The Innovation Machine
The Organizational Structure of Innovation: How Toyota, Procter & Gamble , GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell, Whirlpool and other best-of-class companies manage Fast Innovation
Adapted from Die Innovations-Maschine, 2008 by Dr. Rolf-Christian Wentz, Lecturer at the University of Hamburg, Germany, in Innovation Management and Marketing.
Dr. Wentz makes the important point that the emphasis in recent years on the process organization of innovation has overshadowed the crucial importance of the organizational structure of innovation management within enterprises admired as “Innovation Machines.” His book seeks to redress this imbalance. He proposes a very useful typology of seven successful structures for management and organization of Fast Innovation:
Can the organizational structure of a company contribute to the acceleration of the innovation management in the spirit of Fast Innovation? The innovation machines Toyota, Procter & Gamble, GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool answer this question in the affirmative. In addition to an effective and efficient innovation process they have adopted an organizational structure of innovation that enables them to launch innovations faster.
In organization science we distinguish between process organisation and organisation structure. Over the last few decades the process orientation of enterprises has continuously gained priority. Accordingly, in the context of innovation management the innovation process and its optimization received maximum attention, above all also in relation to the question how innovations can be launched into the market-place more rapidly in the spirit of Fast Innovation. Due to this, the organizational structure of innovation management receded a bit into the background. Which is not justified.
The innovation machine Toyota as well as Procter & Gamble , GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont, Honeywell and Whirlpool have adopted an oranizational structure of innovation that significantly facilitates Fast Innovation.
They have taken the following seven key actions in order to structure their innovation management and organization for Fast Innovation:
1. Delegation of Decisions to Innovation Teams
Despite best intentions, if all important decisions in the innovation process are made dependent on (top) management´s agreement a time delay will result. Therefore decisions need to be delegated to the innovation team in order to avoid these delays and enable Fast Innovation. The consent of (top) management is in this case only required at the milestones or gates of the innovation process. The members of the innovation team should be available to the team with 100% of their time in order to get the innovations to market as quickly as possible.
Nowadays most companies use innovation teams for innovation management. The degree to which decisions are delegated to the teams and the degree of availability of the members for the innovation teams differ, however. Big companies such as Toyota, P&G, 3M, IBM, Sony, Whirlpool and others typically have fully dedicated innovation teams with 100% availability of their members..
2. Integration of R&D into the Business Units
The organizational integration of the majority of R&D into the business units makes innovation management more effective. It fosters the collaboration with the other departments of the business unit and the orientation towards the customer (customer pull) in lieu of an exclusive focus on the technology (technology push). Furthermore it improves the preconditions for Fast Innovation.
At the end of 2003, the innovation machine 3M restructured its innovation organization and decentralized its R&D organization along these lines. Consequently, 3M´s technicians got closer to the business and the market. 400 members of 3M´s central laboratory were assigned to the divisional labs. Simultaneously, the heads of the divisional labs who until then had a direct reporting line to the Senior Vice President, Research & Development got an exclusive direct reporting line to the divisional heads. Honeywell, too, restructured its R&D organization in a similar way at the beginning of this decade. Honeywell´s big R&D organization was broken up into four labs. Each of these labs was assigned to one of the four Honeywell divisions – Aerospace, Transportation Systems, Speciality Materials, and Automation and Control Solutions. This organizational structure of innovation management was designed to facilitate Fast Innovation.
3. Co-Location of Teams and Departments
Although we are living in a time of powerful electronic communication, the organization structure of co-located teams and co-located divisional departments maintains at least the same relevance as formerly. Co-Location fosters the integration of teams and departments and a free-flowing communication. By locating all innovation team members and relevant departments of a division in the same place, companies can make sure that everybody hears the same thing at the samte time. This way information does not get distorted. Spontaneous communication and exchange of ideas are facilitated. Co-location raises the probability that in the management of an innovation the necessities of the market-place and of the technology are simultaneously taken into consideration, and that the innovation gets to market faster.
