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!)

Related article: Edgar Schein's fundamental laws of organizational change

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.

Applying the Elephant-Rider model to a failed innovation program

A large insurance company hired a new CEO who concluded that among the company’s main problems was a lack of innovation. He launched multiple programs to increase innovation including various campaigns to reward innovation (suggestion boxes, prizes for new ideas) yet received little response. Why? A number of employee focus groups were launched to analyze the problem. In reviewing the company’s history it was revealed that past success was based on a tightly structured system of figuring out the best solution to any given problem, documenting the solution, putting all of the solutions into large manuals organized by every conceivable kind of problem that could arise, and systematically rewarding employees for using the rules written out in the manuals.

Over the years, employees had learned that the road to success was to apply the rules. The number of manuals grew to cover every new situation that arose. Employees who did not like to work in this kind of rule-bound, structured environment were encouraged to leave the organization, leading to a workforce that was comfortable in the structured environment. Previous CEOs had glorified this system of working, and indeed it had been highly successful in building the company. It came to be taken for granted that the best way to work was to follow the rules in the manuals.

Given the situation it is not surprising that the program failed. But how could the CEO have done any better?

To understand the options, let’s first see a simple and useful model of how human brain works. According to this model the human brain has two independent systems or processes of thinking at work all the time. The first one is intuitive and emotional. It is the part that makes you duck when a ball is thrown at you unexpectedly or makes you nervous when your airplane hits turbulence. The second part is the one that plans, analyzes and looks into the future. It is the part that makes a new years resolution that you will go for a morning walk three times a week.

Chip and Dan Heath use an analogy for this model in their bestselling book Switch which I like. In this analogy the emotional side is like an Elephant and deliberating side is like a Rider. Perched atop the Elephant, the Rider holds the reins and seems to be the leader. But the Rider’s control is precarious because the Rider is so small compared to the Elephant. Anytime the six-ton Elephant and the Rider disagree about which direction to go, the Rider is going to lose. He is completely overmatched.

Elephant carries all the baggage from the past like the employees of this insurance company which are habituated to “following the rules”. Even if the Rider gets an idea, the Elephant would ask the question, “Where is the rule?” One option is to shape the path for the Elephant and make the new direction easy. In fact, Edgar Schein who narrates this story in “Corporate culture survival guide” suggests following: “Every month every department had to invent three new ways of doing things and write up a manual to that effect!!!” The Elephant may still feel like doing the old way and in a slightly different way. Behaviroral economist Richard Thaler calls this a “Nudge”.

The other option is based on the assumption that response to an initiative in any organization is never completely zero. There will be a few people in some corners who would have submitted ideas. We zoom in to those people and ask, “Why the hell is it working here?” Then we try to clone the situation in other places. This technique directs the Rider and is called “Follow the bright spots” and I wrote about it last year.

Image source: www.wpclipart.com

My theme for 2011: Robust intervention for systematic innovation

I had identified four themes for study last year. I pursued all of them – some with more seriousness others with less. This year I am down to only one theme which I call “Robust intervention for systematic innovation”. It means either I am more focused this year or getting older. I have mentioned what systematic innovation means earlier. But what does a “robust intervention” mean?

Bailout of banks, radiation therapy of a cancer patient or launch of an innovation program – each is an example of an intervention. An intervention is an act in order to bring about a change. I read the term “robust intervention” in an interview of Nobel Laureate Joseph Stiglitz in Economic Times. He said, “By that [robust intervention] I mean interventions that are simple enough that you don’t have to very fine tune to make them work, even if you have a bad president like President Bush.” Stiglitz says robust interventions work in spite of dysfunctional systems or flawed institutions. OK, so what is not a robust intervention? Here are a few I came across:

· An initiative in an organization where Economic Value Added (EVA) based scorecard was percolated from CEO all the way to the first level manager. The EVA number was not so easy to compute and was too abstract for many. The initiative was a disaster.

