How to Organize to Encourage Innovation

One of the great mixed messages of the modern day enterprise is the cry for innovation while systematically squashing it with stifling company policies, processes, and structure. A typical conversation with executives who are concerned about their team’s lack of inspiration and creativity usually goes like this:

Executive: “What do we need to do to help our organizations be more innovative?”

Me: “What do you mean by ‘more innovative’?”

Executive: “We need to come up with radical innovation that gives us a competitive advantage in the marketplace. We are stuck with incremental innovation and people are not inspired to dream big.”

Me: “Where are the sources of inspiration for your team today?”

Executive: “We spend a lot of money on market research like focus groups and field visits. We also have customer panels.”

Me: “What do you do to help your managers to see the future?”

Executive: “We don’t think about the future that way. We think in terms of what new products competitors will be launching and how do we can take costs out to be more competitive. Or what brand extension opportunities are out there and how we could leverage our marketing spend.”

As the conversation continues, it becomes obvious that the companies are using the same tools and methods but hoping to get different results. Most importantly, they are not properly organized. Should the innovation function be centralized or decentralized? Should it be global or local? Should it be cross-functional? Should it work across business units? Most of these questions remain largely unsolved within organizations undertaking this type of strategic initiative.

The marketing function was non-existent 30 years go. The digital function was non-existent before 2000. In the same vein, innovation needs to find its place.

The minute an organization makes the commitment to set up an innovation apparatus, a key question surfaces: Who should “own” innovation? That is, where should responsibility for innovation reside in the organizational structure?

Although innovation can be institutionalized, at its core it is about creating novel and seemingly absurd ideas. This is by no means an easy skill to master; it needs a continuous inflow of inspiration. This needs to come from the top. Tactically, managers need to learn which frameworks and processes will enable them to both generate a prodigious number of ideas and also, more importantly, select those that have the potential to create the highest value.

Why do some companies innovate more successfully than others? Much of the success or failure can be attributed to how the organizational structure and processes that enable an organization are designed.

The decision points are many:

—    What are the sources of inspiration and
 how do we keep them flowing?

—    What is the right balance between the inspiration team and commercialization team?

—    How should the direct and indirect reporting relationships be structured?

—    Does an innovation need a formal mandate, or should it be granted unfettered freedom to explore?

—    Should the team be staffed with members with experience within the company’s industry, or with members with experience from different industries?

When it comes to organizing for innovation, there are almost as many configurations as there are definitions for the word itself: incremental improvement to existing products, disruptive market entry in an entirely new industry, radical changes in business models for survival, etc. Each of these definitions is best served by a different organizational framework.

It is important 
to note that there is no one “best model” of organization for innovation. Here, I outline the primary set of organizational models that support innovation, each with varying levels of formality and complexity, and each with its own pros and cons.

Virtual Innovation Team

This is a multidisciplinary virtual team that is mandated to identify innovation opportunities that are not tied to a specific project. The team is comprised of:

Different functions, e.g. consumer insights, R&D, brand management, manufacturing

Different levels and perspectives, e.g. decision-makers, subject matter experts, and operations managers

Different personalities that undertake specific roles in the innovation process, e.g. explorers, navigators, implementers

Often, there is insufficient collaboration with this type of structure, and each member is biased towards the needs of their respective country/market or product/market. Further, this type of configuration suffers from lack of reporting clarity and integration among the operating units.

Distributed Innovation
 Knowledge Network

The distributed innovation knowledge network is comprised of a set of individuals within an organization with deep functional expertise, vertical knowledge, and technical know-how who are known as the ‘”go to” people on particular subject matter areas. Typically, these individuals reside in different offices and even business units and seldom interact. Instead, they are called upon independently as needed, such as part of a special task force when a project is needed or a when problem needs to be solved outside a functional group. These teams can be assembled in a short period of time and are usually assigned specific tasks for the innovation undertaking. Typically, these individuals do not carry titles that reflect their role in the innovation process and no specific resources are dedicated to support them.

Joint Venture Innovation Unit

This type of configuration is common when two or more organizations get together to jointly innovate in a specific market space and thus create a separate independent company to pursue the innovation. Typically, the joint venture innovation unit is staffed by individuals from both organizations.
 The team is often charged with defining the innovation project’s vision and strategy, drafting a high performance team to make it happen, and aligning the disparate perspectives, interests, and biases of executives from both organizations – not a simple task by any means.

This configuration is most effective when both sets of team members bring unique and complementary capabilities to the table and share the vision for the new market space.

Corporate-Level Innovation Team

Forming a corporate-level innovation 
team is akin to establishing other types of corporate-level functional groups that provide specialized services, e.g. corporate marketing, corporate development, and corporate strategy. These groups serve as invaluable resource to their counterpart functions within business units.

Corporate-level innovation teams are often small teams that possess specialized skill sets not common at the business unit level. Their mandates include conducting ongoing market intelligence, performing trend analysis, conducting generative research, and identifying external vendors to support innovation projects.

And one benefit of operating at arm’s length to the business units is the ability to take a broader perspective on the challenges
 that the organization is facing and the blind spots that need work.

Business Unit-Level Innovation Champion

A common occurrence within fast-moving consumer products companies is the business unit-level innovation champion model. These individuals are usually transferred to this role from brand management, category management, or marketing, with the express goal of maximizing innovation within a brand, category, or product line. Generally, the budget comes from the brand and the scope of innovation centers around brand extensions, with an emphasis on incremental innovation at the product, packaging, or marketing level. The challenge with this model is that the sphere of influence is limited, as the sales department will typically assert many constraints.

Cross-Unit Innovation Group

The cross-unit innovation group is a dedicated team that is assembled with individuals from different business units with the goal of moving the innovation agenda into new spaces by managing the development of new products and services that may propel the organization to explore adjacent sectors. These groups are usually headed by a director-level individual who works with external consultants to identify and explore options for the organization to develop new businesses for the longer term.

Innovation Skunkworks Team

A “skunkworks” team is a loosely-organized innovation team that is virtually given carte blanche to explore any innovative research. Skunkworks are encouraged to innovate and experiment, and are not subject to the pressures of short-term profitability, which is liberating from a creative standpoint. A skunkworks environment is one where designers and engineers can experiment with ideas and explore wild possibilities – and once in a while, there is a big idea that is hugely profitable. Other times, the team produces ideas that inspire more practical products and services that are more readily marketable.

Skunkworks team members often have their “day jobs” within the organization but are also permitted to spend time exploring ideas
 that have nothing to do with their normal work responsibilities. Although skunkworks may not exist officially in some organizations, they are usually quietly backed by senior executives in an informal manner.

Organization Design

When exploring different organizational structures, the initial steps are to understand what types of structures currently exist within the organization (if any), and then assess the extent to which these structures are aligned to support the organization’s strategic goals – and to course correct to a different structure if necessary. Once the structure is set, the processes, tools, and systems are activated, and the teams are appropriately staffed, the organization can begin to successfully innovate and realize breakthroughs that will vault it past its rivals and generate extraordinary value. In the future, the wicked business problem for organizational design will be sustaining inspiration and management of distributed innovation in a global setting – more specifically, it will be how diverse entities will be integrated into a coherent network that generates sustainable performance. But for that to happen, the pieces need to be put in place effectively.

the author

Idris Mootee

Idris Mootee is the publisher and editor-in-chief of MISC and CEO of Idea Couture. See his full bio here.