Innovation in Purpose-Driven Organizations Professor Jesper B. Sørensen

Stanford Graduate School of Business What Happens to Innovators in Your Organization?

Stanford Graduate School of Business Bureaucracy vs. Creativity? Bureaucracies … “lead to an over- concern with strict adherence to regulations, which induces timidity, conservatism, and technicism.” -- Merton 1968 “[R]ationalized and specialized office work will eventually blot out personality, the calculable result, the ‘vision’” -- Schumpeter 1950 “[T]he bureaucratic method of transacting business and the moral atmosphere it spreads... exert a depressing influence on the most active minds.” -- Schumpeter 1950 Are large, established firms where great ideas go to die?

Stanford Graduate School of Business Our images of organizations

Stanford Graduate School of Business What happens to creative people and ideas?

Stanford Graduate School of Business Where Do Innovations Come From? One view: Important innovations are rare, and the product of individual genius An alternative view: The structure and policies of organizations facilitate the discovery of breakthrough innovations Some organizations consistently generate breakthrough innovations: How do they do it? How do organizations generate and retain ideas? How do organizations learn?

Stanford Graduate School of Business Organizational Learning Understand learning through simple model of the stages of organizational innovation Variation: Discover new ideas Selection: Choose between new ideas Retention: Disseminate and preserve chosen ideas Link these stages to organizational policies and practices – and their strategic imperatives

Stanford Graduate School of Business Stages of Organizational Innovation VariationSelectionRetention

Stanford Graduate School of Business Exploration vs. Exploitation Organizations can, through their policies and practices, choose different balances between the elements of organizational learning Two “ideal types” of organizational learning reflect different extremes Exploration: Discovering new things to do Exploitation: Getting better at the things we already do

Stanford Graduate School of Business Exploration vs. Exploitation Variation Selection Retention Organizational Resources and Attention Devoted to Different Phases of Organizational Learning Exploration Exploitation

Stanford Graduate School of Business Prototypical Explorers

Stanford Graduate School of Business Elements of an Explorer People CreativeCuriousFlexibleCollaborativeQuirkyIrreverentT-shaped skills Structure Little hierarchyProject teams Very broad role definitions Broad participationRotating project leaders Rapid prototyping and testing Culture DemocraticNever say noCelebrate failuresOptimismEmpiricistPlay

Stanford Graduate School of Business IDEO is a Well-Designed Machine, Too

Stanford Graduate School of Business Organizational Alignment PeopleStructureCulture You can’t just pick and choose elements you like

Stanford Graduate School of Business Organizational and Strategic Alignment PeopleStructureCulture Strategy

Stanford Graduate School of Business Implications It’s not a candy store. Look at things holistically The elements of organizational design have to be chosen with an eye to their alignment with other elements – and with the organization’s strategy Be wary of claims about best practices There are real tradeoffs between exploration and exploitation Due to demands for organizational alignment Due to demands for strategic alignment

Stanford Graduate School of Business What’s an Exploiter to Do? Most successful organizations have organizational models aligned with exploitation Yet they also want and need more exploration How do you prevent exploitation from going too far… … without losing the things that make you successful?

Stanford Graduate School of Business The Importance of Selection Processes How you choose between projects affects future variation potential Wild ideas are never generated if people think they won’t be pursued Managers who say “No” get the blame: Effort and commitment suffer More market-like selection mechanisms encourage future variation 3M: “Make a little, sell a little” Google: Google Labs

Stanford Graduate School of Business The Importance of Leaders Most innovations start out ill-formed, imperfect, incomplete Look for the potential. Ask “What if?” Be clear about the shortcomings Encourage solutions Learn the difference between “No” and “Not now.” Experiment. Use prototypes. Get evidence. Accept (celebrate!) failure, and learn from it. Make wins and losses collective.