A corporate culture that promotes innovation is not only good for the bottom line but also something employees value. It is, however, hard to create and sustain. Structure and rigor must balance freedom and flexibility. A tolerance for failure requires an intolerance for incompetence. A willingness to experiment requires discipline. Psychological safety requires comfort with brutal candor. Collaboration must be balanced with individual accountability. And flatness requires leadership. Innovative cultures are paradoxical, and unless the created tensions are carefully managed, attempts to create an innovative culture will fail.

Exploring ideas that fail is fine, but faulty thinking is not.

Innovation involves exploration of uncertain terrain, with tolerance for failure being essential, but it needs to be balanced by setting high-performance standards. Top innovation talent is necessary to ensure exploration doesn’t fail due to poor technical skills, faulty thinking, and bad management —an area where many organizations fall short. Tolerance for failure requires having extremely competent people. Attempts to create novel technologies and advanced services are full of uncertainties, and “failures” are natural occurrences that can provide valuable lessons about paths forward as long as they do not result from poor designs, flawed analyses, and a lack of transparency.

Building a culture of competence requires:

1. Clearly articulating expected standards of performance.
2. High hiring standards, even if that temporarily limits access to people.
3. High Ambitions, Expectations, and Performance.

One reason striking a balance is so hard is that the causes of failure are not always clear.

Highly Disciplined Experiments 

Organizations that embrace experimentation are comfortable with uncertainty and ambiguity. They do not pretend to know all the answers upfront or to be able to analyze their way to insight. They experiment to learn rather than to produce an immediately marketable product or service. Without discipline, almost anything can be justified as an experiment, hence high-performance cultures select experiments carefully on the basis of the value of their potential learning.

1. Establish clear criteria for deciding whether to move forward with, modify, or kill an idea.
2. Face the facts and admit an initial hypothesis was wrong.
3. Kill losing projects and move on to try new things.