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CHAPTER IV - Making Space for Innovation

How can large organizations that have been shaped by the pursuit of scalable efficiency change themselves to be more agile and more hospitable to creativity and innovation?

Perhaps the most impressive account of transforming an existing institution came from General Stanley McChrystal at an earlier Aspen Institute Roundtable on Institutional Innovation. He related how shortly after he took command of the Joint Special Operations Command (JSOC) in Iraq and Afghanistan, he realized that, although his troops were superb fighters and had a strong record of achieving the goals of the missions they were assigned, they were losing the critical battle for intelligence. They needed a different mission and a different structure. McChrystal’s account of how he did this—literally under fire—is inspiring and contains a number of useful lessons for leadership (some of which he shared in his 2015 book, Team of Teams).

Another perspective on how to make traditional companies more agile comes from Michael Arena, who served as Chief Talent Officer at General Motors before moving to become Vice President for Talent at Amazon Web Services. Arena also spent two years as a Visiting Scientist at MIT where he studied the relationship between how large companies are organized and their ability to innovate successfully. He found that while we tend to look at the formal hierarchical structure of organizations, which is designed to enable smooth, efficient operations and is easily represented in a traditional organizational chart, structure tells us very little about how innovation actually happens.

Arena contends there is another way to visualize connections within organizations (see Figure 3). This approach uses techniques of network analysis to map how information flows among a group of people in order to identify the actual connections within an organization, which may have little to do with its formal org chart. Arena’s research suggests that rather than hoping to make things better by rearranging the boxes on an org chart, a more useful approach is based on understanding the ways in which informal corporate networks operate to either stifle or support innovation.

FIGURE 3: Org Chart vs. Network Chart

[Left] Source: Ron Carroll, The Systems Thinker Blog, BoxTheoryGold.com. See: www.boxtheorygold.com/blog/bid/105210/The-Organization-Chart-Your-First-Business-System
[Right] Source: Creately.com, Network Organizational Chart, Template. See: https://creately.com/diagram/example/jgq69t2z1/Network+Organizational+Chart

To demonstrate the usefulness of network analysis, Arena addressed the question of why so many acquisitions fail. He cited one big bank’s acquisition of a smaller but more innovative financial services company. A network graph created six months after the two companies were combined showed that, in fact, few connections had been established between the two organizations. In order to create more connections, the large bank intentionally began recruiting staff from the smaller company to join the parent company. The result was that more innovations began to spread from the smaller company to the whole organization.

Another example comes from a company that was judged to be good at operations but bad at innovation. The firm was organized into a number of small groups with cohesive teams, a structure that increased the speed of development of new ideas by up to ten times, but also resulted in a high likelihood that those innovations would not be accepted and implemented by the entire organization. Expanding “bridge connections” between these groups not only increased the rate of discovery by 25 percent but also led to a threefold increase in the speed of diffusion and adoption of these discoveries.

Arena readily conceded that there is a fundamental mismatch between the needs and priorities of an organization’s core activities, which he describes as its “operational system,” or “the blob,” that is responsible for “managing, coordinating, and controlling activities…to drive operational efficiencies.” He also acknowledged that in an environment that demands steady growth and punishes failures to meet quarterly goals, taking risks on new and unproven ideas is difficult if not impossible. Those who are in the blob are unlikely to do anything truly bold or risky.

In order to foster innovation, many companies create separate R&D operations or skunk works, encourage them to act entrepreneurially, and attempt to protect them by keeping them separate from the larger enterprise. But unless there is some sort of bridge between these two radically different environments, the odds are low that good ideas will be adopted by the larger organization.

The missing component is what Arena describes as “adaptive space” that provides “the freedom for ideas to flow into and throughout an organization, a sort of free trade zone for ideas within large, complex organizations”i (see Figure 4).

FIGURE 4: Adaptive Space (not to scale)

Source: The Plexus Institute, Adaptive Space. See https://plexusinstitute.org/2018/06/11/the-adaptive-space-imperative

The secret of creating robust adaptive spaces that ensure that a company’s discoveries and innovations will pay off in increasing corporate performance comes from understanding how people in an organization connect with each other. In other words, an organization’s success depends on focusing not only on building human capital—its workforce of highly talented individuals, but also on nurturing social capital—the relationships of trust among its workers. In fact, leveraging social capital is the key to moving innovations from their inception, which often happens on the periphery of an organization, to adoption by the blob.

While he was at General Motors, Arena worked on building two different types of organizations: a core that was hierarchical and required traditional talent management, and a second model that was more agile and team oriented. But making both successful depended on ensuring that there were people who would act as bridges between the two.

