Anytime the topic of new product innovation is raised, it’s guaranteed that someone inevitably will bring up . . . Apple’s iPod.
Of course, there’s good reason for the praise heaped upon the ever-shrinking device. Not only did Apple’s iconic MP3 player manage to convince the world it was finally time to put “one thousand songs in your pocket,” but it also played a huge role in the company striking a previously unimaginable agreement with music labels to sell their songs online.
And that’s not all. In addition to creating a device that’s elegantly simple to use, Apple masterfully branded the iPod, introduced consumers to a new business model (legal, downloadable songs for ninety-nine cents), and opened up iTunes software to work not only on Macs but also on PCs.
The result of these combined innovations? A consumer electronic device that may as well print $100 bills and perfectly illustrates why companies innovate in the first place.
Luckily for the rest of us, Apple, which has topped BusinessWeek’s “World’s Fifty Most Innovative Companies” list three years running, doesn’t have a corner on creativity. Look no further than Google’s constantly evolving search capabilities, Netflix’s movies-by-mail rental service, or Toyota’s eco-friendly Prius as proof.
In The Ten Faces of Innovation, author Tom Kelley says, “There is no longer any serious debate about the primacy of innovation to the health and future strength of a corporation. Even the staid British publication The Economist recently claimed, ‘Innovation is now recognized as the single most important ingredient in any modern economy.’”
Put another way, today’s companies must constantly innovate or face the very real possibility that they won’t be around next quarter.
Most managers already appreciate this highly salient idea, and that’s why companies invest billions annually in R&D, prototypes, and patents. But are managers doing everything possible to ensure innovation is actually taking place?
New research co-authored by Marriott School business professor John Bingham suggests that companies may be overlooking one important concept in their quest to develop the next big thing: the little-known idea called “procedural justice.”
PROCEDURAL JUSTICE AT WORK
On its face, the term “procedural justice” sounds like something plucked from a state penal code.
“Actually, a good example of procedural justice in action is a manager going to a person who did not receive a raise and explaining the reason why,” says Bingham, an assistant professor of organizational leadership and strategy. “That is, providing the employee with an opportunity to voice concerns about not receiving the raise and explaining to him or her that resources were not available. Procedural justice is partially illustrated by fairness in the explanation of the organization’s policies and procedures.”
Bingham’s study explores the effect of procedural justice on new product innovation. Co-author Elizabeth Umphress, an assistant professor of management at Texas A&M University, says that procedural justice is comprised of six parts.
She says managers who are procedurally just make decisions that
- are made based on accurate information,
- can be challenged and changed if incorrect,
- are based on consistent criteria across all employees involved,
- are free of bias,
- are made without violating societal standards of ethics.
Finally, employees of a procedurally just manager should have the ability to share their opinions before and after decisions, she says. This concept is called “voice.”
“Voice is often considered the most important criteria to consider with regard to procedural justice,” Umphress says. “Companies should encourage managers to listen to their employees. Even if outcomes are not changed as a result of their communication, employees perceive higher levels of procedural justice if their managers take the time to listen.”
Based on the input of respondents from 109 high-tech firms involved in new product development, Bingham, Umphress, and Haiyang Li, of Rice University, determined that procedural justice has a highly significant effect on the quality of new products and on time to market.
“We found that when employees feel that they are fairly treated they are more likely to share knowledge and collaborate,” Bingham says. “That, in turn, leads to the creation of a higher quality product that hits the market faster. So procedural justice actually facilitates new product development and production.”
Despite the fact that their study focused on technology firms, Li clarifies, “It’s not necessary to be a technology company to be innovative. There are a lot of companies in the consumer product sector, like Proctor and Gamble, or in the service industry, like Bank of America, that are very innovative in how they serve their customers.”
SEVEN STEPS TO IMPROVED FAIRNESS
With so much at stake—improved innovation, first-mover advantage, and, ultimately, survival—what can managers do to develop a culture of fairness that encourages and accelerates collaboration and innovation?
