How to organize innovation? That’s one of those questions with no single right answer- yet at the same time, it’s one of those big decisions you need to make one way or the other.
How to organize innovation has been a widely discussed topic in the last couple of years. Many big companies have tried to build labs, accelerators, and other programs. And while some have been successful, these organizational structures haven't really lived up to their expectations for several companies.
It doesn't matter if you're starting with innovation or if you've been working at it for some time and aren't getting the results you'd like to see- you will inevitably have to address questions about structure, governance and scope of your innovation function.
We recently discussed the fundamentals for governing and making innovation work with Jesse Nieminen (Co-founder and Chief Growth Officer at Viima), a seasoned expert in helping leaders drive innovation in their organizations.
Here’s a summary of what he shared.
Organizing Innovation: Six Archetypes To Govern Innovation
There's no single correct way of organizing the overall structure of an organization. In this context, the so-called "best practices" don't work well – and that’s especially true for large organizations due to their complexity. Structural and organizational problems are nearly inevitable in big corporations.
And when it comes to innovation, the challenges posed by the overall structure become even more evident. Indeed, innovation means constantly introducing change, and most organizations aren't designed for that.
Nevertheless, there are six archetypes or common approaches most organizations have at their disposal and can use as the foundation for their efforts to organize and govern innovation: 1 - No in-house innovation, 2 - Centralized, 3 - Dedicated, 4 - Embedded, 5 - Ambidextrous and 6 - Decentralized. Their key aspects are summarized below – for more details, check Jesse's article here.
1. No in-house innovation
The first way to organize innovation is not to do it, or outsource it. This archetype is the simplest and has low fixed costs.
It's definitely not recommended to build an organization that thrives in the long run, as acquiring promising startups is expensive and relying on third parties causes a tremendous lack of differentiation and strategic control.
2. Centralized
The relatively simple centralized model, which can sometimes be referred to as R&D, Innovation Lab, and more, is the most common way large organizations set up innovation.
It's a convenient way to get started, build capabilities, and learn what works (and what doesn't) for the company. And that's especially suitable for small companies that might not have many resources in the first place. Accordingly, we'll refer a lot to this second archetype throughout the article.
Such a centralized department typically serves the innovation needs of the entire organization, including each business unit and support functions. And regardless of what it’s called and the different forms it may take, it’s a single part of the organization responsible for innovation.
The advantages of this archetype are that it’s quick to set up and, since the innovation expertise is built and managed centrally, learning is faster and overall management and reporting are easy to organize. Furthermore, it can benefit from dedicated resources to work on innovation.
However, if all innovation has to go through a single team, that team will inevitably become a bottleneck for innovation –no matter how skilled or experienced it is. In the long run, this approach will severely limit the innovation potential.
Furthermore, often these units might be working on technology, projects, or customer needs not as closely linked to the company's strategy as they should be. And whenever that happens, of course, it's still possible to succeed, but it rarely works well.
3. Dedicated
After Professor Clayton Christensen identified dedicated business units for innovation as a solution to the Innovator's Dilemma, having a dedicated team for innovation has become increasingly popular in large organizations looking for the next stage of their growth.
Setting up a different arm of the organization to care for innovation and separating from the core business allows innovators to focus and work on innovation without the limitations of the existing business.
The downside is that if innovation is the job of a small group of people and it’s limited to one part of the organization, it will be tough to build a pro-innovation culture. And again, the innovation unit is likely to become a bottleneck down the road in the long run.
4. Embedded
This model is widespread in Consumer Packaged Goods Companies as they already have distinct brands or product lines committed to meeting consumer and customer needs in different novel ways. And since innovation is already mainly happening within those relatively independent brands or business lines, it can often make sense for innovation to be structured as embedded within these units.
This model enables organizations to have greater control over innovation resources and better focus on what matters to each business, be it strategic projects or emerging market needs. On the other hand, innovation is likely to focus only on immediate business needs and incremental projects, and some effort duplications are plausible.
