Organize for Innovation

Matthias Reinholz

Matthias Reinholz

Most organizations fail to drive successful change. In the end, an inability to adapt to change usually means failure at some point. If you can’t innovate, the market will sooner or later kill your business. This does not always happen because your company is unable to identify pain points and new business opportunities; it is  just that you are not able to execute full innovation.

Innovation is not only about generating creative ideas. It is not only about brainstorming workshops, learning about Design Thinking, and setting up an idea-management process. Innovation is also about packaging your idea into a great product. It is about UX design, product architecture, and business modeling. Ultimately, innovation is about marketing, generating momentum, and convincing the market to adopt your product.

Innovation has many stakeholders

Just in these few sentences, we have touched on many disciplines and departments of a modern company. This leads to the question: How we can successfully foster innovation when it means driving change in every department and among different enterprise stakeholders? A company with a high innovative capacity will not only try to bring new products to market, but also to innovate from within by renewing its processes, rules, and organizational structure.

Organizations are typically built to withstand change. In the typical corporate development lifecycle, we want to increase efficiency. Therefore we build hierarchies, develop processes and systemize tasks. These hierarchies are not made to drive innovation or accelerate change. We can even describe the creation of hierarchies as the opposing force of rule-breaking innovation. If we need both forces in modern companies, how can we organize them? How can we organize for sustainable efficiency and innovative capacity the same time?

Two organizational structures form one organization

In his book “Accelerate”, John P. Kotter proposes a twofold organizational structure; with hierarchy on one hand, and a network system on the other. He compares the network system with the natural system which occurs when entrepreneurs launch a new company. In this system, there is less structure. It allows for speed, flexibility, and agility in corporate development. Over time, companies shift from this organic organizational structure to a more formal hierarchy. From an innovator’s perspective this may sound “wrong”, but a hierarchy has clear advantages that cannot be denied: it formalizes processes, allows repetitive tasks to be accomplished faster, introduces measurability and accountability, increases efficiency, ensures continuous quality, and strengthens the company in terms of developing a robust business system. A network system, on the other hand, allows for rapid change, is flexible, and focusses on people’s responsibility instead of safeguarding the system (e.g., by enforcing quality guidelines).

The organizational form of a hierarchy…

  • Increases efficiency and reliability
  • Is based on metrics: introduces measurability and accountability
  • Allows quality assurance
  • Allow incremental change
  • Is budget-driven
  • Is based on clear job descriptions
  • Allows forecasting and the prediction of business numbers.

The organizational form of a network system…

  • Increases agility, flexibility and speed
  • Allows for radical change
  • Fosters innovative capacity
  • Is based on visions and goals
  • Focusses on people’s responsibility
  • Is opportunity-driven.

Two systems that are two opposing forces

The two organizational systems can operate at the same time while they drive opposing forces: the hierarchy creates structures and formalizes processes, while the network exits structures and recombines resources. A sustainable and innovative operating business needs both of these activities and, therefore, both of these organizational structures. The one structure, hierarchy, allows predictable growth, sets up a robust and efficient business system, and provides the ability to scale. The network system fosters innovative capacity and allows your company to become competitive in steadily and rapidly evolving markets.

The challenge arises when we try to combine these two systems. Both compete for resources, and usually people in one of the two systems will not want to support the other way of doing business. Kotter proposes the use of highly motivated volunteers for network-system tasks. Another approach is to set up a dedicated new business unit with allocated resources.

A volunteer workforce for innovating your company

In Kotter’s approach – attracting volunteers to accelerate your innovation project – it is essential to generate urgency around something Kotter calls “Big Opportunity”. This Big Opportunity is not only a vision, but a clear, realistic, emotionally compelling, urgent and memorable objective. For example, the weakness of a competitor in a certain market at a certain time could be such an opportunity. Around this chance you create a primary goal and formulize strategic initiatives aligned with the overall objective.

An innovation project around such an opportunity that uses a volunteer workforce needs well-aligned project management to keep participants engaged. The traditional project management approach typically inflates innovation projects and makes you forget about your underlying goal. You start to make your project bigger and bigger, and soon everybody involved is dissatisfied. The project feels “stuck”. If you work with volunteers, such behavior will kill your project. You need to keep everybody highly motivated and as you work with volunteers, and you usually you cannot do this by using financial incentives. Therefore, it is crucial to focus on quick wins, continuously. Breaking down the project into small tasks that generate small wins and celebrating each of them is a great way to keep your team’s motivation high and attract even more volunteers to the innovation project.

Have you been in this situation when two systems came together in one company? Have you ever tried to run an innovation project with volunteers? I look forward to reading your thoughts and experiences!

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