Organizing for Radical Innovation

What is the best way to organize a company’s resources for radical innovation? One thing is clear: it requires a distinctly different approach – as well as different organizational structures – compared to incremental innovation.

In general, companies are not bad at implementing incremental ideas — which are essentially about improving existing things — because these opportunities tend to fit quite neatly into the organization’s current business unit infrastructure. But breakthrough ideas — radical, game-changing opportunities — represent a departure from the norms inside a company, and usually inside the industry as a whole. That’s why it’s often really hard for a firm to organize itself around a disruptive new idea — particularly if it will potentially cannibalize the legacy business.

Blockbuster, the once-dominant movie rental company, fell into this trap. Basically, the company missed every breakthrough opportunity in the movie rental business over the last decade or so — Redbox-style automated kiosks, online rentals, streaming video, you name it. Inevitably, Blockbuster eventually hit a wall and completely fell apart. But why did this happen? It happened because the company’s primary innovation focus was on making incremental improvements to its traditional business model, which was based on high street stores, rather than on organizing itself around disruptive new opportunities like the Web. And so along came Netflix and the rest is history.

The fact is, inside most companies breakthrough innovation opportunities require new and distinct business structures. P&G, for example, has special teams at the corporate level that try to spot and address white-space opportunities. These teams have been especially useful for breaking down the walls between very strong business units (which have traditionally tended to be quite defensive of their turf), and for building bridges between different kinds of competencies inside the organization in order to create innovative new product solutions.

Representatives from all of P&G’s business units also meet regularly in a “global technology council” to address opportunities that transcend boundaries and call for collective know-how. Once an interesting idea surfaces from one of these groups or from outside the company, P&G has systematic mechanisms for abbreviating the communication channel to top management and for building cross-functional teams around new ideas.

These mechanisms get senior management, all the way up to the CEO, interfacing with innovators, removing barriers, shaking loose resources, advancing people’s projects, helping them turn nascent ideas into businesses, as well as thinking about which sector to transfer a particular new business to, and what kinds of capabilities that sector might need to acquire quickly so that the handover doesn’t lose the company any time.

IBM is another company that has introduced new organizational structures to address breakthrough opportunities. Some years ago, the company created a set of new venture groups — called Emerging Business Opportunities (EBOs) — that pursue breakthrough opportunities that don’t fit neatly into the company’s existing business units. So far, the EBOs have collectively contributed tens of billions of dollars in annual revenue to IBM’s growth — and EBO revenue has been growing at the rate of more than 40 percent a year.

All of which suggests that radical innovation is not something that can be left solely to a company’s existing business units (where there is usually a strong focus on continuity and improvement of the legacy business). It requires dedicated organizational structures and teams that can work cross-functionally on ideas which may lay outside the company’s existing business model or at least adjacent to it. Radical innovation calls for radically different organization structures – where it can be supported, funded and driven from the very top of the organization as part of the company’s longer term strategy for growth and renewal.

I will be in London, UK, this week (from September 24th to 26th) to conduct a three-day innovation leadership seminar on exactly this theme (and back in London for another session from December 1st to December 3rd) – both events organized by The Leadership Network. Look forward to seeing you there!

image credit: americanbar.org

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Rowan Gibson is recognized as one of the world’s foremost thought leaders on innovation. He is the bestselling author of Innovation to the Core, co-founder of Innovation Excellence, and a top keynote speaker in 60 countries around the globe. His new book is The Four Lenses of Innovation. On Twitter he is @RowanGibson.