Building an Innovation Culture in High Performance Organizations

Gaining exceptional performance varies with industry – but is it the consequence of decisions or discoveries?

I allude the phrase “high performance organizations” typically to those that deal with very complex situations – both in terms of the product and service they bring to market – and the systems on which they depend to do so. They typically exist in highly competitive industries and sectors, and despite the highly competitive nature of their setting, they still perform extraordinarily well by outracing the field. In highly competitive environments, the executives compete at the rate of new discoveries and not necessarily on the sensibility of the position reached. It is often the case that we can look within an industry, be it auto, communications, service – and discover only one or two companies that score off the charts in terms of:

a. quality-work place safety
b. cost time to market
c. responsiveness to change in market need
d. portfolio diversity

and while they stand out on these metrics, a large pack really seem to struggle to keep up. Often times analysts look to benchmarks to find the differentiation in performance to explain the difference.

In the 1980’s the big issue was beating Japan since their companies were disrupting leading western businesses in industries such as steel manufacturing, fiber optics and automotive industry. When people started comparing company to company or plant to plant, they made the observation that some facilities with half the resources, time and team on hand were able to generate twice the output on any given day – half in twice out – which is where the term lean production came in. When analysts started studying the lean vs. mass production plants, they noticed characteristics such as differences in tools and technologies. Whereas schedule production was typical with mass producers, “just in time” was characteristic of lean producers. Lack of discipline or personalized work approaches were characteristic of mass and a rather focused choreographed approach was attributed to lean production. And while this example is operational, it is essential to understanding how success has been crucial towards and for manufacturers.

Much typical management education asserts that executives need to make decisions by which organizations achieve success. Think of the core curriculum for most MBA programs – you start off with finance which is a discipline (and not an approach) on how to value a decision. Accounting attributes values in keeping track of decisions. Strategy has been taught as a decision science – doing analysis to evaluate the strength or weakness of the organization. Based on the outcome, decisions are made to become strong or stronger and the assumption is that now a differentiated advantage has been achieved and is protected. So the conventional wisdom that reinforces this notion – that managers have the role of making a set of decisions that will bring the organization to a state of competitive advantage.

Conventional wisdom also says that great success from operational measures and changes via decisions in tool & techniques lead to successful outcomes. The problem with that conclusion is that its not supported by the data. If we consider the experience across industries, we cannot identify the one tool or decision that differentiates the great organizations from those stuck in the pack. What we do see is that today’s industry leaders actually outpaced the field and innovated (out-learned and out-discovered the competition) which got them the privileged position they enjoy today.

The metaphor of snap shots says that if we look today and compare the pictures in front of us, we’ll see the differences in tools & techniques. The metaphor of video tape sees the variances in behavior between the leaders and the rest, which is where we find critical insights as to what separates the leaders from the followers. So its not so much about the tools and techniques used on any given day but rather on the behaviors added that grant an ever greater value to the entire chain with ever less effort.

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In the early 1990’s, Toyota and Honda were decimating the global competition (esp the big three) and the snap shot metaphor (bench mark comparison) led analysts to believe that lean production was their competitive advantage. But looking over the data reveals that Toyota wasn’t always the leader, rather it was once a poor auto company. Everyone remembers the Beetle and Model T right? Great first innovations right? What about the Toyota Toyopet? The reason you or anyone in the room you just asked is unfamiliar with the Toyopet is simply due to its epic failure in design and function. It came to the USD in the late 1950’s and for shipping convenience Toyota tried to sell first in California. With the Toyopet, the odds of getting to the top of hills (high slopes) was greater driving in reverse than going forward – and California has lots of hills. So Toyota sold very few of these cars, taking the remainder back to Japan. The good news? They weren’t good at making cars, which means this wasn’t their best product within the intellectual resources on hand.

According to the data shows that in the 1958-59 timeline, Toyota’s productivity was 1/8th that of its western counterparts in every sense of the measure for productivity such as labor & capital in a post war economy. By 1962 Toyota had closed the productivity gap and was on par with the rest of the auto industry. By 1968 they were twice as productive but in 1973 they made a comeback in the US market (when OPEC had dramatically raised the price of petroleum and gasoline) with cars that were very affordable because of the tremendous gains in productivity made. The affordability at the time stemmed from the sticker price and also from at the gas pump – being small and fuel efficient meant they didn’t need refilling at the same frequency of competing vehicles. But their success came from reliability of performance. So the combination of affordable reliability became the invitation for Toyota to enter the US market with small, mid-sized and eventually heavy truck like vehicular offerings that were fuel efficient.

This was part of the “catch up” in outracing the field in productivity and quality. After realizing its influence was saturating the mid market with the “Toyota” brand, they company introduced a affluence targeted and a youth targeted set of sub brands called Lexus and Scion in the US, both introductions of which were successes. Discovering the configuration and value proposition around the Lexus and Scion are very interesting cases in innovation per target market and you can read on them in “The Lexus Story: The Behind-The-Scenes Story of the #1 Automotive Luxury Brand” by Jonathan Mahler.

Between the industry outlined and that of the reader, let us acknowledge that the industry, training, markets catered and so on are widely different, but understand that behaviors in fast moving businesses is always the same. Managers looking to implement high performance in the organization need to start with a change in behaviors which starts with one simple approach or mindset and that is on a daily, minute by minute basis your team needs to start with the humility that the work you are doing has been compromised, because your work is incredibly complex and demanding. Motivated by that humility, start to aggressively look for the small inconveniences as signals of something fundamentally wrong in the design of existing systems. It is only after finding those problems, quickly swarm to solve them and when they are solved, incorporate this habit as part of daily work to document what has been learned to better impact tomorrow’s work. With this behavioral change, managers can discover much better performance than considered possible and certainly much better than rivals, peers and counterparts believed to be possible.

Leaders that believe in decisions go out and buy fancy software, hardware. If they need reconfiguration of their systems they hire experts to do that. On the other hand, if the leader believes in discovery, the daily work shifts from deciding where to allocate resources towards teaching people within a triplet of:

a. seeing problems that impede efforts
b. solving those problems in a disciplined fashion that gives insights in how work is done
c. sharing what has been discovered so that a local discovery is systemically and broadly applicable

Culture is a set of consistent responses by a group of people to a set of situations, so responses and behaviors are really the issue here and the fundamental shift will only occur when senior leaders learn to amend the conversation; so conventional wisdom mandates that senior leaders make a decision and expect it carried out which implies mechanism for control, auditing and compliance. However, if the belief is that wisdom is discovered then the daily conversations change from “what did you accomplish?” to “what did you learn?” which helps in finding (and removing) internal & external bottlenecks in place that impede progress and bring the voice to the boardroom about the immediate changes needed to organically encourage the flow of high performance.

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