Over the past year, Arterial Medicine has interviewed numerous founders, CEOs, and scientist-entrepreneurs of startup companies. During these interviews, our questions have consistently focused on the founders’ professional backgrounds, the company’s core team, proprietary technology platforms, pipeline portfolio, and external collaborations.

Certainly, these are critically important and represent the most objective factors investors use to evaluate a company. However, as our interviews delved deeper, we discussed issues such as how to confront failure and how to make choices and decisions.

What struck me was when the founder of a now-public innovative pharmaceutical company told me that at the time of the company’s inception, they could pursue four different projects. They spent a year reviewing literature and engaging in repeated discussions. “By the time we reached Phase III clinical trials, the company had to focus on just one project. Making this trade-off was the most challenging part—having to make a definitive decision while the prospects were still relatively uncertain.”

When faced with an innovative project with uncertain prospects, who makes the decision, and how is it made? I later realized that when we discuss these issues, we are addressing the unique innovation culture of biotechnology startups. Culture is so critical that it permeates every aspect of corporate decision-making, much like water to fish—ubiquitous yet often invisible. It extends far beyond pipeline selection.

Our industry is rife with claims of innovation; there is not a single company that does not proclaim, “We are an innovative enterprise,” or assert, “We prioritize innovation.”However, technological innovation is only one side of the coin; an understanding of the industry’s culture of innovation, along with the institutional norms established accordingly, constitutes the soil in which a company’s innovative products can take root and flourish.

Thus, when I read Gary P. Pisano’s 2019 in-depth article in Harvard Business Review that uncovers the truth about innovation culture, I was deeply inspired. I believe he raises a truly important question and offers a valuable perspective for cutting through the fog to assess and understand the factors behind the success or failure of innovative enterprises.

Interestingly, Pisano discusses innovation-driven enterprises in a broader sense. After the article was published, Bruce Booth, a partner at Atlas Venture, an investment firm focused on innovative companies in the life sciences and technology sectors, expressed strong agreement: “Pisano’s exposition resonates deeply with my own experiences over the past two decades working at both large pharmaceutical companies and small startups.“While reading Pisano’s article, my brain kept saying, ‘Yes!’ ‘Exactly right!’ every few sentences.”

Bruce Booth published another article in Forbes. In this piece, as a biotechnology investor, he adds practitioner-oriented commentary to Pisano’s observations, sharing his own perspectives on each issue.

VBInsight has compiled the viewpoints of two experts, hoping that a comparative reading will spark new insights:

（Gary P. Pisano）In informal surveys of hundreds of managers at corporate seminars around the world, no one expressed reluctance to work in an organization where innovative behavior is the norm. Moreover, an innovation culture is often described as highly attractive, as it is readily associated with positive attributes such as tolerance for failure, encouragement of experimentation, psychological safety, high levels of collaboration, and flat management structures.

Although an innovation culture is desirable, it is difficult to create and sustain.

I believe the reason lies in a misunderstanding of innovation culture. Those admirable traits represent only one side of the coin; the other side comprises behaviors that are less appealing and pleasant. For instance, failure is tolerated, but incompetence is not; experimentation is encouraged, yet strict discipline is required; a psychologically safe environment is fostered, but it demands near-brutal honesty among colleagues; collaboration must be balanced with individual accountability; and while structures may be flat, strong leadership is essential. Innovation culture is inherently paradoxical. Unless the tensions arising from these contradictions are carefully managed, attempts to cultivate an innovation culture will fail.

（Gary P. Pisano）Given that innovation involves exploring uncertain and uncharted territories, a key characteristic of an innovation-oriented culture is necessarily the tolerance for failure. Even some of the most lauded innovative companies have experienced setbacks—recall Apple’s MobileMe, Google Glass, and Amazon’s Fire Phone?

However, while innovative organizations emphasize tolerance for failure, they do not tolerate incompetence. They set extremely high performance standards for their employees and recruit the best talent possible. Exploring adventurous ideas, even if they ultimately fail, is indeed a hallmark of good corporate culture; however, mediocre technical skills, sloppy thinking, poor work habits, and bad management are unacceptable. Those who fail to meet expectations are either dismissed or reassigned to roles better suited to their capabilities. Steve Jobs was “notorious” for firing anyone he deemed incompetent. At Amazon, employees are ranked on a forced curve, and those at the bottom are terminated. Although Google’s culture is widely known for being employee-friendly, it is also one of the most difficult places in the world to secure a job, and it maintains a rigorous performance management system under which underperformers are reassigned to new positions. At Pixar, film directors who fail to get projects back on track are replaced.

