An analysis on how companies can best structure for innovation.

1. STRUCTURING
FOR
INNOVATION
UNDERSTANDING HOW COMPANIES CAN
BEST APPROACH INNOVATION
TERM PAPER ANALYSIS FOR MANAGEMENT OF
TECHNOLOGY
By Mike Johnson – Spring Semester 2012

2. Agenda
 Why I chose this topic
 My experience and observations
 Innovation in Todays Companies
 Incremental, Radical and New Products
 Attitudes towards how to create innovation
 Typical structures to create innovation
 Examples of Success
 Key Insights
 A proposed model
 Additional Considerations

3. Why I chose this topic
My experience on innovation projects
Innovation Funnel
Leadershi R&
p Support D
Innovatio
n Team Meeting
s
(a lot)
Ideas
Radical Incremental Incremental
(low impact) (High impact)
Output
Never Usuall Rarely

4. How Companies View Innovation
My experience confirmed
What Companies Often What Companies
Say Typically Do
Only 27% state innovation is
Innovation is top 3 priority
formally integrated into their
towards growth
strategic planning process.
Focus primarily on developing
View “breakthrough” innovations
new products and services
would most impact performance
(Incremental)
Remain risk adverse at the top
Believe that accepting failure is a
which cascades down the
necessary means to innovation
organization
Believe that people and culture
Don’t incorporate innovation
are core drivers towards
metrics into performance reviews
innovation
Source: McKinsey Survey on Innovation 2007 (1)

5. Various Innovation Structures
And their characteristics
Centralized Decentralized Hybrid
26% 41% 32%
May have core
Innovation embedded
innovation team that
Core Innovation Team in business
pushes innovations
units/functions
through business units
Budgets may be
Dedicated innovation Budget are business shared between
budget unit specific innovation team and
business unit
More focused on Less focused on
Strategic direction
“game changing” “game changing”
typically centralized
innovations innovations
Source: Innovation Industry Pulse Poll (5)

6. Common Sources of
Innovations
Ethnography Technology
External
Research Changes
Sources
Internal Sources
Internal Employees
Brainstormin
g
Reactive
Customer Sales
Solutions
Market
Structure Macro
Changes Trends and
Shifts
Few companies create structures, processes and expertise
around innovating around external sources of innovation –
the typical source for break through innovations

7. The People Side of Innovation
40% of top managers state they do not have the right
kind of employees to foster innovation (1)
The Ideal
Innovation Talent
How many individuals like this
“Intrapreneur” mentality gravitate towards large
organizations?
Ability to turn ideas into
How many large organizations
commercialized products
provide a culture and capability
(innovation)
for this person to thrive?
Risk taker

8. Innovation Traits and Methods
What companies value
Key Skill Sets Key Activities
Forward-thinking (visionary) Brainstorming
Highly strategic and creative Collaboration
Big picture oriented Research
Cross communication
Project management
(knowledge sharing)
Are these truly the best skill sets and activities to harness
innovation?

9. Examples of Success
Compan Their Strategy
y
Integration of R&D into the business units to remain close
to the market. Develop “pull” based solutions
Everyone is an innovator – Allowing employees to
dedicate 20% of their time to self-directed projects to spark
innovation.
Super centralized approach dedicates funds and decision
making to dedicated innovation teams. Speed to market is
their aim.
Pure passion, focus and excellence. The long benchmark
for innovation, Apple has succeeded in innovation with a
formula hard to duplicate. A founding CEO’s passion and
vision, focus on excellence and the next big thing. At Apple,
Radical innovations are the expectation, not a “nice to
have”.
Source: The Organizational Structure of Innovation (4)

10. Innovation Traits and Methods
Key Insights
Research has called into question the value of
collaboration and teams as a means to innovation
creation (7)
“Work alone. Not on a committee, not a team” – Steve Wozniak on
Invention
Key Insight #1
Innovation is the commercialization of an
invention. Companies may need to rethink the
approach of attacking both of these
components as a team sport. There may be
tremendous value of singular focus on the
invention of potentially innovative solutions.