Procter & Gamble is a fervent supporter of Fast Innovation and of organizing for innovation via co-location. So is Google. And IBM and Sony as well, even for globally composed teams. Under IBM´s leadership e.g. the IBM-Sony-Toshiba „Cell Chip“ Team, which comprised 400 team members and was charged with developing, amongst others, the high-performance chip for Sony´s Playstation 3, was located in one place, at IBM´s Sony-Toshiba-IBM (STI) Design Centre in Austin, Texas.
4. Central Innovation Teams
The management of disruptive innovations, and the management of innovations that will result in a new category or a new market or that will cut across multiple categories often necessitates the use of central innovation teams that are not assigned to individual divisions. Such a central innovation team then reports to a manager at the corporate headquarter. As an alternative organizational structure of innovation management central innovation teams are established at the divisional level, and they will report to the head of the division, and not to to the head of an individual category, product group or brand. Such central teams are mainly utilized in cases when the motivation and ressources of individual divisions, categories, product groups or brands are insufficient in order to get the respective innovation to market with maximum effort and at maximum speed despite the daily pressure and distraction from the established operation. In such cases an organizational structure of innovation management which allocates the responsibility for getting the innovation project off the ground to a central innovation team and thus enables Fast Innovation is superior to a decentralized project organization. For a successful innovation management it is, however, important that the innovation project from its very beginning has a division, category, product group or brand assigned as its sponsor and “home” for future commercialization.
Procter & Gamble has an organization of central innovation teams at the corporate level which goes by the name Future Works. At the business unit level its central innovation teams belong to the New Business Development Organization.
5. Central Innovation Funds
The innovation projects which later will be led by central innovation teams in most cases need a special budget to get funded because the divisions shy away from making funds available given the typically high risk of such projects. Without a central innovation fund these innovations would not be launched fast, if they would get to market at all. Fast Innovation would be impossible.
P&G has established the P&G Corporate Innovation Fund (CIF) for such purposes which provides financing for the development of disruptive innovations and of new businesses. P&G´s innovative Crest Whitestrips were, for instance, seed funded by the CIF. Also GE´s CEO disposes of a central Venture Fund that is to finance so-called „Imagination Breakthroughs“, i.e. innovations with expected incremental annual sales of at least 100 million US$. When Whirlpool´s CEO decided around the turn of the century to transform his company into an innovation champion he as a first step established a central seed fund and, additionally, seed funds for each of Whirlpool´s regions in order to quickly test new ideas by means of prototypes in the spirit of Fast Innovation. Hewlett-Packard´s innovation management possesses a central innovation fund called Innovation Program Office (IPO) which has a mission similar to P&G´s Corporate Innovation Fund. Honeywell´s innovation management, too, has a central innovation fund which they name Honeywell Growth Board. At the divisional level Honeywell funds its central innovation teams via its Venture Funds.
6. External Interface for Open Innovation
Open Innovation is a core strategy of innovation management in order to get innovations to market more rapidly and enable Fast Innovation. In order to execute Open Innovation and to channel external solutions and ideas into the company, innovation management needs an effective external interface.
For this purpose P&G has established its External Business Development Organisation and its Connect & Develop Organisation. The Mission of these departments is to realize the innovation potential, which slumbers in the outside world, via the development of external networks. Not the least because of its Open Innovation P&G has dramatically increased its innovation speed. An innovation which in the past would have taken there years or more to get to market these days can be rolled-out globally within 18 months. DuPont, too, has an external interface such as P&G´s which it calls DuPont Ventures.
7. Merger & Acquisition Department
A special organizational structure of managing for Fast Innovation via Open Innovation is the M&A department which is involved in the acquisition of innovative companies. Via acquisitions an enterprise can significantly strengthen its innovation management, and can be in the market-place with innovations much faster.
The role model for this M&A strategy of innovation management is Cisco. Since its first acquisition in 1993, Cisco up to now has acquired 126 mostly young companies. Most high-tech companies own strong M&A departments in order to accelerate their innovation activities in the spirit of Fast Innovation. So do e.g. Google, Microsoft and IBM.