In my last column, I showed that humanity has entered a new era, the age of creation intensification. Thriving in this new innovation economy requires that organizations become more innovative, and many companies wonder: How to become innovative? Unfortunately, many companies find it difficult to support innovation. Why is this? In addition to changes in leadership style, commitment, collaboration and culture, companies must also make the significant structural changes needed to both support innovation as well as retain efficiency.
The Dilemma of Innovation Management
In my 21 June 2007 column, I introduced the “Dilemma of Innovation Management”. Companies cannot organize their activities in ways that simultaneously promote both high organizational efficiency and high organizational creativity:
- Organizing for efficiency means arranging operations to minimize variance in business processes, products, people, etc. The method is to standardize everything by means of clear guidelines, optimized and controlled processes, a uniform workforce with similar educational background, etc.
- Organizing for creativity and innovation means doing the opposite, by promoting a flexible environment which encourages diversity in people and thought in order to produce good ideas and meaningful innovation.
How can you resolve the dilemma of innovation management?
The transaction model approach
High organizational efficiency and high organizational creativity are extremes on a scale, and different companies will fall at different places on that scale. Content creators will fall near the high-creativity pole, while OEM manufacturers will strive for high efficiency. Other organizations can fall between the poles:
- traditional R&D departments
- cross-divisional ad-hoc innovation project teams
- “small village” companies like Gore-Tex that split when the organization grows above a specified size
- internal R&D initiatives that are spun off from the core company (which retains majority ownership of the new venture)
- open innovation initiatives that have emerged in recent years.
Most of these transactional approaches have a significant drawback, in that they require companies to adjust or even change their organizational structure, which costs time, money and organizational friction.
The functional approach
Is there any alternative to the transaction models discussed above which can resolve the dilemma of innovation management and support innovation transformation? The answer is a functional approach. To use this, consider each business team or business unit and ask: “What will best enable this function to make our company thrive in the innovation economy? High organizational efficiency? High organizational creativity? Or something in between?”
When you do this, you will notice that functions generally fall into one of three categories:
- Efficiency-focused functions. Process-driven and back-office support functions require a focus on high organizational efficiency. These functional areas include manufacturing, logistics, supply chain management, operations, finance, accounting, compliance and legal. In these functions, creativity is not desired at all (think of “creative accounting”) or is only required at a modest level for resolving operational problems or discovering incremental process improvements. Efficiency-driven teams and business units should largely continue doing what they do, and need not be actively involved in organizational change programs to promote more innovation.
- Creativity-focused functions. On the other hand, market- and value-driven corporate functions benefit from organizing for high organizational creativity. Teams or business units related to new product development, design, content creation, concept creation, in-house consulting, marketing, and public relations, among others, thrive in flexible environments that promote diversity, spontaneity, and freedom of thought and action. In these functions, creativity clearly takes precedence over efficiency, although you should still measure outputs and use structured methodological approaches and tools. If you want to transform your company into a more innovation-friendly organization, focus your efforts on making these creativity-focused business teams and units more innovation-friendly.
- Combined efficiency- and creativity-focused functions. Some functional areas gain from both efficiency and creativity, albeit at lower levels than the extremes discussed above. For example, human resources (HR) requires efficient management processes, but creating tactical actions to attract talent to the company clearly requires a good dose of creativity. Other functions in the middle that rely on both structured processes and creative insights and problem-solving include IT, market research and sales. In an innovation-focused organizational transformation program, these hybrid business units and teams should be involved, but need to find the right balance between efficiency and creativity that best supports the organizational goals. To help with this, a team may look at their various tasks to identify if the team requires more efficiency or more creativity.
Conclusion: If you are committed to make your organization more innovation-friendly, then first take a functional look at your organization, even if your organization follows a divisional structure, to determine what business units and teams should participate in the exercise. This allows your organization to effectively deal with the dilemma of innovation management, maintaining efficiency while increasing creativity and innovation.
Do you want to learn more? Then why not booking “The C-(reactive) Class”, our 1-day executive innovation briefing workshop. Among other things, we will explain how to organizationally or functionally bridge the efficiency-innovation divide in your organization with the help of Thinkergy’s systematic innovation transformation method CooL — Creativity UnLimited. Contact us today to learn more.
© Dr. Detlef Reis 2014. This article was published in parallel in the Bangkok Post under the same title on May 22 2014. All rights reserved.