Previous research (including mine) showed many factors affecting employee creativity (and hence innovation) in companies. However, they all really map into four main factors, and one supporting factor that is affected by all of them.
The model is described in the image below, taken from my latest book: Culture starts with YOU, not your boss! There are two types of relationships in it: the hierarchical relationship between employees and their managers, and the peer relationship between same-level peers. In each one of those relationships, there is a positive factor, which accelerates building a positive innovation culture in its presence, and a negative factor, which prevents building a positive innovation culture in its presence. Then, there is the glue that puts them all together.
The first two are the hierarchical factors:
1. Autonomy (positive)
The amount of autonomy given to employees by managers accelerates the creation of an innovation culture. Employees should be given the opportunity to experiment without consequences. According to Harvard Business School Professor Teresa Amabile, employees should be given the "freedom to decide how to climb a particular mountain. You needn't let them choose which mountain to climb." Employees should be given a view of the "big picture" and see how their work affects the overall organizational outcomes.
2. Bureaucracy (negative)
High levels of formalization, complex processes that are used as a whip instead of helping and guiding, and other internal challenges (as opposed to external ones, such as customers, competitors, funding, etc.) will prevent a culture of innovation from building. The ability to reduce the existence of those and find a way to minimize their impact on employee creativity is critical. You must reduce the friction that slows employees from achieving their innovative goals.
The second two are the peer factors:
3. Constructive Conflict (positive)
The ability to argue as passionately as possible, but without the argument turning into an emotional, personal, and destructive conflict is critical to have effective, creative, and productive teamwork. It is founded on the ability that team members have to be vulnerable with each other to share potentially stupid ideas, the comfort level they have in providing direct (and often painful) feedback on those, and their ability to accept such criticism without allowing it to become personal. Politically Correct discussions that avoid the real issues in favor of harmony on one hand, and destructive, emotional, and personal conflicts on the other hand will prevent a culture of innovation from emerging in your team.
4. Office Politics (negative)
One definition of Office Politics is: "the strategies that people play to gain advantage, personally or for a cause they support. The term often has a negative connotation, in that it refers to strategies people use to seek advantage at the expense of others or the greater good" (from dictionary.com). The motivations for office politics are individual and self-serving, varying from competition over bonuses, promotions, or even resources. In a zero-sum game, for one team members to get a promotion another will not. As a result, team members are not sharing enough, and are using the other team members' weaknesses against them, often violating the ground rule of "what happens in this meeting stays in this meeting."
The last factor is the glue that affects the other four factors, as well as affected by them:
The existence of trust that management has in employees would allow supervisors to give their subordinates the autonomy required by them to be creative. The existence of trust that team members have in one another allows them to conduct a constructive conflict without allowing it to become emotional and personal. Lack of trust will prevent those. Managers would not give their employees the autonomy required if they don't trust them, and team members would not feel safe in conducting a passionate constructive discussion if they don't trust their peers.
The existence of office politics would prevent team trust from emerging, and the existence of bureaucracy would prevent employees from trusting their management, and vice versa.