Bingham suggests adopting seven steps to increase organizational fairness:
First, ask employees for their input when making decisions. “We underestimate the effect a voice has in the decision-making process,” Bingham says. “When people have the opportunity to share their views on a particular subject or topic related to their work, it has a significant effect for reducing their reactions to negative outcomes.”
Furthermore, if employees aren’t involved in the decision-making process, they may inevitably start looking for jobs elsewhere, he says. Or worse, they may actually engage in withdrawal behavior or attempt to sabotage the organization.
“Essentially, they say, ‘If you’re not going to consider my views, then I’m going to stick it to you,’” Bingham explains.
Second, Bingham says it’s important to establish a way for team members to challenge management’s opinions. This may initially be difficult because managers, who are often used to having their edicts followed, may feel threatened by opening themselves up to criticism.
But in the Harvard Business Review article “Why It’s So Hard to Be Fair,” Joel Brockner, a professor at Columbia Business School, says: “Managers sometimes do run the risk of losing power when they involve others in decision making. But usually the practice of process fairness increases power and influence. When employees feel that they are heard in the decision-making process, they are more likely to support—rather than merely comply with—those decisions, their bosses, and the organization as a whole.”
Third, make sure that decision-making procedures are consistently fair. Once a way of making decisions has been established, stick to it. Otherwise employees will become confused with management’s actions and become less cooperative.
Fourth, become familiar with each project member’s concerns. Make time for individual consultation with team members and not just the entire team at once.
“You’re going to get different views when you talk with individual members than when everyone’s sitting together in the room. People tend to be agreeable in large groups, not wanting to come across to others as a naysayer or a prima donna,” Bingham says. “One-on-one, however, you’ll likely get greater candor.”
Fifth, provide a full explanation for final decisions that are reached. “That’s a critical component of procedural justice,” Bingham says. “In the end, after you’ve asked for input, the final decision may vary somewhat from what an employee proposed. Top management should provide a detailed overview and explain what decision was made and why.”
It should be noted that it’s even okay if outcomes are negative, Bingham says.
“I may not receive a raise. I may not receive the bonus. But if I understand the logic behind those decisions, I’m going to perceive fairness and continue to contribute and collaborate,” he says.
Sixth, be supportive by properly providing required resources. “Do individual team members working on new products perceive that top management is providing adequate resources for the team to achieve its goals?” Bingham questions. “If not, there will be a strong perception that managers are being unrealistic in their expectations.”
Seventh, respect and encourage the autonomy of the team and of team members.
“There needs to be opportunities for individual team members to explore, to innovate, to create, and to express their views on their own. That suggests that there has to be a significant level of individual autonomy,” Bingham says. “There needs to be a time in which individuals are allowed to play around with new ideas and then pose those new ideas to colleagues within the group.”
Co-author Li, an expert in product development, explains that some of the world’s most innovative companies purposefully allow employees to use some of their time at work experimenting and creating. For example, 3M, a company that has spent more than $6.3 billion on R&D in the last five years, encourages employees to spend 15 percent of their time working on projects of their own choosing. Google allows its employees 20 percent.
“3M sets the objective that they want to have 40 percent of their new sales coming from new products developed in the last four years,” says Li, an assistant professor of strategic management and innovation. “Facilitating this, 3M has a high level of procedural justice. Managers have set this policy that allows high tolerance for failure. This makes sense because innovation is always associated with uncertainty and risk.”
To be procedurally just, managers must bite the bullet and become more open to failure, he adds.
“An entrepreneurial culture doesn’t happen overnight; it has to develop,” Li says. “Once in place, it’s the culture that encourages innovation and ideas.”
FAIRNESS IN ACTION
One company that has built a reputation for fairness and innovation is Chaco, a manufacturer of high-end footwear used by outdoor sports and recreation enthusiasts.
