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If innovation is the driver of business success then continuous innovation must be encouraged.

What needs to be done to encourage innovation?

 

Define a Code of Ethics

Translate the 7 virtues into principles directly applicable to the company. For example, Disney translated ‘integrity’ into ‘everybody walks the talk’ and ‘everything walks the talk.’[1]

Set up training in ethics to ensure that its employees fully understand its code of ethics, the philosophical rationale behind it, and are inspired to embrace it. In spite of opinion to the contrary, ethics can be taught.

Set up review processes to ensure that all employees, especially the top level of management, act on the code of ethics.

 

Principled Leadership

Promote trust throughout the organisation by providing and expecting competent and principled leadership, where there is consistent adherence to integrity, honesty and justice. This has 5 main benefits:

  • Firstly it increases the likelihood of high performing employees staying with the organisation. If employees trust their supervisors to keep their promises, to be fair in their performance appraisals and to provide able coaching, they are far less inclined to look for alternative employment.
  • Secondly, when employees trust their superiors they are more likely to be creative and innovative, since they are less fearful of being punished for making mistakes.
  • Thirdly there is freer communication: supervisors are better able to communicate strategy and goals to their subordinates, who in turn feel confident in bringing important information to the attention of their supervisors.
  • Fourthly, employees are more likely to commit to decisions made by leaders they trust, and make the necessary changes to implement these decisions.
  • And finally performance in general, including problem solving, is enhanced in an atmosphere of trust.[2]

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Purpose and Vision

Set a clear purpose. The importance of productive purpose in an individual life’s has already been discussed (see Productiveness).

Since a corporation is an organisation of individuals, productive purpose is no less crucial for a corporation. It sets the focus for the organisation and allows it to prioritise its values, and communicate these clearly throughout its management levels. An example of a highly successful company with a clear purpose is Cisco Systems, whose purpose of supplying internet infrastructure enabled it to grow in 16 years to the point where it had 80% of the market share, and generated profits of $2 billion by 1999[3].

Having a purpose allows a corporation to act long range. “The free market is ruled by those who are able to see and plan long-range – and the better the mind, the longer the range.”[4] Shell’s long-term view of the energy market is that by 2050, the more expensive and pollution-generating fossil fuels will have given way to renewable energy forms. In line with its purpose of supplying the world’s energy needs, it is starting to buy companies engaged in renewable energy research and production[5].

Purpose excites followers. “People need to get rewarded with money, of course… but it is even better when they believe that what they are doing to earn the money is significant, important, and thrilling. This turns willingness into enthusiasm, obedience into initiative, contentment into joy.”[6]

The vision statement should be clear, brief, and inspirational, and identify intended products, markets and strategy[7], but be abstract enough to be able to embrace future changes of direction. Vision has a profound impact on the attitudes of employees[8], but must be communicated well, and translated into individual objectives.

Encourage employees to set high goals for themselves. “No other theory of motivation has been found to be as consistently effective in the workplace as goal-setting.”[9] “Assuming adequate knowledge and ability, the higher or more difficult the level of the goal, the better is the performance.”[10]

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Encourage Creativity

Encourage the individual to spend time generating ideas. Since innovation is the result of independent judgment and creativity, then the individual must be given the freedom to create. 3M is a good example of a policy of fostering individual thought. The company was started in 1922 and continuous innovation has been an integral part of its strategy. It aims to derive 30 percent of its revenue from products created during the past 4 years. The importance it ascribes to individual creativity is reflected in the fact that its policy is to have its researchers spend 15% of their time working on their own individual projects. Staff selection is another area that shows its commitment to individual creativity. Candidate interviews are based on an analysis of the traits of its most successful innovators. This analysis revealed 6 traits: problem solving and creative thinking abilities, being purposeful (focused on results), having a strong work ethic, being self-motivated and resourceful[11].

Also encourage creativity by[12]:

  • Recruiting individuals who not only have the required skill, but also have a high degree of interest in the work to be performed. Creativity is highest amongst employees who are motivated by the enjoyment and challenge of the work itself – this is known as the “Intrinsic Motivation Principle of Creativity”[13].
  • Allowing employees autonomy in deciding how to meet the goals required of them.
  • Ensuring that deadlines are reasonable.
  • Being willing to act on creative ideas and to provide resources for the development and implementation of these ideas.
  • Providing constructive feedback.
  • Encouraging communication across the organisation.

When ideas are suggested, act on them fast. No-one will continue to generate ideas knowing that it will take months to act on them. Michael Eisner of Disney was famous for assessing the value of an idea within days of it being presented to him. His predecessor on the other hand would take months to arrive at a decision[14].

