Confidence & Innovation (Part 1) – Importance of Managing Intangible Assets

Hardware is to software as innovation is to people. It isn’t enough to have the right technology, the right strategy, or even some of the best performers in order to innovate. If you seek to build and sustain innovation then you need a strategy that nurtures your people assets and builds a strong values-driven organizational culture.

In 2005, the well known author/consultant/speaker Rosabeth Moss Kanter published her latest book, “Confidence” which studied winners and losers to understand the systems used to create powerful organizational culture that can innovate. Drawing on more than 300 interviews with leaders in business, sports and politics, Kanter shows how systems that promote accountability, collaboration and teamwork turn groups of “individuals” into powerful teams.

This post is in two parts:

• What makes winners sustain excellence over a period of time and how they can go into losing streaks
• Examples of innovators who turned losing streaks into winning streaks

Winning Culture Is all about Leadership

Winners Value & Nurture

• Mutual Respect – throughout the organization and two-way (top/down, bottom-up)
• Opportunity – what you learn here can build a rewarding career while you are here
• Support – a willingness to invest in people if you show initiative
• Ethics – doing business the right and fair way
• Communicate/Share – collaborate to inform, learn, advise, etc
• Performance – everything we do is measurable or not done at all
• Initiative – do what it takes to succeed
• Leadership – be accountable for one’s actions or inactions
• Creativity – try new things, experiment, think different, mistakes are ok

Kanter’s research showed consistent patterns of behavior led businesses or teams to winning or losing streaks. People gravitated toward behaving in ways that support confidence. For instance, they accepted being accountable and avoided blaming others, they wanted to work together better, and they took greater initiative because they knew that what they did mattered to management.

She found that routines activate talent by building a discipline of accountability and using self and peer evaluations that scored attitude, character, performance, discipline, leadership, community, and ambition.

Those who scored well were identified as having the most desirable leadership talent. Winners would contrast these scores against the organizations core values to assess fit and weed out those who didn’t or wouldn’t.

Winners reward “the act of taking initiative.” They study outcomes of initiative taken to learn from success or failure. They realize that creating and preserving leadership dynamics is core to team success.

HR practices most used by winners included:

• Selective hiring
• Extensive training
• Extensive information sharing (knowledge management)
• Performance feedback
• Reduced status distinctions among different levels of management
• Rewards were performance-based
• Promoted self-managed teams
• Encouraged decentralized decision-making

Winners receive many advantages from their success. Their external confidence attracted:

• Better recruits who want to test their abilities and work with other top talent
• More access to influence and information (power networks)
• More career opportunities
• Better “after life” (legacy boost once an employee moves on)
• Better deals come to them from those who want to deal with them
• Easier to attract top volunteers
• Less costly business deals, more gifts, better positioning opportunities
• Better means to be selective

When Losing Streaks Occur – Denial and Powerlessness
Kanter also found commonalities were present among organizations and teams who went from winning to losing and those who sustained prolonged losing streaks. Winning ends when threats and problems are denied. This denial can be a deliberate or unconscious act or tendency.

While winners excel at trends analysis and the ability to adapt to market changes; losers let it ride. While winners face problems head-on; losers practice avoidance.

Denial comes because decision-makers make flawed assumptions based on past successes, management doesn’t routinely examine “relevance” of one’s operations or products and services to new situations. They don’t want to see, hear, or speak trouble which Kanter calls”destructive defensiveness.”

Cover up is eventual. People protect themselves from change or their mistakes from exposure, make topics off limits, and cover up the cover up.

Overcoming Denial

Having a system that reinforces accountability, collaboration, and initiative will rebuild confidence and problem-solving to promote open dialog, objective diagnosis, and mobilization that can take corrective action to defeat denial. In essence, the greater the level of confidence the better able organizations become at self-examination and action.

Powerlessness Corrupts
Turf warfare increases when managers retreat to defend against change. Centralized decision-making kills cross-functional or cross-department projects and initiatives. Then people share information less and the organization becomes less aware or caring causing isolation and avoidance. Perceptions of a lack of respect often follows.

People become timid. Set low goals. And feel their effort will not make a difference. Defeatist attitudes even make way into product or service pricing through “price discounting traps” designed to achieve a short term win that only makes it worse.

Decline becomes a trajectory not a state rising from an accumulation of decisions, actions and commitments that self-perpetuate. Losing streaks begin in response to a sense of failure, falling out of control, and loss of confidence when organizations have poor coping mechanisms and people fall back into self-protection.

Warning Signs

Finally, Kanter defines nine pathologies of losing.

1. Communication decreases – Losers are four times as likely to keep information in the hands of small groups and in secret.
2. Criticism and blame increases – Social psychologists distinguish between “informational feedback” and “controlling feedback” which is seen as punitive and destructive to self-esteem.
3. Respect decreases – People lose respect in others and confidence in the system; losing organizations are perceived as being three times more likely to tolerate low performers, low hiring standards. Failure to root out bad wood rots good
4. Isolation decreases – Half of people in declining organizations rarely or never socialize with peers outside of work compared to only a quarter of those from successful ones.
5. Focus turns inward – Self-focused organizations perpetuate losing; studies show that self-focused attention is associated with depression and failure experience.
6. Rifts widen and inequities grow –People in losing situations are four times as likely as winners to say their team or work group never or rarely pull together nor present a unified image. Losers are twice as likely to be characterized by internal rivalries or competition between groups.
7. Stereotypes are perpetuated – Initiative decreases losers are likely to do just the minimum, rarely or never make suggestions. General work style for losers is nearly twice as likely to include many ingrained policies and routines that are hard to change; and 1/3 offered zero encouragement to those who propose new ideas or support new projects
8. Aspirations diminish – People in losing organizations are more likely to report that others don’t care about performing to higher standards. Pessimism is associated with excuses for failure, denial of responsibility and drives a self-fulfilling prophecy.
9. Negativity spreads – Energy loss significantly erodes momentum and promotes stagnation

Ingredients of a Turnaround

It is possible to turn losers into winners. Kanter’s research shows that you need:

• A Superb leader/coach
• Franchise “players” who execute
• Excellent HR department
• Outstanding infrastructure tools and support
• Core strategy
• Fixing operational problems
• Emphasizing a culture of sustained excellence

Every turnaround starts with the same overriding challenge: the need to make unpopular decisions while restoring confidence. Barriers to action slow the desire to act. These include: lack of imagination, lack of power, and passivity.

Immediate action (financial, strategic or operational) alone will not stop losing streaks without a system of “cultural change” that instills a winner’s attitude and confidence.

In a future post we will examine the turnarounds of Gillette and the BBC.