Creating an ideas culture for optimum business success

Most policymakers and business leaders agree that raising the capacity of organisations to innovate is the key to future success. Yet creating the conditions in which innovation thrives is not easy. We examine what is required.

Key points The UK has a poor record of innovation, lagging behind the US and much of Europe on many scores and being in the third rank out of four in an innovation assessment by the Organisation for Economic Cooperation and Development. Organisations wishing to create an innovation culture need to identify and develop people who are themselves innovative, and to ensure managers are equipped to support them by offering autonomy, resources, advice and feedback. Many organisations start to foster innovation through idea-capture and suggestion schemes. Although these have an excellent record of success in some companies, it is important to offer the right balance of recognition and reward to those putting forward ideas.

"The culture within UK-owned firms appears to place less emphasis on creativity. Few firms show evidence of systematic adoption of the human resource management practices [that are] typically associated with effective employee relations and a workplace culture supportive of innovation," said the Department of Trade and Industry (DTI) in its 2003 Innovation report¹.

It defines innovation as the "successful exploitation of new ideas", while management guru Peter Drucker describes it as "change that creates a new dimension of performance". Although most people tend to be naturally creative, workplaces have stifled creativity through command-and-control cultures, which consisted mainly of instructing and supervising employees to perform specific tasks. In such circumstances, there was little room to deviate from the norm. Innovation that did occur was largely down to the output of the research and development department or was the result of mimicking change elsewhere. Certainly, the wider workforce was rarely systematically involved in change.

This situation is changing, however. A growing number of organisations recognise that, in a competitive global marketplace, becoming more innovative is the key to future business growth; while the government sees innovation as one of the five drivers of improved productivity in the UK. According to the innovation.gov.uk website, in order for UK companies to be more innovative they need:

the technical skills to support product innovation;

inspirational leadership to manage innovation and change; and

a workplace culture that encourages creative ideas to flourish.

An innovation culture

Although innovation is increasingly the difference between business success and failure, there are significant barriers to establishing the conditions in which it can thrive. Francis Horibe, author of Creating the innovation culture², points out that, at an organisational level, "encouraging innovation is hard because, by definition, innovation is about different ideas that challenge traditional assumptions and ways of doing business". Lynda Gratton, associate professor of management practice at London Business School, who believes the best ideas occur across functional boundaries, highlights potential individual and departmental barriers to effective innovation. "Innovation works best when, for instance, HR talks to marketing and vice versa. However, there is a tendency to hoard rather than share knowledge," she says. Creating an innovation culture can help overcome such obstacles.

Professor Stephen Wood, at the Institute of Work Psychology (IWP) at the University of Sheffield, says an innovation culture is one where employees are motivated and confident enough to try out new things. "Employees need to be equipped with the right knowledge, skills and abilities to effectively generate and implement new ideas as well as be given the opportunities to explore, investigate and experiment," he says. His IWP colleague, Kamal Birdi, adds that an innovation culture needs the active support of management at all levels, together with systems that allow the smooth transition from the first emergence of ideas to their implementation.

Gratton says innovation is all about collaboration and participation, and encouraging entrepreneurship. Wood agrees: "An innovation culture tolerates errors and risk-taking," he says. "It also fosters learning from mistakes by instigating regular reviews." The DTI suggests that innovation thrives in organisations that are supportive of risk-taking. "Innovative companies have an entrepreneurial culture [that is] driven by inspirational leaders, skilled management, and informed and engaged employees. In such a culture both businesses and individuals are able to reach their full potential," says the DTI's Innovation report.

Purposeful cooperation takes place only in an environment that is conducive to collaborative behaviour where individuals are willing to change existing behaviour and habits, says Gratton. It also requires work activity to focus on collaboration-dependent goals. She says the challenge of establishing an effective innovation culture is two-fold: people need to trust each other and they need to collaborate. Gratton believes that HR can play a crucial role in securing both, helping to build high trust, for instance, by ensuring that senior management acts as a role model and understands how its behaviour influences the rest of the organisation. "HR needs to coach the chief executive to adopt the right behaviour, as what they do has a huge impact on how others behave," she advises. She also says that HR needs to remove the barriers, such as rewards and promotion, that inhibit an innovative and collaborative culture. "Rewards that foster competition and self-interest need to be re-thought", she says.