It is clear that companies should set high performance standards for their employees, but unfortunately, too many organizations fail to do so. Take, for example, a pharmaceutical company I recently worked with: I learned that one of its R&D teams had not discovered any new drug candidates in over a decade. Despite this, senior leadership had not implemented any meaningful reforms among the group’s management or staff. In fact, under the company’s egalitarian compensation system, scientists in this team received salaries and bonuses roughly equivalent to those earned by scientists in more productive R&D departments. One executive confided in me that, aside from violations of the code of ethics, the company rarely terminated R&D employees due to poor performance. When I asked him why, he replied, “Our culture is like a family; laying off employees makes us uncomfortable.”

The truth is that we must first have highly competent individuals before we can tolerate their failures.Attempting to create new technologies or business models is fraught with uncertainty; you often don’t know what you don’t know, and you must learn as you go. In such scenarios, “failure” offers valuable lessons for the path forward. However, failure can also stem from ill-considered design, flawed analysis, lack of transparency, and poor management. Google can encourage risk-taking and failure because it believes that the majority of its employees are highly competent.

Of course, it is difficult to create a culture that values both learning from failure and outstanding performance. A good start is,Senior leaders clearly articulate the distinction between productive and unproductive failure:Productive failure generates valuable information commensurate with its cost. We “celebrate” failure, but only when it leads to learning (the cliché of “celebrating failure” misses the point—what we should celebrate is learning, not failure). If a simple prototype fails to achieve expected performance due to previously unknown technical issues, and this new knowledge can be applied to future designs, then such failure is worth celebrating. Launching a poor product after spending $500 million on its development is merely an expensive failure.

Building a “culture of capability” requires clearly articulating expected performance standards. If these standards are not well understood, difficult personnel decisions may appear arbitrary or, worse, be misinterpreted as punishment for failure. Senior leaders and managers across the organization should clearly and regularly communicate expectations. Hiring standards may need to be raised, even if this temporarily dampens the company’s growth.

When employees’ “incompetence” is not their own fault, we may feel particularly uneasy about dismissing or transferring them. Rapidly evolving technologies or business models can render an individual highly competent in one context yet unable to perform effectively in another. Consider how digitalization has reshaped the value of diverse skills across many industries. Strong interpersonal skills might propel a salesperson to superstar status, but their value to the company may no longer match that of an introverted software engineer who develops algorithms to predict which customers are most likely to purchase the company’s products. In some cases, individuals can be retrained to acquire new capabilities. However, this is not feasible for every role; positions requiring genuine specialized expertise—such as those demanding a Ph.D. in applied mathematics—do not lend themselves to such transitions. Retaining individuals whose skills have become obsolete may be compassionate, but it poses significant risks to the organization.

Maintaining a healthy balance between tolerating productive failure and eradicating incompetence is not easy.A 2015 article about Amazon illustrates this point. Based on interviews with more than 100 current and former employees, the article labeled Amazon’s culture as “bruising” and recounted stories of employees crying at their desks under immense work pressure. One reason why striking a balance is so difficult is that we are not always clear about the causes of failure. Was a product’s design flaw due to an engineer’s misjudgment, or did it stem from an issue that even the most talented engineers would overlook? If technical or business judgments prove erroneous, what consequences are appropriate? Everyone makes mistakes, but at what point does forgiveness slide into permissiveness? Similarly, to what extent can setting high performance standards become cruel or disrespectful to employees, regardless of their performance?

（Bruce Booth）We operate in a high-risk field: fewer than 5% of drug development projects reach the market. We must accept failure.When a project or investment is killed, we should publicly acknowledge its failure in the daylight, rather than burying it at night, and take comfort in having gathered some lessons learned.Innovation culture must convey the message that failure is acceptable and foster high-quality learning cycles.

