The main challenge in organizational innovation lies in its execution, and not in having more ideas. Top companies create supportive cultures that transform ideas into profitable investments. Companies need innovation to survive. In fact, there is no shortage of clever people and smart ideas. Hence the competitive edge comes from having the best execution – from the time the idea is first identified, shepherded through the corporate maze, and into the hands of the paying customer. And yet, in many companies, the chase for short-term profitability can become the Achilles heel of long-term business sustainability. The way to avoid this is to have a deep-rooted culture that promotes innovation and new ideas to filter up and sideways.

1. The main challenge in organizational innovation lies in its execution, and
not in having more ideas. Top companies create supportive cultures that
transform ideas into profitable investments.
The social life of ideas:
from
profit
innovation to

3. Contents
A Kodak moment
Blind-sided by faster horses
2
3
6
8
Beyond innovation
Culture means business
12Decoding innovative behaviours
14New game, new rules

4. The social life of ideas
©2012 Hay Group. All rights reserved
2
Despite spending some US$1.3b to develop
its technology each year and owning over
7,600 patents, Kodak could not escape the
death spiral.
A Kodak moment
January 2012. Film giant Eastman Kodak stunned the world by filing
for bankruptcy protection. However, to industry analysts, this was
less of a surprise as the company had been struggling for years to
adapt to an increasingly digital world.
So how did an innovative and resourceful
company like Kodak, who, incidentally, had
invented digital photography, buckle and
lose its core business?

5. 3
Mega bookstore chain, the Borders Group,
bowed out to online bookstores. Finnish
mobile phone giant, Nokia, also lost
significant market share to smart phones
manufacturers like Samsung and Apple,
despite having launched the earliest one –
remember the Nokia Communicator (Box
story: The price of missing a call at Nokia,
p.4)?
How did these companies stumble so badly?
They certainly had no lack of experienced
managers or novel products and services.
Contrary to popular belief, innovation is
not an exceptional state of affairs, but the
norm. Furthermore, innovation alone is
not enough. Firstly, it needs to be disruptive
so as to capture market share and gain
competitive advantage. Just as Henry Ford
had once remarked, “If I have listened to the
customers, I will be providing them with
faster horses!”.
Secondly, innovation needs to survive what
we call the “faster horses” mindset that is
prevalent in all organizations.
Companies are organised to deliver products
and services to customers. Resources are
channelled to deal with daily issues like
meeting customers’ needs, keeping costs low
and earning a decent margin. The Next Big
Thing therefore needs to survive the self-
preservation agenda of the existing power
structures before it can even get out the door
and into the hands of paying customers.
Hence, a “faster horses” mentality is what
crushes innovations from within.
Blind-sided by faster horses
Kodak is not alone in its plight. A quick flip through the newspapers
will turn up a host of other giants who are faltering in the face of
rapid technological advances.

6. The social life of ideas
©2012 Hay Group. All rights reserved
4
The price of missing a call at Nokia
In the 1990s, Nokia, the mobile phone company, took the world by storm with its
sleek mobile phone. Nokia’s strategy of investing in product development had
paid off as it overtook Motorola to become the leading mobile phone maker in
1998. Over 40 million Nokia mobile phones were sold in that year alone.
Nokia had no shortage of good ideas, supported by an enviable R&D budget,
spending US$40 billion in the past ten years. This is nearly four times what Apple
spent in the same period.
In fact, as early as 1996, the company unveiled its first smartphone, the Nokia
9000 or the Communicator, which would email, fax and surf the web. According
to Jorma Ollila who stepped down as CEO in 2006, Nokia was“about five years
ahead”of the competition.
Furthermore, more than seven years before Apple launched the iPhone, Nokia
researchers were already working on a prototype with a large colour touch-
screen with a single button. They also secretly developed a tablet computer with
wireless connection and touch screen.
In 2006, Nokia’s smartphone and basic-phone operations were merged. Alastair
Curtis, Nokia’s chief designer from 2006 to 2009, noticed that more time was
spent on office politics than doing productive work. The convoluted structure
that made it impossible for the team to deliver“a coherent, consistent (end-user)
experience”.
Hence, its R&D efforts were scuttled by internal rivalries and operations where
operations were dislocated from the R&D efforts. Instead of nurturing these
ground-breaking products for market launch, the company focused its efforts on
at least two abandoned operating systems (remember Meego and Symbian?) and
a pile of patents worth $6 billion.
The result was apparent in 2010 when Nokia’s smart-phone market share
plummeted to eight per cent and its shares lost almost half their value. Currently,
Nokia is undergoing large-scale downsizing. To pull itself out of its downward
spiral, the company needs to look within and remove the barriers that hamper its
success.
1 “Nokia loses mobile lead amid bad call on phones”, The Wall Street Journal, 20-22 July 2012.
2 “Charting the Rise of Nokia”, BBC News, 23 August, 2001 .
(http://news.bbc.co.uk/2/hi/business/1505703.stm)
3 “Nokia Corporation History”, Funding universe,
(http://www.fundinguniverse.com/company-histories/nokia-corporation-history/)

