In uncertain times, there is a clear need for organisations to optimise short term earnings and conserve funds. Yet research has shown that long-term returns are driven by differential growth, particularly in turbulent times. So, whilst your company may currently be enjoying success, merely continuing to exploit and optimize your current business model and value propositions will not sustain your growth and profitability over the long term.
Markets are in constant evolution, and customer preferences and behaviours continually changing, but the interconnectedness of the world today means big shifts occur with unprecedented rapidity. Layer on top of that paradigm shifting technologies unleashed with increasing frequency.
To avoid becoming irrelevant, you need an innovation strategy, together with an internal capability supported not only by demonstrable support from leadership but the right enabling structures to explore the new business models and value propositions that will secure advantage in a given future scenario.
The ability to simultaneously exploit existing capabilities and explore new opportunities, the ability to operate as an ambidextrous organisation, has for years been widely recognized as a critical capability in increasingly dynamic operating environments. Achieving the right balance between the seemingly contradictory goals of exploitation (requiring efficiency, optimization, and incremental improvement) and exploration (requiring innovation, experimentation, and risk-taking), has never been an easy task. Alongside visionary leadership, it has required developing an enterprise-wide culture of innovation, and implementing distinct enabling structures, defined resources and separate portfolio management.
A variety of approaches to structuring organisations to achieve such ‘ambidexterity’ have been experimented with, broadly categorised as centralised, decentralised and hybrid innovation operating models.
Centralized innovation operating models are typically characterized by a high degree of control and coordination, with innovation activities managed by a central team or department.
- Apple has a highly centralized structure for innovation, with design and development activities overseen by a small group of senior executives. This approach has allowed the company to maintain a consistent focus on user experience and design excellence, and to rapidly bring new products to market.
Decentralized innovation operating models, on the other hand, give more autonomy to individual teams or business units to pursue their own innovation initiatives.
- 3M adopted a decentralized approach to innovation. The company has a culture of encouraging experimentation and risk-taking, and employees are given significant autonomy to pursue their own ideas. This has led to a diverse portfolio of products and technologies.
Hybrid innovation operating models combine elements of both centralized and decentralized structures in an attempt to amplify the benefits of both structures while minimizing their drawbacks.
- Google has successfully implemented a hybrid structure for innovation. The company has a centralized team of engineers and designers who are responsible for developing new products and features, but also encourages decentralized innovation through initiatives such as "20% time," which allows employees to spend one day a week working on their own projects.
However, given the increasingly complex operating environment, and the need to embrace the possibility of multiple unknown potential future states, leading corporations are shifting from balancing execution and exploration to integrating them.
Ecosystem enabling innovation operating models can create synergies that improve the economics of innovation, significantly reducing the time between idea incubation and realization at scale. They optimise organisational learning and responsiveness in the face of multiple plausible futures, and accelerate the iterative process of innovation.
- Haier, the Chinese multi-national home appliances and consumer electronics company, is a notable and lauded example of a large corporation that pursued a novel, networked organisational structure that has enabled this integrated approach. Their Rendanheyi model has enabled their transformation from a hierarchical enterprise focused on manufacturing, to an entrepreneurial, ecosystem enabling platform where every employee is focused on the customer.
Haier's Rendanheyi model is the antithesis of hierarchical, bureaucratic models that have predominated for the last century. Everyone has direct contact with the customers. Haier has taken the decentralised innovation operating model and made it the central tenet of the whole organisation. Quoting Haier CEO Zhang Ruimin “In the Fourth Industrial Revolution, all employees will be value creators or entrepreneurs. This is the basic condition to meet the call of the times, and without self-organization, you will not be keeping pace.”
Of course, the most effective innovation operating model for your organisation will depend on your specific organisational context and ambition, as well as your existing capabilities and resources. For help, get in contact.