· Telling our son, “Don’t play games on the computer”

· An innovation program whose scope was defined by a set of “creativity” workshops covering as many people as possible. Everybody had good fun. Nothing happened after that.

What are the examples of robust interventions? Here are a few I have written about in this past:

· A G Lafley’s open innovation program at P&G. I wrote about it here and here.

· Jerry Sternin’s community program in Vietnam that reduced malnutrition.

· Dr. Kiran Bedi’s reform program at Tihar Jail

Now, here is what I would like to study further. What are the characteristics of a robust intervention? How do we go about carrying out such an intervention?

Here is my initial take on the characteristics of a robust intervention. I could be wrong here and your inputs will help.

1. Non-dependence on scarce resource: If an initiative depends upon “non-corrupt politician” or “good quality teachers” or “systems thinkers”, it is not a robust initiative. There are just so few of them around. Sugata Mitra’s idea of Self Organizing Learning Environments (SOLE) depends upon teachers not playing any role in teaching. Does it make it a better candidate for robust intervention? I don’t know.

2. Appealing to both the Rider and the Elephant: To borrow Dan & Chip Heath’s metaphor from their book Switch, the intervention should appeal to both the emotional Elephant part of our brain and the ever-analyzing Rider atop the Elephant. The EVA initiative mentioned above did not appeal even to the Rider let alone the Elephant. Telling our son to stop playing the computer game is certainly not appealing to his Elephant.

3. Margin of safety: There is a high chance that the initiative moves 4 steps forward and with some bad luck may move 2 steps backward. However, the initiative carries extremely low probability of moving 2 steps forward and 4 backward. How to create cushion against the Black swans?

Giants of Enterprise: My favorite read of 2010

It has been almost a year since I first read Richard Tedlow’s “Giants of Enterprise” and I still haven’t got over the hangover. Several times I revisited the book for some specific incident or information like to check George Eastman’s early experiments and I ended up spending the next half an hour reading much more. It is a kind of stuff I had never read before. The book opened a door of a totally new discipline for me – that of “business history”.

What is “Giants of Enterprise” about? The book contains biographies of seven innovators who built large enterprises in America from railroads to microprocessors: Andrew Carnegie (Steel), George Eastman (Kodak), Henry Ford, Thomas Watson Sr (IBM), Charles Revson (Revlon), Sam Walton (WalMart), Robert Noyce (Intel). In my opinion to say that the book is a bunch of biographies doesn’t do justice to it.

Here are three things that I find unique about this book:

· Role of influencers: For each of the innovators, Tedlow identifies one or two key influencers in their life and shows how a few individuals influence formative minds. If your boss fires you, chances are high you will hate him. And if you don’t, it is almost certain you won’t continue to adore him. Well, even after John Patterson fired Thomas Watson Sr. from National Cash Register, Watson continued to adore his ex-boss. Watson’s son wrote, “Oddly, dad never complained of this treatment and revered Mr. Patterson until the day he died.” Watson told his son one day, “Nearly everything I know about building a business comes from Mr. Patterson”. As Tedlow writes – “Both men dominated their organizations. Both were big spenders on themselves and on the others. Both demanded, explicitly or implicitly, complete allegiance to their views. Both were, in a sense, totalitarians.” Tedlow shows how Tom Scott played a similar role for Andrew Carnegie.

· Psychology of turning points: One of the specialties of Tedlow is to identify one or two key turning points in one’s life and analyze them psychologically. For example, one such point Tedlow presents is the day Henry Ford announced on January 5, 1914, “The smallest amount to be received by a man 22 years old and upwards will $5 per day…” According to Tedlow, this was the point where Ford’s modesty became a thing of the past. He developed an insatiable appetite for headlines. To borrow Warren Buffett’s terminology, Henry Ford forgot about his “circle of competence”. And Tedlow concludes that from this point onwards it was all downhill for Ford. You may or may not agree with Tedlow. But I enjoyed his analysis.