5. Ambidextrous
Companies usually combine all the previous models. In this case, the resulting archetype is called ambidextrous organization. In this model, existing units use incremental innovation to exploit the current position, whilst new dedicated units are set up to explore and build the future.
This approach can lead to excellent long-term performance, enable companies to communicate the innovation strategy, and build an innovation-oriented culture accordingly. However, it’s expensive to make and requires a significant transformation – it can be challenging to align goals and incentives across the organization properly.
6. Decentralized
While not necessarily something to adopt right away, the decentralized model is the one companies should consider moving towards. The main idea here is that innovation should be happening throughout the organization.
In short, the organization decentralizes the responsibility for innovation into individual, cross-functional teams, each of which focuses on understanding how they could help the organization better reach its strategic goals.
When different parts of the organization are responsible for innovation within their own scope, the resulting output is far more than you could ever achieve with the other models. If you succeed, of course, it will take much work to really create the needed capabilities. But still, it's definitely the model with the most significant potential down the road.
This model increases the innovation pace and promotes a strong focus on value creation. Yet it requires a profound transformation for most organizations, firm support, communication, strategic clarity from leadership, and wise talent management.
Why Opt For The Decentralized Model?
None of the world’s leading innovators – e.g., Google, Apple, Tesla, Amazon, and Microsoft – operate in a centralized way.
These leading organizations have different parts responsible for driving innovation in their own areas and spheres of control. This is a clear message: if you lead a big organization, many challenges come from trying to do innovation in a non-decentralized way.
Every archetype has pros and cons. Yet the decentralized model is the likeliest to lead to sustained levels of high innovation performance in the 21st century.
Indeed, having a centralized team leads to many practical problems down the road:
- Decision-making: because innovation includes lots of uncertainty, planning it the same way as regular operations doesn't work. It just makes the decision-making process more challenging. And running every innovation through a single unit inevitably slows down the entire process. No matter how smart and capable you are, the process will always be detached from reality, whether it's the latest technology or quickly changing customer needs. As a result, doing innovation centrally can easily lead to suboptimal decisions.
- Bottleneck and handover: a central innovation team very quickly becomes a huge bottleneck. Regardless of the resources they have, they are likely never to have enough to work on all the good ideas in the organization. In addition, it can be difficult to hand innovation ideas over to the business units and get them to adopt and embrace them.
- Innovation culture: if innovation is the job of only a select few people within the entire organization, this could demotivate others from trying to come up with solutions and improve the organization itself. And that consequently makes it hard to create a true innovation culture. For the corporation to build a pro-innovation culture, everyone in the organization needs to know that innovation matters. Everyone must also take ownership of innovation, or at least support it, as part of their work. Read more about what really makes a culture innovative and how to shape an existing culture towards innovation in this article.
On the other side, the decentralized model has a few more unexpected benefits:
- Small, big opportunities: whenever you start collecting ideas or problems systematically and every part of the organization starts working on them, the whole organization can run into many opportunities – and the impact of even straightforward ideas can be huge. A few minor problems that no one has really paid attention to can actually be a big deal for customers. And that's an outcome every corporation wants to have.
- Employee engagement: in many companies, some employees try to advocate for an idea for years, but they are never heard, or there’s never a way to address it, or they never get a reply on what was wrong with their idea. Of course, when the process is centralized, nobody can take the time to review a thousand ideas and answer them all with care and detail. But with a decentralized process, each team has a few dozen ideas to evaluate and focus on, and the team itself can educate employees and help them understand what matters to the business and how the decision-making process works. That helps create that innovation culture and makes employees more valuable to the organization. For more on how to reward employees in innovation programs, click here.
- Implementation: the beauty of the decentralized model is that you can start working on innovation systematically with a small team and a simple pilot. Quick results can help convince others about the potential of this model within the organization.
Yet getting all these benefits isn’t trivial. And this brings us to our next point.
