How can company culture and structure empower employees to innovate?

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6 minute read 26 Apr 2018
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EY Americas

Multidisciplinary professional services organization

6 minute read 26 Apr 2018

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In an era where the average lifespan of a company continues to shrink, innovation is more important than ever to survive.

To foster innovation, companies must establish a culture that embraces failure, cultivates talent and empowers employees with autonomy and creative freedom. However, this is no easy task — regardless of whether your business is a small start-up or a large corporation.

So how can companies nurture innovation in order to grow?

Structure is key

They can start with assessing their structure, says Dr. A.D. Amar, Professor of Management at the United States-based Stillman School of Business, at Seton Hall University in New Jersey.

In some cases, a flat organizational structure can drive rapid growth: less bureaucracy can make things faster and more efficient. When properly executed, cutting out managers can give individual employees more responsibility and true ownership of projects.

“No one knows more about their job than the person doing the job,” says Dr. Amar. “They know the most about their customers and how best to connect with them and the marketplace. The sooner you get to the market with a product, you have less competition, can charge a better price and generate more unit sales."

But creating a culture where employees have total autonomy can also backfire, and many companies have learned the hard way that hiring and retaining the right people is crucial.

Lean, with purpose

Helsinki-based Supercell, which was acquired in June 2016 (in an 84.3% stake) by Chinese-holding company Tencent for US$8.6 billion, has created some of the most popular mobile games of all time since its founding in May 2010. Founder and CEO Ilkka Paananen attributes the success of the gaming company, known for hits that include Clash of Clans and Clash Royale, to its culture and people.

“Obviously we want to have the best people, people who are passionate for excellence,” says Paananen.

“No matter what you do, you have to shoot for the moon. That has to be the starting point,” he says.

No matter what you do, you have to shoot for the moon. That has to be the starting point.
Ilkka Paananen
Supercell

Recruitment is a key driver at Supercell, which has less than 200 employees, up from six when the company started. Prospective employees go through a rigorous interview process, before meeting with Paananen as the final step.

“I have interviewed every single person who has ever joined Supercell,” Paananen says. “The reason we invest so much time and effort into the recruitment process is we think that it is the most important decision that you can make as a company.”

For Paananen, the secret of success is a flat management structure that allows employees to work in small teams with “complete freedom and responsibility,” i.e., no boss. The key is finding employees who are passionate, highly skilled and have the right mindset to work autonomously.

Supercell derives its name from the group of small teams or “cells” it empowers to create the games internally. For instance, Clash of Clans, which constantly ranks among the top-grossing mobile games, was created by just five people.

“Once you have these great individual contributors, it's almost trial and error on how to put together a four person integrated team. As time goes by, you can learn which people work best with other people.”

Clearly, the structure and the ability to keep a tight focus on recruiting people who fit the company culture is working for the mobile gaming giant. Supercell saw revenue rise 36% in 2015 to more than €2 billion, along with a 60% climb in operating profit to €845 million.

Despite this impressive rate of growth, Paananen believes the company needs to remain relatively small to keep the innovative entrepreneurial spirit alive. As such, it has chosen to take a steady growth path so as not to compromise its flat structure.

“One of the things I'm most proud of is how slowly we've grown. In a small company, you need less process … less layers of management,” he says.

Despite only adding between 20 and 30 people a year, Supercell focuses on having a zero bureaucracy environment, so the work is always at the forefront. “We happen to believe in the culture and the people — that's the most important reason why we've been successful. We wouldn't ever put the culture into jeopardy, just for the sake of adding more people too quickly.”

Self-organization enables employees to act more like entrepreneurs and self-direct their work.
Jon Wolske
Zappos

A growing trend around the world

Less hierarchal structures are on the rise elsewhere, with some surprising results. Zappos, the online clothing and shoe company based in Las Vegas that was acquired by Amazon in 2009 for US$1.2 billion in stock, famously flattened its organization in 2013.

Zappos has a holacratic approach — where authority is distributed more evenly than a hierarchy through autonomous, interconnected teams, or “circles.” According to Jon Wolske from the Zappos Insights team, it moved to this type of structure because it felt bureaucracy in large companies decreased productivity and innovation:

“Self-organization enables employees to act more like entrepreneurs and self-direct their work instead of reporting to a manager who tells them what to do,” says Wolske.

Wolske thinks there is a direct link between the company’s structure reorganization in 2013 and its financial growth and innovation.

“Small innovations and changes come more easily now, since the need for “approval” to try something new is gone,” he notes. “Plus, as we see needs or opportunities — even outside of our core business — we are able to incorporate or brainstorm around them, whereas before it would not have been an option because it simply wasn’t related to our business.”

Other companies around the world have begun experimenting with this approach, with mixed results. Swedish-based Qamcom, which specializes in wireless communications and sensor systems, with a heavy focus on 5G and autonomous driving, moved to a flat and self-managing organization four years ago, says CEO Magnus Kilian, when the company had 20 employees.

After seeing the results and how it’s shaped the company, Kilian calls it one of its “most important success factors.” Kilian says: “One of the important basics in the structure is that anyone in the company could take any decision or take care of the problem.”

By changing the structure, Kilian said the autonomy and responsibility the new structure gives his workers is key. “The growth and the ideas are not limited to the ideas of management— it’s the total knowledge and the total intelligence in the company that we want to get out.”

Not for everyone

Though abstaining from a traditional hierarchal or bureaucratic structure has certainly helped many companies facilitate innovation and financial growth, it doesn’t come easily and isn’t right for every company.

Supercell, where failure is celebrated (Paananen says only one in ten games make it, and the failures are toasted with champagne), has been successful because employers work hard to find the right people. But Paananen notes that employee turnover is higher than normal in the first few months due to its unique culture.

Qamcom, on the other hand, still leaves room in the structure for some employees who need to be assigned traditional tasks, though Kilian notes it’s a small percentage of his workforce, less than 10% of his 100-person company.

While structure plays a large part in building an innovative culture, recruiting the right employees, cultivating a mindset that embraces failure and maintaining an entrepreneurial spirit, can help chart a path to accelerated growth. Those lessons can be applied to any organization, regardless of size, structure or sector.

Summary

Recruiting the right employees, embracing failure and a strong entrepreneurial spirit can help any company build an innovative culture.

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EY Americas

Multidisciplinary professional services organization