Clients regularly ask how to organize for innovation. We all seem to have a latent compulsion for drawing org charts as the starting point for launching into a new venture. Yet when you scratch the surface for some basic organizing principles, most people haven’t thought them through.
So let’s take a breath. Put away the box charts and at least do the basics first.
Structure follows strategy.
Designers know that form follows function. Organization designers know that structure follows strategy. Don’t design a function until you’ve agreed what it’s meant to achieve.
Start by clarifying a few organizing principles. Different principles produce a surprisingly wide array of possible characteristics.
- Purpose: Why does your organization exist? (What’s your “purpose”?) Why is innovation important to that mission?
- Innovation Profile: Is your innovation meant to improve your core business, extend the current capabilities, or build entirely new sources of growth?
- Risk Profile: Are you risk tolerant or averse?
- Growth Rate: Are you patient for profits or do you need accretive growth right now?
- Growth Ambition: Is the new growth meant to be a minor increment to current revenues, or a huge factor in the near future?
First things first.
Answers to these questions are just the first step. Before you start jockeying for teams like a schoolyard pickup game, you should build on your principles.
Lay out your innovation process. Think through the kind of innovation you’ll need to produce and map out a sample project. Begin with the outputs and risk profile, then the minimum sequence of necessary steps. How long will this kind of project take? Based on your risk tolerance and probable failure rates, how many projects will you need to run simultaneously to meet your growth goals.
This will start to inform your thoughts on the talent you’ll need, in what kind of numbers, and how you’ll need to organize them. Now you can explore the different structures that best facilitate your goals.
Put people last.
There’s a very important and counter-intuitive point here. You may recoil from a principle that feels coldly robotic or inhumane. Many large organizations have mistaken the vital importance of their people with the exercise of defining an organization. They believe in putting people first.
That’s all well and good in a defined business. When your principles and strategy are embedded in your legacy, when your processes are proven and honed over years, then typically your people have grown up with that shared DNA and have been party to the culture of the business. They are indeed vital and you can and should do the right things to attract, motivate and retain top talent.
However, when you are building a new organization, it would be foolish to start with the people who happen to be standing around looking for a seat. That condemns you to design around inheritance. It may be a fact of history that these are the people who will populate your new innovation function or start-up. But that does not shackle you to a permanent mismatch – just a starting point.
Figure out the optimal combination of organization structure and talent. Then manage through the resources that you’ve inherited. Over time, make your way toward your intended organization goal.
Ask yourself two questions.
Several years ago Todd McCullough (Ampersand), Richard Tyson (Frog Design), Matt Locsin (Doblin UK) and I analyzed different organizing structures that our clients and various industry leaders had put into practice. I’ve recently updated this with inputs from several of my colleagues and clients, notably Michael Croton and Kelly Costello.
We’ve concluded that a simple frame of reference helps. Consider two questions.
1. How will you lead innovation? Will it be guided by a central corporate growth strategy, or directed closer to the field, in business units or local markets? What leadership culture does your organization practice? Do you lead from the top, or from the rank-and-file?
2. How will you deliver innovation – again, will it be a single “Center of Excellence”, or specialists deployed in the field?
Design your Organization to Innovate
Here are some comparative examples in two industry sectors renowned for very different types of innovation. Just to keep it simple, we will explore the innovation model used for the consumer-centered businesses of these major companies. (Analyze industrial business unit innovation – the b2b offerings – separately, so you don’t confuse comparisons.)
As you can see, the model applies as readily to high tech and software products as it does to consumer goods.
Apple practiced a top down model under Steve Jobs that set one direction as a central command, with innovation at the core of the business. In effect, innovation was the business strategy, and Tim Cook’s leadership practices the same method.
The diverse business groups under Siemens‘ global organization act on innovation from a top-down business strategy, with top-level direction.
GE‘s innovation “greenhouse” by stark contrast, is led by a cross-functional panel of executives who fund and govern innovation on the model of venture capital. They advise innovation project teams as if they were entrepreneur-managers, and commandeer the resources required for success. IBM, original practitioners of the “skunk works” model, frequently cordon off their cross-function innovation teams to shield them from the management priorities of delivering quarterly results.
Nestle & Hewlett-Packard practice their own versions of a service center model, with a small team of centralized innovation specialists. These specialist SWAT teams stand by to parachute in as needed. Like tech support, they’re on-call to the sponsoring businesses.
Google‘s famous open market approach devotes 20% of each employee’s time to innovation – a day per week invested in creating new offerings at the edge of new technologies. This method has produced some of Google’s most valuable offerings, including Google Mail and Google Maps. (I understand that Google has been quietly reconsidering this investment model – which was originated by 3M in fact.)
Procter & Gamble achieved even greater acclaim for spearheading the Open Innovation movement, taking Google one step further by recognizing that the best ideas in the world were unlikely to all reside in the heads of their employees – no matter how numerous or talented they may be.
Reality is seldom as simple as a 2×2.
Of course a model this simple is by definition over-simplified. It is meant as an instructive framework to apply management principles to organization design. If you plotted these sample companies’ innovation models on a broader spectrum you would quickly observe some major differences.
So, just to extend the complexity a bit, consider how each of these four models perform the major functions of innovation.
Craft Innovation Activities to Match your Organization Design
How should innovation be led and informed? How will you price and deploy funds to the overall program and to specific innovation ventures? How will you staff for innovation, equip that staff and measure their efforts?
Each organization model employs a custom set of management activities.
These are just a few of the tools to help you analyze your company’s metabolism and culture.
After you’ve laid out your principles and process, you should run the numbers on the volumes you’ll need. Then circle the cells on this roster of six activities like you’re building a burrito at Chipotle.
Choose your model for each. Mix and match to design your own unique innovation management model.
Now you’ve defined the basics to structure your innovation function. You’re ready to put together that org chart. And finally, the asset that makes it all work – your people.