Making Decentralization Work
Shifting control and decision-making down in the organization enables corporations to move quicker, make more informed decisions, respond to changes faster, and innovate more.
However, instead of a big transformation overnight, it’s vital to gradually build simple and small capabilities, mindset, and culture toward that decentralized structure.
In most businesses, very few people are used to innovation and know all related processes and ways of working. And talking about all of the latest innovation processes can be quite intimidating for many. Consequently, making innovation the way to understand how to serve customers better or do things more efficiently is paramount to getting people on board.
Only once people get used to it, it’s possible to add more nuance, build new capabilities, and get them to work on bigger and more ambitious ideas. Employees within different parts of the organization need to point out problems or opportunities that might lead to those new business ideas. Hence getting them to have the right mindset and adopting innovation as part of their daily work and processes is key.
Having a simple marketing idea is very different from launching a new venture
A premise to this is that the decentralized model is something in between consistency and openness. You want to make things easy for people so they don't have to reinvent the wheel every time on every team. Accordingly, you need to provide them with some form of templates to choose from that seem to be working in other parts of the organization. But if you try to force everyone to use the same process, this just won't work.
The VP, the Chief Innovation Officer, and the Innovation Director roles have specific features in this context.
What Can You Do To Affect The Way Your Organization Innovates?
You may be wondering how much freedom you have to choose between the centralized and the decentralized model.
The first thing to accept is that, regardless of how innovation is currently structured, your corporation may already have a general structure for the organization. You can try to change that, but it will be a tough battle – especially if your influence in terms of the overall company structure, let alone the innovation structure as such, is not that big.
Indeed, you don't have much say if you're further down the organization chart. However, you can still spread the gospel of innovation and help share some of the practices and toolkits that can help others do their job better.
What Jesse recommends is to start working on innovation, whatever the current structure and organization is, and figure out ways to be effective in that context and landscape. In a nutshell, no matter if you're CIO, VP, Director, or even Manager: you can't really expect to be able to change the organizational structure at large – at least until you've already delivered significant results. Thus, the point is that you need to operate within these constraints.
But again, there's no silver bullet solution or preferred model that would work for everyone – much depends on the current state of the business and future goals. And while we've talked extensively about the benefits of implementing a decentralized structure, that's not necessarily the right solution for everyone.
Having A Centralized Innovation Team Is Still Important
In most large organizations, some form of innovation team already exists. Whatever they are responsible for, there is still someone in charge of innovation.
While not ideal in theory, the journey to becoming a mature leading innovator typically leads to centralization first for most incumbent organizations. This helps them build their innovation strategy, knowledge, and capabilities before successfully decentralizing.
Unfortunately, too often, those people are swamped with administrative work and, at the same time, are called to identify and implement innovation ideas.
A centralized innovation team should instead organize the different practical innovation implementations, including empowering the teams across the corporation with the right tools, mindsets, processes, and best practices, and even coaching them to become better at innovating and developing the business in their own scope.
That's what a centralized innovation team should look like in practice: an enabler for the rest of the corporate where the different parts of the organization are responsible for driving and improving innovations. It follows that is precisely the role of a central innovation team, as part of the central function, to coordinate and work with the different decentralized teams.
The role of a centralized innovation team shouldn't be managing or overseeing innovation but enabling it. This way, their expertise isn't wasted on administrative tasks but can be leveraged to scale innovation across the organization.
The keys to the success of the centralized innovation team are summarized in this article.
In summary.
Organizing and structuring innovation is anything but trivial. Six archetypes, from simply relying on external partners to decentralizing innovation activities within the organization, guide you through deciding which setup may work best for you at your current stage of maturity.
Out of the six most common models for organizing innovation, the decentralized one enables a faster decision-making process, fosters employee engagement, and promotes an innovation culture. This model requires massive transformation for most organizations as well as strong communication and strategic clarity from management, but it likeliest to lead to sustained levels of high innovation performance in the 21st century.
