Pondering formal structure in business

The formal structure, in the business innovation sense and at its most basic level, pertains to the formal systems of hierarchy set in place within a company. The man in the cubicle reports to the man in the white walled office, who answers to the man upstairs, who in turn falls at the feet of the man sipping Chivas in his private jet. This is not an unfamiliar system.

In terms of value creation and idea management, it means that ideas are handled by research and development (R&D) or in most cases by a dedicated team, and potentially valuable ideas are then processed by the few individuals or committees involved in decision making. From time-to-time people attempt to include the wider organization by incentivizing individuals for their great ideas, and without fail these initiatives fall apart. The concept of open innovation has already pointed out the flaws in such a system, where those involved in value creation are subject to the restrictions of an internally orientated idea sharing environment and the necessity for businesses to employ skilled individuals for this job to name but two. But a move towards open innovation cannot escape the formal structure entirely.

But, even if value creation can be found in networked, external spaces that revolutionize the concept of innovation, the mass of ideas are still subject to the scrutiny of those committees appointed by the businesses to sift through ideas and ultimately decide what is in the company’s best interests in terms of implementation. This leads to the “funnel” effect. Understanding this phenomenon is paramount since it directly relates to what social based innovation seeks to resist and revolutionize in the neatly packaged word we have come to know as innovation.

The ability to circumvent the rigidity of the formal structure by using socially oriented approaches is imperative to successful innovation initiatives. So, if your intent is to save money or make more money, innovation is used every day in your business. It is not always formalized, and is not always organized. But, it is always on the minds of people who want to get ahead.

Marvin Bower, the brain behind management consulting and the person that built McKinsey, spent a big part of his life trying to solve this problem of hierarchy. Elizabeth Haas Edersheim wrote “Marvin Bower held fast to his belief that people are the most important assets of any organization. While at Jones, Day, he had experienced only too painfully the downside of hierarchical organizations that, by their inherent structure, failed to leverage this asset. Furthermore, Marvin knew that no organization was sustainable without a strong foundation of committed people willing to act individually and as a team to ensure the future.”

Some lessons:
1. Structure will be around for while
2. The shadow organization is becoming more visible and important
3. The ability to come up with great ideas will always be part of your job
4. Funneling great ideas too formally will fail to deliver value in services industries
5. Finding innovative ways to deal with the formal vs social structures can become your competitive advantage