The DTI believes that HR has a crucial role to play in establishing an innovation culture. It says that businesses can improve their "capacity for innovation by fostering organisational flexibility, raising skills and employee engagement". And that "better ways of working, such as flatter structures, family-friendly work practices, teleworking, information-sharing and the involvement of employees in problem-solving, help create a more agile organisation with greater innovative capacity."

Research by IWP shows that an innovation culture can be encouraged by:

selecting innovative employees;

training for creativity and innovation;

empowering employees;

setting up idea-capture schemes;

developing managers to support the innovation of others;

making creativity a requirement of the job;

improving employee participation in decision-making;

having appropriate reward systems;

allowing risk-taking; and

investing in research and development.

Finding and developing innovators

People who create knowledge and innovate are few and far between, so organisations need to employ those who have an ability to be creative. "Recruiting the right people is the key and is top of my list of people priorities," says Neil Henderson, joint managing director at communications agency St Luke's, where creativity is the foundation of the business. He says the agency "looks for people who want to help other people, go out of their way to cooperate, share ideas and collaborate with others". Potential recruits are required to attend at least five interviews. "Having so many interviews enables us to judge how well they get on with a variety of different people. It also means that they know quite a few people when they start, which means they have a ready-made support network," says Henderson.

The IWP has identified the following four key traits that make for innovative people:

openness to frequent change;

active championing of change;

unstructured approaches to work; and

a preference to try doing things differently.

Psychometric testing can help identify potential innovators and creative individuals. One such test, the Innovation Potential Indicator (IPI), developed by Fiona Patterson at City University, focuses on the key behaviours that can enhance or impede the development of new products, processes and ways of working. The behaviours, which are measured on four scales to provide an indication of an individual's motivation, interpersonal style, thinking style and flexibility at work, are:

motivation to change (MTC) - assesses the readiness to tackle new and previously unresolved problems;

challenging behaviour (CB) - the extent to which an individual is comfortable challenging other people's ways of thinking;

consistency of work styles (CWS) - an individual's approach to work, including whether they prefer an organised, structured environment or a variable, flexible one; and

adaptation (AD) - assesses problem-solving style.

According to Patterson and her colleague Rebecca Port, innovators are more likely to possess certain characteristics or preferences in each of these categories. For example:

MTC - innovators tend to seek change and stimulation, are easily bored and are tolerant of ambiguity;

CB - innovators' characteristics include independence, assertiveness, non-conformism and rebelliousness;

CWS - innovators use a range of work styles flexibly, welcome variety and are comfortable with incomplete instructions; and

AD - innovators seek originality, dare to be different, are uninhibited by current practice and make decisions on instinct rather than fact.

Gratton agrees that recruiting the right people is "absolutely crucial", but warns that keeping them may prove difficult unless they are given enough opportunities to take risks and challenge existing ways of working.

Poor skills among managers and the workforce can generally hinder innovation. So, as well as recruiting potentially innovative people, developing the creative skills of the workforce is also a key feature of an innovation culture - but only if people are given the freedom to use their capabilities. Wood reports that IWP research confirms that creativity training courses - such as opportunity finding, problem definition, idea evaluation and idea implementation - can be effective. "They signal that innovation is important to the business and provide useful tools and ideas for employees," he says. The most recent CIPD annual survey of training and development found that innovation was one of the drivers of a required higher or greater skills requirements³.

Time and space

"Everyone has some creativity in them," believes Henderson. "The key is giving them permission to be creative." Consent can come from direct management support for innovation and an infrastructure that enables creativity. Gratton says that an organisation's "structural architecture" should encourage "people to move around and socialise" so they behave cooperatively. "Collaboration isn't easy unless you change the way you work," says Henderson. At St Luke's, individual offices have been removed so people can use space collectively, while staff work in multidisciplinary project teams rather than departments.

In addition to the working environment, organisations need to give employees time to be creative. Few organisations go as far as 3M, whose researchers are encouraged to spend 15% of their time on projects of their own initiative, but if staff do not have adequate time and resources they are unlikely to be innovative, particularly in today's business environment, which has seen workloads rising. US research has found that innovation potential is significantly reduced as individuals' workloads increase. Specifically, around 80% of employees surveyed by the Center for Gender in Organizations in Boston said that they no time to "explore new areas of work", "build knowledge and skills" or "reflect and think creatively"⁴.

