organizing for innovation & growth

„The organizational designs that support innovation are very different from those that support delivery of current performance.“

John Roberts, Professor of Economics, Strategic Management, and International Business Stanford Graduate School of Business

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But…what are they???

14 March 2008

Organizing for Innovation & GrowthA synthesis of readings & research findings

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Organizing for Innovation + Efficiency

Exploitation

Achieve maximal performance delivering the current strategy

Requires organisational designs that facilitate focus and execution

No slack

Continous innovations in the current business

Exploration

Develop new opportunities

High uncertainty

Depends on slack

Radical innovations outside the current paradigm

14 March 2008 Following John Roberts „The Modern Firm“ Oxford University Press 2004

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Organizing for Performance

Exploitation

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The Disaggregated Model


Key Architectual Elements

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High strategic focus

Divest unrelated businesses

Focus activities to a select set

Focus on the activities where the organization can create most value

Outsourcing & vertical disintegration


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Small subunits

Significant decision rights

Clear scope of responsibility

Clear accountability

Accountable for delivering performance(supported by outines and processes)

Linked together by various means to manage the interdependencies

Decreased number of management layers

Decreased extent of central staff


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Peer groups

Align teams, functions, and businesses into peer groups for support (instead of relying on the center)

Introduce peer challenges on performance and targets

Best practice sharing


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Performance incentives

Routines and processes hold subunits accountable for delivering performance

Tie all employees‘ compensation to performance of their unit and the overall business

Cultural norms facilitate the pursuit and realization of improved performance

Push (individual) performance evaluation discussions down

Performance contracts

Track performance closely (e.g. quarterly reviews)


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Decision making

Improved speed and effectiveness of managerial decision-making

Transfer decision making from the center to local management on how to run operations and how to meet performance targets

Eliminate layers of management

Reduce headquarters employment

Encourage employees to take respsonsibility and exercise initiative

Values needed: caring, trust, opennes, teamwork, cooperation


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The Disaggregated ModelHow to do it?

Establish clarity about strategy and corporate policies

Create discrete organizational units that are smaller than previously favored

Give the units‘ leaders increased operational and strategic authority

Hold them strictly accountable for results

Reduce the number of layers in the hierachy (delayering)

Reduce the number of central staff positions

Increase incentives for performance at the unit and individual levels

Increase rewards tied to overall performance

Increase the resources devoted to management training and development

Promote horizontal linkages and communication among managers, staff and peer units

Improve information systems that facilitate both the measurement of performance and communication across units and up and down the hierachy.

14 March 2008 John Roberts „The Modern Firm“ Oxford University Press 2004 pages 232f

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Organizing for Innovation

Exploration

14 March 2008

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What does it take?

Imagination

Thinking outside the box

Willingness to take significant risk

Accept failures (and even celebrate them)

Opennes to the new and untried

Slack resources to generate and develop ideas


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How to do it?

Organizational models supporting innovation

Establish multiple R&D groups

Do not attempt to coordinate and rationalize activity across them

Encourage direct communication among the groups

Give them the freedom and autonomy to decide how and what to work on

Performance measures & rewards: subjective evaluations or milestones achieved (not financial numbers generated)


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How to do it?

Organizational models supporting innovation

Informal interaction between functional groups

Innovation Project Team

Expert Network

Shared Services Organization

Innovation Community of Practice

Ambidextrous Organization

Innovation Council

14 March 2008 „Organizing for Innovation“ www.innovation-point.com 2004

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Complexity and Cost

14 March 2008 „Organizing for Innovation“ www.innovation-point.com 2004

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Innovation…the Tom Peters way

A Bias for Action

Close to the Customer

Autonomy and Entrepreneurship

Productivity Through People

Hands On, Value-Driven

Stick to the Knitting

Simple Form, Lean Staff

Simultaneous Loose-Tight Properties

14 March 2008 www.tompeters.com

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Innovation…the Whirlpool way

Making innovation a central topic in Whirlpool‘s leadership development programs.

Setting aside a substantial share of capital spending every year for projects that were truly innovative.

Requiring every product-development plan to contain a sizable component of new-to-market innovation.

Training more than 600 innovation mentors charged with supporting innovation throughout the company.

Enrolling every employee in an online course on business innovation.

Establishing innovation as a large component of top management‘s long-term bonus plan.

