“When it comes to innovation, geography is destiny,” wrote the New York Times recently. Not according to Carlson School Professor Rajesh Chandy and his colleagues who say it’s corporate culture, not geography, that defines innovative potential.

A forthcoming paper, Radical Innovation in Firms Across Nations: The Pre-eminence of Corporate Culture*, describes a global research effort that looked at 759 public companies from 17 of the largest economies and most populous countries in the world. The companies came from a set of nations that included developed nations such as the United States, Germany and Japan, and developing nations such as China and India, providing a cross-cultural look at the factors that drive innovation.
 

Measuring innovation can be a tricky business, however. Other research tends to focus on laboratory inputs, such as the number of scientists or research and development spending, or intermediate outputs, such as patents, as proxies for innovation. However, this paper defines radical innovation as “the commercialization of new products that are based on substantially different technology and provide substantially higher customer benefits relative to existing products in the market.” To capture the commercialization aspect, a more direct measure of innovative output would be needed, surmised the authors, Rajesh K. Chandy at the University of Minnesota’s Carlson School of Management, Gerard J. Tellis at USC’s Marshall School of Business; Jaideep C. Prabhu at the Tanaka Business School, Imperial College London.

So the professors surveyed vice presidents for innovation or technology at their sample companies to determine how radically different the executives felt their companies’ products are from the competition’s, and whether they believed their companies lag behind others in introducing products based on new technologies. This survey data was then combined with data on company patenting and national data covering a host of factors that are thought to drive innovation.

It turns out the proxies that other researchers have used — patenting, for example — are not strong factors for stimulating radical innovation. Neither are most of the factors that other researchers have posited at the national level, such as religion, geography and intellectual property protection.

Rather, the most important factor driving innovation is the internal culture of the company. Specifically, the researchers found that a future market orientation, a willingness to cannibalize, and a tolerance for risk are three cultural elements that have a particularly strong relationship with radical innovation. Organizational tools such as incentives and product champions are also important, though less so. The only other factor that the authors found to be significant is R&D spending, but even that is not as strong as company culture.

Not even a nation’s intellectual property protections are that important for innovation at the company level. “If you think about it, India and China are low on intellectual property but many of their leading firms are highly innovative, especially in manufacturing in the case of China, and in new business models in the case of India,” explains Chandy.

Since radical innovation implies commercialization, according to the authors’ definition, an important product must reach the market before a technology can be called radical. And commercialization should lead to financial performance, which the study also confirmed. “In general, what we found,” says Chandy, “is that the more radical innovation you have, the higher is your market-to-book ratio.”

This is an early look at a broader global research effort on innovation. “There are a lot of ways to organize. Some companies organize in a monolithic way, they open subsidiaries, and they are all one solid culture. Some are highly decentralized, wherein everything is autonomous and each subsidiary has its own culture. We’re going to see which structure, format, and culture works the best.”

Adapted from Yu, Larry (2007), “Measuring the Culture of Innovation,” MIT Sloan Management Review, 48 (Summer), p. 7 

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* "Radical Innovation in Firms Across Nations: The Pre-eminence of Corporate Culture," Gerard J. Tellis, Jaideep C. Prabhu, and Rajesh K. Chandy, Journal of Marketing (forthcoming Jan. 2009). Available at: http://www.carlsonschool.umn.edu/assets/114998.pdf