Needing to break out of the long winter here in the Midwest, I took a cruise last week into the western Caribbean. One of the simple pleasures of cruising is figuring out the physical layout of the ship, particularly the vertical and horizontal passageways that lead to all manners of entertainment, food and sunshine.
Those same passages that are so useful for travel, however, can quickly become a problem if there’s a serious breach of the ship’s hull. Water is a liquid that relentlessly seeks out its own level, and those useful pathways would quickly swamp the ship, and ultimately lead to the loss of the entire craft. Once the ship begins to list, the swamping picks up and a self-sustained cycle of sinking occurs pretty quickly. This is serious stuff and why the crews on modern cruise ships are so well trained.
Organizations have compartments as well. There are separate functions to develop products and services, to sell them and to deliver them. Then there are the functional teams that support these groups with financial, legal and human resources. Early in a company’s life, these compartments are very flexible and communicate well with one another. Later in an organization’s journey, however, these same compartments can become very isolated and develop into silos with little cross communication.
In the world of innovation, these compartments can be very useful, as they provide innovative teams with a measure of isolation from the day-to-day demands of the core business. This isolation provides the team with the space it needs to design, build and de-risk the innovative contribution – whether it be a new product, service, or an entirely new business model.
These compartments also provide innovative teams with access to the resources of the larger organization (you can think of these connections as passageways in the ship). Having access to these resources, but also having the ability to close the watertight doors and get something done, is key.
These watertight doors have a very useful role for the larger team, as well: by keeping a specific tranched amount of resources available to the innovation team, it makes these resources burn very visibly and eliminates the possibility of the entire craft being sunk by “leakage” that has gone undetected.
Innovation in the Organization
So how does this analogy relate to organizations of various sizes?
- Large organizations typically have robust processes to partition innovation programs from the operations of the larger enterprise, and indeed, much of my work there is to get the larger enterprise more involved in the innovation process. Creating processes that allow well-funded teams to pursue structured hypotheses is the bread and butter of these assignments. To build on the current analogy, they need to open a few more doors and allow more resources to cross the organization.
- Mid-size firms vary in their innovation maturity. Some still have the founder’s DNA intact and have developed tacit systems for innovating within the core business, as well as experimenting with new and emergent areas. Others are founded largely on one value proposition and have not built processes that allow the organic development or acquisition of new business models. When the core business model peaks or declines, these business units are very vulnerable to a “bet the farm” innovation strategy that can quickly swamp their business. Maturing these systems and getting disciplined investment structures in place is the mark of moving from adolescence towards a mature, multi P&L enterprise. Helping them downselect to invest only in a few compartments is a typical challenge.
- Small firms are among the most intriguing areas for innovation. My criteria for working with clients is that they have one solid business model in place and want to grow into an adjacent space. One of my challenges in advising owners of small firms is to invest carefully with clear compartmental boundaries in the new business area, and help them build the culture by spotting the fiction in their assumptions and spending time and resources to remove the uncertainty prior to scale. Opening the doors to the new compartment too early is all too common in small firms, and this can quickly exhaust their resources.
3 Ways to Improve Your Innovation
How can you specifically apply this analogy to your work? There are many ways, but for today let’s look at three:
1). Take a step back and think about your current enterprise. Are the compartments and pathways well defined? Are the shared resources of the organization available to your innovators as well as your core business? It is not uncommon for the “shared” resources to become captive to the larger business units. Remember that the design of a ship and its compartments is the most fundamental design process for the marine architect – your role as business architect needs to have that same impact.
2). Which side of the risk spectrum does your leadership team tend toward? If you have an “all-in” culture, you need to place a very high priority on making sure that the bets each team is making are compartmentalized. An objective CFO with some innovation experience can be a great asset in helping to make sure that all the stakeholders’ interests are being served, so that if a miss-step is made, there will not be a domino-like decline that threatens the firm.
3). Are you taking full advantage of the opportunity to take some risks? The architecture of compartments allows people who purchase passage on a cruise ship to sleep at night in relative peace, as there is a very high likelihood that their trip will be completed safely. Similarly, well-crafted innovation systems, with compartments and boundaries, allow businesses to do the very important work of innovation into new business models knowing that the core business is in good shape. Make sure that you are not sitting on the shore and missing out on the growth that your firm could enjoy with some well-designed innovation work.
What are your experiences with organizational compartments and boundaries in your firm? Do they have a good balance between enterprise safety as a whole and allowing substantial and robust innovation?
Please leave a comment below or drop me a line.