7. 5
At the crux is how to go about incubating,
nurturing and shepherding a novel idea from
drawing board to board room.“
”

8. The social life of ideas
©2012 Hay Group. All rights reserved
6
Hence, it is no longer about having a
strategy for generating more ideas or
executing a scintillating market launch.
The biggest challenge is how to ensure that
innovations are not killed by the enemy
within; whether it is the Old Guards saying
“it’ll never sell” or employees thinking “oh,
they will never listen to me.”
How do organizations go about incubating,
nurturing and shepherding a novel idea from
drawing board to board room. We believe
that it starts with getting rid of the blinders
that restrict us to seeing only “faster horses”.
Clearly, being innovative is not enough. Both Kodak and Nokia
had capable managers to run their operations professionally. They
owned patents and had large R&D budgets to fund original ideas
and product innovation. Both companies had, in fact, anticipated
the disruptive technology and developed prototypes years before of
the competition. Their innovation was too far ahead of the market
cycle and eventually fell victim to internal forces.
Beyond innovation

9. 7
Kodak’s competitor, Fujifilm, did just
that. It was ironic that faced with the same
business environment, Kodak behaved like
a stereotypical, change-resistant Japanese
company while Fujifilm acted like a flexible
American firm.
How was Fujifilm able to reinvent itself while
Kodak struggled? Fujifilm also saw the digital
tsunami as early as the 1980s and developed
a three-pronged strategy: squeeze what they
could out of the film business, move into
digital segment, and develop new business
lines. The changes sparked an internal power
struggle, where the consumer film business
fought back ferociously.
Chiding the nay-sayers as “lazy” and
“irresponsible”, CEO Shigetaka Komori
guided Fujifilm through a painful
restructuring, diversifying its businesses into
imaging solutions, lenses, and even skincare.
“It was a painful experience,” said Mr
Komori. “But to see the situation as it
was, nobody could survive. So we had to
reconstruct the business model.”1
Fortunately for Mr Komori, the Japanese
business culture takes a longer view of
performance and has a higher tolerance
for huge cash positions. As such, he was
able to set the company onto its “Second
Foundation” path.
Hence, FujiFilm’s success lies in having a
strong culture that supports the process
of innovation and transformation. But
how do leaders harness or even transform
their culture so as to ensure their R&D
investments does not disappear into a black
hole?
1 “The Last Kodak Moment”, The Economist, 14th January 2012.
(http://www.economist.com/node/21542796)

