Tuesday, January 29, 2008

Innovation on the Org Chart

Who owns innovation? Where does it "sit" in regards to the organizational structure? This is probably one of the biggest challenges facing firms that are trying to become more innovative.

After all, many teams or business functions within a company can probably rightfully claim to "own" innovation. Any firm with a research and development team can expect that team to stake a claim to innovation. Product management or product development will often stake a claim as well. But what about non-product related innovation? Who is responsible for managing innovation of services, or marketing, or business models? Certainly this type of innovation doesn't "belong" in an R&D group or with product marketing.

This is where innovation and the org chart can get a bit hairy. What does your organization mean when it says "innovation"? Incremental changes to existing products? Disruptive market entry in an entirely new industry? Dramatic changes in its business models or services? Each of these definitions leads to a different consideration of the location of innovation within a business.

Ultimately, what we need to accept is that every part and function of the business should be responsible for innovating. If your product teams are innovating and creating new products, won't that have an effect on your sales and marketing teams and your service and support teams? Should customer services lag because all innovation happens only at the product level?

If you think this can be a conundrum, consider for a second firms that deliver a products or services that span several business units or functions - banking or insurance for example. While the consumer does not give a second thought to his or her banking services, each key service (mortgage, checking, savings, etc) is managed as a stovepipe business unit. So when one team innovates, but the others don't, it creates a difference in the way the services are delivered. Eventually all of these business functions need to learn to work together more effectively, and innovate for the needs of the customer rather than for their own discrete needs. Where does innovation sit in a firm that must combine its products and services to present a unified offering for a customer?

There's not one clear answer - we've seen a few models that demonstrate the experiments that firms will try out. The first is a highly centralized model, with one central team responsible for capturing and managing ideas, although those ideas will be generated and implemented in a product team or business unit. Then, there's the opposite approach - very distributed and hands off innovation happening in each business unit with little corporate or centralized direction. Finally, there's a hybrid, a central team that helps manage and provide consistent approaches to innovation happening throughout the business.

Most firms start with a highly distributed model, not on purpose but because the teams need to perform innovation and its easier to start within one group. Then, as management teams recognize the value of innovation and the distributed nature of innovation within their businesses, a central team is formed. Central teams are very valuable under these conditions:
  1. There are a large number of business units or product groups and there's a need for central oversight of innovation efforts
  2. The innovations are unusually disruptive or demand more investment and/or longer time frames that the business units or product groups can support
  3. The offering to the consumer or customer combines products and services from several business units or product/service groups and must be adequately rationalized and integrated
  4. Innovation is tied closely to the corporate strategy
There's not a wrong way to organize, but there are benefits to developing a central team to ensure consistent methodology, language and culture and the use of consistent tools and frameworks. Eventually, most ideas if adopted will be implemented in a specific business unit or product team, so the central team acts as a facilitator, coach and sponsor, usually without implementing the ideas.
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posted by Jeffrey Phillips at 5:36 AM


Anonymous Andre said...

Great analysis Jeff - we see the Championing of Innovation come from all sectors: HR, IT, Strategic Planning, Communications, Marketing, CEO/COO/CFO/CIO?...this is a first clue to the cultural DNA of an organization. What's important is not to "place" innovation within the organization - that should be universal to all roles and functions. What's important is to nurture it from where it starts and develop support systems around it.

12:35 PM  
Blogger Mario Vellandi said...

Nicely said and reflective of reality in orgs. Innovation is practically positive change, and exists throughout the org in small and big ways. Like firms that hire intelligence agents for continually researching the internal and external environments, there's a role of independent innovation agents that meet with managers and employees across the firm, and report findings and recommendations for project fundings or the diffusion of smaller innovations across the firm. There's much to be said...thanks for stirring the brain today Jeff.

2:40 PM  
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