However, failure due to scientific sloppiness or poor decision-making is unacceptable. For instance, neglecting to investigate the most challenging and critical issues, or improperly using controls and comparators, leading to a prolonged pursuit of false-positive results, is intolerable. In order to keep a drug development project alive and secure the next round of funding, it is tempting to exaggerate data or cut corners without rigorously validating the scientific basis. Failing to conduct the truly important experiments and perform them to the highest standard is a sign of incompetence.

A scientific study is still in its very early stages; if you go around boasting about it, investors will flock in, only to add excessive weight to the scales of your judgment.——Influenced by the sunk cost fallacy and the "too big to fail" bias, leading you to lower your standards and make poor decisions.

Achieving all this requires not only capability but also a consensus:The collective time of truly capable individuals is the scarcest and most valuable resource in an innovation culture.Do not waste these resources on ideas that have already expired. Document your failures, invest your time in more promising endeavors, or pivot to the next project, the next startup, or even return to a large pharmaceutical company. Above all, keep moving forward. Competence leaves no room for complacency.

This observation leads to another implication. When an organization scales beyond a few dozen employees, it is impossible to hire only truly competent individuals. Mis-hires are inevitable, and that is acceptable. However, we must not tolerate underperforming employees simply because we have a “good” corporate culture. We need a robust performance management system in place to weed out those who fail to deliver high performance. I am not advocating strict adherence to Jack Welch’s “rank-and-yank” principle of firing the bottom 10%—butOver time, if you do not let some people go from your startup, it is almost certain that you are tolerating too much incompetence.This is a practical issue that every company encounters; over time, we all make mistakes in hiring. Unfortunately, my company has tolerated mediocrity for far too long. When capable individuals around them hold back, less competent researchers are able to continue “padding” their data. Avoiding layoffs may feel benign and “nice,” but honestly, this approach is highly corrosive over time.

In a company, nothing is worse than tolerating incompetence: everyone can smell it and knows it exists.Moreover, they were aware that leadership permitted such actions. This situation was detrimental to everyone and had a negative impact on the overall corporate culture.

（Gary P. Pisano）Organizations that are open to “experimentation” are accustomed to uncertainty and ambiguity. They do not pretend to know all the answers in advance, nor do they claim to gain insights solely through analysis. They experiment to learn, rather than to immediately produce marketable products or services.

However, a willingness to experiment does not mean haphazardly throwing paint onto a canvas like some third-rate abstract painters. Without discipline, one might experiment with anything; but in a discipline-oriented culture, experiments are carefully selected based on their potential learning value and rigorously designed to generate as much cost-relevant information as possible. Clear criteria are established from the outset to determine whether an idea should be advanced, modified, or killed. Moreover, such cultures confront the facts emerging during the experimentation process. This may entail acknowledging that initial hypotheses were wrong and that a once-promising project must be terminated or redirected. More disciplined termination of failing projects reduces the risks associated with trying new things.

Flagship Pioneering, based in Cambridge, Massachusetts, serves as a prime example of the synergy between experimental culture and discipline. The company’s business model centers on creating new ventures grounded in cutting-edge science. Rather than soliciting business plans from independent entrepreneurs, Flagship leverages its internal team of scientists to identify novel entrepreneurial opportunities. The firm employs a formal exploration process: small teams of scientists, guided by a partner, investigate issues of significant social or economic importance, such as nutrition. During the exploration phase, these teams review relevant literature and draw upon the company’s extensive network of external scientific advisors to generate new scientific insights. Initial exploration is unconstrained; all ideas, no matter how implausible or far-fetched they may appear, are welcomed.

Noubar Afeyan, the company’s founder and CEO, stated: “In the early stages of our exploration, we do not ask, ‘Is this true?’ or ‘Is there data to support this view?’ We do not seek evidence from academic papers to prove that something is true. Instead, we ask ourselves, ‘What if this were true?’ or ‘If this were true, would it be valuable?’ In this process, the team needs to formulate hypotheses with testable risks.”

