- Structural barriers are very hard to overcome because of rigid hierarchical desicion-making structures
- Hierarchical an flat decision-making structures both have advantages and disadvantages.
- Hierarchical decision-making structure increases bureaucracy and costs and slows down change. It does however, motivate employees to do their job well and turns them into specialists in certain fields.
- Flat decision-making structure can create confusion about who has the decision-making power and creates generalists instead of specialists, but improves communication, reduces budget costs and makes decision-making faster and easier.
- One approach to handling innovative and/or collaborative projects is to appoint an internal innovation/success champion with budgeting and decision-making abilities, who is the key person to contact by anyone with an interesting idea.
- Innovation units can bring more agility to experimenting with innovation. For innovation units to work effectively, it’s crucial that the operations of these units are in line with the common corporate goals.
- Tips for Corporations
Structural barriers are very hard to overcome, especially in well established corporations. This is due to their rigid hierarchical decision-making structures. Accenture’s research showed that the more an organization is verticalized, the longer it takes to approve decisions to start collaborations and partnerships, agree on investments or to plan mergers and acquisitions. When there’s no divided responsibility, those who make the decisions are farther away from the “ground workers” who may well be in the best place to actually judge the real need.
Sometimes these kind of rigid hierarchies can be the best result for an organization that values seniority over competence. In these cases, even when an employee has an initiative that is granted permission to carry out an innovative and/or collaborative experiment, they're less likely to do so. Why? Because of the presumption that their idea will be rejected by the personnel higher up. Organizations that use a matrix structure to host cross-functional projects and working teams can sometimes hinder collaboration by having too complicated decision-making structures. For example, if an employee is looking to present an idea and is unsure who is the manager (or managers), that have to sign it off.
How to handle innovative and/or collaborative projects then? One approach is to appoint an internal innovation champion or success champion who is the key person to contact by anyone with an interesting idea. If this innovation champion is also empowered with budgeting and decision-making abilities, they can very well help create successful collaborations for the company (of course giving the presenter of the idea some credit). What this approach does, is that it frees the crucial decision-making process that fuels innovation, while keeping the corporate structure intact. It’s essential that this innovation champion is a person who has the skills to navigate the organization and knows how the organization actually works – note, not how it says it works, and has the permission to take control and make things happen.
Then, there are innovation units. If the desire is to have more agility to experiment with innovation, a dedicated business unit for these types of processes, that has its own budget, is encouraged. However, innovation units can sometimes be counterproductive. This type of independence can in worst case scenarios, create more distance and rivalry between departments and affect the implementation of the applied innovation in an undesired way. For innovation units to work effectively, it’s crucial that the operations of these units are in line with the common corporate goals, ensuring that any implementation isn’t too much to lose track of the entire organizations needs.
As with these structural and strategic alignments, whatever changes are ultimately adopted that involve c-level management in their activities, the acceptance and support towards these changes is more likely and can help cut bureaucracy and speed up the decision-making. It is also absolutely essential for the management to reinforce an attitude of mutual respect, making it clear that as it is absolutely necessary to involve innovation into the organization, innovation teams and unites rely on the rest of the organization for capabilities and profits to enable their existence. Technology can always fail, what matters the most is how you integrate it into your operations.
Tips for Corporations:
1. Perform a structural audit: Inaugurate an internal innovation champion, designate a whole new innovation team/unit or create an entirely new department that takes responsibility of internal innovation.
2. Partner-up: Consider partnering with dedicated external organization and corporate venture capitalists. If you don’t have experience and knowledge about working with startups, you’ll benefit from a partners experience and knowledge while making investments that have an impact.
Showing an example - Castrol
Castrol is a leading manufacturer, distributor and marketer of premium lubricating oils, greases and services related to automotive, industrial, marine and oil exploration & production company in the world. They operate in over 40 countries and employ about 7000 people worldwide. So what did Castrol, a representative of a fairly traditional industry, do to include innovation into their internal operations?
Castrol created a separate business unit to deal with startups. For a company like Castrol digitalization and the growing electric car sector presented a significant threat. Castrol realized they needed to innovate beyond their current level, and reach out to new markets and partnerships. This realization lead the management to create Castrol innoVentures, an independent global business unit that sources innovative solutions. This allows Castrol to venture into new strategic sectors, such as smart mobility technologies, sustainable energy solutions, advanced engineering and intelligent operations utilizing 3D printing and bigdata.
Castrol innoVentures has several essential features that enable innovation:
- First of all, it has a clear decision-making model. The management decided that this innovation unit reports to the VP of global Marketing who reports to the Executive Board. This ensures that startups are represented to the upper management and reduces the time it takes to make a decision about whether to collaborate with a startup or not.
- Flexibility and independence are ensured in the processes. Although the people working in the innovations unit are assigned KPIs and financial procedures, flexibility is given in other processes. Decisions regarding the structure and approach of the unit are decided in the unit itself.
- InnoVentures focuses on results. InnoVentures has a clear mission and mandate, that is to look for technologies and business partnerships that can possibly bring Castrol new revenue streams. The unit’s budget is based on the achievements and goals reached, which provides both a longterm mission but also a short term incentive to take on these activities.
- The formation of a separate business unit eliminated some internal barriers. InnoVentures addressed the procedural and structural barrier to startup collaboration. During the unit’s learning period they experimented and tested new approaches and ideas and found out what worked and what didn’t. Most importantly the senior management understood that this phase was irreplaceable and focused on a longer-term view over the company’s success. It should, however, be noticed that cultural and strategic barrier can still appear when the acquisition reaches the legal and purchasing units and should be addressed.