Innovations Org Dna
Innovations Org Dna
Innovations Org Dna
Rakesh Bordia
bordia_rakesh@bah.com
Eric Kronenberg
kronenberg_eric@bah.com
David Neely
neely_david@bah.com
Innovation’s OrgDNA
1
Innovation’s OrgDNA
Innovation—the ability to define and develop new Structure is often the first thing companies seek to
products and services and deliver them to market— change when they search for better organizational per-
is the fundamental source of value creation in formance. The Booz Allen study found that over half of
all companies had restructured their innovation organiza-
companies and an important enabler of competitive
tions within the prior two years. Our experience indicates
advantage. In a recent study conducted by Booz that there is no one right structure for a given innovation
Allen Hamilton, company CEOs and other senior organization. Different structures work successfully under
executives cited goals for improving innovation per- different circumstances. It also turns out that structure in
formance that averaged 20 to 30 percent in areas itself is a poor predictor of how an organization will really
like time-to-market, product quality, and develop- behave. Independent of their organization structures,
ment cost, in just the next two years. The bar has some companies seem to deftly mobilize their best capa-
bilities to meet unexpected changes in the marketplace
been set very high. Among the many factors that
or competitive actions. Other companies seem immobi-
influence a company’s innovation performance, the lized by such challenges, unable to respond effectively.
dynamics of the “innovation organization” (which in There are deeper factors at work. Factors that, to use
different companies might include some combina- a biological metaphor, are embedded in a company’s
tion of the engineering, R&D, and product develop- Organizational DNA.
ment functions) is perhaps the most important.
The Organizational DNA Code
Innovation is inherently a highly cross-functional activity Just as nature’s DNA spells out the exact instructions
that, when it works well, creates a constructive tension required to create a unique organism, organizational
between competing objectives of development cost, DNA determines how an organization will function. An
product value, performance, quality, and time to market. organization can be defined in terms of four organiza-
Product development touches every part of the company. tional dimensions—structure, decision rights, motiva-
Functions like strategic planning, sales, operations, cus- tors, and information (see Exhibit 1, page 2). These four
tomer support, purchasing, and finance are just as impor- dimensions, when combined in myriad ways, define an
tant to successful innovation as R&D and engineering. organization’s DNA.
How well these very different functions work together in Using this framework, Booz Allen developed an online
large measure determines how effective a company will Organizational DNA ProfilerSM that has enabled tens of
be at developing successful products and services. thousands of executives to diagnose the attributes of
It is common to look to an organization’s structure to sug- their organizations. Our research, which includes input
gest the relative roles and authorities of these functions. from a wide range of industries and organizational
2
Exhibit 2
Organizational DNA Profiles
Flexible enough to adapt quickly to The Too large and complex to be effectively
The external market shifts, yet steadfastly Outgrown controlled by a small team, but has yet to
Resilient focused on and aligned to a coherent Organization democratize decision-making authority
Organization business strategy
The Often driven by a small, involved senior Congenial and seemingly conflict-free,
The Passive-
Military team, succeeds primarily through the will this organization builds consensus
Aggressive
Organization and foresight of its leaders easily, but struggles to implement
Organization
agreed-upon plans
16.7%
longer delays.
100 14.0%
12.0% In passive-aggressive organizations the situation is even
80
Healthy
their nature are an impediment to the information flows
and decision making upon which responsive innovation
depends. Each additional layer of the organization is a
potential gate or handling point through which informa-
tion and decisions have to pass. The result is slow deci- Resilient Just- Military Over- Passive- Out- Fits-
in- managed Aggres- grown and-
sion making, as most ideas take a long time to reach the Time sive Starts
end-decision-makers. Not only does all this handling slow
Source: Booz Allen Hamilton
4
due to delays in getting the ideas commercialized and Similarly, lower levels in the organization can become
introduced. The redirection and changes to requirements isolated from the strategic intent that should influence
that are inherent in slow innovation processes drive their priorities.
higher costs and exacerbate delays. Additionally, every
This lack of transparency manifests itself in several ways.
