The Innovation Machine
The Organizational Structure of Innovation: How
Toyota, Procter & Gamble , GE, 3M, IBM,
Google, Microsoft, Sony, Hewlett-Packard,
DuPont, Honeywell, Whirlpool and other best-ofclass companies manage Fast Innovation
Adapted from Die Innovations-Maschine, 2008
by Dr. Rolf-Christian Wentz, Lecturer at the University of Hamburg,
Germany, in Innovation Management and Marketing.
Dr. Wentz makes the important point that the
emphasis in recent years on the process organization
of innovation has overshadowed the crucial
importance of the organizational structure of
innovation management within enterprises admired as
“Innovation Machines.” His book seeks to redress this
imbalance. He proposes a very useful typology of
seven successful structures for management and
organization of Fast Innovation.
Can the organizational structure of a company contribute to the
acceleration of the innovation management in the spirit of Fast
Innovation? The innovation machines Toyota, Procter & Gamble, GE,
3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont,
Honeywell and Whirlpool answer this question in the affirmative. In
addition to an effective and efficient innovation process they have
adopted an organizational structure of innovation that enables them
to launch innovations faster.
In organization science we distinguish between process organisation
and organisation structure. Over the last few decades the process
orientation of enterprises has continuously gained priority.
Accordingly, in the context of innovation management the innovation
process and its optimization received maximum attention, above all
also in relation to the question how innovations can be launched into
the market-place more rapidly in the spirit of Fast Innovation. Due to
this, the organizational structure of innovation management receded
a bit into the background. Which is not justified.
The innovation machine Toyota as well as Procter & Gamble , GE,
3M, IBM, Google, Microsoft, Sony, Hewlett-Packard, DuPont,
Honeywell and Whirlpool have adopted an oranizational structure of
innovation that significantly facilitates Fast Innovation.
They have taken the following seven key actions in order to structure
their innovation management and organization for Fast Innovation:
1. Delegation of Decisions to Innovation Teams
Despite best intentions, if all important decisions in the innovation
process are made dependent on (top) management´s agreement a
time delay will result. Therefore decisions need to be delegated to the
innovation team in order to avoid these delays and enable Fast
Innovation. The consent of (top) management is in this case only
required at the milestones or gates of the innovation process. The
members of the innovation team should be available to the team with
100% of their time in order to get the innovations to market as quickly
as possible.
Nowadays most companies use innovation teams for innovation
management. The degree to which decisions are delegated to the
teams and the degree of availability of the members for the
innovation teams differ, however. Big companies such as Toyota,
P&G, 3M, IBM, Sony, Whirlpool and others typically have fully
dedicated innovation teams with 100% availability of their members..
2. Integration of R&D into the Business Units
The organizational integration of the majority of R&D into the
business units makes innovation management more effective. It
fosters the collaboration with the other departments of the business
unit and the orientation towards the customer (customer pull) in lieu
of an exclusive focus on the technology (technology push).
Furthermore it improves the preconditions for Fast Innovation.
At the end of 2003, the innovation machine 3M restructured its
innovation organization and decentralized its R&D organization along
these lines. Consequently, 3M´s technicians got closer to the
business and the market. 400 members of 3M´s central laboratory
were assigned to the divisional labs. Simultaneously, the heads of the
divisional labs who until then had a direct reporting line to the Senior
Vice President, Research & Development got an exclusive direct
reporting line to the divisional heads. Honeywell, too, restructured its
R&D organization in a similar way at the beginning of this decade.
Honeywell´s big R&D organization was broken up into four labs. Each
of these labs was assigned to one of the four Honeywell divisions Aerospace, Transportation Systems, Speciality Materials, and
Automation and Control Solutions. This organizational structure of
innovation management was designed to facilitate Fast Innovation.
3. Co-Location of Teams and Departments
Although we are living in a time of powerful electronic communication,
the organization structure of co-located teams and co-located
divisional departments maintains at least the same relevance as
formerly. Co-Location fosters the integration of teams and
departments and a free-flowing communication. By locating all
innovation team members and relevant departments of a division in
the same place, companies can make sure that everybody hears the
same thing at the samte time. This way information does not get
distorted. Spontaneous communication and exchange of ideas are
facilitated. Co-location raises the probability that in the management
of an innovation the necessities of the market-place and of the
technology are simultaneously taken into consideration, and that the
innovation gets to market faster.