10. The social life of ideas
©2012 Hay Group. All rights reserved
8
Culture means business
Representing ‘how things are done’, organizational cultures are
important drivers of employee behaviour, particularly when
employees must be relied upon to act on their own initiative in a
way that is consistent with the company’s objectives. What is the link
between culture and innovation.
Louis Gertsner, former CEO of IBM,
believed that “culture is everything”. For
him, creating the right culture setting was the
key to the successful transformation of IBM
in the 1990s.
In 1993, the same year Gertsner took over
as IBM CEO, IBM’s mainframe was losing
market share to the disruptive technology
du jour – personal computers. IBM posted a
US$8 billion loss with shares trading at just
US$12.
But Gertsner took the challenge head-on.
He stripped the executives of their corporate
uniform, broke up the large bureaucracy into
smaller business units, transformed Big Blue’s
culture to focus on customer value, and
repositioned IBM as a consulting and system
integration business.
By the time Gertsner retired in 2002, shares
climbed to US$90. IBM has also consistently
topped Fortune’s World’s Most Admired
Companies in the information technology
industry from 2006 to 2012.
Hence it makes business sense to manage
organizational culture. But the task is not
for the faint-of-heart. Nor does it merely
involve a cosmetic sleight-of-hand. Efforts to
change organizational culture often face three
significant obstacles.
Firstly, culture is challenging as it is
intangible. Secondly, changing the behaviour
of one person is a hard enough task;
imagine having to create a consistent set
of new behaviours throughout an entire
organization. Finally, people resist change –
the culture snaps back to old habits if initial
changes are not sustained.
Traditionally, executives look to their HR
department and their tools – from reward
to training – for help. But even experienced
HR professionals get frustrated. The reason
lies in the fact that the success of culture
transformation does not depend on the
number of tools used, but rather how deeply
the efforts penetrate.

11. 9
This begs the question: what aspects of
our company’s culture block our efforts of
developing an environment that is conducive
for innovation? If we can identify them, then
we have starting point for transformation.
The stumbling blocks could be legacy (e.g.
Kodak and film), success (e.g. “our phones
are selling very well; why do we need to sell
smartphones?”) or structure (e.g. no link
between research and marketing).
Which brings us to the question, how do
we achieve any lasting change? We believe
that companies need to bring back their
symbols and stories into general circulation.
Some powerful examples from our Cultural
Transformation Framework (Figure 1, p.11)
include:
• Stories like “the CEO stayed at a crummy
$100-a-night hotel in New York to save
money during the global financial crisis”
• Actions like Haier’s CEO who pulled
defective refrigerators off assembly lines
and taking a sledgehammer to them in
front of employees to demonstrate the
importance of quality
• Artefacts like Google’s company statement,
which starts with “Google is not a
conventional company, and we don’t
intend to become one”
• Aspirations like Infosys, who believe that
building tomorrow’s enterprise will require
“continuous innovation” and “continuous
learning”
Making lasting change

12. The social life of ideas
©2012 Hay Group. All rights reserved
10
Furthermore, to make the changes stick,
leaders have to actively promote the desired
culture and behaviours. Otherwise, as we
all have experienced, a default and often
apathetic one (e.g. “don’t rock the boat”)
would grow to take its place. Accidental
organizational cultures can be hazardous to a
company’s health!
Different, even opposing, values are not
uncommon especially in complex, global
organizations. Hence we believe that a
powerful place to start is by asking, “What
are the stories and symbols that will
encourage, and not kill, innovative ideas?”
Once we have ascertained our symbols, we
can start fostering and encouraging the kinds
of behaviours that enforces the spirit of
innovation from within.

13. 11
Figure 1: Hay Group’s Cultural transformation framework
Inspiration, history,
purpose, mental models
of founders and leaders
Dominant individuals
and leaders’motives
and values
Relationships and
networks
Dominant country
environment
Shared purpose
and values
Organizational
messeges and
reinforcements
Actions
and behaviours
Short and long
term engagement
and results
Guided by
Aspiration
Strategy and goals
Leaders’posture and
role modelling
Organization structure
design
Management systems
Brand
Symbols and artifacts
Driven by
Leaders’ behaviors
Employees’engagement and behaviors
Delivered by
The key is to identify and focus on
the relevant catalysts for cultural
change

14. The social life of ideas
©2012 Hay Group. All rights reserved
12
Hay Group’s Best Companies of Leadership
2011 study shows a significant gap between
top and average companies in their
innovation practices (Figure 2).
Furthermore, even though employees spend
much time discussing customers’ future
needs – a necessary premise for innovation
– not enough is being done in terms of
commitment and resources to turn good
ideas successfully into profitable business.
For instance, many organizations in Asia do
not put their money where their mouths are;
instead they prioritise short-term profits over
innovation.
Figure 2: Decoding behaviours that promote innovation
Decoding innovative behaviours
Having the right culture means having a corresponding set of
behaviours. What are these behaviours and what do they look like in
action?
Asia Top 10 Rest of Asia Global Top 20
61%
47%
94%
71%
53%
65%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
My company runs unprofitable
projects to try new things
My company is willing to
postpone short term profits in order
to invest in innovation
In my company, negative feedback
and performance difficulties are treated
as opportunities to learn and grow
77%
56%
95%
81%
56%
90%
Employees spend much time
discussing customers future needs
Source: Hay Group Best Companies for leadership 2011

