Innovation: Organization and Process
Scholar: Amy Halliday
Charlottesville, Va. — Executives in companies around the world want to make sure that the new ideas in their midst get a chance to turn into something-perhaps into the next big thing. Maybe they should flatten the organization or get rid of the stage-gate processes that weren't designed to vet seemingly far-out ideas. Or maybe there's a less radical way to make sure that radical ideas get the nurturing they require.
Darden Assistant Professor Raul Chao and Stylianos Kavadias, an associate professor at the Georgia Institute at Technology, have launched a field research project to explore innovation processes in large companies. Of particular interest to them is how companies decide which ideas to pursue, how to allocate resources among new-product initiatives, and how to deal with ideas that have no data to back them up. They are also interested in the relationship between new-product development processes and organizational structure.
The topic is not new to Chao and Kavadias. For about five years, the two have been using mathematical modeling techniques to examine companies' new-product-development processes and their resulting portfolio of new projects. The culmination of that quantitative work was a paper published in Management Science in May 2008, in which Chao and Kavadias explored the effects of complexity and instability on new-product efforts. They found that in corporate environments characterized by instability — in which the relative importance of the attributes that drive performance changes over time — an incremental approach to new-product development (introducing new offerings that are minor variations of existing ones) was the most suitable strategy. Environments of high complexity, in which the performance drivers influence one another, were well suited to radical innovations.
What is new to the researchers is an empirical, field-based approach. As Chao said, "We're still interested in the same basic question-how companies deal with new ideas and decide which to go after-but in this next phase of our research we want to look through a different lens." Among their very first site visits was 3M, where they interviewed people at various levels of this behemoth organization: R&D managers, scientists, division heads. 3M, Chao explains, needs breakthrough innovations to survive, but it must develop them from within its multilayered corporate structure. "This company is not about to completely reorganize itself for innovation-it's not about to flatten out the hierarchy," Chao says. "The people there are not about to paint the walls bright colors and put up basketball hoops," to inspire out-of-the-box thinking.
But in an organization filled with highly savvy technology professionals, new ideas naturally emerge. And division and business unit heads trying to meet ambitious growth targets need to pay attention to those developments. The company uses a traditional stage-gate process to vet many new-product concepts, which Chao and Kavadias say makes sense for the company's incremental projects — say, a new design for a Post-It note. Such projects make up the core of 3M's business. But most interesting to the researchers was what they observed outside of the stage-gate approach: an alternate set of processes that have evolved to deal with the needs of ideas that might not make it past even the first gate. These "mini-processes," as Chao and Kavadias call them, had not been mandated by Corporate; instead, in many instances an individual manager or two had taken the initiative to create them.
Take the example of internal venture capital. At many companies, a venture capital committee exists because the C-Suite formed it, but at 3M — which is divided into semi-autonomous businesses and divisions — a division head got together with his marketing and R&D heads to launch such a group. In time, others throughout the company heard about the group and began to approach it for resources to develop their ideas. Another example is a technology forum within 3M, which, again, was not a top-down effort; instead, a few people decided to meet on a regular basis to discuss the latest technological advancements and their possible applications. The group started out small and has grown through word of mouth.
Chao and Kavadias describe what they see at 3M as an "ecosystem for innovation." Managers have the freedom to organize however they need to in order to cultivate and protect fledgling ideas. And the processes they develop are allowed to coexist with the company's more-formal processes and structures. But as in any ecosystem, only the fittest will survive: the researchers expect that the mini-processes will last only as long as people find them to be useful.
How effective is this ecosystem? Are the mini-processes helping to nurture 3M's next breakthrough offerings? Should other companies consider this approach? Chao and Kavadias are planning to address these questions during subsequent visits to 3M. They are also planning to visit other large corporations to observe their innovation approaches. Ultimately, they hope to synthesize the insights from their earlier quantitative work with the fruits of their new field-based study. "Academia can make really useful contributions to business practice," Chao says, "if we can build bridges between researchers focusing on quantitative work and those who do most of their work out in the field."