A culture conducive to innovation is not only good for a company’s bottom line. It also is something that both leaders and employees value in their organisations. I cannot think of a single instance when someone has said ‘No, I don’t want to work in an organisation where innovative behaviours are the norm.’

Innovative cultures are generally depicted as pretty fun … as extolled in management books: tolerance for failure, willingness to experiment, psychological safety, highly collaborative, and non-hierarchical. And research supports the idea that these behaviours translate into better innovative performance.

But despite the fact that innovative cultures are desirable, and that most leaders claim to understand what they entail, they are hard to create and sustain. This is puzzling. How can practices apparently so universally loved—even fun—be so tricky to implement?

The reason, I believe, is that innovative cultures are misunderstood. The easy-to-like behaviours that get so much attention are only one side of the coin. They must be counterbalanced by some tougher and, frankly, less fun behaviours. A tolerance for failure requires an intolerance for incompetence. A willingness to experiment requires rigorous discipline. Psychological safety requires comfort with brutal candour. Collaboration must be balanced with individual accountability. And flatness requires strong leadership. Innovative cultures are paradoxical. Unless the tensions created by this paradox are carefully managed, attempts to create an innovative culture will fail.

Tolerance for Failure but no tolerance for incompetence
Given that innovation involves the exploration of uncertain and unknown terrain, it is not surprising that a tolerance for failure is an important characteristic of innovative cultures. Some of the most highly touted innovators have had their share of failures; Apple’s MobileMe, Google Glass, and the Amazon Fire Phone

And yet for all their focus on tolerance for failure, innovative organisations are intolerant of incompetence. They set exceptionally high performance standards for their people. They recruit the best talent they can. Exploring risky ideas that ultimately fail is fine, but mediocre technical skills, sloppy thinking, bad work habits, and poor management are not. People who don’t meet expectations are either let go or moved into roles that better fit their abilities. Steve Jobs was notorious for firing anyone he deemed not up to the task. At Amazon, employees are ranked on a forced curve, and the bottom part of the distribution is culled. Google is known to have a very employee-friendly culture, but it’s also one of the hardest places on earth to get a job (each year the company gets more than 2 million applications for about 5,000 positions). It, too, has a rigorous performance management system that moves people into new roles if they are not excelling in their existing ones. At Pixar, movie directors who cannot get projects on track are replaced. […]

A tolerance for failure requires having extremely competent people. Attempts to create novel technological or business models are fraught with uncertainty. You often don’t know what you don’t know, and you have to learn as you go. ‘Failures’ under these circumstances provide valuable lessons about paths forward. But failure can also result from poorly thought-out designs, flawed analyses, lack of transparency, and bad management. Google can encourage risk taking and failure because it can be confident that most Google employees are very competent.

Creating a culture that simultaneously values learning through failure and outstanding performance is difficult in organisations with a history of neither. A good start is for senior leadership to articulate clearly the difference between productive and unproductive failures: Productive failures yield valuable information relative to their cost. A failure should be celebrated only if it results in learning. The cliché ‘celebrating failure’ misses the point, we should be celebrating learning, not failure. A simple prototype that fails to perform as expected because of a previously unknown technical issue is a failure worth celebrating if that new knowledge can be applied to future designs. Launching a badly engineered product after spending $500 million developing it is just an expensive flop.

Building a culture of competence requires clearly articulating expected standards of performance. If such standards are not well understood, difficult personnel decisions can seem capricious or, worse, be misconstrued as punishment for a failure. Senior leaders and managers throughout the organisation should communicate expectations clearly and regularly. Hiring standards may need to be raised, even if that temporarily slows the growth of the company. […]

Willingness to experiment but highly disciplined
Organisations that embrace experimentation are comfortable with uncertainty and ambiguity. They do not pretend to know all the answers up front or to be able to analyse their way to insight. They experiment to learn rather than to produce an immediately marketable product or service.

