Innovative corporate culture critical to bouncing back from pandemic

The pandemic has created a fragile and uncertain future for businesses of all shapes and sizes, but this “hostile environment” presents an opening for entrepreneurial corporates, not start-ups, to exploit, according to Professor James Hayton from Warwick Business School.

“Our tastes are changing and those will probably change permanently in some ways. The ways we organise our businesses are changing consequently,” says Hayton. “These transformations create opportunities for doing business in different ways or creating entirely new markets.”

However, only corporates with the right culture will successfully leverage the opportunities presented by the pandemic, says Hayton. The professor points to Uber as an example of a company with the correct culture, with the ride-hailing app struggling amid national lockdowns with rideshare bookings down 50 percent in Q4 2020 compared with the same period a year prior.

However, due to the entrepreneurial mindset within the organisation, the food delivery arm of the business, Uber Eats, generated revenues of $1.36bn, up 224 percent year-over-year, mitigating the damage caused by national lockdowns, according to the company’s earnings.

“Some established organisations are better able to see these opportunities but also more willing to pursue them. There are classic cases of organisations that have been well aware of innovation, but haven’t pursued it,” Hayton adds.

In 1975, Kodak employee Steve Sasson invented the first digital camera, but the company’s leadership team had an “inability or unwillingness” to pursue an opportunity that would dramatically redefine their industry, says Hayton.

“That’s a common phenomenon, that’s not an outlier. That’s actually the dominant consequence of being successful in a particular industry – you’re going to be less inclined to disrupt yourself with a new business model.”

The corporate world is awash with examples of market-leading behemoths who failed to adapt their business models and were ultimately overtaken by their more adaptable rivals.

The tale is as old as time, says Hayton, but fostering a culture of innovation and entrepreneurship at a large corporate can bring great rewards.

Leadership is everything

Leadership is crucial to achieving those goals, says Hayton. The challenge is in preparing an organisation to focus on two incompatible things at once.

First, an organisation must continue to serve their existing customers. But they must also develop and scan for new opportunities.

“It depends on the incentives that you give to people as to what they pay attention to. There is an inherent tension between exploring new opportunities and continuing to execute your current business, often because your current customers may not have any interest in these other opportunities,” says Hayton.

“A leader has to force their organisation to spend time looking for and developing new opportunities.”

Unlike Kodak, Hayton says, its Japanese rival Fuji took a leap of faith because its leadership team were willing to innovate and were able to nudge the organisation into seeking out new revenue streams.

In a post-pandemic world, cautious leaders may soon be a thing of the past.

“A leader who says, ‘we’re going to sell more, we’re going to be more efficient, we’re going to get more profits’, that’s going to be the killing blow. And this is what happened to General Electric and Jeff Immelt.”

Immelt replaced the famous innovator CEO, Jack Welch, in 2001 at General Electric. But under Immelt’s stewardship the company’s share price dropped 30 percent and shed more than $150bn in market cap, according to a report by Fortune.

“[General Electric] went for efficiency and they reduced their investment in R&D so after a century of being innovative and developing new products and markets, they started to go into a steady decline,” Hayton says.

Corporates look to stay lean

Having an entrepreneurial mindset isn’t the only key component to creating an innovative organisation, according to Hayton.

Next, processes must be engineered towards innovation, not just execution.

“The dominant model coming out now is called the lean start-up,” says Hayton.

The concept was popularised by Eric Reis in 2008 after his book, The Lean Startup, made the New York Times’ Best Sellers list. It focuses on the idea of “pivoting” frequently and learning quickly from errors while the product is being developed.

“You take the processes we use in a start-up setting and use them in a corporate setting. Essentially, you’re de-risking the process because you’re doing small experiments, you’re failing fast and learning.

“Instead of building a whole product and hoping it succeeds, you’re doing experiments in the marketplace from the beginning with minimum viable products,” Hayton says.

Running alongside the innovative processes should be rewards for innovation, Hayton cautions.

“There’s often a folly of asking for A and rewarding for B. Very often, an organisation has strong rewards for execution and that means that effectively there’s punishments for engaging in exploration.”

Key to avoiding this pitfall is paying close attention to targets and KPIs while empowering teams and managers with the skills they need to engage in these behaviours.

Typically, a successful corporate leader has not achieved that success by virtue of being entrepreneurial, they’ve achieved it by executing, by hitting targets, says Hayton. Engendering an innovative culture, “that’s a different skillset”.

“There’s the leadership and strategy, there’s the process and then there’s the culture and you have to bring all of those together to actually achieve it.”

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