company, even the market leaders, faces situations
Surprises at product launch and poor product launch
in which it has to respond to unanticipated moves by
performance are both symptomatic of poor transparency.
competitors or changes in the marketplace (new cus-
Over time, lack of transparency can also lead to a poor
tomer need, regulatory changes, etc.). Slow innovators
alignment of product and service development efforts
are unable to mobilize their organizations to respond
with strategic priorities. Senior executives often don’t get
effectively to these events.
a clear view of how actual investments and development
activities are aligned with company strategy. Poor visibility
Transparency
can result in a significant portion of innovation effort
Transparency is the property that allows direction and
being directed to pet projects that continue under
action to be made visible throughout an organization.
the radar.
Creating transparency in engineering and R&D organi-
zations is particularly important as senior executives
Accountability
often view them as “black boxes.” For effective
Accountability is the glue that holds an organization
innovation, transparency ensures that development
together. For innovation, like other complex processes,
priorities and efforts can be aligned with strategic
it is the mechanism that ensures cross-functional
priorities. It provides for the exchange of information
commitments are taken seriously, and it establishes
between functions that is so critical to cross-functional
personal ownership for performance and outcomes. The
processes like innovation. It is also the means by which
top-down direction and multiple layers in overmanaged
the performance of the organization is made visible to
organizations tend to dilute direct accountability. In this
senior management, enabling a “closing of the loop”
type of organization, accountabilities can be unclear,
between objectives and performance.
and it is often difficult to trace the commitments from
By its very nature, the culture and behavior in passive- the various functions that support product development
aggressive organizations prevents transparency. This lack and launch. Unclear decision authority within and
of transparency can have a very detrimental effect on across levels blurs the accountability for decisions and
innovation performance. Because one set of decisions actions, which can result in widespread abdication of
and positions is voiced in public, but other agendas responsibility—everyone is responsible and no one is
are carried out in practice, senior managers lack an responsible at the same time. In passive-aggressive
understanding of the actual activities of the business. organizations, the outward indications of action and
This lack of clarity prevents the communication and agreement by responsible parties makes it difficult
common understanding of organizational priorities, for senior managers to tell how things are actually
leaving key decision makers uncertain as to individual progressing, limiting their ability to respond. In addition
and collective goals. This uncertainty erodes the trust the culture of passive-aggressive organizations tolerates
and collaboration between functions that are so essential a degree of deniability. Responsible parties often can
to responsive innovation. claim that they were not fully in agreement with prior
decisions or didn’t really make certain commitments.
In overmanaged organizations, the same multiple organi-
zational layers that inhibit speed also limit transparency. Lack of accountability in innovation organizations shows
With many tiers of communication and decision making, up, among other places, in long cycle times and poor
it becomes much harder for senior managers to get an product launches. Failure to meet functional commit-
accurate view of performance lower in the organization. ments results in disruptions and missed milestones. The
fact that even one function can hold up an entire project
5
implies that most schedules will slip. Poor accountability frequent time-killing project reviews and updates and
also undermines confidence in the many functional com- minimizing the chances for redirection. Finally, resilient
mitments that are required to make a new product or organizations are accountable organizations. Clear
service a success. Launch readiness depends not only on decision rights and performance transparency increase
the completeness of the product or service design but an personal and collective accountability. When undesired
entire set of functional preparations. For example, sales outcomes occur, they can be evaluated for cause
and service staffing and training, marketing collateral because the traceability of actions and decisions
development, manufacturing, and logistics capacity and is preserved.
ramp-up are all preconditions to a successful product
Resilient innovation organizations tend to be more
launch. Poor launches are often more a result of break-
nimble, efficient, and effective at developing and
downs in the overall functional preparations for launch
commercializing new products and services than other
than of any deficiency in the product or service itself.
organization types. The advantages of more effective
collaboration show up in higher quality products and
Resilient Innovation Organizations
services that hit the market ahead of competitors,
In general, the best organizational designs are adaptive,
offering value that customers are willing to pay for. Not
self-correcting, and become more robust over time. The
surprisingly, the consequences are reflected in the high
resilient organizational model comes closest to this ideal
financial returns these companies achieve.
by incorporating the healthiest parts of the organizational
DNA building blocks described earlier. They combine an
Reengineering Organizational DNA to Improve
aligned structure, logical and streamlined decision rights,
Innovation Performance
appropriate motivators, and rapid flow of information.
