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Three Ways to Structure Innovation

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The structure of an organization can help or hinder its progress toward its goals. Independent of size and industry, organizations can achieve their goals by properly matching their needs with the structure they use to operate.

Structures become even more important when dealing with innovation, as this activity differs in many ways from business-as-usual. As Peter Druker puts it: ‘Innovation is the work of knowing rather than doing.’

Innovations will always play the central role in companies’ long-term survivability. Hence the right structure can lead to sustainable growth. While at the same time the wrong structure can transform innovation in a money pit activity. In principle there are three main type of structures for innovation:

1. Centralized Innovation Structure

One of the most traditional forms of the organizational structure is the centralized one. Here the innovation strategies are set at the center. Also the resources are centralized in the innovation department.

In general, in companies with a centralized innovation unit, governing, managing and measuring innovation is easier. However this structure can lead to bottlenecks, which in turn can drive the cost of innovation up.

Moreover under this structure the ‘Not Invented Here Syndrome (NIHS)’ might be more prominent. Hence there will be a stiffer opposition for adopting ideas back in the regular business units after they’ve been developed by the centralized innovation unit.

The organizations which will benefit the most from adopting a centralized innovation structure are the ones whose divisions have similar innovation needs (eg.: standardization). Procter & Gamble, Apple and ING are examples of corporations deploying this structure.

2. Decentralized Innovation Structure or BU-Driven

The polar opposite of the Centralized is the Decentralized structure (BU-Driven innovation structure). It is distinctive from the previous as each business unit has full control over the innovation effort.

In this structure tasks and responsibilities are evenly distributed between the employees, which may enables open communication & collaboration.

Additionally, although management is given the freedom to “run their departments as they see fit”, they are still held accountable for their teams’ inputs.

Under this structure resource allocation is done faster. And once matured the ideas will be easier to integrate with the BUs. This structure allow for innovation to happen on scale as very limited innovation resourcing (if any) is done at the center. However, in the BU-Driven innovation structure, alignment of each BU innovation strategy with the overall corporate goal might prove difficult.

Also consistency across BUs in tools, approaches, methodologies and measurements might be tricky in the absence of clear guidelines from the center.

A decentralized structure will be the most beneficial for the companies where divisions are very different. Examples of such companies include Johnson & Johnson, Illinois Tool Works and Tyco International.

3. Hybrid Innovation Structure or BU-Enabled

Hybrid structure (BU-Enabled structure), is a combination of both functional and divisional structures. Its diverse features allow the company to be more flexible in distributing and assigning roles. It also helps to maintain a healthy relationship across all departments. Under this structure the corporate strategy is easier connected with the innovation strategy of each BU.

For all its advantages, the Hybrid structure’s biggest pitfall is a high chance of conflicts between corporate departments and divisions. The line of authority might become vague, and dilemmas regarding deadlines and resources are prone to cause the company issues on many levels.

Another cause of concern when deploying this structure is the mandate for innovation. Which type and form of innovation needs to stay in the BU and which one needs to be sent out.

From the three models, the hybrid one is most adaptive, with business units able to opt in or out of central support. But this model has a high risk of inconsistencies and duplication.

Starbucks, GAP Inc and Google are the perfect examples of organizations with the Hybrid structure. In general this structure is most suitable when divisions have differing needs but central coordination is needed.

Every company’s innovation structure is inherently different. By cultivating innovation, businesses cultivate a unique system. So, for them to choose the most appropriate one, they have to thoroughly investigate each one of the models and decide on the most appropriate one.

The decision needs to consider company and industry peculiarities. Companies have to ensure that the chosen model aligns with their values and goals. They also have to include in the equation the individuals whose roles and dynamics influence the very innovation culture they are cultivating.