A willingness to experiment, though, does not mean third-rate. Without discipline, almost anything can be justified as an experiment. Discipline-oriented cultures select experiments carefully on the basis of their potential learning value, and they design them rigorously to yield as much information as possible relative to the costs. They establish clear criteria at the outset for deciding whether to move forward with, modify, or kill an idea. And they face the facts generated by experiments. This may mean admitting that an initial hypothesis was wrong and that a project that once seemed promising must be killed or significantly redirected. Being more disciplined about killing losing projects makes it less risky to try new things. […]

The philosophy is to learn what you have gotten wrong early and then move quickly in more-promising directions. Disciplined experimentation is a balancing act. As a leader, you want to encourage people to entertain ‘unreasonable ideas’ and give them time to formulate their hypotheses. Demanding data to confirm or kill a hypothesis too quickly can squash the intellectual play that is necessary for creativity. Of course, not even the best-designed and well-executed experiments always yield black-and-white results. Scientific and business judgments are required to figure out which ideas to move forward, which to reformulate, and which to kill. But senior leaders need to model discipline by, for example, terminating projects they personally championed or demonstrating a willingness to change their minds in the face of the data from an experiment.

Psychologically safe but brutally candid
Psychological safety is an organisational climate in which individuals feel they can speak truthfully and openly about problems without fear of reprisal. Decades of research on this concept by Harvard Business School professor Amy Edmondson indicate that psychologically safe environments not only help organisations avoid catastrophic errors but also support learning and innovation.

We all love the freedom to speak our minds without fear—we all want to be heard—but psychological safety is a two-way street. If it is safe for me to criticise your ideas, it must also be safe for you to criticise mine—whether you’re higher or lower in the organisation than I am. Unvarnished candour is critical to innovation because it is the means by which ideas evolve and improve. Having observed or participated in numerous R&D project team meetings, project review sessions, and board of directors meetings, I can attest that comfort with candour varies dramatically. In some organisations, people are very comfortable confronting one another about their ideas, methods, and results. Criticism is sharp. People are expected to be able to defend their proposals with data or logic.

In other places, the climate is more polite. Disagreements are restrained. Words are carefully parsed. Critiques are muffled (at least in the open). To challenge too strongly is to risk looking like you’re not a team player. One manager at a large company where I worked as a consultant captured the essence of the culture when she said, “Our problem is that we are an incredibly nice organisation.”

When it comes to innovation, the candid organisation will outperform the nice one every time. The latter confuses politeness and niceness with respect. There is nothing inconsistent about being frank and respectful. In fact, I would argue that providing and accepting frank criticism is one of the hallmarks of respect. Accepting a devastating critique of your idea is possible only if you respect the opinion of the person providing that feedback.

Still, that important caveat aside, ‘brutally honest’ organisations are not necessarily the most comfortable environments in which to work. To outsiders and newcomers, the people may appear aggressive or hard-edged. No one minces words about design philosophies, strategy, assumptions, or perceptions of the market. […]

Collaboration but with individual accountability
Well-functioning innovation systems need information, input, and significant integration of effort from a diverse array of contributors. People who work in a collaborative culture view seeking help from colleagues as natural, regardless of whether providing such help is within their colleagues’ formal job descriptions. They have a sense of collective responsibility.

But too often, collaboration gets confused with consensus. And consensus is poison for rapid decision making and navigating the complex problems associated with transformational innovation. Ultimately, someone has to make a decision and be accountable for it. An accountability culture is one where individuals are expected to make decisions and own the consequences.

There is nothing inherently inconsistent about a culture that is both collaborative and accountability-focused. Committees might review decisions or teams might provide input, but at the end of the day, specific individuals are charged with making critical design choices—deciding which features go and stay, which suppliers to use, which channel strategy makes most sense, which marketing plan is best, and so on. Pixar has created several ways to provide feedback to its movie directors, but […] the director [ultimately] chooses which feedback to take and which to ignore and is held accountable for the contents of the movie.

Accountability and collaboration can be complementary, and accountability can drive collaboration. Consider an organisation where you personally will be held accountable for specific decisions. There is no hiding. You own the decisions you make, for better or worse. The last thing you would do is shut yourself off from feedback or from enlisting the cooperation and collaboration of people inside and outside the organisation who can help you.