The clear benefits of healthy OrgDNA and negative con-
Decision rights are clear, and lines of communication
sequences of unhealthy OrgDNA make it worthwhile to
tend to be shallow and broad. These characteristics allow
investigate how companies can make their organiza-
an innovation organization to make quick, effective trade-
tions more resilient. Fortunately, unlike biological DNA,
offs between priorities, integrating elements from diverse
organizational DNA can be reengineered. Reengineering
functions including R&D, strategy, sales, marketing,
an organization’s DNA requires the purposeful rewiring
operations, service, etc. Often this integration and com-
of the four intertwined building blocks. We suggest nine
munication flow extends past the boundaries of the firm
remedies to help overcome the most common organi-
itself to suppliers, customers, and partners.
zational shortcomings and build greater resilience (see
Resilient organizations can act with speed, enabling Exhibit 5, page 6).
them to get to market first or when needed, and to
respond rapidly to the moves of others, limiting a Decision Rights
competitor’s advantage. Information flows rapidly Remedy #1: Making decision authorities and respon-
through resilient organizations. This information flow sibilities as black and white as possible is essential to
creates transparency within and across layers in the streamlining decision flows. In particular, this means
organization. Lower levels of the organization have a clearly differentiating the issues and policies that should
clear understanding of company priorities and direction. be decided on a global or company-wide basis from those
This insight helps ensure resources and activities are that require local focus. For example, decisions affect-
deployed in alignment with those priorities. Senior ing common processes and product architecture clearly
managers receive a rapid and unadulterated assessment need to be set and enforced at a cross-site or group level.
of the performance of the organization. Intervention is Resource management and customization of products for
possible, and emerging issues can be dealt with before local markets are decisions that should reside at local or
the situation becomes acute. Transparency increases regional levels. The clarification of roles is easiest in flat
overall management confidence, reducing the need for organizations that optimize spans of control and minimize
additional management layers.
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Exhibit 5
Remedies for Healthy Organization DNA
� Misaligned decision rights, e.g., command #1: Maximize the Black and White
and control culture but lots of second Decision #2: Appoint Process Owners
guessing, or persuade and cajole culture but Rights
with too hands-on senior management
� Too many layers and/or low spans of control #6: Increase Spans of Control
Structure #7: Shine the Light on Shadow Staff
#8: Slow Down the Fast Track
Recent studies suggest that the BPR (business process Remedy #3: A set of established performance measures
reengineering) success rate may be as low as 30 percent; is key to creating transparency and accountability in the
benefits are not sustained over the long term. A core organization. In product development, this set needs to
problem is that companies often reengineer too narrowly, include both in-process and outcome-based measures
viewing the issue solely as a matter of identifying and as well as predictive measures that provide more early
grouping related business activities. If BPR benefits are insight of future outcomes. For example, actual milestone
to persist and drive ongoing value, more is required— completion versus schedule is an outcome measure—it
companies must adopt new forms of process gover- can’t be measured until it happens. Development
nance that are appropriate to a new process orientation. resources staffed versus those planned is predictive
Remedy #2: This task requires that companies identify in that if resources are below plan, it is likely that mile-
and empower the “process owners”—the business unit or stones will not be completed on time—this can be mea-
functional managers who lead the revitalization of busi- sured in process, long before milestones are reached.
ness processes and who will be accountable for its suc-
Having a set of measures is valuable only if there is a
cess. Effective process improvement cannot be just adop-
system in place to make these metrics visible at all levels
tion of best practices without taking into consideration
in the organization. Remedy #4: A formal mechanism for
real cultural differences that exist between companies.
reviewing measures and linking them with objectives and
targets is the means for organizations to close the loop
Information
on performance.
