Building Structures to Innovate

by Leon Duval

The message is clear. Firms competing in dynamic environments must embrace processes for a re-engineering and innovation of their products and markets plus the capability by which these are identified, created and delivered. Such is the thrust of recurring themes about the pace of change, shortening lifecycles and the need for innovation appearing in management literature and various business publications.

A failure to recognise and manage the jordan femme inexorable pace of change within environments and competitive landscapes will catapult the organisation into a death spiral that may not be retrievable after its myopic management has been terminated and replaced by a new team appointed to restore competitive ability.

But is this really new? Humans have both confronted and facilitated change from time immemorial as have the management teams running organisations. Way back in 1955, Peter Drucker, recognising that nothing remains constant, warned management teams that to survive and succeed they must both master the
economic circumstances faced and embrace an imperative to alter them by “conscious, concerted action”.

He also exhorted management to always consider both the present and the long-range future:
“a management problem is not solved if immediate profits are purchased by endangering the long-range profitability, perhaps even the survival, of the company. A management decision is irresponsible if it risks this year for the sake of a grandiose future”

Observing that:
“In every case where present and future are not both satisfied, where their requirements are not harmonized or at least balanced, capital, that is, wealth-producing resources, is endangered, or destroyed”.

What Drucker could not foresee was the pace of change organisations would confront in the 21st century although the master did understand this long before most, and managing change through innovation emerged as a dominant theme in his later work.

Management theory recognises that organisational structure or “architecture” is shaped by the choice of strategy. This has given rise to the axiom that “structure follows strategy” also known more formally as the “standard conceptualization in management studies”.

It therefore follows that when strategy is fashioned to embrace and meet the challenges of dynamism the organisational architecture built to execute that strategy must accommodate an imperative that innovation is both supported and encouraged.

Three categories of innovation are commonly identified, two of which describe the continuous incremental changes required to maintain efficiencyduring the ordinary course of an organisation’s life. These are incremental innovation processes, when small improvements are made to existing products and operations, and architectural innovation processes, applying technological or process advantages to fundamentally change some component or element of the business.

These two innovation categories are mandatory if an organisation is to sustain competitive advantage within familiar or existing markets where an extant product offering is produced and delivered. They should also be viewed as problem oriented, devoted to rectifying short term problems and, therefore, distinguished from actions required to overcome the potential future cash flow deficits that would result from a total loss of competitive capability through the obsolescence wrought by external dynamics.

When the pace of change mandates moving out of comfort zones into new markets with new product in order to sustain competitiveness, a discontinuous change process is required i.e. innovation designed to meet the opportunities presented by strategic windows. Discontinuous innovation describes the radical advances that profoundly alter the basis for competition in the industry. It is innovation driving
fundamental change that by its nature mandates the creation of new and
often radically different organisational structures.

Its impact can be clearly understood when examined in relation to the quantum shifts in strategic direction periodically initiated by organisations in response to environmental changes. Most of the time, organisations pursue a particular strategic orientation and any change occurs within that context.

The external environment in which the organisation operates is, however, subject to changes, sometimes slowly but occasionally in dramatic shifts, forcing the existing strategic orientation to be moved out of sync with its environment. This disconnected state necessitates a revolutionary need for a quantum change process so as to realign organisational strategies with prevailing realities.

The diagram below illustrates the extent of the shifts required when selecting a strategy based on discontinuous innovation. The organisation is forced to venture from the comfort provided by familiarity with its core competencies in both markets and product offering and to shift its operations either into new products, new markets or both. When the organisation moves into new markets with new products the shift is, in effect, a quantum leap, and the level of innovation required would fall
under the discontinuous category involving high levels of uncertainty and
significantly raised risk profiles.

An outstanding example of discontinuous innovation was
undertaken by the United States navy in the 1950s when
a team led by Admiral Hyman Rickover developed the
nuclear power plants that allowed submarines to remain
submerged for extended periods. They achieved this breakthrough innovation by taking the technology that created the atomic bomb, a weapon of destruction, and
effectively transforming its applications for totally different purposes since the same designs were used also to create the first nuclear powered generating facilities.

Building organisations that embrace discontinuous innovation create a number of seemingly incompatible anomalies that need to be successfully reconciled before
the constant process of radical change is successfully absorbed into the structural fabric.

