Saturday, February 26, 2011

Why does Edgar Schein say, “A culture of innovation doesn’t scale up”?

DEC is dead, long live DEC” by Prof. Edgar Schein is a forty year saga of the rise and fall of an innovative organization – Digital Equipment Corporation (DEC) – seen primarily through a “culture” goggle. Founded in 1957 DEC grew to become the number two computer company in the US with $14 billion in sales at its peak in late 1980s and from there on waned over a decade and got sold to Compaq in 1997. Schein, an authority on corporate culture, draws 15 lessons towards the end of the book. According to him, the most powerful lesson is, “A culture of innovation doesn’t scale up”. What does Schein mean by “culture of innovation”? And why does he say it doesn’t scale up? Let’s explore these questions in this article.

To understand some of the tenets of DEC culture, let’s look at two stories from the book. The first episode occurs in 1967 when Schein participated in an Operations Committee offsite at a hotel on Cape Cod. The committee decided to review all the projects that were under way in the various parts of DEC. The presenter was Ted Johnson, who stood at the blackboard and wrote down the list of projects he knew to which others contributed. The list grew to some thirty fascinating projects. Schein’s curiosity began to be aroused as to how the group would now set priorities and make decisions about where to allocate resources and effort. CEO Ken Olson was very quiet and seemingly uninvolved. The group took a long look at the list and nodded approval and then went on to the next item on the agenda! In action was an underlying belief of internal competition and “Let the market decide”.

The second story unfolds in 1980 at the beginning of PC revolution. Ken Olson, an engineer at heart, is said to have described IBM PC as “a piece of junk” and so DEC was set out to produce a more elegant product. Operations Committee approved three PC projects, Professional, Rainbow and DECMATE. The market was not interested in a proprietary PC and hence rejected all three. Following the debacle the engineers at DEC wrote a proposal in 1984 for a PC clone. It was called DEC PC25 and 50 proposal. Compaq was just being founded. Ken killed the project – DEC is not a copycat. Underlying tenet was “DEC defines the product spec, neither market nor IBM”.

According to Schein the cultural elements at DEC that guaranteed a continuous stream of innovation were – the philosophy of empowering people, holding them responsible, depending open and truthful communication, forcing broad consensus and buy-in in decision making and ultimately trusting people at all levels to do the right thing – essentially operating like an extended large family. As organization grows, you have silos, turfs, lack of communication and it becomes almost impossible to get active buy-in (only on-paper agreement). This he feels makes it difficult for a large organization to innovate successfully. And hence Schein says, “A culture of innovation doesn’t scale up.”

If Schein’s claim were true, IBM (Rev: $100B), P&G ($80B), 3M ($23B) & Google ($23B) shouldn’t be innovative. A G Lafley’s claim that P&G built repeatable and scalable process of innovation should be false. Perhaps Schein doesn’t mean this to be a sweeping generalization. In fact, Shein does advocate the role of leaders as “change agents” in this article “Leadership and organizational culture”. However, it is not clear how many organizations are serious about developing change agents. For that matter, how many CEOs consider themselves as change agents?

(Note: As I was writing this article, I realized that Ken Olson died earlier this month at age 84. Hats off to the legend!)

Tuesday, February 8, 2011

3M’s innovation storybook: A time-travel experience through a culture-capsule

We have a natural bias to focus endlessly on the problems with our culture and in the process ignore what is working well already. What can we do? Perhaps 3M’s “A century of innovation” holds the key. This innovation storybook not only brings out the success stories like Spencer-Fry’s Post-It and Okie’s waterproof sandpaper but also learnings from some of the failures like Thermo-Fax copiers or magnetic audio-video recording. Here are the three things I liked about the book.

1. Stories behind the pithy wisdom: Like every organization 3M’s culture would carry a number of pithy sayings many of them still active in some form or the other e.g. “Patient money”, “15 percent rule”, “Look behind the smokestacks”. When KcKnight was appointed sales manager in 1911 he knew that 3M’s sandpaper product was no better than competition. But rather than just talking to the front-desk of the furniture manufacturers McKnight asked if he could step into the back shop to talk to the workers. The usual front office answer was, “What for?” McKnight’s reply was, “We are new that’s why we are anxious to learn what you need”. Luckily some “gatekeepers” let McKnight into the factory’s inner sanctum and men on the production line told him what they thought, including how sub-par some 3M products they had tried actually were. This information went back to the product team. This is how the practice of sales folks “Looking behind the smokestacks” and going right to factory floor was born.

2. Company’s defining moments: Every company has defining moments where its core beliefs get tested. Stories of such moments as to how the company responds during such moments are quite inspiring. One such story relates to “Three-M-ite cloth” which became 3M’s first profitable product, after 12 long years of wait since 3M was started in 1902. But the glory was short lived as their biggest competitor from New York, The Carborundum Company charged 3M with patent infringement and demanded that they stop making Three-M-ite cloth. 3M hired a tough Chicago lawyer, Paul Carpenter, decided to fight. Ultimately, Carpenter argued that Carborundum’s patent was invalid: his argument was so strong 3M prevailed. This incident educated the young company about the importance of patents, a philosophy that endures today.

3. Celebrating the heroes: In 1951, James Hendricks, a manager in Tape Research, a tall man with a professorial style, invited every technical person at 3M - 400 in all - to join a forum called “Technical Forum”. An organization in which participation was purely voluntary, its original goals were to foster idea sharing, discussion and inquiry among members of the 3M technical community, while educating technical employees. In 1971 the forum had its first female chair, Julianne Prager and the forum started its Visiting Technical Women program in St. Paul area schools during 1970s. Marlyce Paulson, coordinated Tech Forum activities from 1979 to 1992. Paulson says, “The forum pulled specialists like polymer chemists across the divisions to share what they know.” I like the way this storybook highlights the work of non-CXO people like Hendricks, Prager and Paulson.

I hope more organizations use storybook as a way of communicating its values and legacy to employees, customers and other stakeholders.