The structure of an organization has a direct impact on its progress. Understanding how innovation plays a huge part in the growth and success of many companies, innovation, therefore, must be a primary concern of organizational creation.
But how exactly does organizational structure affect innovation? And how can we design a system that promotes employee engagement for better innovation performance?
In this article, you will learn the connection between organizational design and innovation, particularly why organizational structure is fundamental to the success of a company’s innovation process.
Let’s start.
The Connection Between Organizational Design and Innovation
Innovation fosters competitive advantage and growth.
Organizational structure, on the other hand, consists of interrelated elements (such as tasks and responsibilities) that would help accomplish the objectives of an organization. It modifies the flow of information and the work within the company.
Innovation results from the collective efforts and ideas of an organization, so their ability to innovate is reflected in their creative use of resources and technologies.
Ideally, every project starts off with a spark of creativity. But then, successful innovation is led by structure, not creativity.
In other words, when it comes to innovation, an idea is responsible for only 1% of the solution, while the other 99% comes from the innovation team and the investments done by the organization in terms of time, money, and persistence.
Moreover, an organization’s culture also defines its innovation success, especially when combined with the best strategies. A company’s innovation success affects how it comes across unique opportunities and challenges that may alter its managerial norms and practices.
Structural Archetypes and Innovativeness
The organizational structure of a company affects its managerial choices and market opportunities.
When a structure is created in a manner where people feel motivated and valued, innovation performance may skyrocket with the immense recognition and support that employees receive from the management.
As organizations are built around structure and strategy, companies are more likely to achieve better innovation performance with a fully engaged workforce. Innovation tasks are carried out well, and decisions are made smarter.
Provided how some organizational types are geared to minimize transaction costs and thrive despite potential market failures, employees that engage in every innovation measure of the enterprise yield strategic choices in response to market opportunities.
This only means that modifying organizational structures may help in innovation success, especially within specific product markets. But at the same time, this may also limit a company’s ability to venture into new competencies.
Strategy and structure, when combined, can also determine the competitive advantage of a business enterprise. Innovative businesses go beyond the limits by breaking technological and market constraints by developing particular organizational capabilities that are hard to imitate.
Specifically, innovative businesses:
- Give their key decision-makers the knowledge, power, and incentives to direct the firm’s resources, especially when approaching market threats and opportunities.
- Apply organizational integration, where both horizontal and vertical integration of skills and knowledge are applied to foster cumulative learning.
- Allocate an adequate part of their budget for competence development in an effort to see cumulative innovation through.
Organizations with open networks drive innovative capabilities by combining entrepreneurial and technical skills. In essence, this only means one thing:
Organizational and managerial processes, like learning, integrating, and reconfiguration, are essential in a company’s innovative performance.
What are innovation engagement levels?
Innovation is performed best when collaboration is practiced.
To explain this further, here is an image that depicts the different types of innovation engagement levels:
1. Bottom-Up
In a bottom-up engagement level, innovative ideas come from employees.
Asking them for ideas isn’t necessarily a bad thing by itself. However, what usually happens in this kind of setup is that ideas are often not aligned with the strategic goals of the organization.
As a result, the employees aren’t given the resources that they need for these ideas to be executed.
2. Top-Down
On the other hand, a top-down engagement level occurs is when ideas come from the management and are given to the employees for execution.
Consequently, these ideas might not be aligned with the business. Plus, with only the management participating in the brainstorming process, employees might not feel involved as much, so execution will probably be non-optimal.
3. Hybrid
However, once these two engagement levels meet, the management determines the strategic domains and employees can contribute ideas, so ideas end up aligned with the firm’s strategy.
Hence, the company’s innovation performance peaks.
The Theory of “The Innovative Enterprise”
Companies want to create goods and services out of productive resources and sell them to generate revenues. In the process, businesses must engage in strategy, organization, and finance for these goods and services to be made and sold.
Strategy, Organization, and Finance
This is what the theory of innovative enterprise is all about:
The strategy involves the proper distribution of resources to investments in enhancing the capabilities of both employees and the products to be able to compete strongly for the company’s chosen product markets.