· Anatomy of innovation: If a general reading about an innovation, say through wikipedia, can be compared to watching a dressed up man, then reading this book is like seeing the man in an operating theatre and a surgeon showing you the details from inside. Not everybody may like it. But for me, it is a like having a “flight simulator” to play with. If you want to know exactly at what point Eastman might have got curious about photography or how much money was he already making from his photography business before he quit his banking job or when did he realize that patents are not enough and he needed to create a brand (like Kodak) you can find it in the book with all the gory details.

“Chance favors prepared mind” is my favorite law of innovation. I found this book to be the best so far that gives a glimpse of what “chance”, “a prepared mind” and “favors” mean. Tedlow shows again and again that “success” is like any other addiction. One doesn’t know where to stop.

Personally “History” had lost to “Science” as a cool subject by a wide margin when I was in school. After reading Tedlow, it rekindled my interest in history. Thanks to Tedlow I got an opportunity to appreciate the worlds of Gita Piramal (Business Legends), Ramchandra Guha (India after Gandhi) and many more.

An article I wrote based on a story from this book:

Kodak: story of how George Eastman resolved the patent paradox

4 characteristics of an innovative culture

Last week I made a presentation on “Role of a manager as an innovation catalyst” to 50 odd managers at their company’s offsite. One manager asked me, “What are the characteristics of an innovative culture?” For some reason, I was not happy with my answer. Hence, the question stayed with me. Here is an attempt to present my view of 4 characteristics of an innovative culture in an organizational context.

Experimentation: The first sign that an organization is innovative is visible through the kind of experiments being performed. Typically experiments manifest themselves in the form of prototypes. For example, in a hospital the CEO showed me a checklist prepared by a nurse and subsequently institutionalized in all other branches. In another place, I saw a portal which sourced the latest blogs, ideas, news posted within the organization and showed it in different windows. In a place like Tihar Jail the prototype could very well be the notebooks of the inmates trying to learn alphabets (see the picture above).

Reflection: When you take the question, “How are you doing?” seriously, what you do next is called reflection. Similarly, when a team sits around after a milestone and asks, “What did we do right? What could we have done better?” it is a collective reflection. Why is reflection important? Because that is when you try to make sense out of the clutter in your mind. Only when I reflected did I realize the impact of Daniel Kahneman’s talk on “Psychology of intuition” on my thinking. Only after reflection a team may come to know the diverse set of assumptions under which development and test teams were working. Reflection is visible through the nature of communication in meetings, post project analysis reports, blogs, newsletters, quarterly communication etc.

Recognition: There are two forms of recognition: covert and overt. When an idea suggested by Paul Buchheit or David Grossman gets selected by the organization for further development it is a form of covert recognition. When Toyota announces gold, silver and bronze medals for the best innovators it is overt recognition. When TVS Motors sponsors Srinivasan to attend Kaizen conference in Malaysia that is also a form of recognition. When P&G’s feminine care division gives “Presidents Fail Forward Award” to the “team or individual that enabled the organization to significantly learn from a failure”, it also sends a message about what company values.

Collaboration: Collaboration happens at multiple levels: within a team, across teams, across business units and across companies. If “experimentation” is the first sign of an innovative culture, “collaboration” is the defining characteristic of innovation maturity. At Tihar Jail, collaboration was fostered through various communities like Legal Panchayat, Food Panchayat run by inmates. At another client, every year they form a cross-functional team and send them to the market and ask for their suggestions on the new trends and possible areas for new investments. This year I met a senior engineer who meets his friend from a different group for an hour every month to thrash out ideas – some of them turn out to be patents. I feel "collaboration" especially cross-functional collaboration is the toughest of these four to inculcate.