Experiments are at the core of Flagship’s exploration process, as they serve as the mechanism for screening, reframing, and evolving ideas. However, Flagship’s approach to experimentation differs fundamentally from what I have often observed at other companies. First, Flagship does not seek to validate the initial premise of an experiment. Instead, teams are expected to design “killer experiments” that maximally expose the flaws in an idea. Second, while many established companies mistakenly believe that greater resources translate into faster speed and enhanced creativity—thereby pouring substantial funding into new ventures—Flagship typically designs its “killer experiments” to cost less than $1 million and take under six months to complete. This lean testing approach not only enables the company to cycle through more ideas more rapidly but also makes it psychologically easier for individuals to abandon projects that show no progress. It forces teams to focus closely on the most critical technical uncertainties and provides faster feedback. The underlying philosophy is to learn early what is not working and then swiftly pivot toward more promising directions.

Third, Flagship’s experimental data is sacrosanct. If an experiment yields negative data regarding a hypothesis, the team must either kill the idea or appropriately reframe it. In many organizations, unexpected results are considered “bad news,” and teams often feel compelled to manipulate the data—characterizing the outcomes as some form of bias—to ensure their projects continue. At Flagship, ignoring experimental data is unacceptable.

Finally, members of Flagship’s venture capital team are strongly motivated to discipline their own projects. They derive no financial benefit from persisting with failing initiatives. In fact, the opposite is true: continuing to pursue a doomed project means forgoing the opportunity to join a successful one. By contrast, in many companies, the common pattern is that canceling your project is perceived as terrible personal news, potentially resulting in loss of status or even your job. In such environments, keeping your project alive benefits your career. At Flagship, however, it is restarting a new, promising venture—not prolonging a project destined to fail—that truly advances your career.

Disciplined experimentation is a balancing act. As a leader, you should encourage people to embrace “unreasonable ideas” and give them time to articulate their hypotheses. Demanding data too quickly to confirm or refute a hypothesis can stifle the intellectual processes essential for creativity. Of course, even the best-designed and best-executed experiments do not always yield black-and-white results. We must make scientific and business judgments by determining which ideas should be advanced, which should be reformulated, and which should be terminated. However, senior leaders need to model discipline—for example, by terminating projects they personally support or demonstrating a willingness to change their minds in light of experimental data.

（Bruce Booth）Becoming accustomed to ambiguity, loose structures, and processes is often the key to discovering innovative ways of doing things. However, in biotechnology startups, a loose structure does not mean allowing arbitrary scientific activities—or conducting frenzied “Friday afternoon experiments” every day of the week.

Researchers are typically limited to conducting only a few experiments from a larger pool; which experiments should be selected?The only way to prioritize experiments for a project is to understand the questions you are asking and the potential answers you might derive from the data. Once selected, establishing work objectives and milestones is critical. Results should then be measured against these benchmarks.Applying the age-old adage “Measure twice, cut once” is a great rule for scientific exploration.

In R&D activities, experiments require disciplinary constraints to maximize their effectiveness. Before commencing practical work, the thinking and decision-making processes must be constrained: there should be a priori, specific criteria for determining whether a project or initiative should be “continued” or “abandoned.”

Furthermore, as Pisano points out, the selection of experiments should be based on their learning value, thereby “rigorously designing experiments to generate as much cost-related information as possible.” In essence, this applies the logic of capital efficiency to innovation experiments.

Do not conflate concepts by assuming that the process of exploring a new model or novel drug target is inherently lacking in rigor. Even experiments involving “early hit” molecules, designed with an exploratory spirit, must be conducted with the utmost rigor possible.

I am very confident,Our startup must establish development candidate criteria as robust as those of major pharmaceutical companies.

At its core, the scientific spirit must be the nucleus of a biotech startup’s culture; otherwise, it will inevitably reap what it has sown and lose its way.

（Gary P. Pisano）Psychological safety is an organizational climate in which individuals feel they can speak honestly and openly about issues without fear of retaliation. Decades of research on this concept by Harvard Business School professor Amy Edmondson show thatA psychologically safe environment not only helps organizations avoid catastrophic errors but also fosters learning and innovation.. For example, in a study of a new minimally invasive surgical technique adopted by cardiac surgery teams, we found that nursing teams with a greater sense of psychological safety mastered the new technology more rapidly. If individuals fear criticism, hesitate to publicly challenge superiors’ viewpoints, refute others’ opinions, or voice dissent, innovation will be stifled.

