Innovation

Should you build an innovation department?

When is building an innovation department a good tactic for your organisation.
What is an innovation deparmtent

An innovation department is a separate division within an organisation dedicated to innovation.

Most commonly it is established within the main organisation, but there is a definite trend to establish new entities to undertake innovation - example, CBA created X15 Ventures as a new entity to create its future products.

A commonly debated question is whether innovation departments are a meaningful tactic. We would argue yes, and use part of the 'innovator's dilemma' to explain.

Innovation departments and the innovator's dilemma

The Innovator's Dilemma is a well-known book on innovation authored by the late Clayton Christensen. In the book, Clayton lays out why large organisations often fail to adopt new disruptive technology innovations. We will highlight two factors that are relevant for this article.

A strength of developing a separate innovation department is that you can deliberately separate it from the existing resource allocation system that inhibits investment into products in small emerging markets.

By doing this, you prevent resources being pulled for the mainstream business and ensure that new products can be invested in that might become meaningful long-term business growth. It allows the team to be free to invest in new ideas, fail and learn.

Some companies take this further, such as CBA, creating a whole new entity (X15 Ventures). A benefit to this approach is that while a $100 million market might not be exciting for an organisation as large as CBA, it will be for a smaller new entity such as X15 Venture. This increases the likelihood that the team are motivated and excited about a new product opportunity in an emerging market.

A risk: will you silo innovation and learning?

The truthful answer: most likely yes.

More often than not, the tactic of establishing a separate department leads to a silo which can invest in new products but it will not spread new best practices back to the rest of the organisation. The idea of innovation departments as a 'cultural lighthouse' has been tried many times and never succeeded - mainly because 'culture' is the product of the organisation as a system.

Does that undermine the value of an innovation department? Not necessarily...

When should you build an innovation department?

If you have the strategic goal of developing new revenue streams, then creating an innovation department to develop and deliver new products is a very legitimate tactic!

At Alto, we don't think a department is necessary to achieve product innovation, but it is easier than trying to optimise your organisation as a whole to support product innovation. This could include changes to leadership, strategy, organisational structure, culture change, incentive mechanisms, process, rules, policy, feedback mechanisms and resource allocation.

There is another consideration: organisations are systems optimised to achieve a given outcome. An innovation department provides the opportunity to create an optimised system for developing and delivering new products to market. This could be far more efficient and effective than trying to change the organisation with the trade-off of reduced learning back to the organisation as a whole.

A different path forward: single-threaded teams

A logical question is why can't we have both a highly optimised product innovation system alongside the knowledge sharing back to the organisation?

This is of course possible, and we would recommend a specific operations innovation as the right starting point - single-threaded teams.

The single-threaded teams concept was developed at Amazon with the goal to minimise the number of dependencies on a team. That is, in order to do your job and deliver your goals as a team, it should be as autonomous as possible without the need for you to consult any other team to deliver successfully.

How it works is you create the rule that each person is only allowed to work on a single project (including the management team).

To apply this as an experiment, you could assign a single person to manage an innovation project - this could be a new product idea. This will be their full-time job. They must then build the strategy, create the product concept, hire out a team who only work on that single product and deliver it to market.

Once this product is earning revenue, it should be fully reinvested into the team and have a focus on self-sufficiency. Treat it as business inside your business, the owner is the CEO, they are accountable for the full product, their team are accountable for managing their financials, their marketing, their sales, they product developments and so on.

You can make a fixed resource allocation for new product ideas, this puts a target on how much can be spent before a product is abandoned. The single-threaded teams must have the rule that no one is allowed to be pulled for work outside of that team!

The results? Amazon Web Services is the product of a single-threaded team lead by Andy Jassy for many years where as one of the most senior people in Amazon he decided to work on this small idea at the time (2002/2003) which became one of the most successful companies in its own right in history.

By sharing your email, you agree to our Terms of Use and Privacy Policy.

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

More articles.

What is innovation and why does it matter?

What problem this article addresses:
Innovation is misunderstood and as such 94% of innovation initiatives fail to deliver their desired outcomes.

This article provides a new layman definition for innovation to help you understand what it is and how to do it.

How to set continuous improvement metrics

What problem this article addresses:
Many leaders don't know what drives their desired outcomes (e.g. customer experience).

This article provides three steps you can use to identify unchanging metrics that guide continuous improvement.

How to create an innovation strategy (pdf)

What problem this pdf addresses:
It is difficult to identify where to start when investing in innovation.

This PDF is a guide for creating a high quality innovation strategy which will help you identify which tactics to invest in first.

The surprising power of controllable inputs

What problem this article addresses:
As leaders, we often obsess over our desired outcomes rather than the inputs we control.

This acticle teaches you how to identify controllable input metrics that can guide your teams' focus and strategy.

Why you want an advisor, not a consultant

What problem this article addresses:
As organisations, we often don't distinguish between advisors and consultants, but what we want is an advisor.

This article examines the difference between advisors and consultants.

Getting started with innovation as a business

What problem this article addresses:
We often stress over making the right first move when we are investing into our innovation capability.

This article lays out how you can continue your innovation capability building journey as a large organisation.

Four mechanisms for culture change

What problem this article addresses:
We desire an innovation culture but don't know what it is or how to foster it.

This article introduces four mechanisms you can use to influence your culture.

Four ingredients to a great business offering

What problem this article addresses:
It is difficult to summarise what makes for a great business offering and therefore to guide people on how to make a great offering.

This article provides a simple framework for evaluating the quality of a business offering.

Should you build an innovation department

What problem this article addresses:
A common question is whether or not you should build an innovation department.

This article alleviates this confusion outlining when and why you might invest into a new innovation department.

Problem canvas - tool

What problem this tool addresses:
We often rush to solution mode before we fully understand our problem.

This tool will help you analyse a problem so that you gain a better understanding of what the problem is and so that you can shift into building higher quality solutions.

Innovation audit - tool

What problem this article addresses:
It is difficult to know where we need to improve our innovation capability as an organisation.

This tool is an audit which helps you identify priority improvements you could be making for your organisation.

Reduce stress by focusing on what you control

What problem this article addresses:
Most people obsess over outcomes outside of their control which leads to unnecessary stress and failure.

This article argues you should examine & define success by what you do control.

Don't waste others' potential

What problem this article addresses:
Most organisations waste their employees potential by failing to support them with pitching and pursuing ideas.