Does Your Organizational Chart Stifle Innovation?
October 18 2013 by David Burkus
Efficient organizations need an efficient chain of command. Well-managed organizations require the supervision of trained managers running their departments and reporting upward to more senior decision makers. While there is a raging debate about how deep or wide the structure of an organization should be, few would argue that the hierarchy should be scrapped all together. For all their efficiencies, organizational charts and hierarchies turn out to be remarkably inefficient when organizations are trying to leverage creative ideas and increase their innovation.
The problem is that the chain of command works well for issuing orders and making decisions. It works so well that creative ideas stand little chance of being utilized unless they’re being shared downward from the top. Creative ideas that come from the middle or lower levels of a hierarchy have to work their way up through a series of managers, each with the power to veto but each lacking the power to implement. Supervisors often reject innovative ideas because the individuals who developed theses ideas understand the novelty and applicability of them better than supervisors. A team of researchers led by Jennifer Mueller recently demonstrated that we even have a cognitive bias against new, innovative ideas. For an idea to be innovative, it needs to be both novel and useful. But when we’re in a period of even slight uncertainty, we tend to favor ideas that can be easily perceived as useful over those that are even slightly novel. As an idea moves through the different levels, the likelihood of rejection increases, since those managers are further from the domain the idea applies to and less likely to understand its true value in that domain. This turns a chain of command into what Vanderbilt professor Dave Owens calls a “hierarchy of no.” Owens, who worked as a designer for IDEO before joining the academy, asserts that the standard organizational structure contains natural constraints that kill innovative ideas.
While the tendency for hierarchies to kill creativity is serious, one company has developed a system to leave the traditional chain of command in place, while still building a culture where creative ideas are given room to grow. The company, Rite-Solutions, a Middletown, RI software engineering and IT solutions firm, did it by giving everyone in the organization $10,000. The money isn’t for spending; it’s not even real. The money is for investing on the company’s internal idea stock market. Rite-Solutions developed a system where anyone in the company can propose their idea by listing it as a stock and soliciting investment. No one needs to get approval from management before listing an idea. For every idea listed, the idea’s champion creates an “ExpectUs” (a pun on “prospectus”) which describes the idea and its potential. Each stock also has a “Budge-It” (a more obvious pun) which outlines the steps the ideas champion believes must be taken to move (or budge) forward. The new stock is given a starting price of $10 and even assigned a ticker symbol. As mentioned, each employee is also given $10,000 in virtual currency to invest in whatever ideas intrigue them. In addition to receiving investment money, each stock listing also has a comments thread for discussion on the merits of the idea and any next steps that need to be considered.
Just like in a real market, investment money flows unevenly to the ideas that investors favor and feel has the best chance of becoming a viable project. But employees don’t just invest money, they also volunteer their time and expertise to help the potential project. Ideas that fail to attract enough interest are eventually removed. Ideas that gain momentum are given actual funding to help develop them into real projects. When a stock moves from an idea to a money making project, those who have invested their time get to share in the proceeds through bonuses or actual stock options. In its relatively short lifespan, the system has already been a huge success. In its first year alone, the idea stock market accounted for 50 percent of the company’s new business growth.
What Rite-Solutions has created is a system for managing the flow of creative ideas without needing those ideas to make a death march through the hierarchy of no. The decision to green light a project doesn’t rest on any one manager or senior leader. Instead that power is distributed throughout the organization to people who are more likely to understand the ideas utility in its domain. If enough people, regardless of their level in the hierarchy, feel the idea has merit, than it is acted upon. This keeps the hierarchy in place, but democratizes the process of innovation. While the chain of command stays efficient, the creative process becomes efficient too.
David Burkus is the author of The Myths of Creativity: The Truth About How Innovative Companies and People Generate Great Ideas (Jossey-Bass). He is also founder of LDRLB and assistant professor of management at Oral Roberts University.