We all appreciate the freedom to speak our minds without fear, and we all desire to be heard. However, psychological safety is a two-way street. If it is safe for me to critique your ideas, then it must also be safe for you to critique mine—regardless of whether your position in the organization is higher or lower than mine. Candor is essential to innovation, as it serves as the mechanism for developing and refining ideas. Based on my observations and participation in numerous R&D team meetings, project review sessions, and board meetings, I can attest that practices vary significantly across enterprises. In some organizations, individuals readily challenge one another’s ideas, approaches, and results; criticism is sharp, and people are expected to defend their proposals with data or logic.

Elsewhere, the atmosphere is more temperate. People restrain their differences of opinion and carefully weigh their words. Criticism is suppressed (at least in public). People hesitate to raise strong challenges, as doing so would make them appear not to be team players. I once served as a consultant at a large company, where a manager captured the essence of the corporate culture,She said, “Our problem is precisely that we are a very nice organization.”When it comes to innovation, candid organizations undoubtedly outperform friendly ones.The latter conflates politeness and friendliness with respect; candor and respect are not mutually exclusive. In fact, I believe that offering and accepting candid criticism is a hallmark of respect. Only when you value the opinions of those providing feedback can you truly accept harsh criticism of your own ideas.

Nevertheless, setting aside this important caveat, an “extremely honest” organization is not necessarily the most comfortable work environment. To outsiders and newcomers, employees may appear aggressive or overly sharp. No one minces words when expressing their views. Everything anyone says is heard, regardless of that person’s title.

In an organization that often shies away from conflict and confrontation, fostering a culture of candid debate is challenging. Senior leaders must set the tone through their own behavior. They must be willing (and able) to constructively critique others’ ideas without appearing rude or disrespectful.

One way to foster such a culture is to require individuals to subject their own ideas and proposals to critical scrutiny. A compelling positive example can be found in the operational briefing that General Eisenhower delivered to senior Allied officers three weeks before the commencement of the Normandy campaign. As Geoffrey Perret notes in his biography, Eisenhower: The Soldier, the General began the meeting by stating, “I believe that anyone who sees flaws in this plan has an obligation to speak up without hesitation. I have no sympathy for anyone who cannot tolerate criticism, regardless of their rank. We are here to achieve the best possible outcome.”

Eisenhower was not merely welcoming criticism; he was actively demanding it. How often do you ask your direct reports to critique your ideas?

（Bruce Booth）Organizational “psychological safety” is crucial: in such a culture, individuals can speak the truth without fear of retaliatory consequences. Nearly every biotechnology company displays values reflecting transparency, openness, and willingness to challenge the status quo on its walls. Yet the paramount question is whether companies and their executives truly “walk the talk,” embodying these values through safe and candid practices.

What If the Emperor Had No Clothes?Can scientists challenge the conclusions drawn by the Chief Scientific Officer (CSO), or the next-step experimental plans proposed by the CSO? Can researchers critically (yet respectfully) evaluate data generated by other team members? Will projects led by individuals appointed by the CEO be subject to questioning by the team? These scenarios often reveal much about the culture within biotechnology startups.

What happens when the CSO and CEO hold forth on scientific matters, yet no one feels empowered to challenge them? Genuine innovative thinking is stifled. Moreover, the board is frequently fed empty rhetoric rather than substantive insights.

Multiple communication channels can establish appropriate avenues for fostering a safe “champion and challenge” culture. These may include town-hall-style company discussions, open dialogues within work teams, cross-functional employee focus groups, conversations with HR leaders, or even anonymous suggestion boxes. It is not necessary to shout about an issue at large company assemblies; instead, employees should be encouraged to find the right forums to voice their opinions. However, good companies do not allow intellectual debates to fester quietly without resolution—such discussions need to be shared in some form. As Pisano writes, “Candor is essential to innovation because it is the means by which ideas are developed and improved.”

Our own investment model at Atlas is designed to foster this “champion and challenge” culture. We are equal investment partners, with no emperors (clothed or otherwise) and no boss who can stifle discussion. We openly challenge one another with mutual respect, and many of our decisions are built on the foundation of trust within our partnership.

（Gary P. Pisano）A well-functioning innovation system requires the free flow of information and the integration of everyone’s contributions and efforts. Individuals working within a collaborative culture consider it natural to seek help from colleagues, regardless of whether providing such assistance falls within their colleagues’ formal job responsibilities. They share a sense of collective responsibility.

