Where should innovation resources actually exist in an organisation?
It might seem like a straightforward question, but it is fundamental to whether a company will end up succeeding at innovation or failing.
After all, if innovation is so important, should it not get its own department?
While many experts have argued for this in the past, in reality the research suggests it will depend more on the needs of each company.
What you want to end up with is called an ambidextrous organisation.
Charles O’Reilly and Michael Tushman coined the term an “Ambidextrous Organization” in 1996 to describe how some companies can simultaneously execute their core business while also innovating successfully. Like an ambidextrous person who can work with both hands equally well.
Often, the phrase used to describe this is about “exploit vs explore“.
- Exploit your current offerings by maintaining your profitable current core business
- Explore the future with new opportunities by innovating
As Steve Blank puts it in his foreword to O’Reilly and Tushman’s latest book on the subject: Lead and Disrupt: How to Solve the Innovator’s Dilemma:
Exploitation pays your salary while exploration pays your pension. Companies that survive do both
The challenge comes from the opposite requirements placed on the people who should either execute or exploit.
Exploiting your current business requires people who are good at maintaining, planning, producing, selling and supporting a well established existing product. This might require typical accounting, management and sales processes to track and predict performance, and often comes from experience and time.
Exploration on the other hand requires a mentality where not everything is known, new ideas need to be developed, tried, iterated and improved, and not everything that is attempted will work out as it was planned.
These two responsibilities therefore require not just different skill sets, but also different mindsets and even different management methods.
So how can you best allocate your people to allow them to focus on their best work. Especially the innovation resources who might struggle in traditional management structures?
Here are a couple of options seen at various companies over time.
I will go through each of them one at a time, and explain the positive and negative aspects of each:
Different possible organisational locations for innovation resources:
Option 1: A bridge between R&D and Sales / Marketing
Sometimes, a small number of innovation resources are tasked with taking new technology developed by the company’s R&D department, and try to find a market or use for it.
In this case, they might act as a bridge between the new technology’s development, and hand over ideas and insights for possible usages to the Marketing / Sales teams to then bring to the market.
This would be a company where only a small number of people are trained in innovation capabilities, and their remit is primarily around finding a market, such as through ethnographic research and design thinking. They would sit as part of both the R&D as well as the Marketing / Sales departments, and would be under one of those cost centres.
The innovation teams would not have much interaction with the Core BAU Operations which would actually implement and produce the innovation, or other departments.
- Not many innovation resources required
- Fits into existing organisational design
- Low remit to experiment
- Not directly involved in seeking new customer opportunities, rather just finding uses for new technology
- Issues when handing new innovation over to Core BAU Operations
- Rest of company not directly involved in innovation
- Can create a “us vs them” divide between silos of business units
- No unified way to plan and measure innovation progress
- No overall innovation strategy or portfolio
Option 2: Innovation teams within each company brand / product unit
Some companies have set themselves up where each brand operates as a miniature business unit, with the ability to plan and manage their own resources.
One prominent example of this was Procter & Gamble, makers of the Swiffer and many other household products.
These companies might have an innovation team as part of each brand / business unit, responsible for researching and coming up with ideas and designs for new products. Here, innovation will be closely tied to “product development” resources.
However, as each brand and product team acts autonomously, it may result in silos evolving over time, where teams are not aware of what each other team is up to.
The innovation team also has little control over what happens to the products or innovations once they are handed over to the Core BAU Operations, which may include the manufacturing of the products.
- Each brand will have numerous resources skilled in innovation
- Ability to focus and not be pulled in multiple directions by competing projects
- Multiple teams and business units can innovate simultaneously in parallel
- Within the brands, innovation team is likely to have closer proximity to the brand’s other resources, like Sales & Marketing, to integrate in with their plans
- Potential for silos to grow between brand units, reducing communication, knowledge transfer and potential collaboration between innovation teams
- Duplicated effort when trying to research the potentially same end customers
- More resources required and potential duplication between teams
- Once handover to Core BAU is complete, innovation teams may not get feedback on performance
- Management and reporting overhead to track progress of multiple innovation teams
- Multiple different innovation strategies
Option 3: Cross-departmental innovation function:
If a company sets up a cross-departmental innovation function, these resources will work on innovation within each individual function of the business, such as across Business Units, Back-Office Departments (Accounting, IT, HR etc) and Core BAU operations.
While this means that there are people with the knowledge and resources to make innovation happen, it can often be unclear what exactly they should be working on. Different business units may have conflicting targets and initiatives which they all want, and somehow the innovation team needs to get approval what the priority should be and how to allocate their limited time and resources. As a result, often multiple people who suggested idea or want specific innovation to happen sooner will be disappointed that “the innovation team let us down by not delivering”.
Additionally, since there are dedicated innovation resources, other resources in the business may feel like innovation is not their responsibility, and will leave it to these innovation “experts”. You might hear multiple people say “Let me focus on my targets and my job, and I’ll get involved when the innovation team tells me what to do”.
This can result in a division between the innovators and everyone else, and decrease the likelihood of innovations actually delivering benefit once they are implemented.
- Every department can access innovation resources
- Innovation resources can collaborate with all departments and involve them in the process
- Innovation team has dedicated personnel and resources
- Ability to create a holistic innovation portfolio where it is clear which projects are being worked on
- Innovation resources may be pulled too thin if trying to work on multiple projects simultaneously
- Innovation team may not have the authority to prioritise which projects are more important than others, if other heads of departments all have their own interests
- May give the impression that the innovation team bear the responsibility of doing all the work, including ideation, development and implementation
- Innovation team progress may be assessed based on the traditional processes and management methods used in other departments, which they are not suited for
- Ability of innovation team to kill underperforming projects may be impossible if the person / department which suggested it initially wants it to continue, resulting in zombie projects
- Focus on input from business units may reduce time and resources available to look for innovation opportunities outside the company, such as with customers
Option 4: Dedicated “Innovation Lab”
When Clayton Christensen proposed that the solution to the challenges of innovating in large companies was to give innovators their own business unit (often called an innovation lab), where they could experiment and develop without interference from the existing business, it was hailed as the perfect solution.
