Staffing for growth and innovation

 I'm often asked how many people should be employed in innovation work in larger organizations.  As if there is a magic number!  For those of you who remember the Hitch hiker's guide to the Galaxy, the actual number is 42.  Of course, with that and a towel, you can accomplish almost anything.  It's a joke only Hitch hiker fans will appreciate.

But the question about staffing for growth, new products and innovation is an important and interesting question.  What's more, most organizations don't think about staffing this way.  The way most companies think about staffing is:  how many people do I need to employ to operate day to day, supporting existing products and services, in the most efficient way possible?  When they derive that number, most companies then divide the number of workers necessary by two, and then make up for the gap with administrators and managers with long titles and a very short list of responsibilities.  In other words, most companies start out under-investing in the numbers of people necessary to do the day to day work, and never think about the people who are necessary to support growth or new products.

The dreaded "day job"

That's why so much new product development and innovation is accomplished in teams of people who are working beyond their normal responsibilities. These folks have a "day job" that is their primary responsibility and sole source of advancement and compensation.  New product development, innovation and growth responsibilities are simply layered on top of their existing jobs.

I've written before about the conflict this creates, since the vast majority if not the entirety of a person's evaluation and compensation is tied to their day job.  This means at the first hint of obstacles or resistance to innovative ideas, innovation teams water down the ideas, and spend less time working on innovation and more on their day job.

Signals

What signal does this send?  I remember working with one of the largest banking companies in the US on innovation projects, coming up with some really incredible new ideas for products, and asking:  OK, who do we turn this over to?  And getting the answer:  we don't really have people who have created and managed new products, but we do have product managers who have managed existing products.

While the company had a handful of good product managers, almost all of them had taken over existing products.  None had created a new product from scratch based on a new idea and customer insights.  Trust me when I say that creating a new product in a large corporation is a very different proposition from managing an existing and established product.  The resources required are different, the investments are different and the timelines are different.

When companies say they want innovation, but fail to create processes or structures to support innovation, or even acknowledge that incremental innovation is a different task and responsibility than finding emerging new technologies or capabilities, it becomes evident that the company is doing what many people are now calling "innovation theater".

Team structure

So, if growth and innovation is important, companies should have people who are focused on this full time, in order to spot trends, create ideas, understand user needs and convert all of that insight into a new product.  Temporary innovation teams have been tried and they very often fail at this important task.  I think companies should have three teams:  the current, the new and the next.

People on the "current" team should keep the existing products and services flowing, well supported and efficient in execution.  This keeps the lights on and near term revenue flowing.

People on the "new" team should be thinking about product extensions, moving into adjacent spaces, creating products and services for revenue streams 18 months to 36 months from now.  This timeframe, of course, depends to some degree on the competition in your market space and the average length of time a product offering is viable before it becomes uninteresting or obsolescent.

People on the "next" team should be working on the next opportunities - the emerging trends, emerging customer segments, emerging technologies that won't be viable for a few years.  In technology firms, we often refer to these folks as "R&D".  Where, you may ask, is the corresponding R&D team for many non-manufacturing and non-technology firms?  Answer - it does not exist or they depend on smaller companies they can acquire to get new technologies.

Let Pareto be your guide

When all else fails, a good rule of thumb is always valuable.  Pareto says that 80% of the work is done by 20% of the people - or something to that effect.  For thinking about staffing these three teams, I'd modify the Pareto rule to this degree:

• 70% of the people you employ manage the day to day operations, keeping existing products flowing, supporting existing customers and so on.  
• 20% of the people you employ manage new product development, creating new ideas for new products you can release in the next year or so, or new markets you can enter in the next year or so.
• 10% of the people you employ are working on real R&D, whether that is discovering a new technology or finding a new business model to deploy, something that will create really interesting new positioning and revenue streams, and can't be deployed for a while.

Of course I know that very few companies today are anywhere near this magical staffing ratio.  Most companies aren't all that innovative to begin with and shifting to become more agile and to focus on growth and innovation takes time.  The above is perhaps a perfect world scenario, but it can become a North Star for you to start aiming at.  What if in the next year you decide to increase people working on the "new" by 5% and the people working on the next by "3%".  Unless, of course, the number currently working on those is zero.

The point is, have a goal and start from where you are, constantly shifting resources to become better at the new and the next.

Organization

Now the next question is:  how should these folks, especially the 20% and 10%, be organized?  Where should they report?  They should report to the product line or service line that needs future growth and differentiation, but should be in a loosely organized team themselves.  That is, a person working on the 10% for a services organization should report directly to the owner of the services line, but should regularly interact with others in his or her organization who are focused on the 10% for other product or services groups. 

This structure ensures that good ideas and insights flow horizontally, across the organization, and insights are shared from one team to another, but also that the focus of the team is on what moves the needle in each product or services group.

Acknowledgements

I'll acknowledge that the three teams are aligning to what others have defined or called the Three Horizons model, but far too often all of the resources are embedded in the first horizon, the efficient management of day to day operations.  This is exceptionally risky in a time when there is so much uncertainty, change and access to technology and the internet.

I've provided the Pareto logic as a way to think about structuring the teams.  It is a traditional rule of thumb that companies should spend 70% of their time and resources on horizon one, 20% in horizon 2 and 10% in horizon three.  However, companies in highly competitive consume markets may find that this investment weights too heavily toward the core, and may want to consider a 50%/30%/20% model.

The model isn't as important as the commitment and investments you place behind it.  Choose a model that works for you and structure your resources, funds and most importantly your teams to accomplish more growth and innovation.

Who to staff in which horizon

The next question that we'll consider is:  what people, with what interests, capabilities or characteristics, should we staff on each team?  I have a good answer for that, but that will wait for the next blog post.