However,Collaboration is often conflated with consensus. However, consensus is detrimental to rapid decision-making and addressing complex issues related to transformational innovation. Ultimately, someone must make the decision and take responsibility for it.Accountability culture refers to a culture in which individuals are expected to make decisions and bear the consequences.

A culture that emphasizes collaboration and accountability is not inherently contradictory. Committees may review decisions, and teams may offer recommendations, but ultimately, a specific individual is responsible for making critical decisions.

Accountability and collaboration can be mutually reinforcing, with accountability driving collaboration. Given that you will be personally accountable for specific decisions within an organization, you must take responsibility for your own decisions, whether they yield positive or negative outcomes. The last thing you should do is reject feedback or fail to seek collaboration from individuals both inside and outside the organization who can offer assistance.

Amazon serves as a prime example of how accountability drives collaborative behavior. While researching a case study for Harvard Business School, I learned that when Andy Jassy took the helm of Amazon’s nascent cloud computing business in 2003, his greatest challenge was determining what services to build (no easy task, given that cloud computing was an entirely new domain for Amazon—and indeed for the world at large). Jassy immediately sought input from Amazon’s technical teams, business and technology leaders, and external developers.

Their feedback on requirements, issues, and needs was crucial to the early success of Amazon Web Services. Currently operated by Jassy, Amazon Web Services generates $12 billion in profits. For Jassy, collaboration is essential to the success of the projects he personally oversees.

Leaders can encourage accountability by publicly taking responsibility, even when it entails personal risk. Several years ago, when Paul Stoffels was leading R&D for Johnson & Johnson’s pharmaceutical division, his team failed in a major late-stage clinical project (I have provided consulting services to various divisions of Johnson & Johnson). As Stoffels recounted at a Johnson & Johnson management meeting I attended, senior leadership and the board demanded to know who should be held accountable when the project encountered setbacks. “I am responsible,” Stoffels replied. “If I do not take responsibility for this matter, yet assign others to bear the risk of initiating and managing the project, the organization will become risk-averse, and the situation will worsen. This principle is embodied in my actions.” Stoffels, currently serving as Chief Scientific Officer at Johnson & Johnson, frequently shares this story with employees across the company. He concludes with a simple commitment:“You bear the risk; I assume the responsibility.”He then urged his audience to embed this principle throughout the organization.

（Bruce Booth）Pisano’s fourth observation aligns perfectly with what I described earlier: “There is no ‘I’ in team, but know who has the ‘D’ (responsibility).”

Cross-disciplinary teamwork is crucial to the success of biotechnology, perhaps even more so than in some other fields of innovation; for many years, I have been striving to integrate biology, chemistry, toxicology, pharmacology, clinical development, manufacturing, and numerous other disciplines. Collaboration is the lifeblood of drug research and development.

However, as Pisano pointed out, “Too often, collaboration and consensus are conflated.” Well said.Biology is inherently ambiguous, making it difficult to reach consensus in this field. Furthermore, achieving consensus can become a significant obstacle to timelines., because it takes considerable effort to try to reach consensus among all shareholders. Ultimately, an individual must make the decision. I call this “D.” Someone needs to consolidate inputs, make a decision, and take responsibility for that decision.

However,The R&D timelines in the biopharmaceutical industry often make genuine accountability difficult.Making decisions, such as choosing one path over another; nominating a specific candidate molecule or waiting for another to emerge; selecting an initial clinical setting or opting for an alternative. The outcomes of these decisions, whether positive or negative, may not become apparent until years later, only then allowing reflection on whether they were the “right” choices. Sometimes, it remains uncertain whether the best decision was made, as science does not always reveal itself in such a straightforward manner. Given this extended timeline, ensuring that appropriate information, discussion, and challenge are integrated into key decisions is a crucial component of accountability processes.

In large organizations, endless and often leaderless committee meetings crush accountability through de facto forced consensus.In these larger organizations, the flip side of accountability is the “CYA” culture (cover your ass): if I have to put my name on a decision, I will ensure that 99.9% of ambiguity and uncertainty are squeezed out before the decision is made. An innovation culture cannot operate with over 99% confidence intervals. Risk is essential, and working with 60%-75% confidence aligns better with a flexible, smart approach to risk-taking. Decision-making is certainly not as arbitrary as flipping a coin, but risks and unknown factors are often critically important. In such an environment, understanding how to make decisions that foster innovation, both individually and as part of a team, is crucial.