Related articles:

1. Edgar Schein's fundamental laws of organizational change

2. The myth of innovation DNA

When does an intervention begin? Story of Dr. Kiran Bedi’s first day at Tihar Jail

My engagement with my clients is called an intervention. It is similar to your doctor or fitness coach intervening in your regular routine through your working engagement with them. The objective is the same: help client become healthier. The question is: When does an intervention begin? There are two schools of thought. One school says that an engagement has two parts. The first one is about diagnosis which in an organization setting begins with surveys and/or interviews of various stakeholders and ends with planning of the intervention. The second part is the actual intervention. Prof. Edgar Schein belongs to the second school which says that intervention begins with the diagnosis itself i.e. with the first question you ask your client. Now, you might say, “What difference does it make?” Following story tells how much of a difference it can make.

The post of Inspector General (IG) of Tihar Jail, India’s largest prison was lying vacant for many months when Kiran Bedi was posted there. By then she had finished nine months of “paid wait” period after a full tenure as Deputy Inspector General of Police in Mizoram, in the North-East of India. The appointment was more like a “punishment posting”. One of the ex-IGs (Prison) told her, “What will you do there? There is no work there! I was IG (Prisons) many years ago; I received just two files a day. So I used to clear them from my home.”

Monday 3^rd May 1993 was Kiran’s first day at Tihar. She had made a brief visit the previous Saturday and met her direct reports. Without settling down Kiran went for a round of Prison No. 1 (there are 4 prisons in Tihar). It was just a 20-yard walk from her office. She had to pass through two giant gates before actually entering the prison wards. Wearing a uniform was not mandatory. So Kiran wore a full-sleeved pastel pathan suite topped by a waist-length Nehru jacket. “This gave me a full cover, with a sense of grace” She writes. The Superintendent of the jail, K. R. Kishore, followed her. There was no armed guard. She held a notepad in her hand to record on-the-spot observations.

As Kiran filed past the waiting prisoners, the Warders, perhaps from the force of habit, started to physically contain the prisoners without the slightest provocation from them. Some even waved their sticks menacingly the onlooking prisoners, in a gesture to show concern for her security. Kiran signaled the Warders to stop doing this.

There were blank stares all around her. Kiran stood there not knowing what expression would be most suitable for the moment. Not being in uniform had already communicated a desire of informal tone. She started wondering if our system was at all designed to help change offenders and forgive those who were willing to mend. Perhaps in continuation of the thought, she suddenly broke the silence by asking them: “Do you pray?”

No one answered.

She repeated: “I am asking you, do you pray? Please tell me.” She spoke in Hindi.

The men looked towards the Warders as if to ask them if they were permitted to speak. The Warders were confused.

Kiran moved closer to the bunch and directed the question to one inmate chosen at random.

He answered, “Yes, sometimes,” nodding his head.

“Very good. Who else does? You?” She pointed to another prisoner, again at random, getting even closer to the crouching men.

And then one after another, voices joined in saying, “Yes, I also do. I recite the path. Most of us pray at our own timings…”

Perhaps the first human contact was made. She probed on, “Would it be better if ‘we’ say a prayer together? Would you like to?”

They fell silent again. They had never prayed together.

Then one of them, with one by one the staff and the other on me, said hesitantly, “Yes…” Others nodded their heads in agreement, wanting to be part of the prayer.

She said: “All right, which prayer should ‘we’ sing together? Can you suggest one?”

Silence.

“Do you know ‘Aye Malik tere bande hum, aise hon hamare karam, neki par chalen (O Lord we are your creation/ May our actions be worthy)?” She asked.

This time there was an enthusiastic and instant response, “Yes!”

She said: “Get up to sing together.”

“Close your eyes and sing with me”

And they sang. Kiran says, “When our eyes opened, theirs and mine, I felt we had together succeeded in giving out the first signal of mutual trust which could set the pace and for our work relationship from now on”

Imagine if Kiran had sent out a survey through the Warders as the first step to gather the data!

Source: “It’s always possible: Transformation of one of the largest prisons in the world” by Kiran Bedi, Sterling publishers.