How cultural attributes relate to innovation capability

Is the “culture versus innovation” relationship still valid in enterprises, and if so, what is the implication for managers and leaders? Xiaodong Yang considers innovation capability in China.

PREFACE BY LIZ MELLON

The Conference Board CEO Challenge 2015 report highlighted 10 big-picture trends as companies seek to maintain growth and momentum in a slowing global economy. One element the report highlighted was a surprising lack of emphasis on building cross-cultural competency.

The world market is not homogeneous. Globalization brings with it more diversity in the workforce as well as fragmented markets, but even the largest companies in the survey placed low emphasis on developing cross- cultural competencies. Yet we know that lack of cultural sensitivity challenges organizational alignment and effective global leadership. On a personal level, lack of training and insight leads to failed overseas assignments among expats and stops effective local leaders developing the skills to step up to take their places once the expats return home.

In her thought-provoking article in this issue (page 32), Suzanne Rosselet looks at the economic arguments and considers how cross-border alliances provide companies with access to markets. She explains that not understanding the traditions and consumer tastes of a foreign market can often cause failure. She further recommends a balanced representation of national and foreign board members, which often goes hand-in-hand with improved profitability.

Put simply, cross-cultural competency and insight matter. Xiaodong Yang’s research provides us with a valuable and rare perspective.

 

Culture is vital to innovation
Innovation is about something new and it is impossible to set rules effectively for something that does not yet exist. Culture therefore plays a critical role from idea generation through to idea commercialization.

The formula:
“How are cultural attributes related to innovation capability?”

This is an intriguing question for managers all over the world. To answer this question, the starting point in our research is at country level, identifying data sets reflecting different countries’ innovation capability and cultural attributes. Geert Hoftstede, the father of modern research into national culture since 1980, has studied cultural dimensions of countries, and in his 2010 co-authored book Cultures and Organizations, five cultural dimensions were summarized:

  • Power distance index (PDI) expressing the degree to which the less powerful members of a society accept and expect that power is distributed unequally
  • Individualism versus collectivism (IDV) expressing the degree to which individuals are integrated into groups
  • Masculinity versus femininity (MAS) describing the distribution of emotional roles between the genders
  • Uncertainty avoidance index (UAI) describing a society’s tolerance for uncertainty and ambiguity
  • Long-term orientation (LTO) describing society’s time horizon and indulgence versus restraint (IVR) expressing the extent to which members of a society try to control their desires and impulses

As culture evolves over time, an index of countries’ innovation capability during specific time periods is needed. In 2009/10, The Global Innovation Index (GII) report, powered by INSEAD and the Confederation of Indian Industry, scored and ranked 132 countries’ innovation capability. After some data purging and consolidation, a list of more than 60 countries with both cultural dimensions and GII scores was defined, as outlined in box 1 (see page 34), in alphabetical order.

The regression model between national cultural attributes and innovation capability can now be investigated. As PDI (power distance) and IDV (individualism) have a very strong inverse correlation, we will not include IDV (individualism) in our regression model. The purpose of regression is to find out how countries’ innovation capability can be predicted, according to their cultural attributes. In other words, the regression model can predict the extent to which each cultural attribute contributes to a country’s innovation capability.

The regression formula is as follows:

National Innovation Capability (GII) = 3.921+(-0.018)×PDI (power distance)+0.016×LTO (long-term orientation)+(-0.007)×UAI (uncertainty avoidance)+ 0.009×IVR (indulgence versus restraint)

What does this equation mean?

  • As national innovation capability is derived from country-based research, it can apply to countries all over the world and has great potential to become a general guideline fo any innovative sub-culture, for example, corporate culture
  • MAS is irrelevant. Male value-driven culture is as innovative as female value-driven culture
  • High PDI is the most unfavorable to innovation as it has the highest positive coefficient
  • High LTO is the most favourable to innovation as it has the highest negative coefficient. The stronger a culture’s desire to avoid uncertainty, the less innovative it is
  • Desires and impulses can lead to greater innovation
  • For instance, Chinese culture, according to Hofstede’s research, is characterized by high PDI and high LTO. The former can curb innovation, but the latter can facilitate innovation. US culture is the opposite way round.

 

 

CASE STUDY

China National Building Materials Co Ltd (CNBM) is the core corporation in the China National Building Materials Group, a Global Fortune 500 state-owned enterprise (SOE). The group is an example of mixed ownership, and state-owned equity accounts for approximately 30% of the total equity. Traditional SOEs follow a top-down management style, which fits high power distance culture. The ownership structure of CNBM gives the private owners more power and rights. CNBM holds a monthly meeting for around 60 company leaders; around 50% of the participants are private owners and professional managers without any state background. The important announcements about production, marketing, investment and key HR changes will be made during this half-day meeting. Questions are welcomed from each participant.

CNBM has another preparation meeting before this. In the preparation phase, all the related business units and stakeholders discuss different topics thoroughly and decide which topic(s) can move forward to be discussed at the monthl meeting. For instance, if a sub company plans to acquire an asset, the business people, the investment people and senior managers from both the sub company and head office will discuss and decide whether this is worth pursuing and whether this plan can be announced in the monthly meeting.

On average, around 50% of the people involved in such discussions do not have any state background. The ownership structure and the variety of managers’ backgrounds ensure the co-existence of one-way announcements and multi-way dialogues in the enterprise. These practices, together with other methods, contribute to the reduced power distance within CNBM.

The Catalyst Program is a symptom of the reduced power distance index (PDI). During the consolidation and rationalization process, many smaller companies joined CNBM family. Many new members were privately-owned and had their own technologies, processes, styles and even languages. To standardize management practices and create a unified culture, CNBM sends “catalysts” to these new member companies to bring them in line with a corporate standard. These catalysts are change agents and domain experts, and work with the member companies on technology, production, marketing and management issues to drive changes and close gaps. The Catalyst Program helped CNBM grow quickly through consolidation and rationalization, without falling apart. The catalysts are usually not high in the corporate hierarchy, thus only a reduced PDI can make them influential and enable them to make changes. The Catalyst Program also reinforces lower power distance culture.

Reducing power distance and strengthening long-term value are the keys to nurturing a culture of innovation in China. Achieving this requires reforms to the social and political systems and they have become the critical elements of the concept of the Chinese Dream.

 

Xiaodong Yang is an advisor to Duke Corporate Education in China. He is also an independent researcher, focusing primarily on innovation. As a member of congress for the Panlong district of Kunming city, he has an active role within the local community in Kunming, which is the capital of the Yunnan Province, in southwest China.