Product innovation: Who is really in charge?
Managing through internal power struggles
Product innovation is a priority for virtually every hi-tech company. However, there is often organizational disagreement and confusion around who should own the innovation agenda and how commercialization of ideas should be managed. This lack of clarity can result in a sputtering innovation engine and a risk-averse culture. On the bright side, figuring out the right organizational model for your company isn’t as complicated as you might think.
When everybody owns innovation, nobody owns innovation
Economist Milton Friedman said, “When everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition.” We think that his statement applies very well to product innovation as well.
Isn’t it ironic that many companies try to drive product innovation by emulating what other companies have done? Almost every week, we are introduced to a new disruptor. This company becomes the latest role model for innovation and there’s a rush to duplicate their culture, structure, and presumably, results. That is, until the next disruptor comes along and grabs the spotlight and the copycat cycle repeats. This is often a losing strategy for product innovation, yet many companies can’t seem to move away from it. Because in the hi-tech sector, product innovation is an absolute imperative and management teams are eager—and under pressure—to adopt the latest trends. They have good intentions, but are rarely successful.
An especially common outcome of trying to mimic the practices of other companies is that the term “innovation” ends up embedded in the responsibilities of multiple senior executives. That in itself is not an issue because innovation does not belong in any one domain. But the lack of clarity, rationale, and distinction around these assignments can present a serious problem.
Three organization models: All are rational, none is perfect
Fundamentally, three organizational structures are used to foster hi-tech product innovation. Some companies’ needs may not fit neatly into one model and they may choose to employ a couple of these models in different parts of the organization.
- Centralized - Adjacent and transformational innovation responsibilities are centralized in, and owned by, a dedicated organization (for example, labs, CTO, CIO).
- Decentralized - Innovation responsibilities are fully distributed. BUs own end-to-end innovation responsibilities, from incremental to transformational, from ideation through commercialization.
- Federated - Similar to a centralized model, except that key members of the central innovation team are embedded in the BUs. These individuals are responsible for funneling the BUs’ ideas to the central team, as well as for creating awareness and pull for emerging concepts from the central team.
We’re not advocating one model over the other because there isn’t one approach that works for everyone. Each company’s unique culture and needs determine the model that fits best.
Innovation attributes of the three organizational models
What’s the right model for you?
Selecting the right model can be overwhelming. Understandable, because making the wrong choice can have disastrous results in today’s fast-paced hi-tech industry. But it doesn’t have to be complicated.
Rather than turning this into an extensive, overly-structured exercise, consider these three critical questions objectively and unemotionally:
- What is the extent of disruption in your industry?
- Is there significant market demand or opportunity for you to co-develop—not just bundle—products and services across your businesses?
- How collaborative is your culture, really?
Initiate the conversation to change
Start at the top. The topic of decision rights, especially when it comes to innovation, is almost always emotionally charged, so it’s critical that the chief executive officer (CEO) and/or chief operating officer (COO) is driving it. Identify the right model, then the right leadership roles, and finally, the people who fit those roles. Adult supervision for innovation, as described earlier, requires a different mindset from typical management skills, so it’s imperative that suitability trumps seniority or legacy. Establish unambiguous, end-to-end innovation-related decision rights for all impacted executives. Finally, make the changes meaningful by appropriately shifting resources, budgets, incentives, and control.
Innovation is about being fast, agile, lean, and adaptable. An ineffective organizational structure will compromise all those attributes to varying degrees and demotivate even the most passionate, loyal employees. An appropriate model, on the other hand, can establish the foundation for a culture of collaboration and innovation success.