Innovation within an organization actually can take many different forms. And so we're going to ask the question now, what organizational forms do innovation venture units take? These are units within an organization. And so we're going to look at the importance of organizational design and fit. Where do innovation units actually go and how do they get the position within a firm. They need to be positioned to leverage resources and to have the innovation fit with the firm's operations that enables it to actually have it inside the organisation And innovation fit within a, the front strategy actually enables it spill out an external venture. And so, sometimes you're going to have an internal innovation initiative and sometimes you're going to have an innovation initiative that goes outside of the organization and what you going to do is understand how it might fit Within the organization. And so we're going to look at two basic organizational design factors. One is called strategic importance and how it aligns with the innovative idea and the firm's mission purpose. And so, you want to look at the question of how closely couple is the innovations idea that you have somebody bubbles up inside the organization To the main products and services that the firm actually produces. So, how does that idea aligned with the strategy of the firm. The second question relates to what we call operational relatedness and here we're looking at the way an innovative idea Fits with the firm's functions and activities and how it produces value and how it reinforces the firm's activities. So questions that come up there are how closely related are the production requirements of this innovation idea? How does it line up with what the firm actually does? And so we're going to ask a couple of different questions about this. So with a round strategy and design fit, we can ask ourselves, are performance rewards consistent with what happens? Will it put the firm at risk by trying out this new, innovative idea? Will I need to recruit/hire/fire perhaps some employees? Are new reporting relationships required? And what levels of resource allocation will it require? And how is it aligned ultimately with strategic objectives? And so with this strategy alignment you want to ask these questions about how it fits. And from the operational perspective, you want to ask how does the idea and execution of this idea integrate with the workflow that we're normally doing in our organization? And are there any new requirements? And is there an extra cost for adapting to it? And do we have the skills to actually execute it? And is there a process dependency? In other words, if you have an innovation that requires a certain type of process and you're running a process in your organization operationally that is very different, you want to ask, how does that fit in? And finally does this idea facilitate some kind of information exchange that maybe you have the knowledge within your firm or maybe you have to go outside the firm. And so these are the kind of questions you need to ask that will ultimately lead you to considering one of these nine possible organizational formats. And so you see here, in this diagram, it's a matrix of nine different organizational types that are aligned to either strategic importance along the bottom, where the left-hand column is very important strategically It's uncertain in the middle column or in the right hand column it's not important strategically. And along the vertical axis you have operational relatedness. And the first row is unrelated, the middle row is partly related and the bottom row is strongly related. And so there's a breakdown the pattern of how these different organizational forms can shape an innovation venture that is either strategically important, highly physiologically or highly operationally related. And so we're going to look at each one of these things. So first, let's look at what we call direct integration. This is where the venture fits very closely with both the existing operation and the strategy of the firm. And so, some example of that would be we have just basically a product modification or an extension of some product that you already are producing. That offers integration value to users or customers. So, that's direct integration. New product department is where you have an innovative project that requires some sharing of skills and abilities that already exist in the firm. So, you have a basis for a new product that you have some resources that you can build on. So some example of this might be automotive innovations that are developed with specific and identifiable support exist automated sensing or breaking systems already that exist, let's say are be manufacturing company. So that's a new product development. A special business unit is where you have high strategic importance but low operational relatedness. In other words you have an idea that isn't related at all to what you do, but it's very very important to use strategically. And sometimes these business units are typically wholly-owned by a parent corporation. So an example of that would be IBM's use of special business units to for instance enter the personal computer market back in the day. Or any other organization that spins off a business unit that's highly related to its mission. A fourth area is where you have what we call a micro new ventures department. This is where there is uncertain or unclear strategic importance. You're looking for whether or not you might have strategic importance but you don't really know, you’re trying to discover that. But you also know that you have high operational relatedness. And so you’re going to limit the risk of what you're going to do by aligning it to your operational relatedness, and look at what the possible strategic alignment might be. And so here this is useful for incubation of some peripheral projects that's not directly aligned with a firm's mission. But it has easy relationship to the way in which the firm is operating. A fifth area is a new ventures division, and this is where you have strategic importance of a venture idea remains uncertain for now. You don't really know where this idea is going to go. It may have potential later on, or new venture divisions. Typically would operate under tight control because they don't really know how much resources they're going to devote to this. So in this case you might have an example where you're going to create a new business area over the 10 or 15 year horizon, or maybe a 5 to 10 year horizon where you don't really know for sure what's going to happen. But you have a good hunch that this might be strategically aligned at what you're doing. So that's the new ventures division. An independent business unit is where a strategic Importance is actually uncertain and there is very little dependence on the operational relatedness. So, this is where one of the typical examples. Let's talk about in three young where they could start a games division. Well, that is highly unrelated to what they do as a business but, it might be something that they would they might go after in the long run and so and example here of where you have independent business. This is where in banks and insurance companies you actually can form venture capital investment units. Where you have cash available and it's very different then what the fundamental purpose of banking or insurance is about, but it's venture capital investment for new businesses, that's something new and different. You would run that as an independent business unit, separate from the parent corporation. A seventh area is where you have what we call nurturing and contracting and this is where the venture idea is less important to the firm strategy, but it's strongly related to the operational capabilities and skill for the firm. I know that you have core confidence in the firm, but you don't know quite how it's related to your overall business strategy. And so the example here would a parent firm. Who embraces the relationship of some innovative newcomer, or some innovative employee, or some innovative manager within the firm. And so, in this case, the parent firm may decide to nurture that idea and allow it to grow. But they may decide to subcontract it. With some others, maybe even a competitor or they might even hold a minority position in the venture and allow it to be done on a contact basis. contracting out is where the decision or organizing this way occurs where required capabilities and skills of the new business are less related. They're not connected to basically the alignment of the business or the operational activities of the business. And so here a parent firm may actually hold a minority interest in some venture that they actually contract out. And so they are interested in making it happen, and sometimes they facilitate that activity, that contracting out, by allowing somebody maybe within the firm, who have the expertise to do this to become a entrepreneur, taking the business outside the company. Complete spin-off is where you have really strategic importance and operational relatedness are both low or unconnected completely. And so these kinds of situations foster exits by employees. This is where somebody has an idea that's not related to what the primary purpose of the firm is, and ultimately decides to take that idea and go elsewhere, and start a separate business. So here again we have a look at these nine formats. For innovative venture activity and as you can see again, you see the alignment to where operational relatedness is on the left hand side and strategic importance is on the bottom. And each of these unit, types of units, these types of organizational formats fit in to a pattern that is appropriate and sometimes where you can see on the left hand lower left hand side direct integration, this is something the firm can really do and should do as opposed to on the upper right hand corner where you have a complete spin-off. This is probably something where the firm should not be doing that so decisions are made about innovative ideas and entrepreneurial ideas within the firm that fit into one of these categories, and so this is a convenient way of classifying them. And so the takeaways here are that actually many firms, the established firms particularly, they face challenges when taking on an innovative idea. How does it match to what they do, normally? How does it match to their strategic interest and their strategic purpose? And so these nine organizational formats actually offer ways to consider the possible outcome and the possible formation of ways in which you can carry an innovative idea.
