Strategic Organization Design supports innovation, growth, and value creation
In last week’s blog, we discussed how strategic organization design supports organization velocity and reliability. This week we will discuss how strategic organization design supports innovation and value creation.
Strategic organization design is the process by which the CEO creates the conditions to deliver the strategy in a fast and reliable way while supporting growth, innovation, and talent development. Done well, it sets the conditions for every role and every role holder in the organization to create value and deliver the strategy.
Fostering innovation and growth
Innovation, critical to organizational growth and future success, is not solely the task of developing products or services and bringing them to market. Innovation takes on different forms and needs to be sustainable and scalable to support growth. Accountability for the different forms of innovation can be designed into and spread logically throughout the organization in a way that reflects the nature and complexity of work. Innovation can be differentiated at various levels, from least to most complex. Some examples include:
- Continuous improvement of tasks, procedures, and processes through constant assessment, problem identification and resolution.
- New processes or re-engineered processes to fundamentally improve operational capabilities, efficiency, and effectiveness.
- Development of new products and services for both new and existing markets.
- Creation of new business and economic models to compete with or leapfrog competitors. (e.g. online retail, digital streaming, artificial intelligence).
- Development of new industry models to reframe how different industries operate.
- In the largest most complex organizations, new societal models impact how we work and live.
These levels of innovation create strategic advantage as companies differentiate themselves from their competition by applying some or all types of innovation as shown in this simple example below, which illustrates creating value through operational improvement.
Historically, the security industry consists of companies which provide security guards and related services with little or no discernable difference between the competing players. The best companies invested in looking for ways to improve the same basic service that had been offered for years. However, one supplier recognized the stagnation that had occurred and raised its game by implementing a process management approach.
By applying process management principles, the company developed security solutions focused on meeting client requirements of measurable performance standards and reliability, while competitors continued to operate in an ad hoc fashion of manually scheduling and deploying security guards. This simple innovation set the company apart and allowed it rapidly to grow as competitors struggled to catch up.
Another better-known example is that of Napster, and Apple Music, where the right level of innovation spelled the difference between success and failure.
Napster came into existence as a music-sharing service which delighted audiophiles who were able to share recorded music for free while giving the music industry a major headache. The introduction of this technology-level innovation was followed by lawsuits and calls for legislative protection as this disruptive application syphoned off millions of dollars of income from music recording artists and their distributors. Napster was not able to fully innovate and capitalize on the technology it had brought to market. Their product was missing innovation in other parts of the value chain and as a result, it failed rather quickly.
Apple saw this same disruption as an opportunity and capitalized on it by using their knowledge to innovate at the industry level. Apple Music was born with a business model that charged consumers for the online music streaming service while paying the creators of the music. The Apple solution used technology innovation as a basis for creating a new business model and reinventing the music industry along the way.
These two examples demonstrate how innovation can take place at different levels in an organization. Understanding the different levels of innovation allows organizations to deploy the right talent in delivering their strategies.
Value creation and shareholder value
Creating and growing shareholder value requires a balancing act: delivering in-year performance by achieving performance and profitability targets while at the same time building and evolving the organization’s capabilities to support future growth and long-term viability. Strategic organization design encompasses aligning strategy to the operational, general, and corporate management work to enable an organization to achieve this balance.
Operational management focuses on the delivery of the current year’s business plans while building and improving operational capability, efficiency, and effectiveness for the future. General management sets the context and policies for operational work including funding for operational innovations. It enhances and where necessary develops existing human, technology, and systems that focus on customer satisfaction, ensuring effective asset and resource stewardship, and balancing revenue and expense decisions to ensure short-and long-term profitability.
Corporate roles provide context and oversight to business units including strategic guidance and control for existing businesses, while growing, acquiring and integrating new businesses and where necessary, divesting of businesses. Long-range decision-making includes setting enterprise goals, economic resourcing, brand management and reputational risk, improving balance sheet valuation and executive talent pool development all focused on delivering performance, growth, and value.
Value creation is a product of all role holders, across all levels of the organization fulfilling their mandates, working independently or as team members, and supporting each other as required.
Strategic organization design and structure are the levers that ensure all this necessary work can occur in a reliable fashion. Application of the organizational design principles in building and leading the organization eliminates guesswork by providing a language for understanding levels of work and improving performance. For an organization’s senior leadership, strategic organization design and implementation is a process that removes the guesswork and enables you to reliably set up an organization to deliver innovation and foster value creation.
For more on innovation and how it relates directly to levels of work please see our YouTube explainer video below.
This blog is part of our ongoing series Organizations that Work. For more on innovation and value creation, check out our client case study where we provide details on how we helped one of our clients overcome their innovation gap.
Every Tuesday over the next few months, we will be posting blogs that take you from the pain of poor organization design, to identifying the root causes, to the benefits of undertaking strategic organization review. We will discuss the steps needed to effectively align your structure and work with your strategy, and we’ll discuss the processes that take out the guess work and help you to get it done. Through it all we will discuss how to lead the change from start to finish.
If you’d like to speak with us about how we can help you on your journey to an organization that works, please follow us on LinkedIn or book a call directly with one of our partners.
Our approach draws on several bodies of work including Stratified Systems Theory, the work of Dr. Elliott Jaques. For more on Dr. Jaques and his work visit the Requisite Organization International Institute at ROII Requisite – ROII Requisite.