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Work Design

Enable your employees to apply the 7 virtues (in particular independence and pride) as much as possible by designing their work to increase job satisfaction. Research has shown that job satisfaction is determined mainly by the degree of mental challenge of the job, and that this is a function of 5 job characteristics.[15] These are:

  • the degree of autonomy in the job;
  • the degree to which the job is responsible for the final product or service;
  • the amount of variety in the job or the number of skills utilised by the job;
  • the significance or importance of the job (the degree to which it impacts people’s lives or well-being);
  • and the amount of performance feedback automatically provided by the job.

Richard Branson runs his enterprise as a network of 500 semi-independent companies each headed by a managing director with an equity position in the company. Each company determines its own strategy but its manager has 24-hour access to Branson for advice and direction. The size of each company is kept small by splitting companies that grow larger than the optimal size and so the entrepreneurial spirit of the venture is retained. Branson also provides seed capital and ownership to employees with good ideas for new ventures. An example of this is Virgin Bride, a bridal service which was the brainchild of a Virgin Airways stewardess.[16]

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Promotion and Hiring

Promote and hire only on the basis of objective merit, that is, intelligence, ability, and focus. Cypress Semiconductor (refer to Justice) has an intense hiring process consisting of 3 rounds. The first one assesses technical ability, productivity, and values. The second assesses ability to work under pressure, and the third consists of thorough reference checking.[17]

Be very creative in hiring. Look for innovative ways to find the best talent. Hire the smartest people you can find. A very large number of studies confirm that general mental ability is the best predictor of job performance.[18] “Like Pierre DuPont, it [Microsoft] acquires companies specifically to hire their talent.”[19] Like Intel, consult with professors to find their best students[20], and make sure that your hiring process is the best it can be. The top performing skilled workers can produce 15 times as much as the worst performing, and the difference can be even greater amongst professional and managerial jobs.[21] Note that in applicants with greater than 5 years of experience, the amount of experience is not a good predictor of performance; intelligence is a much better predictor.[22]

Recruit on the basis of conscientiousness and emotional stability, as well as intelligence. These 2 attributes not only are also good predictors of performance[23], but also of low turnover.[24]

The reason that intelligence is the best predictor of job performance is that higher intelligence enables the faster acquisition of job knowledge, and this is the major determinant of job performance[25].

Provide interviewer training and use structured, well-documented interviews.[26]

Since you have hired the best (most knowledgeable) people you can find, ensure that you treat them with respect, and encourage the expression of ideas. “Prime Movers do not want obedience from their employees; they want ideas (i.e., thinking).”[27] Ensure also that you do not waste their talents, and allow them to stagnate, so that they start looking for a more constructive use of their abilities outside your organisation.

Groom and develop your successor, so that when you move on, your position will be filled hopefully by someone better at it than you were. Michael Bloomberg said “A good manager always has a good replacement ready, and the best managers always have somebody who’s better than they are.”[28]

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Other Aspects of Justice

Pay well for good performance. Also use frequent informal recognition to reward employees for jobs well done. For example, “I noticed that you have been working long hours lately to meet our schedule.” This is specific recognition showing your subordinate that you are aware of and appreciate his/her effort. This type of recognition has been shown by many studies to be a powerful motivator to increase performance.[29] To be effective in the long term, this type of recognition must also of course be backed up by occasional tangible rewards such as publicly announced special recognition awards and pay increases.

Set up processes that are fair: that ask for input from those affected; that base decisions on proper evidence; and that allow erroneous decisions to be corrected. Research shows that people are more inclined to trust their managers and supervisors and less likely to leave their jobs, if they believe that decisions are based on fair procedures.[30] Employees are less likely to retaliate against their employers by stealing from the company, or suing for wrongful dismissal, and more likely to comply with distasteful policy changes such as smoking bans, if wage cuts, terminations, and smoking bans, are accompanied by adequate explanation and sensitive communication.[31]

Proactively manage turnover. Use surveys and MBWA (management by wandering around)[32] to assess employee dissatisfaction and its likely consequences. Implement strategies to reduce disenchantment, such as job rotation or job redesign.