The first is the incompatibility in cash generation capability between structures supporting innovation and those supporting existing products and markets. Innovation, referred to as a process of explore in the literature, sucks up large quantities of cash before the new product or service is market ready. This cash
requirement is commonly serviced by the existing product range – the exploit capability – the result being that the organisation requires a structure capable of
supporting both explore and exploit activities. This is when real incompatibilities and tensions arise.

Building a culture focused on innovation must by its very nature tolerate an appetite for risk taking and allow creativity to flourish, whereas structures designed to
support efficiency and stability avoid excessive risk and strive for jordan femme reliability and conformity. In addition, innovation is fostered through experimentation and stimulated by failure, whereas if maximum value is to be extracted from existing capabilities, failure is discouraged and processes are tightly controlled by the introduction of highly standardised routines. The diagram below,
reproduced from an article published in the Harvard Business Review April 2004, clearly sets out some of the tensions and incompatibilities that need to be reconciled when attempting to sustain structures that are designed to exploit together with those designed to explore.

The solution offered is that of the ambidextrous organisation which provides a mechanism allowing seemingly incompatible components to be embraced
within one structure.

The word ambidexterity is derived from the Latin ambos, “both”, and “dexter”, right (as opposed to left) thus, ambidexterity is right on both sides. The ambidextrous organisation has a dual approach allowing for alignment and efficiency when managing today’s demands while at the same time being adaptable to changes. It has been designed to support innovation and the exploration of potential strategic windows while maintaining an effective cash generating capability.

By identifying and reconciling incompatibilities between the structures required for innovation and those that support a mature and stable cash generating capability,
it becomes a structural solution to meet the demands of dynamic environments in which constant discontinuous change is necessary.

What does an ambidextrous organisation architecture look like? The jordan femme diagram on page 7 clearly illustrates one example. It depicts two parallel organisation capabilities living within one corporate body. CoreCo focuses on the exploit capability and maintaining the existing cash flow generating structure, while NewCo, for which the raison d’être is future oriented, focuses on the opportunities
provided by exploiting the potential of strategic windows.

The critical difference between this model and simply putting in place two conventional structures lying side by side is the integration facilitated by the Executive Sponsor, who while ensuring the two structures are culturally and structurally distinct, ensures they are permanently linked. This is achieved by convincing CoreCo personnel that they should not view Newco as a threat to their future when emerging products and technologies threaten to replace existing ones.
They are encouraged to view NewCo as the structure guaranteeing a future and ultimately a future in which they will participate. This presumption encourages
CoreCo to support NewCo’s activities by offering resources for successful outcomes.

By the same token, NewCo personnel are encouraged not to reject the experience and history embedded in the processes and capabilities of CoreCo. Although
made to forget and break away from the strictures of the past they are encouraged to borrow and apply what is valuable in supporting their own focus.

The New York Times is a fascinating and topical case study illustrating this process of “forget” and “borrow”. After a very unsuccessful attempt to move into the online space with their masthead publication, management realised that print and digital were completely different media. Attempting to create a digital presence using a print media capability was found to be impossible because the resources
employed in this division were unable to forget the expertise that made them successful in their own conventional space. This myopia blocked the ability to
innovate and develop the knowledge required to create and sustain a very different news and communication medium.

Management then applied ambidextrous architecture principles to create a dual purpose organisation along the lines of the CoreCo, NewCo model. CoreCo continued to publish and innovate within the boundaries of print media, and NewCo was freed of the shackles that previously bound the digital personnel into sticking with convention and tradition. NewCo, however, had some enviable advantages over a conventional start up like the NYT brand name, direct access into news channels and existing data bases of advertisers. Although they were able to forget the
processes required for delivering print media they could borrow the intellectual property on which it had built its successful past.

There are many other models and approaches to the ambidextrous or dual purpose form. It is hoped that this brief introduction to a potential solution for building structures allowing inherent incompatibilities in design to be resolved will encourage further reading on the subject.

Drucker , P. F. (1968). The practice of management. Cavaye Place London, Pan Books Ltd in assoc with William Heinemann.

Govindarajan, V. and C. Trimble (2005). “Organisational DNA for jordan femme strategic innovation.” California Management Review 47(3): 47-76.

O Reilly I C A & Tushman M L (2004) The ambidextrous organisation Harvard Business Review(April, 2004): 74-81