According to Arena, effective adaptive spaces need people who play four roles, which cannot be found on an org chart but can be identified through network analysis. These roles perform critical but distinctly different functions:

  1. Brokers who are responsible for the discovery of new ideas, which often come from outside an organization. Brokers typically maintain extensive external networks as well being well connected across internal groups. By providing bridges across groups, they have the ability to overcome their natural insularity. A quintessential example of an effective broker is Steve Jobs whose “genius was his ability to synthesize ideas across his network” and bring them back to Apple for development.
  2. Connectors who foster collaboration by forging teams that carry out the hard work of turning ideas into useful products. Connectors are able to build trust within teams that “provides a safe and creative environment for experimentation and iteration.” Within an organization, they are the ones who are most frequently contacted for information and are consulted on making critical decisions. Thomas Edison, who, contrary to popular myth, was not a lone inventor, but rather the inspirational leader of a dedicated team of workers who perfected his ideas, exemplifies the power of an effective connector.
  3. Energizers who encourage the diffusion of promising innovations by “attracting others to an initiative and inspiring them to take action.” They make sure that ideas that have been developed within a cohesive group get attention from others outside the group, giving them a chance to get more widely adopted. Arena cites research by Rob Cross and Wayne Baker that shows that “providing energy outweighs managing performance and information by a factor of four in driving innovation.” “Crazy” Jack Ma, founder and former chairman of the Alibaba Group, is a classic energizer. However, effective energizers are not necessarily leaders, but may be connected to leaders who rely on them to make things happen.
  4. Challengers who have the role of provoking positive disruption within an organization by ensuring that ideas that may seem improbable or subversive have a chance of being accepted and even turned into the “new normal.” Often in a position of leadership, they “enable agility by positively disrupting the status quo and breaking down barriers to progress.” To a large extent, the remarkable growth of Amazon is a result of Jeff Bezos relentless focus on challenging assumptions and driving the company into uncharted territories.

The techniques of network analysis can be used to identify specific people in an organization who play these key roles. For example, one good indicator is the inflows and outflows of information that can be determined by an analysis of email activity. It is not necessary to have access to the content of messages, but simply to analyze email traffic in terms of date and whom messages are being sent to and received from (a website created to support Arena’s book includes a simple 20-minute personal network analysis: www.networkroles.com). Other useful techniques include surveys and the use of “sociometric badges” that track the proximity of wearers to others in the organization.

While network analysis is a powerful tool that can provide “an MRI of how work actually gets done,” Arena added that any effort to leverage the power of networks must be directly related to what an organization is trying to achieve. Looking at an organization from a network perspective can lead to a number of practical ideas about how to promote innovation. For example, when a good idea occurs to someone inside an organization, Arena suggests that it is generally not a good idea to immediately take the idea to one’s boss, who is likely to dismiss it as unworkable or irrelevant. A better strategy is to begin by first sharing the idea with peers. If the idea is able to attract others to support it, and especially if they are genuinely enthusiastic about its potential, it becomes more difficult for a supervisor to kill it. Another insight is that a good way to strengthen the connections between the core of an organization and an innovative acquisition is to take someone from the blob with high credibility and send them out to protect and promote ideas from the acquisition. Finally, to ensure that good ideas have a chance to get rapidly diffused, it is useful to invite individuals who have been identified as energizers to presentations of new innovations because of their ability to promote good ideas (Arena noted that GM did exactly this when it organized internal Shark Tank-type pitch events to showcase new ideas.)

Another useful set of insights based on understanding social capital has to do with what happens to new hires when they join an organization. It generally takes two to three years for someone from the outside to assimilate into a strong organization. But those who are “fast movers” are able to become useful, contributing members of an organization two to three times faster based on a few behavioral strategies that differentiate them from other new hires:

  • Develop connections with opinion leaders in the organization.
  • Rapidly build a broad internal network with cross-functional connections, peer connections and “energized ties” to others.
  • Begin co-developing innovations with others early on, using their newness in the organization to get access to ideas.

John Hagel observed that when promoting innovation, it is advisable not to underestimate the power of a corporate immune system to resist change. Unfortunately, the current business climate that demands consistent positive quarterly results reinforces the resistance to risk taking. Hagel argued that focusing on threats to a business (the “burning platform”) as a means of motivating a willingness to change is much less effective than promoting new opportunities, such as how technology can free up human capacity to work on creating greater value for an enterprise. The best way to drive innovation is through “small moves, smartly made.” This means making one change, then demonstrating its impact on operations before moving to larger goals, recognizing that it may be more feasible and more effective to concentrate on improving operating results rather than immediately expecting to boost income or profitability.


i Michael Arena, Adaptive Space (New York: McGraw-Hill Education, 2018), page 8.
 
 
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