Do not tolerate poor performance. Not only does this lead to lost opportunities in the job itself, but it also damages general morale. The failure to fire or demote people who are not performing well often causes CEOs to fail.[33]

Promote an emotionally safe environment. Creativity is fostered in environments in which people are free to set goals and take prudent risks without the fear of excessive criticism and other adverse consequences from management. That this sort of fear in the workplace is very common is illustrated by the fact that the quality expert W. Edwards Deming included the following in his Fourteen Points: “Drive out fear so that everyone may work effectively for the company.”[34] Lou Gerstner, when taking on the task of breathing new life into IBM, had this to say to his managers “[Entrepreneurial companies] encourage and protect their risk-takers, mavericks and china breakers.”[35] Jack Welch, CEO of General Electric, explained his ‘Work Out’ employee empowerment initiative thus “Ultimately, we are talking about redefining the relationship between boss and subordinate. I want to get to the point where people challenge their bosses every day: ‘Why do you require me to do these wasteful things? ... Trust me to do my job, and don’t waste all of my time trying to deal with you on the control issue.’”[36]

Encourage individual respect throughout the organisation. As we have seen from the virtue of justice, the proper principle governing relationships is the trader principle. Rather than a traditional paternalistic view of the employee (in which the employer is seen to be responsible for the welfare of the employee and the employee in turn owes the employer years of loyalty), and contrary to the view that the employee is an asset that the employer “owns” and can discard at will, Objectivism sees the employee as a producer and trader. The employment relationship is a voluntary agreement between responsible traders each deserving of respect. The employee is a producer who is paid for his services. “A trader is a man who earns what he gets and does not give or take the undeserved. He does not treat men as masters or slaves, but as independent equals. He deals with men by means of a free, voluntary, unforced, uncoerced exchange – an exchange which benefits both parties by their own independent judgment.”[37] In 1991 Lars Kolind, vice-president of the Danish hearing aid manufacturing company, Oticon Holding, implemented this principle when he radically transformed the organisation of the employees into what was almost an internal free market in labour. Departments were eliminated, and employees were free to bid for a project of their choice, and set their working hours and holidays. The resulting increase in productivity[38] contributed towards a doubling of the company’s annual revenues between 1994 and 1999, and a tripling of the parent company’s net profit.

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Footnotes:

[1] Connellan, T, Inside the Magic Kingdom (Bard Press, 1996)

[2] Salam, S. C., “Foster Trust through Competence and Integrity” in Locke, E. A. (ed), The Blackwell Handbook of Principles of Organizational Behavior (Blackwell Publishing, 2004), pp. 275-276.

[3] Donna Greiner and Theodore Kinni, op. cit. p. 164

[4] Ayn Rand, Capitalism The Unknown Ideal (Signet 1967) p. 26

[5] Donna Greiner and Theodore Kinni, op. cit. p. 167

[6] Edwin Locke, The Prime Movers, Traits of the Great Wealth Creators (Amacom 2000) p. 28

[7] Baum, J. R., Locke, E. A., and Kirkpatrick, S. A., “A Longitudinal Study of the Relation of Vision and Vision Communication to Venture Growth in Entrepreneurial Firms” Journal of Applied Psychology 1998 83(1) pp.

43-54 referenced in Hauser, M. and House, R. J., “Lead through Vision and Values” in Locke, E.A. (ed), The Blackwell Handbook of Principles of Organizational Behavior, (Blackwell Publishing, 2004) p. 260

[8] Kirkpatrick, S.A. and Locke, E.A., “Direct and Indirect Effects of Three Core Charismatic Leadership Components on Performance and Attitudes”, Journal of Applied Psychology 1996, 81, pp. 36-51 referenced in Hauser, M. and House, R. J., “Lead through Vision and Values” in Locke, E.A. (ed), The Blackwell Handbook of Principles of Organizational Behavior, (Blackwell Publishing, 2004) p. 264

[9] Latham, G.P., “Motivate Performance Through Goal-Setting” in Locke, E.A., The Blackwell Handbook of Principles of Organizational Behavior (Blackwell 2004) p. 117.

[10] E. Locke and G. Latham, A Theory of Goal Setting and Task Performance (Prentice Hall, 1990) referenced in Edwin Locke, The Prime Movers, Traits of the Great Wealth Creators (Amacom 2000) p. 89

[11] Donna Greiner and Theodore Kinni, Ayn Rand and Business (Texere Publishing 2001) p. 146

[12] Amabile, T. M., “Stimulate Creativity through Passion” in Locke, E. A. (ed), The Blackwell Handbook of Principles of Organizational Behavior (Blackwell Publishing, 2004), pp. 331-340

[13] Amabile, T. M., Creativity in Context (Westview Press, 1996) referenced in Amabile, T. M., “Stimulate Creativity through Passion” in Locke, E. A. (ed), The Blackwell Handbook of Principles of Organizational Behavior (Blackwell Publishing, 2004), p. 331

