By Ashim Banerjee

Innovation is not a "good to have." It is hygiene, and you must pursue it every single moment of every single day in all aspects of your work. Just like a body atrophies and the brain slows down if you don't push yourself, a business loses its competitive edge when you don't make the effort to stretch and push the boundaries of internal thought and action. Without innovation, your strategy will fail and the company culture will first become bureaucratic, then purposeless.

-Copied from the wall of a Silicon Valley company

Why do great companies fall short when they appear to have all the financial, intellectual and market resources in hand? Is there any attribute that is common across failures?

There is no obvious answer, but evidence suggests that some businesses begin to struggle when original markets saturate and the strategy of past successes is not carried over to emerging markets. When their tools, techniques and resources become too optimized for the markets they once served, companies can lose the impetus needed to enter new markets.

The purpose of this brief article is to explore this type of situation and offer ideas for management to rekindle the energy needed to ignite the innovation engine. If done correctly, the company should then be able to enter new markets by leveraging internal resources and capabilities.

Besides finance, the primary variables in a firm are culture, strategy and innovation. These primary variables can either become accelerators or inhibitors of positive change, depending how the business deals with them on a daily basis. Of these variables if the ability to innovate is lost, it becomes impossible to adapt the organization without going back to basics and re-calibrating the culture. In other words, culture is central to organizational evolution and it is the true foundation on which both strategy and innovation are balanced.

Take IBM. When asked what he considered to be the most important contributor in IBM's transformation, former CEO Lou Gerstner attributed cultural change¹ as being the single most important contributor in transforming IBM under his watch. In his case, he goes on to state that culture is everything for an organization that seeks to win in the marketplace. On one occasion he even laments that he had to be 55 years old before he figured that culture was not a PR, marketing and advertising prop but the fuel for engineering turnarounds in an organization.

What is Culture?

Anthropologists define culture as what binds people together and helps them see each other as having a common set of ideas and standards.

In a business, culture is a social control system that is always operating at every level of the organization. When left unmanaged, this control system can undermine the ability to refresh or execute any strategy. Fortunately, culture can be refreshed with some effort. Unfortunately, developing and executing a new strategy is extremely difficult until the refresh is completed.

To calibrate any culture for innovation, the first task is to recognize that to be successful, organizations must be dual-skilled or ambidextrous. They have to innovate the new and operate the old simultaneously. They must serve and incrementally win in the mature market, which made them successful, while they seek new pastures via innovation to make revolutionary leaps. The overall growth of the business is then the linear sum of the incremental growth, guided by an induced component of the overall corporate strategy and the revolutionary leaps, guided by a relatively autonomous strategy.

To make an organization ambidextrous, the simplest approach is to facilitate an autonomous strategy where a new culture is allowed to evolve and flourish. Past data suggests that autonomous strategies are the easiest way to catalyze revolutionary leaps. Well known examples of autonomous strategic action is the creation of Java™ by an entirely independent group in SUN Microsystems. An even more compelling example is the creation and launch of the microprocessor by Intel. Culturally, Intel saw itself as a manufacturer of semi-conductor memory and competed with the far more efficient manufacturers in Japan. However, the management foresight was such that an autonomous strategy was allowed to flourish externally and they ended up producing the more complex, digital logic-based processors. Eventually, for Intel, the autonomous strategy became the primary strategy and Intel became a leader in a technology that they produced outside their very rigorous culture.

The Ambidextrous Organization

To eliminate cultural friction, at the minimum there are two tracks that need to function in such an organization. Over time through reverse osmosis the tracks can be allowed to commingle if deemed a success.

Figure 1 shows a conventional organization where corporate strategy is translated and induced across the organization and its culture. A corporate strategy would most likely be closer to the vision or goal of the entire business, while an induced strategy could be the vision or goal translated into strategy playbooks used by business units to achieve corporate goals. To elaborate further, induced strategy is essentially the corporate strategy applied across business units and divisions.

In Figure 2, the emergence of a parallel track is depicted. Here the culture is not only the incumbent culture but there is now an innovation culture. Both strategies (induced and autonomous) continue to remain linked with corporate goals and ensure that alignment is maintained. The autonomous strategy route begins to produce an emergent environment, which the business can choose to keep separate or commingle, as needed. Success metrics of the autonomous strategy can be defined by any number of ways — products launched, markets entered, time saved, risk avoided, PE impact, cost saved, revenue generated, etc. Figure 3 illustrates an example of the impact of running an autonomous strategy and building an ambidextrous organization.

About the Author

Ashim Banerjee is Chief Information Officer for TSYS Acquiring Solutions. He has been involved in the payments industry for the last 10 years at Infonox, which was acquired by TSYS in 2008. In his current role, he is focused on exploring innovative emerging payment channels such as mobile and self-service, with an emphasis on mobility for both point-of-sale applications and consumer-based payment ecosystems.

1 Who Says Elephants Can't Dance? Inside IBM's Historic Turnaround by Louis Gerstner, 2002 & Audio recordings of speech made by Louis Gerstner 2000.