Right at this moment, in a conference room or at an executive off-site meeting, a group of senior leaders of a large global company are wondering why they aren’t innovating enough. They’re probably focusing on a few specific questions: “Why don’t we have enough good ideas? How can we tell which idea is going to be the next big thing? Why is it so hard to get an idea from the drawing board into the market?” Most telling of all is the question: “Why do we still waste resources on ideas that people don’t believe in?” In other words, even though an idea has been effectively “killed,” it still remains on the agenda, with nobody fully willing to learn from the mistake, put it to rest, and move on to other endeavors.
At first glance, these seem like problems with the research and development function alone. But the underlying cause is more fundamental and broader in scope. For a company to excel at innovation, it must have high levels of creative capabilities, such as R&D, and production capabilities, such as operational execution. Moreover, the people with these capabilities need to work together seamlessly. For example, in setting up wise and decisive approval mechanisms that can separate the wheat from the chaff, companies must take a variety of factors into account — the designers’ original intent, the limitations of downstream production, and the needs of the marketplace — that are typically perceived differently on the creative and production sides.
In most companies, the creative and production capabilities are difficult to integrate. To understand why, it’s helpful to think about organizations as having two parts — a formal organization and an informal organization. Most organizations tend to emphasize one over the other, but both are always present. Production is largely governed through the formal side, which includes decision rights, reporting structures, established incentives, codified processes, and corporate metrics. These elements tend to enable an organization to be disciplined and efficient. To be sure, many informal connections exist in manufacturing and production, but if you want to change or influence something in a typical production process, you must do so using the formal levers at your disposal.
Creative work, however, is typically generated by the informal side — the part that doesn’t exist on paper but that influences behaviors through mutually understood rituals, shared values, social networks, commonly held ideas, and emotional connections to the work itself. These factors tend to motivate an organization to be flexible and responsive. Creative people sit in formal groups and have bosses, but they are more likely to draw on their informal connections with people at multiple levels, be passionate about searching for the best idea, and take risks that often don’t work out.
In addition, innovative ideas that have commercial potential need early support from disparate parts of the organization. Although some support can be provided through formal channels, innovators at companies such as Apple, Google, and Microsoft are masters at engaging the organization through informal means. They tap into networks of key influencers and into communities within the organization that are less reachable in formal, top-down ways.
Because real innovation requires that good creative ideas be efficiently produced and launched, a balance between the formal and informal structures is critical. If “creativity is king” and teams are encouraged to chase every idea, there will be a great deal of waste in the system. Winners for the final rounds of funding will be chosen on the basis of informal connections and relationships rather than merit — which often means that the political strength of sponsors, rather than customer interest or analysis of potential impact, will most influence decisions. In the aftermath of such a decision, the level of commitment tends to deflate during execution, and the products are less likely to win in the marketplace. Even if companies with a dominant informal organization get a winning product out in the market, they often lack the rigor to follow up quickly and eventually lose sales to more disciplined competitors.