Why do so many corporate innovation programs fail?

The answer is as complex as the organizational landscape itself. While some might point to heavyhanded governance models, siloed teams, the demanding regulatory environment, and bureaucratic decision-making as the main culprits, one area often goes unexamined: talent strategy.

Your people processes are either supporting innovation or undermining it. There is no middle ground.

I recently read Adaptive Ethics for Digital Transformation by my colleague Mark Schwartz. I won’t attempt to summarize what I found to be a thought-provoking and challenging book (especially if you gravitate to hats, food, and mythical monster analogies). Instead I want to reflect on a single quote. It’s not a huge theme of the book, so I don’t think I’m stealing any of Mark’s thunder. (Go read his book. It’s really good.)

In the middle of a story about Enron’s meltdown, Mark drops this gem:

“Culture forms around whatever makes employees successful.”

Mark shows how Enron’s stated values weren’t at all evidenced by what led to individual success and advancement within the organization. The stated values weren’t the problem; the disconnect between them and reality was the problem.

I’ve spent the last eleven years of my Amazon journey (both at AWS and Amazon.com) focused on people and culture. I’m a culture nerd, constantly looking at the world through the lens of “Culture is the most important thing.” And I work for an organization that has deliberately evolved its culture to fulfill its mission of being Earth’s most customer-centric company. But does Mark’s statement hold true for other organizations? I think it does, and I believe that many organizational transformations are derailed when an organization fails to back up its stated cultural values with its practices in employee development, performance evaluation, and, yes, even compensation philosophy.

Over the last five years, I’ve had conversations with over a thousand organizational leaders worldwide across almost every industry segment. One conversation has stuck with me; it illustrates the need to reexamine your talent strategy when pursuing organizational transformation.

A few years ago, I had the opportunity to spend time with the head of innovation for a global oil and gas company—let’s call him Xavier. Like many established organizations in the energy sector, Xavier’s company saw an urgent need to transform itself and become more innovative. Its old formulas for a sustainable and profitable business could not help it succeed in a world with diminishing natural resources and an increasing appetite for energy.

During our conversation Xavier shared his methods to drive innovation across the company: top-level innovation goals from senior leadership, a designated innovation budget for every organization, small teams focused on specific problems, hackathons, public recognition, and awards—the gamut.

He said, “We’ve been running the program for a year and a half. And there are pockets of the company where it’s working. But it’s just not catching on like we hoped it would. We’re not experimenting. We’re still bureaucratic and slow in our decision-making. People just aren’t signing up for innovative projects. What am I doing wrong?”

Xavier’s plan aligned with almost every textbook approach to driving organizational innovation. I honestly couldn’t think of what he’d left out. An hour later we were having lunch, and the conversation drifted from Amazon’s leadership principles to its compensation philosophy. Amazon has included company equity as a significant component of each employee’s overall compensation for a long time. This approach aligns with our Leadership Principle of Ownership:

Leaders are owners. They think long term and don’t sacrifice long-term value for short-term results. They act on behalf of the entire company, beyond just their own teams. They never say, “That’s not my job.”

“Leader” refers to everyone in the organization, regardless of their title or role. Everyone can impact and influence the behavior of those around them, so you need to approach your work with a responsible leader’s mindset. And at AWS “Leaders are owners” is literal. In addition to having a discrete set of responsibilities (i.e., owning your role and being accountable for its results), each employee owns a piece of the company and benefits from the organization’s long-term success. By giving stock to every employee, Amazon aligns individual motivation and organizational objectives.

How is this idea of ownership connected to the innovation puzzle I was talking about with Xavier? When I shared the details of our compensation philosophy, Xavier stopped me and said, “Wait—everyone gets stock?”

“That’s right,” I said. “Of course, we give different amounts based on level and job performance. And someone who’s underperforming may not get any at all. But every other employee gets stock as part of the annual compensation process.”

“Huh,” he said. “My leaders believe in pay for performance. We also give stock, but if I have a team of ten, I’m only allowed to give it to my top two performers. It’s a significant award – it can amount to 30% of their annual salary.”

Senior leadership heavily scrutinized the stock awards, and the people who received them usually delivered spotless results for the year—they hit all their goals and objectives. Who would ever sign up for projects with even a remote chance of failure in that environment?

I can sympathize—I have three college-aged kids. In the US that means I’m putting a lot of money toward paying for their education. If I could earn a 30 percent raise following the model at Xavier’s company, I’d set “safe,” obtainable objectives and then meticulously and relentlessly pursue those objectives at the expense of anything else. Not everyone is motivated by money, but a culture that rewards flawless execution is antithetical to experimentation and innovation. Leadership may say, “Fail fast!” but its reward and correction systems communicate the opposite.

The year after I had that conversation with Xavier, his company partnered with the AWS Digital Innovation team to create five significant experiments, executing them in one-third of the time it would have previously taken them to execute one. Two of those experiments remain in production. I don’t know how relevant our conversation was to the changes Xavier’s company made, but last year, I met with the same organization’s talent leadership. They had revised the company’s compensation approach to offer stock to all employees.

The transformation lesson here isn’t “Just change how you compensate employees.” There is no panacea to solve the challenges posed by any major organizational shift. However, leaders willing to reexamine all aspects of their organization—including (and especially) their people practices—are likelier to lead a transformation that endures.

Some ideas for you … unless you know better ones,

—Stephen