Setting aside time in quarterly business review meetings for an in-depth discussion of each unit‘s innovation performance

Creating an Innovation Board to review and fast-track the company‘s most promising ideas.

Building an innovation portal to give employees access to a compendium of innovation tools, data on the company‘s global innovation pipeline, and the chance to input their ideas.

Developing a set of metrics to track innovation inputs, throughputs, and outputs.

14 March 2008 Gary Hamel „The Future of Management“ Harvard Business School Press 2007, page 30

„…firms must develop multiple business opportunities, and to continue to grow and survive they must do this on an ongoing basis.“


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HOW???

14 March 2008

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Have a portfolio of activities!

14 March 2008

„Searching for new opportunities, selecting among identified opportunities, building new businesses, running existing ones, exiting others – all may need to be done at once.“


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Difficulties with Multi-Tasking

Motivation!

Exploratory activity is typically hard to measure in a precise and timely way.

According behavior is hard to specify, connection between efforts and results achieved is subject to randomness

Exploitation is more easily measured rewarded

Inducing one sort of behavior increases the cost of getting the other.


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Job Design for Multi-Tasking

Divide the jobs: some explore, while others exploit.

– Internal competition– Costly– Morale problems– Attention and energy

Backwards integration of the new unit?

Change the fundamental trade-offs involved, by working on the people and cultural elements of organizational design.


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High Commitment HRM

Trust

Transparency

Empowerment

Egalitarianism

Job enrichment

Teamwork

Abscence of explicit individual monitoring and performance pay

Employees identifying their interests and those of the firm

Accepting the vision

Motivation

Personal pride

Inspiration

Strong identification with the company

Fluid architecture, project teams

Lots of opportunities for learning and taking new responsiblities

Value-based leadership (customer satisfaction, respect for the individual, achievement, continous learning)


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Roberts‘ How To Do It

Strategic and organizational choices must be made holistically, recognizing the interdependencies

Scope of the Firm: what, where, how, for whom

How is it going to distinguish itself from competition, gain competitive advantage, create value

Right people must be attracted, retained, assigned to different roles

Formal architecture must be crafted to allow effective coordination and motivation

The processes, procedures, and routines that guide and control behavior must be be developed

The fundamental beliefs, and norms that will be shared across the firm must be created, transmitted, and adopted

All these must mesh properly with one another, so the organization really does allow the strategy to be executed.

The people, the networks among them, and the routines they follow must give the firm the capabilities it needs to create value.

The system of incentives must motivate the particulat people that have been attracted to deliver the strategy and let the firm reach ist goals.

The formal structure and the allocation of decision authority need to be aligned with where expertise liea and with what motivates the people.

Finally, all the elements of the strategy and organization need to fit with the competitive, technological, social, legal, and regulatory realities the firm face.


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Roberts‘ How To Do It

People throughout the firm must be involved, the knowledge of how things really work, how customers really behave, how choices really interact is highly dispersed.

Leaders must provide a vision of the strategy and organization, indicating the underlying principles and how the basic trade-offs are to be resolved. They need to communicate the model in a clear and compelling way, so that others understand and embrace it and are motivated to try to realize it in designing their parts of the organization.

The formal elements of the design can influence the networks and culture, so managers can have some indirect control over them.

Leadship must play a crucial role in successfully shaping the culture.

Leaders must give specific meaning to the values, which then sets the basis for the generating of expected behavior.

Solving the problems of strategy and organization is an act of real creativity.

Chasing after best practices is largely futile if the aim is to achieve differentiation.


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The Organizational Context of Strategic Innovation

14 March 2008

Research has shown that strategically innovative companies are characterized by a distinctive organizational context enabling strategic innovation.

Characteristics of Strategically Innovative Companies

Culture Questioning attitudeRewards success and failure, punishes inactionTolerates mistakesWelcomes changeSupports risk taking and changeSupports teamwork and collaboration

Structure Fast and flatSmall unitsEncourages collaborationAutonomous teams at the front line

Processes Fast and unbureaucraticDecentralized decision makingSupport idea generation, experimentation and execution

Systems Support the process of strategic innovationEnable collaborationEnable the use and creation of knowledgeReward risk taking and actionUsed to create relationships with customers

People Variety (internal and external)CollaborationEducated in regard to the strategy and skills needed

14 March 2008© Marc Sniukas30


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A presentation by Marc Sniukaswww.sniukas.com