11. Innovation Traits and Methods
Key Insights
The sources and risks of radical innovations are very
different than those of incremental ones.
Key Insight #2 Radical
Increment
al
If companies wish to do a better Externally Internally
job of identify and leveraging Driven Driven
radical innovations, they must Competency Competency
acknowledge how different they Mitigating Enhancing
are from incremental ones. This
Outside
may warrant structuring Internal
expertise
innovation resources for radical expertise OK
need
innovations differently.
Higher risk Lower risk
tolerance tolerance

12. Innovation Traits and Methods
Key Insights
The skill sets needed to identify, invent and
commercialize an innovation may be notably
different.
Key Insight #3
Companies may need to structure their innovation approach
around the three very different phases of innovation.
Identification. Development and Commercialization. Many
companies center their innovation teams around forward
thinking, customer oriented professionals. These teams may be
strong at identifying research/ethnography based innovations,
but weak at recognizing technology driven.

13. Innovation Traits and Methods
Key Insights
Asking internal innovation teams to identify
tomorrow’s disruptive technologies that will mitigate
the competencies they’ve built around can create
blinders.
Key Insight #4
Companies serious about identifying and
leveraging disruptive (radical) innovations may
have to adopt spin off or isolation strategies to
ensure current competencies do not interfere
with future innovation opportunities.

14. The Solution
A Model Structure (proposed)
External Inputs
Technology and Market Changes
Macro Trends and Shifts
Radical
Business Innovation
Incremental
Unit Level Team
Innovation Team
Inputs Internal Location
External Location
Independent Budget
Independent Budget
Report direct to C-
Customer Internal development
Suite
needs Internal reporting
External
structure
Development
New products
Company Level Inputs
Innovation a part of all associates responsibility
Self directed projects (Google 20% rule)

15. The Solution
A Model Structure (proposed)
Benefits
• Multiple sources of innovation
• Focused innovation teams based on
differing sources and needs for
radical and incremental innovation
• Innovation embedded in culture at all
levels
• Radical innovation externally focused
• Centralized decision making and
budget to encourage speed to market
• Customer needs remain in forefront
for incremental innovation and BU
teams
• Dedicated resources to innovation
teams

16. Additional considerations
Additional Considerations when Structuring for
Innovation
No one size fits all
Industry considerations (Mature vs. Emerging)
Resources and capability (financial, people, culture)
Company size
Competitive landscape

17. Questions?
Mike Johnson
Johnsonmikec@gmail.com

18. Sources
1. Barsh, Joanna, Marla Capozzi, and Lenny Mondonca. "How Companies
Approach Innovation: A McKinsey Global Survey." Mckinseyquarterly.com. The
McKinsey Company, Oct. 2007. Web. 29 Apr. 2012.
<https://www.mckinseyquarterly.com/How_companies_approach_innovation_A_Mc
Kinsey_Global_Survey_2069>.
2. Bessant, John, Kathrin Moslein, and Bettina Von Stamm. "In Search of
Innovation."WSJ.COM. Wall Street Journal, 22 June 2009. Web. 29 Apr. 2012.
<http://online.wsj.com/article/SB10001424052970204830304574133562888635626.
html>.
3. "8 Ways to Foster Innovation in Your Company." Inc.com. Inc Magazine, 16 Apr.
2010. Web. 29 Apr. 2012. <http://www.inc.com/guides/2010/04/fostering-innovation-
in-companies.html>.

19. Sources
4. Wentz, Dr. Rolf Christian. "The Organizational Structure of Innovation: How
Toyota, Procter & Gamble , GE, 3M, IBM, Google, Microsoft, Sony, Hewlett-
Packard, DuPont, Honeywell, Whirlpool." The-innovation-machine.com. 20 Apr.
2007. Web. 29 Apr. 2012. <http://www.the-innovation-machine.com/?p=83>.
5. "Survey Reveals Corporations with Centralized Innovation Departments More
Likely to Have Focused Efforts." Pitchengine.cm. InnovationEdge, 2011. Web. 29
Apr. 2012. <http://www.pitchengine.com/innovationedgellc/survey-reveals-
corporations-with-centralized-innovation-departments-more-likely-to-have-focused-
efforts>.
6. Christensen, Clayton M. The Innovator's Dilemma: When New Technologies
Cause Great Firms to Fail. Boston, MA: Harvard Business School, 1997. Print.
7. Cain, Susan. Quiet: The Power of Introverts in a World That Can't Stop
Talking. New York: Crown, 2012. Print.