Finally, consensus often kills outliers. Within venture capital firms, there are countless examples of companies passing on seed-stage deals because the ideas are often too unconventional to achieve consensus.About a decade ago, Atlas transformed the approach to seed investing by allowing any individual partner to back a “seed deal” (of limited scale) without requiring consensus approval.This allows partners to assume certain risks. As these investments mature, we typically reach a team consensus. However, in the initial stages of decision-making, when uncertainty is high and achieving consensus is difficult—thereby deterring individuals from taking the risk to make seed investments—we believe this approach is effective. At Atlas, mutual trust and respect often lead to eventual default consensus.

（Gary P. Pisano）An organizational chart can provide a clear view of a company’s structural flatness, but it rarely reveals its cultural flatness—that is, how people behave and interact regardless of their job titles. In culturally flat organizations, individuals are granted broad autonomy to take action, make decisions, and voice their opinions. Respect is earned based on competence rather than title. Such organizations are typically more agile in responding to rapidly changing environments, as decision-making is decentralized and decision-makers are closer to the relevant sources of information. These organizations also tend to generate a richer diversity of ideas compared to hierarchical ones, as more people are able to contribute their knowledge, expertise, and perspectives.

However, the absence of hierarchy does not imply a lack of leadership. Paradoxically, flat organizations require stronger leadership than hierarchical ones. When leadership fails to set clear strategic priorities and direction, flat organizations often descend into chaos. Amazon and Google are highly flat organizations where decision-making and accountability are pushed down, granting employees at all levels significant autonomy to pursue innovative ideas. Nevertheless, both companies boast incredibly strong, visionary leaders who communicate goals and articulate the key principles governing how their respective organizations should operate.

It bears reiterating that striking a balance between organizational flattening and strong leadership requires adept handling by management.FlatteningThis does not mean that senior leadership should remain detached from business details or projects. In fact, a flatter organizational structure brings leaders closer to frontline operations.The late Sergio Marchionne led the revival of Fiat and Chrysler. In an interview with Harvard Business School, he told me: “I applied the same core principles to turn both companies around. First, I flattened the organization. I had to shorten the distance between myself and the decision-makers (at one point, Marchionne had 46 direct reports across the two organizations). If there was an issue, I wanted to hear about it directly from the people involved, not from their bosses.”

At both Fiat and Chrysler, Marchionne moved his office to the engineering department so that he could be closer to product planning and development projects. He was known for his attention to detail and for decentralizing decision-making to lower levels of the organization.

Striking a balance between organizational flattening and strong leadership is challenging for both senior executives and employees across the entire organization.For senior leaders, it requires the ability to articulate a compelling vision and strategy (the macro-level aspects) while being adept at handling technical and operational issues.Steve Jobs is a prime example of a leader with this capability. He articulated a compelling vision for Apple while maintaining an intense focus on technological and design issues. For employees, a flat organizational structure demands that they develop strong leadership skills, act with autonomy, and take ownership of their decisions.

（Bruce Booth）Organizational charts are effective at capturing a company’s structural hierarchy, which is important. They clarify reporting lines, delineate functional responsibilities, and indicate the scale of specific functions.These are valuable tools for predicting a company’s trajectory over the next one to three years, and all of them hold significant value.

However, an organizational chart only reveals the structure. It does not, as Pisano noted, expose the “flatness of culture.” Organizations with a flat culture often push decision-making authority to those who possess critical information and firsthand knowledge.

This also means that senior executives cannot sit in their corner offices making decisions in a vacuum. In Pisano’s words, “Senior leaders need the ability to articulate compelling visions and strategies (the macro elements) while also being adept at handling technical and operational issues.” In my view, this isThe essence of a great scientific leader in biotechnology lies in:Capable of developing a grand blueprint with a 60-kilometer vision, while also engaging in key experiments or study designs requiring a 6-inch focus when appropriate.

