pay for them. Of course, he is responsible for this afterwards. This means that there are rules, of course, but also a great deal of trust. Google provides further examples of how a culture of trust can be practiced. If an employee discovers something that they think is worth changing, they can first decide for themselves what to do with it. They can reprogram something in the Google algorithm independently and without approval from above. This is what one employee did when he discovered that the first results that appeared for the search term “suicide” were those that gave detailed tips on how to put the search term into practice. The employee decided to intervene in the search results and reprogram them in such a way that in future the first results would be for aid organizations that help suicidal people. He didn’t have to ask anyone to do this. It is obvious that a company with this culture already pays attention to what makes employees tick when hiring them. Shared values and ideas as well as entrepreneurial thinking increase the likelihood that the employee’s decisions will suit the company.
This culture has also found its way into other companies: In the Ritz-Carlton hotel chain, every employee has a daily allowance of 2,000 euros per guest to give them so-called “wow moments”. The aim is to enable employees to make decisions quickly and flexibly. Sometimes a guest is dissatisfied, sometimes a spontaneous opportunity arises to surprise and delight a regular guest. Employees should be able to act freely here. When you think through this concept, you inevitably tend to extrapolate what would happen if every employee were to utilize this scope for action on a daily basis: The company would be bankrupt within a short time! We realize that this concept only works if employees think and act in an entrepreneurial way and use the budget wisely. They are sensitized to this. The success proves Ritz-Carlton right: every month, employees discuss their decisions as a team. Great “wow moments” are celebrated and motivate all colleagues. It is very rare for decisions to be made disproportionately. This is then discussed constructively, alternative courses of action are sought and the employee learns from this for the next time. Employee satisfaction and – what is important – customer satisfaction have increased significantly.
Why trust is so important for the management of innovative companies
In a constantly changing world, the demands on us managers are already immense. This is likely to increase in the coming years. If we wanted to determine and control everything in addition to all these tasks, this would create a huge bottleneck that would incredibly slow down the entire innovation process. If we want our company to remain fast and flexible, our only chance is to decentralize our organization. This means that decisions must be made on a decentralized basis, decentralized action is necessary and employees should see themselves as entrepreneurs within the company and act accordingly. What does it take for a culture of trust to develop and function? How can we create a culture of trust? Of course, we can’t just tell our employees “Do what you want!” – because that wouldn’t work. Structures, coordination and orientation are needed; after all, it must be clear to employees what they can and cannot decide.
Corporate culture as orientation
The culture of a company can serve as a guide: If every employee is clear about what the company’s values are and has a sense of what is right and what is wrong, then this serves as a guideline for decision-making. For this to be possible, it takes a lot of communication, a lot of coordination, a lot of cooperation, because this creates a culture. A company that works with a culture of trust always has many platforms and opportunities for exchange and coordination. Social interaction replaces leadership and decisions from above. You can talk to your employees about issues and consult with them on uncertain decisions: What do you think? How would you decide? Do you think that’s right? The social aspect serves as a guideline here.
Read here: Corporate culture – cultural change, definition, examples, tips for success
Clear guidelines, well-defined projects
It needs clear guidelines, a clearly communicated direction and the individual projects must also be well defined. If the direction is clearly set from the top, everyone in the company knows where it is going and what the company’s focus is. Once the team has received a clearly defined assignment, it can make decisions on its own as a self-organized small unit. The structure of a project team is similar to the structures in a small company: as in small companies, communication among each other works very well – and in this cooperation, decisions can be made more quickly. No further structures are needed, because everyone knows what to do. And if there are any uncertainties, you can ask another employee. In this way, everyone finds their task, because the goal is clear to everyone – and the team is moving in the right direction.
Regular feedback and free access to information
Feedback is an important means of orientation, which is why it should be institutionalized in the organization. In particular, teams working independently must be able to assess whether they are achieving the desired goals with their actions.
Feedback here does not only mean personal feedback, which is of course also important. The feedback that is needed at this point is, for example, that all figures are transparent and that all necessary facts and information are always freely accessible. This allows employees to check the results and effects of their actions at any time.
It is also important that feedback meetings are held regularly. In Scrum, for example, there is the “sprint retrospective” – this is where the team reflects after the end of a sprint on how they felt about communication, collaboration and the process of the last sprint, and what they could learn for the next time. If feedback is constructively perceived as an opportunity for improvement, then this results in a permanent learning process.