Management support for innovation is crucial. Birdi says IWP studies have shown that the actions of others strongly influence a person's capacity and willingness to innovate, and that the level of management support is a strong predictor of the implementation of employee ideas. According to Patterson and Rebecca Port, managers can enhance creativity by giving staff greater autonomy, resources, and advice and feedback. They should also be non-critical of ideas and be both approachable and accessible.

Sally Gardiner, recognition manager at BUPA, says the health and care company encourages staff to try out their ideas, and that its annual staff survey includes a question asking whether they are encouraged to do so. "If the results show staff are not being supported to try their ideas, we work with managers to ensure they are," she says.

From small acorns

Workplace idea-capture schemes are the starting point for many organisations that want to foster innovation. Such arrangements have been around for years and are now fairly common, saving as, for example, at healthcare company BUPA UK businesses, considerable sums of money (see box). Ideas UK, the association of employers dedicated to creativity and innovation in the workplace, has around 150 corporate members, employing around 1.3 million employees. Its operations director, Steve Proctor, says that over the past decade member companies have saved on average a cumulative £80 million annually by implementing staff ideas. An IRS survey in 2004 revealed several examples of improvements to processes that had produced relatively large savings, including the redesign of a tool at Pfizer that saved the firm £70,000 (See Employee suggestion schemes: an idea whose time has come ).

Idea- capture schemes are a key element of the culture of Japanese companies and are an integral part of the kaizen, or continuous improvement thinking, to which most firms in Japan adhere. Toyota established its suggestion system in the 1950s and now its work teams throughout the world, including in the UK, regularly review processes by discussing each other's improvement ideas. The general principles of the Toyota Manufacturing UK philosophy state: "We have an environment of continuous change and development towards improvement in which everyone is encouraged to make suggestions." The company, which operates two manufacturing plants in the UK, says teamwork means, among other things, "being creative and resourceful" and "sharing views and opinions openly".

According to Proctor, idea-capture schemes thrive in a culture where there is demonstrable senior management support for staff suggestions. "Leadership support adds weight to the scheme and means those who evaluate ideas do not see it as additional to their other responsibilities, but as a key business priority," he says. He warns against ideas going into a "black hole", saying that firms need to put in place a transparent and clear system to evaluate, implement and, if appropriate, reward. "If firms don't act on ideas, I can guarantee one thing: people will still keep having ideas, they just won't give them to you," he says.

Rewarding innovation

Rather than offering financial incentives for employee ideas, the Japanese approach is to regard contributing improvement suggestions and ideas for new products and processes as part-and-parcel of the job. Proctor agrees to - an extent. "Money is not directly the motivator, people generally just want to see their idea taken on board," he says. "But if their idea saves money, and they see others, such as shareholders, benefiting they may want a share." Gratton believes that rewards can "act as barriers" and that organisations need to strike a balance between rewards that encourage people to work collaboratively and those that motivate the "star" innovators to stay. Birdi says that whether rewards are financial or not, they need to be regarded as "fair and valued" by employees.

The 2004 IRS survey of idea-capture schemes found that the majority of organisations offer something tangible, ranging from gift vouchers to cash awards. However, when asked what motivates employees to put forward ideas, the two most popular reasons given by respondents were to get recognition and to overcome frustration with a work process.

There are small financial rewards at BUPA, but Gardiner believes non-financial reward, particularly peer recognition, is the best motivator. "We deliberately tested whether people prefer money or some other way of recognising their contribution," says Gardiner. "We found they like money, but that the best bit was seeing their idea implemented and their contribution recognised by colleagues." She also says that if an employee regularly contributes ideas, this is taken into consideration if they apply for a promotion and in their annual performance reviews.