Here, innovation specialists could begin developing brand new ideas without the burden of the management processes at the parent company. They could act in an entrepreneurial manner, on anything they wanted to try, and had the permission to fail.
The company could hire people with the skills and mindsets of a startup, rather than what traditional hires for the parent company usually looked like. They were often stocked with the latest technology which could be used to rapidly test new ideas, such as 3D printers and collaborative digital whiteboards, and decorated in ways that look more like a silicon valley startup rather than a cubicle-based office. And they often collaborated closely with startups in their industry, hosting events to meet other entrepreneurs and inspire their employees.
For decades, many large companies began building their own innovation labs.
However, in the past five years, a large number of labs have been shut down, after they failed to produce any actual new business or revenue opportunity for the parent company. They were acting primarily as a cost centre, and not generating new innovations which were profitable enough to produce an overall return on investment.
As more information came out about lab performance, it has become clear that in many cases, rather than actually innovation and producing anything, a lot of labs were performing innovation theatre.
Looking like they were innovating by doing things they knew startups did, but without end results. Often this was the result of a lack of rigour around which ideas should be prioritised, how resources should be invested and monitored, and how to validate progress. And any ideas which were developed were often completely new to the core BAU operations which were then asked to implement them. At this handover, many good innovations never got the support they needed to be implemented, as this implementation would require BAU people to change the way they worked which had been successful for themselves up until now (a very hard ask).
Today, most real innovation experts would advise against setting up an innovation lab without being very clear about how progress should be validated, and what the strategy and expectations are.
- Allows a company to try new things
- Allows new & different people to be employed, who might not fit into the parent company
- Allows innovation team flexibility to fail fast
- Good for marketing (“look how our company is visibly investing in innovation”)
- Often a lack of clarity around progress
- Few ideas actually end up being scaleable, viable business models
- Trouble getting the core business to implement innovation to scale them once they have been developed
- Innovation Theatre
- Innovation is in a silo away from parent business
- May result in less innovation happening in parent business
- Can be very costly to set up
- Lack of communication between the lab and parent company
- Lab may want to make themselves look good by not sharing bad news about lack of progress
- Challenge in fitting the efforts of the lab into an overall innovation portfolio and strategy
Option 5: no internal innovation
Yes, some companies have made the choice to have no internal innovation resources at all.
Instead, they rely on external partners to develop innovation and bring it to them, which they can then bring to their customers.
One example of this is distributors, who take what is given to them from suppliers.
Some other companies will look to “acquire” innovations into their business, such as by buying a startup once it has matured and incorporating their technology into their Core BAU Operations.
- Cheap: No investment in innovation resources required!
- No differentiation between themselves and other providers of this external innovation
- No ability to develop the company by exploring future opportunities
- More likely to be disrupted
Option 6: A truly ambidextrous organisation
So what do I mean by a truly ambidextrous organisation?
This is a company where innovation resources, and more importantly, innovation capabilities, exist throughout the company.
And within this organisation there are different innovation skills and capabilities, depending on which part of the organisation you are in, which decision-making level you are at, and which part of the innovation process you should be involved in.
But most importantly, this is a company where an innovation process is not just seen as a handover from one individual or one team to another. It is a dynamic process which plans out which stakeholders are going to be impacted by each innovation, and what is required to make it a success.
For example, successful innovation projects don’t just realise that at some point, once an idea has been successfully developed, it will be handed over to Core BAU Operations to be implemented and scaled.
Successful innovation projects plan out who in the Core BAU Operations will be impacted down the line, and brings them into the development process from the beginning.
This means that before the innovation even arrives at BAU, they have been thinking of ways to make it a success, and are less likely to be resistant to the new innovation if it will require them to change their work as they have been able to adapt to the idea over a longer timeframe.
In this organisation, everyone knows that innovation is vital for the growth and success of the company. And therefore everyone is enabled to contribute.
This might involve the option for people to be trained in innovation methods and frameworks, or just to be able to communicate ways to improve performance or new ideas.
So amongst various teams and there will be varying degrees of specialisation in the unique requirements of certain innovation capabilities. Some teams may focus on research, ideation and development. Others on managing partners, process improvement opportunities and getting feedback from customers. Others on knowing which management methods are most appropriate (and inappropriate) for different types of innovation projects in the innovation portfolio. And others just on adapting to the changes which will come their way as the result of innovation projects, and how to help make these a success.
Some will be 100% dedicated to innovation and have this as part of their job description, others may have it as part of their performance goals, and others just through collaboration with other colleagues.
The aim is to develop a culture where everyone knows what the innovation strategy and goals are, and how they as individuals and teams fit into this.
But this will be a company that can simultaneously manage to exploit their current offering, while exploring new offerings for the future.
- Dedicated innovation resources, able to deliver projects
- Appropriate management methods and expectations based on the unique type of innovation project
- Everyone in the company can be involved
- Handovers planned in advance are more likely to be successful
- Possible to have a prioritised innovation portfolio
- Possible to have a well communicated innovation strategy
- No silos between
- Can be challenging and time consuming to plan and set up
- Will require some people to adapt to new ways of working
- Challenge in preventing status quo processes from preventing innovation-appropriate processes to work
- Time and effort required to clarify and communicate the innovation strategy and expectations
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