Organization design for open innovation

3 minutes read

How to organize for open innovation is first and foremost an organization design question – once the strategic direction has been broadly defined. This is especially true when corporates want to work with start-ups instead of just investing in them. It’s most relevant in areas that go beyond the given innovation processes and technological capabilities of incumbent firms, such as digitalization.

How can corporates and start-ups benefit from each other?

Corporates want to work with start-ups in open innovation settings so that they can combine the best of both worlds while avoiding their downsides. The goal is to identify new people, capabilities, ideas, and ways of doing things that would be hard to do within the traditional firm boundaries. And at the same time, they try to leverage their resources, knowledge, and brand to increase the likelihood of entrepreneurial success.

How do you organize for such an approach? Embedding a team that’s pushing a radical new idea within corporate processes and structures is unlikely to work for several reasons: if the initiative threatens the status quo, the agents of this status quo won’t like it and won’t play accordingly. And people will notice if the initiative fails to meet given success criteria and metrics. Or if the initiative is too small, decision makers will find it hard to focus on and it won’t get enough attention. On the other hand, simply investing in a start-up won’t provide you with the opportunity to be part of the start-up’s learning journey, with positive feedback loops for your core business.

It’s exactly this motivation to partially integrate entrepreneurial innovation modes with existing resources that’s behind initiatives such as Swisscom’s Pirates Hub, Siemens’ next 47, or the Open Innovation Space created by FabLab Berlin and German med tech player Otto Bock.

Create “third places”

Each of those initiatives has its own logic. From an organization design perspective, however, the approach is to build something that I call “third places”. Third places are neither inside nor outside the corporate structure. They don’t belong to the start-up nor do they belong to the company – rather they span the boundary. Third places provide platforms where the two worlds can meet for their mutual benefit. They represent a unique organizational structure posing its own managerial challenges.

How do you organize for open innovation, building, and leveraging third places? We suggest working along three dimensions of organization design to get to an answer that fits the unique circumstances of a chosen innovation strategy:

First, space. Third places should have their own unique space, which is clearly not part of the corporate standardization cosmos. This space should be open to absorbing the functional requirements and dynamics that result from the start-up/corporate interaction. It should allow absorption of new initiatives and facilitate self-organization in terms of furniture, surroundings, and design. And from the corporate point of view, it should be obvious to anyone entering that this is not “internal”, even though there might be privileged access and spatial proximity.

Second, organizational structure. From the corporate perspective, third places will not be fully integrated into corporate decision making and chains of command. Rather, there will be a liaison and project logic, combined with a high degree of autonomy for decision makers involved with third place initiatives.

Third, communication platforms. Third places will be open to relevant stakeholders and communities. They provide opportunities for more informal exchange than might be customary in the corporate context. They can be the locus for learning initiatives and events that showcase progress, “successful failures”, and relevant outside guests – each of which might raise concerns of fit and legitimacy in a fully routinized organizational context.

Building third places implies giving up control to a community of involved stakeholders while co-curating the varied inputs into a unique and valuable whole. And it requires a varied and skillful approach towards organization design and managing.

To learn more about how we approach management learning and organization design, check out our kits and our workshop offerings.

Tushman, M., Lakhani K. & Lifshitz-Assaf, H (2012): Open Innovation and Organization Design, Journal of Organization Design 1(1), 24–27.