The complexities of innovation.

The complexities of innovation

1 November 2017

The article at a glance

Innovation isn’t as simple as choosing from a menu – it depends on a company’s organisational structure, says new paper co-authored by …

Innovation isn’t as simple as choosing from a menu – it depends on a company’s organisational structure, says new paper co-authored by Professor Stylianos (Stelios) Kavadias of Cambridge Judge Business School.

image of a complex structure (dots and lines) on a black background

Every company wants to be innovative, and this often translates into creating a portfolio of new product development (NPD) initiatives that will push the firm to new horizons. But the right choices depend on the company’s organisational norms and structures, says a new paper – “Organisational enablers for NPD portfolio selection” – published in IEEE Transactions on Engineering Management, the journal of the Institute of Electrical and Electronics Engineers.

Professor Stylianos Kavadias
Professor Stylianos Kavadias

Stelios Kavadias, Margaret Thatcher Professor of Enterprise Studies in Innovation & Growth and Director of the Entrepreneurship Centre at Cambridge Judge Business School, co-authored the paper with Dr Jeremy Hutchison-Krupat of the Darden School of Business at the University of Virginia.

Stelios Kavadias discusses the paper’s key findings:

Creating a new portfolio of product development initiatives isn’t like choosing from a menu at a restaurant

The right NPD portfolio for a company really depends on the organisational structure of the company, including incentives for innovation and how collaborative the firm is in terms of tasks. It’s certainly not one size fits all. Just like a restaurant, the chef first considers the availability of fresh produce in devising a dinner menu, a company should evaluate its governance rules and organisational norms before deciding on a list of initiatives to consider.

Companies assume they can benchmark their innovation developments against rival firms, but that’s futile unless they also take a hard look at their organisational structures

It’s the organisational architecture that’s a key enabler – or disabler – of the ability to pursue an initiative, particularly a risky initiative. It’s important to think about competitors in devising the possible direction of one’s innovation strategy, but that should include an evaluation of their inner workings as well as their customer offerings. Imitation can be the sincerest form of flattery, but it can also be a dead end if organisational structure doesn’t allow it.

Key parameters of innovation include the level of autonomy granted to individuals and the tolerance for failure

Typically, the penalty suffered by managers for product failure relates to stunted career path or not being involved in future development programmes. In practice, this often translates into a greater relative burden for the functional manager than for the firm itself. We argue that reducing the penalty for failure can prompt subtle but beneficial organisational alignment that can lead to sustainable results, combined with empowering the new product development leaders.

The failure of innovation initiatives is sometimes too easily blamed on individual managers

Blaming managers who are “too risk averse” or who “pursued their own objectives” rather than the firm’s – even if true – can be a smokescreen for not addressing the product development process itself. In such cases, hiring new people doesn’t fix the far deeper underlying problem.

The asymmetry of information between senior leadership and implementing managers impedes the potential to innovate

One strategy that senior management can pursue to counter this is take steps to reduce the exposure of functional project leaders to the downside of the risky initiatives undertaken. This means that any company effort to pursue radical or risky innovation initiatives requires a different mindset by senior management: not only freedom of decision making at the frontline, but also protection of the frontline executive managers from the downside.

There are big limitations to looking at innovation as a traditional “knapsack problem” in which the challenge is to choose the best initiatives from a company’s overall budget capacity

This approach ignores a very important aspect: portfolio decisions may originate as a top-down strategic directive but are in fact implemented at different levels of an organisation, and the knowledge to carry out this implementation is dispersed across various functions. Therefore, the structure of the executing organisation matters. So an initiative that may be feasible in some companies may not be feasible in any company.