15. 13
By way of explaining Figure 2, let us look
at Google. At Google, the hierarchy is kept
deliberately flat. A relaxed and inclusive
work environment is created to provide the
time and space for employees to mingle and
exchange their ideas freely. Professional pride
ensures ideas are thought through before they
make their circuit within the company.
Good ideas are quickly put to trial. Those
that failed to make the mark, like Google’s
mobile phone, Nexus One, and Google
Wave, a web application for real-time
communication and collaboration, are
decisively shelved after careful evaluation.
All these experimentations are carried out
in a psychologically safety environment
that greatly empowers and energises the
employees to think about what their users
will need in the future. It has enabled Google
to launch great ideas continually, like the
highly successful Google Map and Street
View.
When it comes to jumping through hoops,
Google has a relatively high tolerance for
mistakes, viewing it as a necessary condition
of innovation. When asked how the
company knew they were being innovative
enough, a Google senior staffer told us, “we
get worried when we don’t make enough
mistakes.” Certainly this attitude is not
for every company but it illustrates the
importance of the culture and mindset for
innovation to thrive.

16. The social life of ideas
©2012 Hay Group. All rights reserved
14
New game, new rules
Companies need innovation to survive. In fact, there is no shortage
of clever people and smart ideas. Hence the competitive edge comes
from having the best execution – from the time the idea is first
identified, shepherded through the corporate maze, and into the
hands of the paying customer.
And yet, in many companies, the chase
for short-term profitability can become
the Achilles heel of long-term business
sustainability. The way to avoid this is to
have a deep-rooted culture that promotes
innovation and new ideas to filter up and
sideways.
While many top executives admit that culture
change is needed, they are often stuck with
where to start. We recommend that leaders
start with thinking of transformation as a
journey.
And the journey is not as difficult as it looks.
Executives can start by listening to the stories

17. 15
that are being told within the company and
the symbols and heros that are being upheld.
Are they in line with the desired culture of
supporting innovation? If yes, then continue
to propagate them widely and loudly.
However, if the stories not congruent, then
new ones will need to be found or even
made. In this way, employees will know the
new game rules to play by.
A working environment that promotes,
rather than stifles, innovation is within
reach of all companies. But only when it is
effectively executed will companies reap the
reward of their R&D investments.

18. The social life of ideas
©2012 Hay Group. All rights reserved
16
Authors
Andreas Raharso, Ph.D
Director
Global R&D Centre for strategy execution, Hay Group
E| andreas.raharso@haygroup.com
Ms Agnes Long
Research Associate
E| agnes.long@haygroup.com
Global R&D centre for strategy execution
Hay Group
10 Hoe Chiang Road #04-03/05 Keppel Towers Singapore 089315
W| www.haygroup.com/sg/globalrdcentre
Disclaimer: The content in this report is provided solely for informational purposes. This report does not establish any client, advisory, fiduciary or
professional relationship between Hay Group and you. Neither Hay Group nor any other person is, in connection with this report, engaged in rendering
accounting, advisory, auditing, consulting, legal, tax or other professional services or advice.
About Hay Group’s
global R&D centre for
strategy execution
Hay Group’s global R&D centre for strategy
execution researches best practices in strategy
execution globally. Based in Singapore,
the centre provides a unique East-West
perspective for business leaders all over the
world. Our research helps provide insightful
advice to executives looking to build effective
organizations for the future. More information
can be found on www.haygroup.com/sg/
globalrdcentre.
The ideas in this paper were first presented at the Strategic Management Society’s Special
Conference held in Singapore (7 – 9 June 2012). The theme of this year’s special conference was
“Innovation: Novel moves for a global game”.

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