The "Innovative" Company - Is it just a figment of one's imagination?

Fast Company just released their list of 2012's 50 most innovative companies. One company that immediately jumped out for me was Netflix - not because it is on the list but rather because it is NOT on the list! Netflix was #12 on the top 50 most innovative companies in 2010. It then advanced to #8 in 2011 for streaming itself into a $9 billion powerhouse and crushing Blockbuster along the way. Now, it's completely out of the top 50! Those of you who have read my recently published book, Living in the Innovation Age, might not be surprised by this as this is exactly the discussion that Chapter 1 begins with - just as Netflix displaced Blockbuster by changing the rules of the "movie rental" game so too is it being displaced by others who are now changing the rules on Netflix!

Anyway, that is not the point of this blog. :)

The reason that I brought up Fast Company's list of the top 50 most innovative companies is that most of us would love to see our company mentioned among this esteemed group. After all, who doesn't want to be part of leading an "innovative" company?

But is there such a thing as an "innovative" company? Or is it just a figment of our imagination much like how a damsel in distress might dream about her "knight in shining armor?"

One of the principles of innovation I discuss in my book is that "Innovation is a Journey Not a Destination." As I explain the principle, I refer to the "impedance mismatch" between what typically sustains organizations (whose natural tendency is to seek efficiencies) and what it must do to innovate (promote an environment that is tolerant of mistakes and potential inefficiencies in the short term). Given the natural "efficiency-oriented" mindset of organizations, "innovativeness" is an unnatural state of existence. As we all know from our study of science, all elements in nature strive to exist in their steady state, which for organizations is the state of minimal errors and risk. 

A recent blog in HBR from Scott Anthony, author of the "The Little Black Book of Innovation", summarizes three theories from innovation thought leaders that support my hypothesis above:

1. Clayton Christensen asserts that a single organization can't house two competing systems; companies seeking to drive disruptive growth therefore need to create spin-off organizations.
2. Michael Tushman and Charles O'Reilly suggest that ambidextrous companies need to create "distinct but linked" organization, governed by a "rare but essential" executive who can simultaneously use competing frames
3. Vijay Govindarajan and Chris Trimble suggest that companies can consciously manage the balance between the "performance engine" (that minimizes mistakes) and the "discovery team" (that encourages experiments) by being clear about what core capabilities should be forgotten and borrowed.

Each of the above theories highlights the importance of not allowing the efficiency-oriented culture of an organization to smother to death the innovative tendencies of the fledgling few. 

The bottom line - Innovative companies can exist in nature but only in tightly controlled and managed environments that allow an open sharing of ideas, collaborative learning, and a culture where taking risks and making mistakes is not only tolerated but encouraged. With out these precursors, innovative companies can only exist in one's imagination.