Innovation Corner # 3 - Cultural Lock-in

By Dr Walter Dolan, Director Strategic Management

Cultural Lock-in

The term cultural lock-in refers to the inability of a company to alter its corporate culture, even when faced by market threats. To overcome cultural lock-in, a company needs to transform itself rather than improve incrementally.

The process of transformation in large companies involves creating new businesses, selling off or closing down businesses or divisions, whose growth is slowing down, as well as abandoning outdated structures and rules and adopting new decision-making processes.  Small businesses, also, need to review their products, services and operations.

The slogan Think outside the box has had some popularity in recent times.  There are two definitions of the box. One is that the box consists of self-imposed constraints which discourage innovation. The other is that the box is whatever product-market specialisation a company is in. Here, the argument for staying inside the box is on the grounds that the way to being successful consists in being good at what you do instead of what other people do. 

Proponents of this argument see successful companies as reinvesting in their own businesses rather than building a new business.  

Dominant Themes   
                          
Themes that are dominant in innovative organisations are invention, pioneering, and goal setting. Some firms with strong pioneering goals have achieved innovation without much investment in R&D. This indicates that R&D as an outcome itself is secondary to the primary goals of the organisation. On the other hand, some top innovative companies spend almost twice as much as a percentage of sales as the average company on R&D.

It has been found that top innovative companies invest 7% of sales in R & D, have 35% of their sales from products introduced in the last five years, against the average company which spends 4% and has 20% of sales from products introduced in the last five years. 
 
Board of Directors

The directorate should include representatives of innovation and technical functions, as opposed to having a preponderance of lawyers, accountants, engineers, marketing and bankers.

Resources

In high-innovation organisations, special funds are set aside upfront to support innovation and these funds cannot be incorporated into line budgets.  A supply of resources is, of course, a prerequisite to investing significantly in R&D.

In resource allocation, a long term view is necessary for innovative projects since the payback (recoupment of original investment by after tax profits) may take longer than usually accepted in the company.

Tolerance for Diversity

Innovative organisations are oriented to creativity and innovative change and exercise a tolerance for diversity among their members.

In particular, a lack of harmony may precede a radical innovation. Innovation that is driven from the lower levels of the organisation upwards may involve a radical technology that is not immediately acceptable to the majority of current customers and may not be accepted initially by top management either.