Structural strength a key driver of innovation


The notion of the solo inventor in the popular imagination is largely a myth: as I’ve discussed here before, breakthroughs overwhelmingly grow out of collaboration, teamwork and the free dissemination of ideas. And that’s even more true of innovation than invention.

So if innovation comes about when people are working together, it’s worth considering what sort of organisational structures best foster innovation. How best do you arrange groups of people to get the most innovative results, and most efficiently? How do you create structures that can best incentivise many different people who might have entirely different personalities and motivations?

Organisational structures are critical to getting the right results: consider them the foundations upon which a company’s future ability to innovate will rest. If the foundations are faulty, or turn out to be ill-suited for challenges that arise down the line, then it’s a major effort to dig them up and rebuild them.

That was probably the key lesson to be taken from the recent organisational overhaul at Microsoft. In a long, turgid memo last month, chief executive Steve Ballmer announced a major restructuring of the software giant’s corporate organisation, “a far-reaching realignment of the company that will enable us to innovate with greater speed, efficiency and capability in a fast changing world”. Basically, Ballmer is shifting Microsoft from a divisional structure, where the likes of Windows, Office, XBox and Windows Phone are independent entities in competition with one another, to a functional one, where units are divided by purpose rather than product.

“We are rallying behind a single strategy as one company - not a collection of divisional strategies,” he wrote. “We will see our product line holistically, not as a set of islands. We will allocate resources and build devices and services that provide compelling, integrated experiences across the many screens in our lives, with maximum return to shareholders.”

The problems Microsoft faces as the world moves swiftly to a post-PC computing environment are many and complex, but you can probably add “executive jargon delirium disorder” to the list - if Ballmer’s general leadership is remotely as platitudinous and insipid as his strategic vision, the Redmond giant is in serious trouble. Going forward, obviously.

The missive was brilliantly picked apart by the ever-astute Ben Thompson, a former Microsoft employee who is all too aware of the internal politics at the company. He points out that the differences between divisional and functional organisations are not just about how products are developed and how profits are calculated, but extend deep into the fabric of the company, affecting the types of people who work there, what incentivises employees to do great work, the dedication to the company at large, and so on.

The most successful large functional company is, of course, Apple. The structure Steve Jobs restored when he returned to Apple in the late 1990s is the type that Ballmer is trying to replicate now. But there is a major obstacle in his path - divisional organisations are driven by internal competition between units, while functional organisations are driven by co-operation between units. Ballmer is trying to build an entirely new structure on completely inappropriate foundations.

As a result, Thompson feels the odds of success at Redmond are slim. “I believe collaboration is fundamentally broken at Microsoft. It is all about politics, not great outcomes, and that is absolute death in a functional organisation, which has nothing but collaboration to hold together cross-functional product teams,” he writes.

One organisational structure that is neither functional nor divisional was discussed by writer and video game developer Michael Abrash last year. Abrash (also a former Microsoft employee) was writing about the hierarchy of his current employer, the hugely successful digital gaming studio Valve. Or rather, he was discussing the lack of hierarchy: at Valve, there are founders, but there aren’t really any bosses. It might sound like a radical utopian dream, but staff are free to work on what they want to work on and prioritise what they feel is most important.

“If most of the value is now in the initial creative act, there’s little benefit to traditional hierarchical organisation,” Abrash wrote. “What matters is being first and bootstrapping your product into a positive feedback spiral with a constant stream of creative innovation. Hierarchical management doesn’t help with that, because it bottlenecks innovation through the people at the top of the hierarchy, and there’s no reason to expect that those people would be particularly creative about coming up with new products that are dramatically different from existing ones - quite the opposite, in fact.”

In that sort of highly creative industry, then, the best sort of foundation is to have no real foundation at all - just lines, sketched out on the ground in chalk, rubbed out and redrawn as necessary. Whether that approach has real value in other fields is open to question, but I suspect we’ll find out when more and more companies adopt and adapt the approach for themselves - but it would be fascinating to see how disruption in organisational structures might lead to sustainable innovation and creativity.