In last week’s post, I’ve written about developing an innovation capability by establishing structures within the organization such as Centers of Excellence and Innovation Labs. On this week, I will refer to developing an innovation capability from a different approach, from within the organization.
As I have mentioned before, an excellent innovative organization should be flexible and adaptive in every part of it. To do so, it must have in-depth knowledge within each one of its functions (e.g. functional focus on engineering or marketing), and also in-depth knowledge transmission across functional and firm boundaries (e.g. scaling up new businesses).
However, as you can imagine, it is impossible to become an expert in both all the time. Hence, as elsewhere in the business world, companies decide to focus on only one of these capabilities and become an expert in that type of flexibility so it would become their core value proposition.
On this post I will explore further these organization’s ability to develop an innovation capability from within the organization in order to assist them in achieving their goals and objectives.
On this type of organizational structure there is a stronger emphasis on the functions themselves. This means that the CEO leads the organization in a structure that divides them by their functional expertise (e.g. Engineering, Marketing), and the organization operates as a whole to the markets it serves.
Strengths of Functional Focus
The main strength of this type of structure is its centralized expertise. This allows the organization to develop a robust economies of scale and scope in a specific function as the employees develop their expertise across different markets and grow constantly.
Another strength of this structure is the clear definition and scope of each employee’s responsibilities. In this organizational structure, every employee understands exactly what he/she is responsible for and what he/she should do in each project, in comparison to other structures in which it is more ambiguous.
Weakness of Functional Focus
As you can imagine, a clear challenge out of this structure is the emergence of functional silos as they are separated during their day-to-day jobs.
Another issue that can occur is that the organization is not flexible at all when it comes to cross functions decisions, since all of these decisions will be possible only at the higher levels and not in the departments themselves.
On this organizational structure, the CEO manages departments that are responsible for specific markets. This departments are managed by a department head who controls the entire decisions that are relevant for his business. to do so, the departments include all of the relevant functions within them.
Strengths of a Market Focus
Since there is a lower leadership level, a major strength of this structure is that decisions can occur much lower in the organization and as a result the organization becomes faster more flexible to changes.
In addition, since every individual is responsible for a specific market, their focus is aimed towards that market and they understand it much better.
Weaknesses of a Market Focus
Since their are different departments that has similar roles, this structure creates a duplication of expertise within the organization that can cause it to spend more resources and become inefficient.
Another challenge is the share of key insights among experts across the departments of the organization. Since the organization is structured as departments, experts can find it challenging to communicate across these departments.
The Possible Outcome
As you all can imagine, both structures are not ideal for organizations that want to become innovative and reach their targets optimally. Therefore, most organizations tend to create some kind of a merger between both structures.
The best way to do so is via the Matrix organizational structure.
As can be understood by the name of the structure, these organizations are structured as a matrix in which every division head (that is in charge of a certain market) chooses from an organizational pool the functional experts that would work for him/her.
This new structure enables the best of both previous structures since it enables the organization to be flexible to the market and at the same time develop expertise within the different functions.
However, there are also some weaknesses for this organization as oftentimes it confuses the employees regarding their exact roles and responsibilities. Also, as it derives the best of both structures, unfortunately it also derives the worst out of both of them.
As a result of this complexity, in order to develop an innovative organization that will manage to succeed in establishing the next S-Curve, every organization must constantly examine its outcomes from both its internal structure and its external innovation institutions.
Only the right mix between both of these will enable it to become innovative enough and succeed in crossing the chasm and reach its goals and objectives.
What is the structure of your organization? Do you think that one structure is better than the other??
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