An increasing number of companies, including Apple and 3M, report that 50% or more of their turnover is generated by products that did not exist 3-5 years ago.
Continuous Innovation requires the ability of organizations to continuously change, either in business models, processes or organizational structure or technical capabilities. Because of this, from a managerial perspective, innovation is a paradox. Businesses are most profitable when they operate in a steady environment in which processes are optimized for maximum efficiency. Change introduces switching costs and learning costs and has a negative influence on efficiency and thus profitability. Yet, in a world where the market and environment change at rapid pace and technology introduces a constant stream of new opportunities and threats, simply striving for efficiency is no longer a long term strategy in itself. Such a strategy assumes that the organization can remain unchanged, while it cannot. The answer then is to create an organization that is structured in such a way that it can embrace change within its existing structure and that can, when required, change quickly while remaining effective and as efficient as possible. This is the definition of an Agile organization.
Background
Creating a single organizational structure that allows continuous organizational change seems a contradiction in terms. The goal is not to create continuous organizational change but to create an organization that can continuously innovate. There are three key aspects to creating an organization that can continuously innovate:
- Leadership creates an ambidextrous organization
- Adopt Agile ways of working
- Foster lean change capabilities
Leadership in an Ambidextrous Organization
Continuous Innovation requires organizations to strive to become ambidextrous organizations: organizations that have the ability to simultaneously pursue incremental improvement and innovation through formal, sometimes contradictory organizational structures and processes (and even cultures) within the same firm. The purpose of such ambidexterity is to create a single entity that will automatically adapt to change (respond to threats as well as capture opportunities) without having to reorganize to every instance of change. On a managerial level, the primary discipline to manage such ambidexterity is in portfolio management. Portfolio management should be performed in such a way that innovations can fluently drive changes in business models, technical architecture, organizational structure, and operational goals. Such fluency exists when discrepancies and contradictions between innovative initiatives and running business are managed as a single portfolio where the cost of delay (the combined value of business value, time criticality, potential risks, and opportunities) of each item is weighed evenly. In such weighing, innovative growth targets, while returning only small revenue, may outweigh existing business opportunities with large revenues.
For most organizations trying to achieve ambidexterity, the primary organizational change is not a structural one, but a change in the mindset of the governing bodies. The biggest change required is the transformation of leadership’s goal setting and acceptance of the fact that ambidextrous organization leads to a more intricate flow of information for decision making (most notably, innovations are prioritized in the portfolio on other than financial criteria) and therefore require more interactions between strategic management and portfolio management. To aid in this communication, Lean/Agile Portfolio Management methods greatly add to the transparency and efficiency of this process and should be adopted.
Two key topics in the realization of ambidexterity:
- Use Lean Portfolio Management and WSJF to integrate scaled innovations in the existing change portfolio
- CIB and strategic leadership drive the embedding of the innovation by prioritizing changes in architecture, processes, capabilities, and partnerships
Adopt Agile ways of working
Agile organizations do away with the idea that the company’s process is stable. They do not strive for efficiency by grouping people with similar expertise per process step (ie. a purchasing department, a sales department etc.). Instead, they strive for adaptiveness by grouping people with different skills in teams, focus these teams to work on end-to-end value streams (ie customer journeys, markets etc.) and then carefully prioritize the work that is done by the team. Although the work performed per employee is likely less efficient than in functional organizations, Agile organizations can very quickly adapt to new requirements or changing market conditions and significantly increase the speed at which output is produced. In increasingly digitized environments, such adaptiveness and speed are required even to keep up with market developments. In Continuous Innovation environments, the speed and agility of the organization are not limited to the level of operational teams but should extend to the entire organization, including strategy development and governance.
At the strategic level, specific attention is required to the translation of strategy into execution. In the COIN framework, in the Ideation Phase, there is a clear link between the strategic goal setting to direct innovation effort and the feedback from innovation level to strategy. In order for strategy development to effectively act on these links and feedback an Agile strategic framework, such as OKR’s or OGSM is used to quickly and effectively translate innovation objectives to operational execution. Such speed is important as innovations are executed in short-cycled iterations that require instant feedback and guidance from management. The strategic framework should drive the change portfolio and expect measurable Key Results on each iteration of change.
In a digitized world, rapid embedding of innovations in the organization creates a significant competitive advantage. This is why the primary organizational model should be aimed at the rapid adoption of change. Agile organizations move away from creating efficiency in task-oriented silos, such as a marketing- or sales department, to multidisciplinary teams with a specific end-to-end value stream focus, such as a customer journey or market. This organizational design allows teams to adapt to changes in unison throughout the value stream. Value stream-oriented teams (and teams-of-teams) are capable of handling changed priorities from corporate portfolios and also allow for the quick adaptation to key learnings from the market. Especially when value stream-oriented teams enjoy a high degree of decentralized decision-making, the speed of adoption to change becomes extremely powerful in creating a continuous innovation environment.
Foster Lean Change Capabilities
As important as it is to create leadership that facilitates an ambidextrous organization it is important to foster operational level change capabilities. Hierarchy significantly slows down innovation. The objective then is to create a reliable, innovation-oriented change capability at the operational level of the organization. There are many ways of achieving this kind of change capability. At the innovator level, there are well-known enablers such as the Google Friday or Adobe Kickbox. Although they are pivotal in achieving a culture of innovation, such initiatives should be supported by the transversal capabilities of the organization, such as HR, Workplace IT, Facility management etc. to facilitate the changes required for and caused by the innovations that are developed throughout the organization.