Meanwhile, the organization refers to the people who create the necessary product or technology and tap into the markets needed to transform the given resources into value-creating products that customers would be willing to pay for a certain price.
Finance involves generating the funds that are required to sustain the entire process of making products and technologies along with accessing markets for strategic investments until financial returns are obtained.
Once room for improvement is sought, there are three social conditions that businesses must maintain to create higher quality products at lower unit costs in comparison to the ones that they have previously made.
These social conditions are strategic control, organizational integration, and financial commitment.
1. Strategic Control
In order for innovation to be successful, companies must strategically allocate a portion of their resources in securing and transforming productive resources into robust products, services, and technologies.
The social condition applied in this instance is strategic control:
A group of relations that provide decision-makers with the ability to provide a part of the organization’s resources in approaching the risks and uncertainties that are inevitable in the innovation process.
People who are positioned with this type of power must be knowledgeable in the present innovative capabilities of the enterprise as they drive strategic investments when exercising allocative control.
Moreover, the interest of the business must be prioritized in gaining and maintaining the firm’s competitive advantage over its rivals in the industry.
2. Organizational Integration
The second social condition is organizational integration. It is applied when an innovative strategy is implemented.
It’s the collective aspect of innovation that combines the skills, knowledge, and efforts of everyone in the company to accomplish strategic objectives and for satisfaction in terms of work, promotion, and benefits to inspire creativity and hard work.
Employees must also engage in continuous learning. Upgrading their knowledge and skills benefits the business.
3. Financial Commitment
Funds are necessary to sustain employee retention and learning.
Once all of these are applied in the business, the company can confront the uncertain, collective, and cumulative aspects of the innovation process.
Conversely, innovation is also collective because companies must creatively unify the knowledge, efforts, and skills of people with various tasks, functions, and responsibilities.
Lastly, innovation is cumulative as it is a process of continuous learning and improvement. It has an evolutionary nature that applies little improvements from time to time in the products, processes, and pre-existing activities of the enterprise.
Why Innovation in the Organization Fails
As mentioned before, innovation is imperative for the success and survival of the business. In a fast-paced environment, innovation is required for any organization to thrive in the market and gain a competitive advantage over others.
However, in relation to structure, some organizations fail in their innovation ventures because of two reasons:
1. They lack innovation structure and processes.
When firms do not have structure and process in their innovation strategy, it would be difficult for them to obtain great and tangible results.
This is because they lack the framework to assess the advantages and drawbacks of innovation projects. Before the implementation process, a thorough assessment and analysis are needed to determine the success of a certain project.
2. They lack internal communication.
Second, in an attempt to be efficient, modem companies have grouped themselves into specialized departments that operate as silos. An enterprise that does this has poor internal communication, so necessary ideas and information are left unshared.
Despite working hard, being isolated in groups can hinder collaboration. Unnecessary competition within departments may rise and internal fences will be established. Once input is required from all departments, internal communication and collaboration must be implemented.
Could organizational structure be the secret to innovation?
Despite knowing that innovation is essential to survive in a highly competitive market, some organizations refuse to devise structures and reward systems that foster creativity. A lot of leaders also refuse to acknowledge the fact that culture breeds innovation.
Such practices result in a structure that does not motivate and encourage people to generate and pursue ideas that have the potential to be big.
Moreover, execution might not be as satisfactory as it should be. To solve this, employees must be allowed to work with something they’re comfortable with.
For instance, people who like doing creative work must be separated from those who like concentrating on operations. When both departments work together and are given enough motivation, resources, and credit, sustainable innovation happens.
Next steps: As businesses focus on results, office politics are avoided. Everyone is given an equal chance to share their ideas, giving every member of the organization the determination that they need to successfully generate and present their ideas.
Encourage collaboration within your organization by using Accept Mission to ensure strategic alignment, effective problem-solving, enhanced customer experience, effective work production, and improved team relationships for maximum innovation performance.
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