（Gary P. Pisano）All cultural shifts are difficult. Organizational culture is akin to a social contract. When leaders set out to change an organization’s culture, they are, in a sense, breaking that social contract. Therefore, it is not surprising that many people within the organization—particularly those who have thrived under the existing rules—resist such efforts.

The journey to establish and sustain a culture of innovation is particularly challenging for three reasons. First, fostering an innovative culture requires a set of seemingly contradictory behaviors that can potentially lead to confusion. For instance, when a major project fails, should we celebrate the effort? Should the project leader be held accountable? The answers to these questions depend on the specific circumstances. Was the failure avoidable? Would knowing certain issues in advance have led to different decisions? Was there transparency among team members? What valuable lessons were learned from this experience? And so on. If these nuances are not clearly communicated, employees may easily become confused about leadership’s intentions, or even feel resentful.

Secondly, while certain behaviors required by an innovation culture are relatively easy to accept, others may be less palatable to some individuals within the organization. Those who view innovation as a free-for-all will regard discipline as an unnecessary constraint on their creativity; those who quietly conform to consensus will not welcome the shift toward individual accountability. Some people will adapt quickly to the new rules—some may even surprise you—but others will not thrive.

Third, because an innovation culture is an interdependent system of behaviors, it cannot be implemented in a piecemeal fashion. Consider how these behaviors complement and reinforce one another. Highly competent employees feel more confident in decision-making and accountability—their “failures” may lead to learning rather than waste. Disciplined experimentation costs less and yields more useful information—thus, failure in experiments should be tolerated with care. Accountability makes flat management easier—flat organizations create rapid information flows, leading to faster and smarter decisions.

Beyond undertaking routine initiatives to drive cultural change—such as articulating and communicating values, and establishing models of target behaviors—fostering a culture of innovation requires specific actions. First, leaders must be highly transparent with the organization about the challenging realities inherent in an innovative culture. Such cultures are not merely the “all fun and games” scenario often perceived externally. While many employees may feel excited by the greater freedom to experiment, fail, collaborate, speak up, and make decisions, they must also recognize that these freedoms come with significant responsibilities. It is far better to be straightforward from the outset than to risk fostering cynicism when rules change later on.

Second, leaders must recognize that there are no shortcuts to building a culture of innovation. Too many leaders believe that by dividing their organizations into smaller units, they can mimic the entrepreneurial culture of innovation. This approach rarely works.It confuses scale with culture. Simply breaking up a large bureaucracy into smaller units does not magically instill them with an entrepreneurial spirit.. Without strong managerial efforts to shape values, norms, and behaviors, these small units tend to inherit the culture of their parent company. This does not mean that autonomous units or teams cannot be used to experiment with or incubate a new culture; they can. However, the challenges of establishing an innovative culture within these departments should not be underestimated. Not everyone is suited for this environment, so you need to carefully select individuals from the parent company to join them.

Finally, because an innovation culture can be unstable and the tension among balancing forces can easily be disrupted, leaders must remain vigilant for signs of excess in any area and intervene when necessary to restore equilibrium. Unchecked tolerance for failure may encourage intellectual laziness and excuse-making, while excessive intolerance for incompetence may foster a fear of taking risks. Neither extreme is helpful. If taken too far, the willingness to experiment can devolve into permission for ill-considered risk-taking, whereas overly strict discipline may stifle promising but immature ideas. An overemphasis on individual accountability can create a dysfunctional atmosphere in which everyone cautiously protects their own interests. There is also a distinction between candor and malice. Leaders need to watch for tendencies toward excess, especially in themselves. If you want your organization to achieve the requisite delicate balance, then as a leader you must demonstrate your ability to maintain that balance.

（Bruce Booth）Innovation culture stems from more than just Patagonia’s iconic vests.Establishing and leading such a culture in a startup biotechnology company is not easy. It requires a series of seemingly contradictory behaviors,For instance, tolerance for failure, not incompetence. The culture Pisano outlines is not an à la carte menu—all elements must be integrated into a startup’s DNA to encode a high-performance culture.

Repeating a statement made by Pisano at the outset, innovation culture is not “all fun and games.”

Reference Article:

The Hard Truth About Innovative Cultures, Gary P. Pisano, Harvard Business Review, 2019

Biotech Startups And The Hard Truth Of Innovation, Bruce Booth, Forbes, 2019