Organizing for Innovation
As a starting point, there are four criteria that need to be analyzed in coming to an organizational resolution and four basic organizational structures. The four criteria are change type, phase of development, opportunity size, and culture. The four organizational structures are in situ (current), standalone (skunk works), ambidextrous, and dual operating systems.
There are three types of changes: incremental, differentiating, and disruptive. Incremental change includes small new items added to an existing product, practice, or process. Differentiating changes involve a significant product, practice or process enhancement that creates a clear differentiation from the competition and that keeps us ahead of the competition for some short-to-medium timeframe. This type of change creates differentiation within a market, but doesn’t significantly change a market. Disruptive change creates an entirely new market. Disruptive changes can drastically impact companies or even industries.
For phases of development I like to use Donald Sull’s (The Upside of Turbulence) opportunities phases Start Up, Scale, Mature, and Decline (I add Discovery to the front end of this lifecycle). I like Sull’s word opportunity rather than projects because opportunities give rise to entirely different decision and management processes. In particular, the transition from Start Up to Scale impacts organizational structure.
The size of the change or opportunity also impacts structure. A small agile project for example could be launched with minimum organizational impact while a 500-person opportunity would require more analysis and probably greater disruption.
Finally, culture impacts how any change is approached. Some companies have carried off a large agile transformation across the entire organization at one time, whereas with others this approach would have been disastrous (and has been).
The first organizational structure for change is to use the existing structure, keeping things as they are—in situ. This might work well for an incremental change, but not so much for a disruptive one as these changes are usually large (in potential at least) and call for cultural changes.
The second structure has been used extensively—a skunk works that is a standalone organization. This type of structure has been used extensively as organizations have moved to the web as digital presence development groups have split off from central IT organizations. In the early stages these groups are often product-centric. New products, particularly innovative ones, often suffer when they remain within an existing organization, so new groups are set up. The problem with skunk works is that they are separate from the main organization and have less political influence because they report to a relatively low level in the main organizations. The most famous skunk works, one that came up with innovation after innovation in the 1980’s, but whose innovations were not translated into commercial success—was Xerox Parc.
The differences between a skunk works and an ambidextrous structure are basically reporting level and having all business functions. Skunk works are usually product related, but they are not complete businesses with their own marketing, sales, manufacturing, etc. When the separate group has all those functions, it usually reports to a high executive level. One very successful such organization was the original IBM PC group. The organization was completely self-contained (sales, manufacturing, product development, etc.) and was physically separated from IBM headquarters in New York (they were in Florida). The organization had a very different culture a different approach to development (partnering with Microsoft was one such deviation).
The downside of ambidextrous organizations is that the changes made don’t get promulgated to the rest of the company. Many financial and retail companies have set up separate digital presence groups that have innovative, fast moving cultures—but these changes don’t permeate the rest of the company—or do so very slowly. For some types of changes there isn’t a need to impact the wider organization, while for others it would be advantageous.
Finally, the newest twist on organization structure comes from “John Kotter’s, Nov 2012 Harvard Business Review article, “Accelerate! How the most innovative companies capitalize on today’s rapid-fire strategic challenges—and still make their numbers.” Kotter, who has written several well-known books on change management, says,
“Perhaps the greatest challenge business leaders face today is how to stay competitive amid constant turbulence and disruption.”
The existing structures and processes that together form an organization’s operating system need an additional element to address the challenges produced by mounting complexity and rapid change.
The solution is a second operating system, devoted to the design and implementation of strategy, which uses an agile, networklike structure and a very different set of processes.
I’m proposing two systems that operate in concert.”
Kotter’s dual operating system begins with the existing organization—one that handles current business operations well. He then superimposes a network structure on top of the existing structure. The network structure is responsible for new strategies, innovative products, etc. It is leading the way to the future. However, the people are the same. It’s not that one group thinks about strategy and another execution, individuals do both.
However, they operate in different structures for each activity. The network structure is characterized by:
- The group is called a Guiding Coalition, a network of peers
- Individuals Volunteer to participate
- The network is Self-organizing
- The network is Strategy oriented
- They act as many change agents
- They use Kotter’s 8-step change program
This type of dual structure appears to be the most difficult to carry off, but potentially the most effective at responding continuously over time to the constant fragmentation, uncertainty, and rapid changes in many markets.
Responding to today’s volatile market environment takes many capabilities and how those capabilities are organized has a significant impact on surviving and thriving. Employees lament that their organizations are always changing, but many of those changes are appropriate responses, or resolutions, to the paradoxes that drive organizations. Hopefully thinking about the four criteria and four structures will help you resolve your own paradoxes.
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