Leaders can encourage accountability by publicly holding themselves accountable, even when that creates personal risks.  […]

Flat but strong leadership
An organisational chart gives you a pretty good idea of the structural flatness of a company but reveals little about its cultural flatness—how people behave and interact regardless of official position. In culturally flat organisations, people are given wide latitude to take actions, make decisions, and voice their opinions. Deference is granted on the basis of competence, not title. Culturally flat organisations can typically respond more quickly to rapidly changing circumstances because decision making is decentralised and closer to the sources of relevant information. They tend to generate a richer diversity of ideas than hierarchical ones, because they tap the knowledge, expertise, and perspectives of a broader community of contributors.

Lack of hierarchy, though, does not mean lack of leadership. Paradoxically, flat organisations require stronger leadership than hierarchical ones. Flat organisations often devolve into chaos when leadership fails to set clear strategic priorities and directions. Amazon and Google are very flat organisations in which decision making and accountability are pushed down and employees at all levels enjoy a high degree of autonomy to pursue innovative ideas. Yet both companies have incredibly strong and visionary leaders who communicate goals and articulate key principles about how their respective organisations should operate. […]

Getting the balance right between flatness and strong leadership […] requires the capacity to articulate compelling visions and strategies (big-picture stuff) while simultaneously being adept and competent with technical and operational issues. Steve Jobs was a great example of a leader with this capacity. He laid out strong visions for Apple while being maniacally focused on technical and design issues.

Leading the journey
Organisational cultures are like social contracts specifying the rules of membership. […]

Leading the journey of building and sustaining an innovative culture is particularly difficult, for three reasons.

First, because innovative cultures require a combination of seemingly contradictory behaviours, they risk creating confusion. A major project fails. Should we celebrate? Should the leader of that program be held accountable? The answer to these questions depends on the circumstances. Was the failure preventable? Were issues known in advance that could have led to different choices? Were team members transparent? Was there valuable learning from the experience? And so on. Without clarity around these nuances, people can easily get confused and even cynical about leadership’s intentions.

Second, while certain behaviours required for innovative cultures are relatively easy to embrace, others will be less palatable for some in the organisation. Those who think of innovation as a free-for-all will see discipline as an unnecessary constraint on their creativity; those who take comfort in the anonymity of consensus won’t welcome a shift toward personal accountability. Some people will adapt readily to the new rules—a few may even surprise you—but others will not thrive.

Third, because innovative cultures are systems of interdependent behaviours, they cannot be implemented in a piecemeal fashion. Think about how the behaviours complement and reinforce one another. Highly competent people will be more comfortable with decision making and accountability—and their ‘failures’ are likely to yield learning rather than waste. Disciplined experimentation will cost less and yield more useful information so, again, tolerance for failed experiments becomes prudent rather than short-sighted. Accountability makes it much easier to be flat, and flat organisations create a rapid flow of information, which leads to faster, smarter decision making. […]

Building an innovative culture requires some specific actions. First, leaders must be very transparent with the organisation about the harder realities of innovative cultures. These cultures are not all fun and games. Many people will be excited about the prospects of having more freedom to experiment, fail, collaborate, speak up, and make decisions. But they also have to recognise that with these freedoms come some tough responsibilities. It’s better to be up-front from the outset than to risk fomenting cynicism later when the rules appear to change midstream.

Second, leaders must recognise that there are no shortcuts in building an innovative culture. Too many leaders think that by breaking the organisation into smaller units or creating autonomous ‘skunk works’ they can emulate an innovative start-up culture. This approach rarely works. It confuses scale with culture. Simply breaking a big bureaucratic organisation into smaller units does not magically endow them with entrepreneurial spirit. […] This does not mean that autonomous units or teams can’t be used to experiment with a culture or to incubate a new one. They can. But the challenge of building innovative cultures inside these units should not be underestimated.

Finally, because innovative cultures can be unstable, and tension between the counterbalancing forces can easily be thrown out of whack, leaders need to be vigilant for signs of excess in any area and intervene to restore balance when necessary. Unbridled, a tolerance for failure can encourage slack thinking and excuse making, but too much intolerance for incompetence can create fear of risk taking. Neither of these extremes is helpful. If you want your organisation to strike the delicate balance required, then you as a leader must demonstrate the ability to strike that balance yourself.