Any complex, cross-functional process like innovation
requires intensive exchange of information. That informa- Specialized and support functions, for example in special
tion needs to be communicated quickly and accurately to product testing facilities, are often treated as cost
the parts of the organization that need it in order to coor- centers. The expenses for these activities end up being
dinate their activities. Effective communication requires recovered through cost allocations to profit centers.
not only the development of actual channels of commu- While this arrangement is frequently adopted due to the
nication, but on cultural and incentive mechanisms that difficulty of direct cost accounting and internal transfers,
promote a willingness to seek and share information. it acts to obscure information about the real value and
7
demand for these functions in the organization. Remedy Whatever the structure, multiple organization layers and
#5: While not appropriate in every case, forcing the narrow spans of control often result in excess bureau-
costing and pricing of some of these traditionally cost cracy and bottlenecked decision making. Employees are
center functions improves information about how the hamstrung by vertical decision making and multi-matrixed
services are valued and deployed. reporting relationships. Their career prospects are not
enticing and their creativity is diminished. Remedy #6:
Structure The objective in streamlining an hourglass organization is
As mentioned earlier, there is no one right structure that not just the obvious potential for reducing excess cost, it
works best in every innovation environment. Forms with is the attendant opportunity to increase revenue by sim-
stronger functional or product focus have advantages in plifying decision making, enhancing customer responsive-
different situations. Historically, it was most common for ness, and improving innovation. Our experience is that
product development organizations to be structured with management spans on the order of one to ~12 or higher
strong authority around products or functions—two oppo- are a best practice in engineering organizations.
site ends of the spectrum. Recent evidence, however,
Every organization has “shadow staff,” people perform-
suggests that companies are migrating more toward a
ing tasks that duplicate those performed elsewhere in
program management model that captures the benefits
the organization, typically by corporate functions (e.g.,
from both functional and product focus (see Exhibit 6).
HR, finance, IT). These positions can add another 30 to
Exhibit 6
Organizational Shift for Companies that Recently Reorganized
Program Management
Functional Product
Lightweight Heavyweight
13%
13%
28%
4%
4%
4%
4%
13%
13%
4%
Note: The direction of the arrow shows the direction in which the shift of the focus occurred. Percentage shows the percentage of companies (that reorganized) that moved in that direction.
Source: Booz Allen Hamilton Global Innovation Survey
8
80 percent to total support staff head counts. Shadow These remedies should not be considered a complete
staff serve as “workarounds” for failed or inadequate road map for the complex organizational and cultural
processes and functions in the service delivery model. In changes that are needed to create a resilient innovation
addition to the direct costs of duplicated labor, there are organization. They can, however, help senior executives
collateral costs associated with breakdowns in commu- set priorities and prepare for change.
nication and cooperation between organizational units.
Remedy #7: Rooting out and eliminating or redeploying Making Change Happen
these shadow staff resources is a key to improving orga- Senior executives continually lament the amount of time
nizational performance. they spend wrestling with organization problems rather
than building their business. From the CEO on down, busi-
Career paths that provide for fast progression of star
ness leaders routinely express variations on the same
performers is a positive motivator for attracting and
fundamental themes—“We have the right strategy and a
retaining high potential staff. In innovation organizations
clear action plan, but we can’t seem to execute.”
it is important, however, that this fast track progression
also provide people with a broad exposure to the numer- The rewiring of an organization’s DNA requires a system-
ous functions and roles that are included in product or atic approach to organizational change. The approach we
service development. Career paths that encourage rapid have used successfully in numerous companies involves
advancement to senior levels in vertical functions with- driving three objectives (see Exhibit 7, page 9).
out this exposure work against building cross-functional
First, to succeed the change needs to be led from the
understanding and collaboration. This is not to advocate
top. Senior leadership must set and communicate the
that everyone needs to be a generalist, however, the
vision for the organization, including a compelling case
benefits of a broader perspective are real even in tech-
for change. It needs to reach a practical understanding
nology areas in which a high degree of focused R&D
of what can be leveraged in the existing culture and what
expertise is required. Remedy #8: Managing the career
needs to change. There is possibly no more powerful
path and ensuring rotations in different geographies,
source of potential disruption and angst in a company
functions, and roles is important to the development of
than organizational change. A senior leadership that is
well-rounded senior managers of product development.
