Organizational Structures to Facilitate Product Innovation

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Organizational Structures to Facilitate Product Innovation

I am often asked “What is the right organization model to facilitate product innovation?” In fact, there is no single structure or program management office (PMO) model that is right for all.  There are, however, certain commonly deployed organizational structures used for innovation and reviewing these models can be instructive.

There are essentially two common structures (centralized and decentralized) and an emerging structure which is arguably a hybrid of both. All three have unique strengths and weaknesses.

Centralized PMO Structure

Strengths

  • Executive corporate level leadership retains greater control over all PMO activities and the increased control is most commonly manifested in greater alignment with corporate strategy. (Tends to be top down driven.)
  • Can have improved speed of change.
  • Goals tend toward larger and with more strategic gain as opposed to incremental business unit or brand sustaining activities.

Weaknesses

  • Programs may not be aligned with unique aspects of business units’ market or geography.
  • Requires business unit buy-in to properly execute programs and politics. Business unit compensation and key performance indicators can even become a hindrance to results unless properly addressed.

Decentralized PMO Structure

Strengths

  • Allows for tight connection with local market changes and activity.
  • Quick enablement to react and respond to change due to close and immediate access to resources in the business unit (budgets, resources, conflict resolution and escalation).
  • Weaknesses

    • Lacks alignment with corporate strategy.
    • Investment pool limited to local business unit.
    • Lacks leverage of technology, best practices, knowledge sources, ideas from across enterprise.

    Hybrid PMO Structure (Employs a centralized PMO supported by a matrix PMO structure embedded in and reporting to the local business unit up to the corporate PMO)

    Strengths

    • The biggest benefit is strategic alignment up, down and across complex enterprises around innovation process, performance and execution. The enterprise identifies the few high-value enterprise initiatives that require all business units’ involvement to realize big strategic value.
    • Allows the local business units to own both the corporate initiatives as well as drive their local initiatives through PMO.
    • Improves speed of change across large complex enterprises as set by corporate level leadership.
    • Greater leverage of ideas, technologies, best practices, knowledge sources and programs across the enterprise.

    Weaknesses

    • The enterprise must address the balance of initiatives (enterprise and local) during annual operating planning process with quarterly iterations to react to market. This can be tricky if not handled properly (potential risk).
    • Cannot execute efficiently without a system that links the enterprise for speed, sharing, resource allocation and tracking for best practices. The system must serve both local needs as well as extract corporate tracking metrics for enterprise transparency and decision making. Without a system, it can be too disruptive to the business units.

    In subsequent posts, I will explore the suitability of each structure for various firms’ innovation maturity and aspirations.

    2016-12-14T21:01:04-05:00October 22nd, 2013|

    About the Author:

    Ed Herzog
    Ed has over 20 years’ experience in consumer goods innovation gained on both sides of the desk with Sara Lee, Quaker Oats, Pillsbury and Sopheon. He has authored other articles on innovation in consumer goods industries.

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