Read here: How to give constructive feedback
Error culture
How the company deals with mistakes is essential for an innovative corporate culture. When you try something new, it can of course go wrong. But if you have to expect negative consequences if you make mistakes, it’s better not to try anything new. If you want to encourage your employees to be innovative and break new ground, you should communicate that failure is part of the innovation process.
The Samwer brothers sell companies. According to Wikipedia, the Samwer brothers are ranked 1,118th on the Forbes list of the richest people in the world. In an interview, Oliver Samwer was accused of having wasted a lot of money by investing in companies that turned into nothing. His reaction: someone who invests €1 million in ten companies is expecting nine companies to fail, but that the tenth will yield €100 million. Failure is necessary because if you did not risk this failure, you would not invest in the tenth, successful company. It is impossible to predict how the situation will develop. It is therefore important to no longer see failure as a mistake, but as a necessary trial and error. This is the only way to create innovation. This means that we in corporate management have to deal with the failure of our employees in a completely different way: In the event of a failed attempt, it is important to signal to the employee that you appreciate their courage to try something new, that it is good that they have dared to try something new and that you do not condemn failure. Who knows – maybe the next attempt will be successful – or maybe it will be the tenth. And then the value of the success may be worth more than the 90% you lost before. It is important to encourage your employees to try things out, even if nothing comes of it in the end.
The focus is on the contribution made, not the position
Another point that is important for a culture of innovation is an attitude: reputation is given for the contribution made to success, not for position or affiliation. Employees don’t automatically get a title, perks or more pay just because they are in a leadership role. As is so often the case, Google is way ahead here: Hierarchies have been largely abolished. The employees sometimes act in a steering role, sometimes they are only project members. Positions change according to requirements. Individual offices and company cars are a thing of the past because they reinforce hierarchies. A flexible structure that can be adapted to the circumstances at any time is desired. By comparison, some established companies still have a separate canteen for management or provide parking spaces in the parking garage exclusively for executives.
Trust is a big step
Now you could simply say: “Great. I have understood: Trust is important. Good, let’s just do it now.” Unfortunately, this is not so easy to do. People usually find it difficult to establish this new culture of interaction. In companies that do not have a culture of trust, tensions between employees and management have often become entrenched. The employees feel that they are not trusted, they realize that they are being controlled and that things are being regulated that they would actually like to decide for themselves. As with teenagers, a defiant mood develops and it can happen that gaps in control are exploited or that the employee is not prepared to give more than he has to.
Trust-based working hours
One example is the issue of trust-based working hours. Imagine you work in a company where your comings and goings are documented by a time clock. If every minute you work is measured – then you won’t see the point of working if you don’t measure. When the company switches to trust-based working hours, the management often expresses concern: “We notice that our employees are trying to avoid the time clock. They are not prepared to work voluntarily, but only if we control them. We fear that not using the time clock will lead to them being exploited.” This concern is quite understandable because there has been no culture of trust up to now. And it’s possible that after the changeover to trust-based working hours, things will actually turn out as expected – and employees will say to themselves “Great, I’ll just work less from now on!”. You have to accept that first of all in order to strengthen the culture of trust in the medium term.
Home Office
The situation is similar when it comes to working from home and working from home. Companies are concerned that employees will not work if the company does not check whether they come to work and whether they actually do it. This creates a culture of control: One person pays attention and the other tries to escape this control, which is usually perceived as unpleasant. Due to Covid-19, this topic has developed in many companies because there was no other way. And yet many companies still have the impression that they check whether employees are really working…
Conclusion:
The stricter the rules are, the more people try to circumvent them when they are not being checked. Because if you are put on a tight leash, you don’t take responsibility for the result. And when the control and thus the heteronomy is removed, you are happy to finally be able to do what you want. Trust is an advance – regardless of how employees react to the lack of control. Trust can only be achieved in the medium term through the personal responsibility of employees. To achieve this, the company should be able to communicate its goals clearly to its employees. At some point, the employee will realize: “I can only achieve my goals if I behave in a certain way. I have annual targets and I can only meet them if I work towards them.” Hewlett-Packard was one of the first companies to introduce trust-based working hours. The HR manager summarized the result: Ultimately, trust-based working hours lead to the “pleasurable overexploitation of oneself”. Although employees work whenever they want, this also means that they sometimes work into the night. The employees sometimes go to the gym for two hours during their lunch break, but also work at the weekend. The opposite of the fear is the case when trust is actually given: Employees take responsibility in the medium term.