Procter & Gamble is a fervent supporter of Fast Innovation and of
organizing for innovation via co-location. So is Google. And IBM and
Sony as well, even for globally composed teams. Under IBM´s
leadership e.g. the IBM-Sony-Toshiba „Cell Chip“ Team, which
comprised 400 team members and was charged with developing,
amongst others, the high-performance chip for Sony´s Playstation 3,
was located in one place, at IBM´s Sony-Toshiba-IBM (STI) Design
Centre in Austin, Texas.
4. Central Innovation Teams
The management of disruptive innovations, and the management of
innovations that will result in a new category or a new market or that
will cut across multiple categories often necessitates the use of
central innovation teams that are not assigned to individual divisions.
Such a central innovation team then reports to a manager at the
corporate headquarter. As an alternative organizational structure of
innovation management central innovation teams are established at
the divisional level, and they will report to the head of the division,
and not to to the head of an individual category, product group or
brand. Such central teams are mainly utilized in cases when the
motivation and ressources of individual divisions, categories, product
groups or brands are insufficient in order to get the respective
innovation to market with maximum effort and at maximum speed
despite the daily pressure and distraction from the established
operation. In such cases an organizational structure of innovation
management which allocates the responsibility for getting the
innovation project off the ground to a central innovation team and
thus enables Fast Innovation is superior to a decentralized project
organization. For a successful innovation management it is, however,
important that the innovation project from its very beginning has a
division, category, product group or brand assigned as its sponsor
and “home” for future commercialization.
Procter & Gamble has an organization of central innovation teams at
the corporate level which goes by the name Future Works. At the
business unit level its central innovation teams belong to the New
Business Development Organization.
5. Central Innovation Funds
The innovation projects which later will be led by central innovation
teams in most cases need a special budget to get funded because
the divisions shy away from making funds available given the typically
high risk of such projects. Without a central innovation fund these
innovations would not be launched fast, if they would get to market at
all. Fast Innovation would be impossible.
P&G has established the P&G Corporate Innovation Fund (CIF) for
such purposes which provides financing for the development of
disruptive innovations and of new businesses. P&G´s innovative
Crest Whitestrips were, for instance, seed funded by the CIF. Also
GE´s CEO disposes of a central Venture Fund that is to finance socalled „Imagination Breakthroughs“, i.e. innovations with expected
incremental annual sales of at least 100 million US$. When
Whirlpool´s CEO decided around the turn of the century to transform
his company into an innovation champion he as a first step
established a central seed fund and, additionally, seed funds for each
of Whirlpool´s regions in order to quickly test new ideas by means of
prototypes in the spirit of Fast Innovation. Hewlett-Packard´s
innovation management possesses a central innovation fund called
Innovation Program Office (IPO) which has a mission similar to
P&G´s Corporate Innovation Fund. Honeywell´s innovation
management, too, has a central innovation fund which they
name Honeywell Growth Board. At the divisional level Honeywell
funds its central innovation teams via its Venture Funds.
6. External Interface for Open Innovation
Open Innovation is a core strategy of innovation management in
order to get innovations to market more rapidly and enable Fast
Innovation. In order to execute Open Innovation and to channel
external solutions and ideas into the company, innovation
management needs an effective external interface.
For this purpose P&G has established its External Business
Development Organisation and its Connect & Develop
Organisation. The Mission of these departments is to realize the
innovation potential, which slumbers in the outside world, via
the development of external networks. Not the least because of its
Open Innovation P&G has dramatically increased its innovation
speed. An innovation which in the past would have taken there years
or more to get to market these days can be rolled-out globally within
18 months. DuPont, too, has an external interface such as P&G´s
which it calls DuPont Ventures.
7. Merger & Acquisition Department
A special organizational structure of managing for Fast Innovation via
Open Innovation is the M&A department which is involved in the
acquisition of innovative companies. Via acquisitions an enterprise
can significantly strengthen its innovation management, and can be in
the market-place with innovations much faster.
The role model for this M&A strategy of innovation management is
Cisco. Since its first acquisition in 1993, Cisco up to now has
acquired 126 mostly young companies. Most high-tech companies
own strong M&A departments in order to accelerate their innovation
activities in the spirit of Fast Innovation. So do e.g. Google, Microsoft
and IBM.