visibly and vocally committed to the new direction can go
a long way toward mitigating the uncertainty of change
Building Block 3: Motivators
and the attendant risks. Senior leaders cannot afford to
Many of the remedies to decision rights, information,
be involved at arms length; they must be actively involved
and structure serve to promote a higher degree of
in monitoring and testing the change process. Most
employee satisfaction and motivation in an organization.
importantly, senior leaders need to ensure they act in
There should be no doubt that organizations with clearly
ways that reinforce the new behaviors—“walk the talk.”
defined roles and responsibilities, effective and fluid com-
munication, and accountability enforced through objec- Next, the change needs to cascade down through the
tive performance measures will be more motivating than organization. A key here is enlisting a core group of
those without these characteristics. midlevel managers to act as change agents or zealots
to lead the change effort. This core will need to work
No attempt will be made here to address all the aspects
cross-functionally to detail the organization design and to
of personal motivation, but one tool stands out in impor-
communicate and promote the changes across all levels
tance. Remedy #9: An organization that creates objective
in the company. Details of how new tools/processes
evaluations based on clearly defined performance mea-
work is fully designed. Analysis is performed to ensure
sures, then assesses and ranks individuals according to
that incentives/rewards are consistent with new desired
a normal bell curve distribution creates a real sense of
culture. This core group will prepare the organization
differentiation that is both motivating and rewarding.
operationally and emotionally for change. Lateral com-
munication mechanisms are identified to break down
9
Exhibit 7
Roadmap to transition from Unhealthy to Healthy DNA
the functional silos and generate buy-in and enthusiasm need to be created to recognize early successes and
in the management ranks. To be credible and effective, share lessons learned. Ultimately, the degree to which
senior management must empower this group with the the changes stick depend on how measures and feed-
necessary decision-making authority. That empowerment back systems create ownership and accountability.
must be then closely linked with expectations in the form
We believe the importance of innovation to future growth
of a set of performance-based outcomes (e.g., the prog-
and shareholder value will continue to increase in the
ress of the organizational change, actual organization
coming decade—and beyond. In a recent Booz Allen
performance in terms of productivity, quality, etc.).
study, over 80 percent of senior executives viewed inno-
Finally, to truly succeed, the change needs to mobilize vation as being critical to meeting their companies’
the base of the organization. New tools are embedded in strategic objectives. For many companies, innovation will
how the work is actually performed. This requires inten- be central to both top-line growth and profitability. Among
sive effort to communicate and socialize the changes to the many factors that influence a company’s ability to
the organization. The organization needs intensive com- innovate successfully and competitively, the resilience
munication including workshops to create understanding of its innovation organization is perhaps the most impor-
in frontline employees. The transition cannot be success- tant. It is also a factor that senior executive have a real
ful, and will not be adopted, until employees fully under- opportunity to change.
stand the answer to what is invariably their most impor-
tant question: “What does this change mean to me?” About Booz Allen Hamilton
Communication alone is insufficient; once understood, Booz Allen Hamilton has a long history of helping com-
management needs to reinforce expected behaviors by a panies build competitive advantage through innovation.
consequence management process. Appropriate forums Based on our experience, truly standout innovators have
well-developed abilities in three key areas:
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■ Product Strategy An ability to consistently make the These abilities are founded on a set of very identifiable
right bets on new products and supporting technologies. supporting process and organizational capabilities that
are the levers of innovation performance. The bar is
■ Products Architecture An ability to optimize product
higher than ever. To clear it, managers will need not only
attributes to create differentiated products that profit-
to understand these levers of innovation performance,
ably deliver customer value.
but also to create the conditions that enable a systematic
■ Product development An ability to bring more new ongoing process of improvement.
products to the market—at target costs—with speed
For more information on Organizational DNA or to test
and efficiency.
your own organization, see our website www.orgdna.com.
Also contributing to this article are Barry Jaruzelski, Kevin Dehoff, Nick Davinic and Kurt Scherer.
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