Creative Destruction: Why Microsoft Can’t Innovate Part 2

So, how do you organize your company for innovation? You need to match the organizational structure to the innovation strategy. Microsoft failed to do that, and that was a big part of the problem.

Let’s take a look at the company’s lifecycle.

In the late 1980s, Microsoft was a fast-growing, high-energy, risk-taking enterprise. They needed a certain management style to implement and create value from their breakthrough innovation. But as the business grew and eventually matured, it needed a different type of management.

By the late 1990s, Microsoft had a hierarchy of managers running its large, complex business. The structure reflected to company’s vested interest in the status quo: They need the Windows and Office cash cows to keep generating cash. If those cows want to graze on the occasional newly-sprouted idea, so be it.

The problem, of course, is that other, more nimble growth organizations started nurturing those new ideas, and finding success.

Strategic Intent: Incremental or Breakthrough?

A key question corporate innovators need to ask is how to nurture ideas so you can create rising star innovations, bring them to market and capture their value, while maintaining the cash cows. How do you foster innovation in a way that’s in line with your strategic intent?

At GE, P&G, Coca Cola and many other successful companies with mature businesses, the intent of innovation is to continue the success of the core business. Although they develop new products, and occasionally new platforms, most of their innovation is incremental. It provides as much growth as the market expects.

With that strategic objective in mind, these companies organize within their existing functional structures and establish cross-functional teams, with management oversight and a phased-review innovation process.

Successful senior managers provide strategic focus and balance the resources for innovation based on their higher level portfolio perspective. They pace the resources based on the progress of the team relative to other innovation investment opportunities.

On the other hand, when the strategic focus is on breakthrough innovation, the goal is to disrupt the market place and gain competitive advantage, drive growth and capture substantial value. Companies successful at this higher level of innovation take a different organizational approach. Some refer to it as Tiger Teams: separate organizations outside the core business.

Tiger teams are fully dedicated, with control over their own resources and process. They may be physically located outside the walls of the parent business, and their leader may be at the CEO level with full budgetary authority. They are not vying for resources with managers responsible for sustaining a huge business like Microsoft Office. They have different decision criteria, performance standards, pace of innovation, and risk environment.

The interesting question is why one of the most successful innovation companies of the past 30 years structured itself for incremental growth in an industry full of breakthroughs. Why did they force start-up growth businesses to compete with internal 800-pound gorillas? It starts with leadership. What drives Bill Gates and Steve Ballmer compared to Steve Jobs? Where are their companies in the business lifecycle?

Steve Jobs is the super product champion driving a growth business by pursing a breakthrough innovation strategy. That’s not what Microsoft is all about. If they want to go in that direction, they need to organize for it.

[Image - Crabapple.net]