We at Outthinker hope you are enjoying a happy holiday season. We appreciate your year-round support and look forward to continuing to study and propel the evolution of strategy to help you step into the future and execute with clarity.
In case you missed the live session, earlier this month we released new research findings that show, for the first time, statistical evidence that open, decentralized organizational models, such as Haier’s RenDanHeyi model, significantly improve a company’s overall financial performance and its ability to attract and retain top talent. You can find the full press release here.
We surveyed 500 mid-level managers to test eight attributes of such open, decentralized models and found four attributes that showed a strong statistical significance between the characteristic and the organization’s overall financial performance and its ability to attract and retain talent. Those four attributes are:
- Organizations that treat workers like intrapreneurs rather than employees are 1.6X more likely to attract and retain talent and 1.4X more likely to financially outperform their competitors.
- Organizations that operate in small decentralized teams rather than hierarchical business units are 1.2X more likely to attract and retain talent and 1.3X more likely to financially outperform their competitors.
- Organizations that make budgeting decisions through an internal marketplace rather than control through a centralized system are 1.5X more likely to attract and retain talent and 1.3X more likely to financially outperform their competitors.
- Organizations that offer a choice of shared services rather than designating shared services are 1.6X more likely to attract and retain talent and 1.3X more likely to financially outperform their competitors.
Moving toward open, decentralized organizational structures
With the potential to move beyond hierarchy in mind, where should an organization start? For decades, Outthinker has been studying successful internal innovators—those employees driving innovation from within their organizations. We’ve found that the myth of the lone entrepreneur working in his garage with a team of hipsters, hackers, and hustlers is so popular because it is so incredibly rare and typically not true.
Most innovation doesn’t come from entrepreneurs quitting their jobs to start their own businesses, but rather from intrapreneurs diligently problem-solving inside of companies. They may not look as edgy or make as many headlines, but they are responsible for 70 percent of the biggest innovations over the last 30 years.
Activating the IN-OVATE framework
By activating this special type of employee, your organization can unleash the creative ideas that will lead to their future growth. The good news is, internal innovators are much more prevalent than we think. However, we’ve identified seven common barriers—that we at Outthinker refer to as IN-OVATE—that they run up against inside of organizations. If you’re looking to support your internal innovations, we recommend focusing on these areas:
- Intent: Many employees have simply lost the intent to innovate. They’ve either tried and been told no, or they’re afraid to try because the culture prevents it. To reactivate them, listen. What problems are they spotting? Identify your innovation advocates. Encourage and celebrate existing ideas.
- Need: Often, employees don’t understand what their company needs or what the strategy is. Consider your strategy. Is it simple, clear, and compelling enough for anyone in the organization to grasp, and to understand how they can contribute?
- Options: Internal innovation can lag when companies lack options and have too few ideas to explore. Consider the 8Ps of the business model to identify new areas for innovation: Position, Product, Pricing, Promotion, Place (distribution), Physical Experience, Processes, People. This will help you to come up with a list of possible strategic options to leverage.
- Value blockers: There may be a conflict between their new idea and the established business model. Vijay Govindarajan of the Tuck School of Business at Dartmouth College recommends that the innovation team be treated almost entirely separate from the core business. You need different cultures, mindsets, and operating rhythms, but later you must be able to plug the innovation organization back into the “mothership” to take advantage of resources and scale.
- Act: Employees are asked to prove the idea works before they can act. But they aren’t able to run the necessary experiments to prove it works. Counter this by running what Michael Schrage calls 5×5 experiments—give five people five days to come up with a portfolio of five experiments that can be run in under five weeks and cost less than $5,000.
- Team: Valuable ideas need a cross-functional team to turn them into reality. Siloed organizations prevent intrapreneurs from building cross-functional teams. How might you connect employees across the organization so they can collaborate and co-create?
- Environment: The spirit of innovation can be stifled when leadership, organizational structure, or cultural norms do not support it. What is the environment within your organization? According to Pete Newell, innovation is not a technological problem but a sociological one. Moving toward more open, decentralized organizational structures can pave the way.
Conclusion
Our research shows that directing your efforts to these key areas will improve your overall financial performance and your ability to attract and retain top talent: treat employees like intrapreneurs, operate in small teams, use internal marketplaces to make budgeting decisions, and offer a choice of shared services, such as finance or IT, rather than designating shared services.
Organizations that work to remove bureaucratic barriers will find themselves more capable of identifying and empowering internal innovation.
If history is a guide, there is a 70% chance that the next innovation that will most impact society will come from employees working inside an established organization. It may be you. It may be one of your employees or reports. So as we plan for 2023, let’s unleash the potential of employee-led innovation.
Photo by Shubham Dhage on Unsplash
