Is Organizational Structure The Secret to Innovation?

Just about everyone wants more creativity and innovation these days. But what’s the secret to getting it?

While most companies agree that innovation is vital, few actually spend time creating structures or devising rewards systems hinged on creativity. Many leaders also struggle with the fact that innovation comes from culture, something that’s hard to measure or manage.

Physicist and biotech entrepreneur Safi Bahcall argues in Loonshots: How to Nurture the Crazy Ideas That Win Wars, Cure Diseases, and Transform Industriesthat the secret to creativity as actually organizational structure versus anything else. To Bahcall, the goal is to create a structure where you get people motivated and incented to go for “loonshots,” crazy ideas that ultimately turn into big innovations.

Bahcall’s book argues that the first step is to balance innovation with execution. Being good at radical innovation and being good at execution (consistently getting products on time and on budget to customers, for example), are two different “phases” of how companies must organize, just like water and ice are two different phases of matter.

Bahcall says that when it comes to creativity, companies need to separate the “artists” who do primarily creative work from the “soldiers” who focus on operations and execution. Leaders need to learn to love their artists and soldiers equally–a lesson that’s grown more urgent as companies glorify innovation and pay little attention to the regular Joe who gets the job done. Companies need to focus their attention on the transfer between the two groups–the greatest failure point in innovation–not micro-manage technologies or products. And, finally, as Bahcall says, every executive needs to lead “like a gardener, not a Moses.” In other words, they should tend to the care and feeding of the artists and soldiers rather than commanding their choices.

Separating the artists and soldiers is just the first step in creating the right structure for sustainable innovation. The next is to go deep into the incentives that drive behavior.

If people are paid mostly based on their rank in an organization, what will be the result? Politics. They’ll jockey for status and shoot down their colleagues’ “loonshot” ideas, the ones that are dismissed as crazy but turn out to be very important. Since those ideas always look flaky in the beginning, they’re easy to ridicule.

If, on the other hand, people are paid more on results than on rank, what will they do? They’ll focus on making those crazy ideas succeed.

In true physicist style, Bahcall introduces a formula he calls “The Innovation Equation,” which offers four parameters companies can use to tilt the balance in favor of innovation and away from politics. The parameters are:

• Equity Fraction: the fraction of compensation tied to project outcomes vs. tied to rank
• Fitness Ratio: the ratio of two measures–how well employee skills are matched to their projects, and how much politics matters to promotion decisions
• Management Span: the number of direct reports that executives of the company have
• Salary Growth: the increase in salary with promotion

Loonshots also advocates for a new executive position: The Chief Incentives Officer. That might be a real loonshot for some companies–but sometimes those are the ideas most worth trying.