Innovation and Contemporary Hierarchical Organizations

Large enterprises are like battleships. They have hundreds of thousands of employees using thousands of resources to create hundreds of products and services. Therefore, to manage these large battleships in a controlled manner, hierarchical organizations were put in place. These hierarchical models have been a great success and have produced great economic results, too. However, enterprise innovations face significant challenges while working under these traditional hierarchical organizations. The enterprise innovations require collaboration and expertise across organizations. The enterprise innovations require product or service improvements that span multiple departments. However, the contemporary hierarchical organizations allocate these diverse resources in many departments such as sales, engineering, finance, operations, IT and marketing. The traditional ways of interactions among these organizations silos stifle the innovative ideas that require commitments and collaborations from multiple departments of a company.

There is nothing fundamentally wrong with the contemporary hierarchical models. However, a company must ask itself following questions to see if its culture fosters innovations or not. Do departments’ leaders mark their boundaries so that no one is allowed to do anything except what is in the process? Are they willing to take risk that might lead to a greater reward for the company? Do they contribute their resources to work on cross-company experiments that may or may not work at the end? Do they rotate their resources across departments? Do the people in each department understand why other roles are as important to the company as their own roles? Do people go out of their organizations without any fear of the upper management?

Only five-ten years ago, marking the boundary, not allowing anyone to do anything non-standard, no risk-taking strategies and a defined work-day were the behaviors that got the most reward and produced good numbers, too. However, this is changing because the business environment is changing. It is no more possible for a contemporary organization to rest on its past laurels [inventions or first time innovations] to keep generating profits. New competitors are popping up everywhere in the world. These competitors can create better or same quality products at a much less cost. The companies need to continuously innovate to fight these new global competitors. And they have to do it with both speed and quality. The challenge? Doing all of this while not creating an un-manageable enterprise.

I have come to a conclusion that to make this happen, a company has to start with the people. Carly Fiorina, the former CEO of HP, says in her book, Tough Choices, I paraphrase “Products and numbers are produced by the People. Therefore, change the people and it will change the products and financial numbers”. It struck a chord with me. What it comes down is the people including leaders and employees of a company.

The leaders have to champion a culture that fosters continuous improvements. The leaders have to motivate people to work across their boundaries and their daily jobs. They have to reward risk. They have to educate people on the company’s direction. They have to move strategy from the charts to the real actions. The have to rotate people across departments. And to reward such leaders, the companies have to create company-wide performance measurements for these leaders.

Does your company do that?