Some of the things Chaco has done over the years to stand out from competitors include paying employees to ride their bikes to work, establishing a recycling program for their sandals, and producing sandals that help control problems of overpronation. Chaco’s sandals have been awarded the Seal of Acceptance by the American Podiatric Medical Association.
Chaco was named one of the best places to work in Colorado. What makes the designation even more special is the fact that more than half of Chaco’s employees are paid by the hour to work on a manufacturing floor—not your typical environment for a highly satisfied and motivated workforce. What’s Chaco’s secret?
Dave Knutson, director of human resources at Chaco, says the company focuses “on the relationship between managers and their direct reports.” Furthermore, the closest he comes to a formalized HR process is the company’s annual employee survey, where he asks employees about their work experiences.
“Typically, we hear from employees whether they think their pay is fair, whether they think their treatment is fair, and whether they think they’re heard,” Knutson says. “Then we go back to the employees with the results and ask what we can do better.”
Throughout the rest of the year, managers and employees are routinely coached based on continual feedback, he says.
“If you’re waiting for an event like an annual survey to get your feedback, you’re not going to have a fair environment,” Knutson says. “You have to be open to feedback all the time. That’s why we encourage our leads and managers to give real-time feedback.”
Instead of waiting for a review or for a serious problem to arise, managers give feedback as issues happen. “And you’ve got to remember that feedback’s both positive and negative. You can extinguish good behavior if you’re not encouraging it,” Knutson warns.
There’s yet another important reason Chaco’s employees are so satisfied with their fair work environment. For the last four years Chaco has trained managers and employees to use a communication model called Leader Effectiveness Training. In the training, all employees learn how to craft win-win situations, how to give assertive feedback, and how to develop listening skills.
In the end, he suggests that companies should get away from thinking of encouraging fairness in terms of programs.
“Too many companies adopt a flavor-of-the-month attitude,” said Knutson. “It’s not programs that do it, but genuine relationships between managers and their direct reports—the leads and the people they supervise. It’s those relationships that make people feel like they’re being treated fairly at work and foster dedication and innovation, the things that help a company succeed.”
Fairness Starts Here
Bingham says that for every Chaco, there are hundreds of companies sorely lacking in the fairness department.
“There’s a lot of lip service given to it, but whether or not it happens in practice is another question,” Bingham says.
Ultimately, whether or not a company catches the true vision of procedural justice rests with management’s acceptance and adoption of the idea. By incorporating Bingham’s seven keys to increased organizational fairness and looking to the example of companies like Apple, 3M, Chaco, and others, managers can create an environment that stimulates new ideas and expectations.
“It’s a natural outgrowth. When employees feel they’re being treated equitably, they’re going to collaborate and take more risks,” Bingham says. “Eventually they’ll produce those products and services that stand out from the competition and significantly contribute to the bottom line.”
Toward Fairness
Columbia Business School professor Joel Brockner offers the following steps to make fair processes the norm:
- Address knowledge gaps. Make sure employees are prepared to deal with challenging situations (like new product development) by openly communicating with them. Studies have suggested that people can tolerate experiences better when they are forewarned. Be sure to let employees understand the tangible payoffs associated with complex processes.
- Invest in training. Studies have shown that fair-process training can make a big difference. Subordinates of trained managers are less likely to steal and more likely to give extra effort. Remember that training should be delivered in several installments and must be ongoing to truly stick—after instruction, allow time for implementation, feedback, and more practice.
- Make process fairness a top priority. As with any major change in an organization, improving process fairness begins with senior management. By modeling fairness they send a message about organizational values and the “art of the possible.” Employees are more likely to tackle challenges when they see others they respect doing so.
Source: Joel Brockner, “Why It’s So Hard to Be Fair,” Harvard Business Review, March 2006, 128–129.
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Article written by grant Madsen
Illustration by Andrew Bannecker
ABOUT THE AUTHOR
Grant Madsen is the marketing director at American Crafts. He earned a BA in communications from BYU in 1998 and an MBA in 2007.