BAE Systems also prefers giving innovators recognition rather than financial rewards. The company has run its Chairman's Awards Scheme since 1996. "The scheme recognises employees and those of our partners whose ideas, actions and behaviours bring our values to life and make BAE Systems a better, more competitive company," says spokesperson Richard Coltart. The awards reflect the defence and aerospace firm's priorities and are made in three categories: innovation, transferring best practice and enhancing customer service. Winners receive a gold, silver or bronze award - essentially certificates honouring their ideas - with those receiving the top accolade attending a special event. "The scheme is about recognition rather than reward," emphasises Coltart. Over the past nine years, the company has made more than 5,500 awards from more than 12,000 nominations, involving 30,000 people. Last year, almost 1,100 awards were made, including six gold, 48 silver and more than 1,000 bronze winners.

A future necessity

The UK has a poor innovation record. Although a number of economic sectors in the UK are renowned for their innovation, such as aerospace, biotechnology and pharmaceuticals, the country lags behind the US and much of Europe in turning ideas into successful products and services. On the two most commonly used indicators of technological innovation - R&D investment and patenting - the UK is only average. The Organisation for Economic Cooperation and Development (OECD) recently placed the UK in the third rank out of four levels in its assessment of innovation, well behind the leading innovators, which are the Nordic countries, Japan and the US⁵.

Innovation is not just about designing and producing cutting-edge products, technologies and services; much can be achieved through smaller changes to existing processes and working practices. In fact, as the DTI points out, most innovations are "incremental - a succession of individually modest improvements to products or services over their life cycle". And it is small innovations that most people can contribute, given the chance. Unfortunately, there is evidence that too many UK organisations do not encourage such innovation. The third Vodafone Working nation report revealed, for example, that half of the 2,000 people polled said their company did not formally encourage them to come up with new ideas⁶.

However, firms that continue to stifle the creative potential of their workforce are likely to be less successful in the future. The answer is for organisations to establish an environment - an innovation culture - in which all employees can contribute to improving the organisation. That requires managers to relax control in the workplace and give employees the freedom to play their part in improving products and processes and in developing new ways of working. Only then will the UK be in a position to meet the challenge set by the prime minister: to put innovation at the centre of firms' strategies for the future.

Capturing ideas at BUPA Health and care company BUPA has operated an idea-capture scheme since 1998. "When our new CEO took over, she was quite clear that the solutions to business issues lay within the business," explains BUPA's recognition manager, Sally Gardiner, who set up the scheme. The company's entire 40,000-strong global workforce is encouraged to contribute ideas. "Though we occasionally get 'wild and wacky' suggestions, we try to get BUPA people to focus their ideas on ways that will accelerate achieving our business objectives," says Gardiner. "We find this helps to focus their minds." Linking ideas to business goals means that BUPA encourages ideas that will either save or generate money or improve customer service. Each business unit will communicate exactly where it is looking for improvement. "Most ideas impact on customer service, and the majority are suggestions for small, incremental changes rather than big, step-change initiatives," says Gardiner. She gives the example of the clips to hold crutches that were added to hospital bedside cabinets, so patients undergoing knee and hip operations no longer have to struggle out of bed to find their crutches, to illustrate the type of incremental change ideas submitted by staff that make a big difference to customers. Staff with access to a PC can submit ideas directly to the firm's intranet. Others fill in a form, which is then submitted by either their ideas representative or manager. A central team of four, headed by Gardiner, filters all suggestions and identifies the best person in the company to evaluate an idea. Assessments are posted online and staff can track the progress of their idea via the intranet. Gardiner estimates that around 25% of all ideas are implemented. Although there are small financial rewards for ideas, the firm prefers to use non-financial inducements. Individuals submitting successful ideas receive a certificate and their stories are published in the company newsletter. Each year, the company holds an "Idea of the Year" event to celebrate the best suggestions.

¹ Innovation report, Department of Trade and Industry, December 2003, www.dti.gov.uk/innovationreport .

² Creating the innovation culture, Horibe F, John Wiley and Sons 2001.

³ Training and development 2005, www.cipd.co.uk/subjects/training/general/_tdsurvey.htm.

⁴ When more is less: exploring the relationship between employee workload and innovation potential (PDF format, 191K) , Center for Gender in Organizations, April 2002.

⁵ Going for growth, OECD, February 2006, www.oecd.org/growth/GoingForGrowth2006 .

⁶ Working nation (PDF format, 1.03MB) .