New product development (NPD) is most successful in an organizational culture that is open and flexible. We have recently described the characteristics of such firms that practice disruptive innovation.
One mistake firms can make with innovation programs is failing to match the strategy with actions. Organizational structure is a reflection of both the firm’s innovation strategy and of its capability to take advantage of disruptive innovations.
Three Types of Organizational Structures
Three types of organizational structure can be determined from the literature:
- Changing, and
A firm may have divisions that span these organizational structures depending on the competition and required degree of innovativeness dictated by the divisional strategy.
Stable organizations can be successful with sustaining innovations. These product or service enhancements improve the existing features for existing customers. Such stable organizations are characterized by:
- Stable customer needs,
- Little competitive threat, and/or
- Low levels of technology change.
You may recognize your organization within the stable function if there is a high degree of centralized decision-making. In such organizations, the emphasis is on minimizing cost so both strong production controls and chain of command are important. Job descriptions are rigid and communications follow clearly established protocols.
An organization characterized as “changing” is one that balances a degree of innovativeness with stable operations. In Miles & Snow terminology, we call this type of organization an analyzer. Changing organizations normally view demand as predictable with an acceptable variation. Competitors may also be changing, but moves by the competition are generally anticipated. Products and services are expected to undergo routine transformation so R&D is an important function to meet these technical advances.
Other aspects of a changing organization include external forces, such as government regulations. However, these government regulatory changes, like customer demand, are predicted and planned for well in advance of the change. Thus, innovations are steady and extend beyond incremental improvements.
Within a changing organization, jobs are somewhat flexible as team members respond to customer needs. Communication and chain of command rules are not so stringent as the firms recognize a strategy to innovate for the future.
Finally, an innovative organization structure is characterized by a firm set upon disruptive innovation. These companies focus primarily on rapidly changing customer needs with flexible teams. Because product and service demand is highly volatile, the competitive landscape may also be rapidly shifting. As a result, the organizational structure must focus heavily on both internal and external R&D, respond to changing customer needs, and address new government regulations. Work is accomplished by cross-functional teams to deliver strategic goals and initiatives.
Many firms can function as stable organization because the technical environment is unchanging or only slowly changing. Within the petrochemical industry, for example, catalysts are fairly stable products. These firms are responding to customer needs with incremental improvements in selectivity and throughput.
Changing industries include many within the high-tech field. While computing technology has recently changed radically, the pace of change may be slowing. Smartphones, for instance, are advertised with new features rather than radical leaps of technical capability.
Finally, the major hit of the past holiday season – hoverboards – may require innovative organizational structures to be a successful industry. Technical challenges face the product developers (batteries) and government regulations are imposing rapid changes on the manufacturers. These regulations are somewhat unpredictable since the product category is brand new. The technology and competitors are also evolving rapidly with little foresight available.
Organizational Structure Analysis
While it is usually easy to describe organizational structures and their advantages in different industrial situations, it is often difficult for firms to align strategy and structure. However, strategic alignment is key for successful, long-term product development.
Firms that are in slow-moving industries with little threat of competition can operate as “stable” entities. These organizations should focus on cost minimization and incremental improvements. It is important, however, to continually scan the environment for the potential threat of a disruptive technology or business model.
Most companies will identify with the “changing” organizational structure. Competitors and regulations are changing in predictable ways. Customer demands are also anticipated and can be addressed by core competencies.
Disruptive innovation requires an “innovative” culture. Here, jobs must be flexible and customer needs placed above rules for chain of command. Open communication and shared vision allow these organizations to accomplish broad strategic goals.
To learn more about disruptive innovation, check out Chapter 2 in NPDP Certification Exam Prep or join a convenient, online professional development course awarding one PDH at Disruptive Innovation on www.simple-pdh.com.
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