Michael Kandel on distributed innovation processes, the decentralization of decision-making authority and how to maintain stability in the face of change.
innovation places
Mr Kandel, is there a place of innovation in companies?
Innovations are created where knowledge is and where ideas mature. And not exclusively in innovation departments. There, people are strongly focused on innovations. But what's needed is a different horizon, a view from the outside, sensitivity for randomly emerging ideas. For organizations, this means understanding where the content-related expertise lies and where, on the other hand, decision-making authority, responsibility and budgets are allocated. If it's always the same place that approves projects and releases budgets, there should be a holistic competence to be able to assess trends and ideas appropriately. But in today’s world of escalating complexity, no one person or body has that competence. And this is why resources and responsibility must increasingly follow knowledge and ideas in their various forms and manifestations.
Also up to the boundaries of one's own organization, to the interfaces to the network?
Yes. If, for example, we no longer buy cars, train tickets, fuel and insurance in the future, but cross-industry mobility solutions comprising a wide variety of components. In such ecosystems, the question of where innovation takes place – and thus also the shift of resources and responsibility – becomes even more acute. And this process probably requires more trust. But the premises of organizational design are ultimately the same as in a complex company.
Which are the classic barriers to innovation and how can they be overcome?
Innovations that arise within a specific, functional competence – such as in the case of a department head – are usually very strongly focused on the mindset, understanding and knowledge of this person. He or she has the resources, the responsibility and the decision-making authority.
An alternative model is a competence-based approach. Here, experts are given a certain amount of responsibility so that decisions are no longer made solely at the hierarchical nodes. These distributed competences and product ownerships always relate to the current topic, the current project. As new topics emerge, the competences are redistributed always based on who can best evaluated and drive the topic in terms of content.
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„A competence-based approach pools the innovation capacity of the experts that are best suited to the task.“
But if you dispense with hierarchical innovation control – how can you prevent undesirable developments from taking place and resources being wasted?
A regulating function is indeed necessary. The problem, however, is that a company today can hardly assess the relevance of an innovation itself. It needs the broadest possible response for this, preferably quick and concrete customer feedback. It therefore makes sense to test the idea directly with a customer or even to develop it jointly with them. In this way, you can precisely define the solution options for actual problems, but also expose a more radical innovation to an idea or concept test. After that, it's just a matter of shaping the solution.
Of course, you have to have the courage to go to the customer without a ready-made solution, to say, "I don't have a ready-made solution for you. But I have a certain level of experience, know the requirements, have the competences and understand specific mechanisms. We can adapt those together for your system.” In my experience, customers understand this approach. They also understand that markets and technologies are so dynamic today that the perspective changes. You can have a fair amount of certainty in terms of core competences and assets. But you also have to keep turning these into solutions that are new for both sides.
„You have to have the courage to go to the customer without a ready-made solution.“
achieving innovative strength
In this very fluid environment, how do you design an organization that will last?
A central principle is the focus on the added value, the value stream. Especially when you are operating in disruptive, constantly changing situations, you need an end-to-end view and also end-to-end responsibility. Because this is the core of a company, the reason why a company exists. Is added value still in demand? Are new added-value processes required? These questions have a direct connection to the structure and culture of the organization and to the necessary innovation strength. After all, it could be that you have a business model that will probably work for the next twenty years. In this case, the focus of the design of the organization is very much on the efficiency of this added value. In this way, you can establish structures that are also sustainable in the longer term.
These are the formal criteria, are there also cultural ones?
You must have a high level of confidence in your team. In addition, distributed competence and decision-making authority are important, both technically and in budgetary terms, naturally within the framework of well-planned, structured processes. This makes an organization faster because hierarchical bottlenecks are prevented in decision-making processes.
The challenge here is to deal with the difference between responsibility and accountability in the right way. Because it is one thing to assume operational implementation responsibility and quite another to be responsible for the decision and the result. In principle, the modern world only knows escalation as the channel of movement in organizations. This is the mode in which decisions are reached. That's why you can't assume decision-making authority across the board today. You can't simply lay the decision-making responsibility at the feet of the subject matter experts: “It’s your decision now. Get it done.” It's not enough for someone to have the technical qualification and the mandate – we need to train decision-making skills and decision-making competences in a targeted way to both ensure the quality of decisions and prevent employees from becoming demotivated if they also feel the pressure that inevitably comes with the decision-making authority.
„Responsibility and accountability
should always be linked.“
sharing responsibility
How challenging is this process for management, which is expected to hand over decision-making authority?
Of course, you also have to allow management a certain development phase so that they can learn to really hand over responsibility. In hierarchical organizations, that's a sensitive issue because you're still responsible at the next hierarchical level. This requires trial and error, so that at some point one person feels empowered to make decisions and the other can hand over something with a clear conscience. It has to be a very transparent process in which both sides clearly understand the dilemma and resolve it step by step. After all, nothing is worse than putting someone in charge and calling two days later to checklist the decision criteria.
But what if someone doesn't want to play along in this new world of distributed responsibility? What if the inertia of the structures is so high that change initiatives cannot take hold?
That's organizational reality. You can't just tell someone who has a different way of life and has a classic view of their work for decades that they should rethink their job and circumstances. A lot of people don’t want this – which is legitimate from their own perspective. Incidentally, this also applies to managers who cannot or do not want to operate in this new world.
The only problem is that this change is necessary to stay fast enough as an organization. Many large companies recognize this. They also know that they will not be able to implement the change on a large scale at a suitable pace. That's one of the reasons why innovative units are hived off, which often do extremely well. But when the topics need to be scaled, you reach the breaking point of the overall organization, which can prove to be a major hurdle.
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