[14] Edwin Locke, op cit. p. 81

[15] J.R.Hackman and G.R. Oldham, Work Redesign (Addison-Wesley, 1980) for the identification of these characteristics. This and the research are referenced in Timothy A. Judge, “Promote Satisfaction Through Mental Challenge” in Edwin A. Locke, The Blackwell Handbook of Principles of Organizational Behavior (Blackwell, 2004) pp. 76-77

[16] Kets de Vries, M. F. R. and Dick, R. J. Branson’s Virgin: The Coming of Age of a Counter-Cultural Enterprise (INSEAD, 1995) referenced in Conger, J. A, “Motivate Through Empowerment” in Edwin A. Locke, The Blackwell Handbook of Principles of Organizational Behavior (Blackwell, 2004) pp. 144-145.

[17] T.J. Rodgers, William Taylor, Rick Foreman, No Excuses Management (Doubleday 1993) Chapter 1, referenced in Donna Greiner and Theodore Kinni, op. cit. p. 159.

[18] Frank L. Schmidt and John E. Hunter, “Select on Intelligence” in Edwin A. Locke, The Blackwell Handbook of Principles of Organizational Behavior (Blackwell 2004) p. 4.

[19] Edwin Locke, op cit. p. 127

[20] Edwin Locke, op cit. p. 128

[21] Frank L. Schmidt and John E. Hunter, op cit. p. 6

[22] Frank L. Schmidt and John E. Hunter, op cit. p. 7

[23] Murray R. Barrick and Michael K. Mount, “Select on Conscientiousness and Emotional Stability” in Edwin A. Locke, The Blackwell Handbook of Principles of Organizational Behavior (Blackwell 2004) p. 16.

[24] Murray R. Barrick and Michael K. Mount p. 17.

[25] Frank L. Schmidt and John E. Hunter, op cit. p. 4.

[26] C. K. Stevens, “Structure Interviews to Hire the Best People” in Edwin A. Locke, op cit, pp. 29-35.

[27] Edwin Locke, op cit, p. 120

[28] “What Should You Say When an Employee Quits?” Inc., March 1998, p. 50 quoted in Edwin Locke, op cit, p. 124.

[29] Luthans, F. and Stajkovic, A.D., “Provide Recognition for Performance Improvement” in Locke, E.A., The Blackwell Handbook of Principles of Organizational Behavior (Blackwell, 2004) p. 168

[30] Alexander, S. and Ruderman, M., “The Role of Procedural and Distributive Justice in Organizational Behavior”, Social Justice Research 1987 1, pp. 177-198 referenced in Greenberg, J, “Promote Procedural Justice” in Locke, E.A., The Blackwell Handbook of Principles of Organizational Behavior (Blackwell, 2004) p. 182

[31] Greenberg, J, “Promote Procedural Justice” in Locke, E.A., The Blackwell Handbook of Principles of Organizational Behavior (Blackwell, 2004) p. 184

[32] Peters, T.J and Waterman, R.H, In Search of Excellence (Harper & Row 1982) referenced in Lee, T. W. and Michell, T.R, “Control Turnover by Understanding its Causes” in Locke, E.A (ed), The Blackwell Handbook of Principles of Organizational Behavior (Blackwell, 2004) p. 100

[33] R. Charan and G. Colvin, “Why CEOs Fail”, Fortune, June 21, 1999, pp. 69ff. referenced in Edwin Locke, op cit. p. 121

[34] W. Edwards Deming, Out of the Crisis (MIT-CAES, 1986), Chapter 2, quoted in Donna Greiner and Theodore Kinni, op. cit. p. 156.

[35] Robert Slater, Saving Big Blue p. 216 quoted in Donna Greiner and Theodore Kinni, op. cit. p. 157.

[36] Tichy, N.M, and Charan, R. “Speed, Simplicity, and Self-Confidence, an Interview with Jack Welch”, Harvard Business Review, Sept-Oct 1989, pp. 112-120, quoted in Conger, J. A., “Motivate through Empowerment” in Locke, E.A. (ed), The Blackwell Handbook of Principles of Organizational Behavior, (Blackwell Publishing, 2004) p. 145.

[37] Ayn Rand “The Objectivist Ethics” The Virtue of Selfishness (New American Library 1964) p. 31

[38] Polly LaBarre, “The Dis-Organisation of Oticon” in Industry Week, July 18 1994 pp. 23-28 referenced in Donna Greiner and Theodore Kinni, Ayn Rand and Business (Texere Publishing 2001) p. 154

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