Organizational innovation

From CEOpedia | Management online

Organizational innovation is the implementation of a new organizational method in the principles of operation adopted by the company (including knowledge management), organization of the workplace or relations with the environment, which has not been used in a given enterprise so far. These innovations must be the result of strategic decisions made by management. They do not include mergers and acquisitions, even if they were made for the first time. Organizational innovations are not only a factor supporting innovation in products and processes, but they can also have a significant impact on the efficiency of enterprises. They can contribute to improving the quality and productivity of work, intensify the exchange of information or increase the company's ability to learn and use new knowledge and new technologies.

Innovation is usually associated with something that is new, or with a change of something so that it would be better, newer. Innovations may concern various types of processes, phenomena of organizational, technical as well as social or psychological nature.

Innovation can also be understood as:

  • introduction of a new product, which customers do not know yet, or some new brand of it
  • introduction of a new production method - which wasn't applied yet
  • opening a new market
  • finding a new source for raw materials
  • being a new organization

The concept of innovation if understood differently, is the exploitation of new ideas. These ideas are to bring economic benefits, various technological improvements, or better methods of doing something.

Because this concept can be interpreted in different ways, innovations should be divided into two categories. The first one distinguishes technological innovations, i.e. those that relate to the product or concern the production process. The second one is non-technological innovations, i.e. those that concern organizational and marketing innovations.

Product innovations are to improve the existing product, or introduce a new product or service to the market. This improvement is to concern the technical side, materials used for production, product functionality and ease of use. Process innovations rely on a change in the method of producing a product. This innovation may concern the improvement of the existing method or the use of a completely new production method. Companies choose this type of innovation for several reasons to reduce unit production costs, increase product and service quality or to introduce new production or improved products. Marketing innovations concern changes in, among others, product packaging, its appearance, various sales methods, product or service promotion, its prices.

The last type of innovation is organizational, these innovations introduce changes in the internal structure of the enterprise as well as in its connections with the environment. They are intended to improve the company's operation, for example in terms of reducing costs and improving work efficiency. These innovations lead to improvement of both strengthening the position of the company communication with the external environment of the enterprise.

Innovation may be caused by demand or supply. Innovation can be applied within an enterprise or it may refer to the market environment in which an enterprise operates. These applications may refer to either the regional, enterprise, national or international market, or even to the global market. In the process of creating innovations, an enterprise may introduce its own pioneering solution or choose an easier route and apply a solution already tested by another company. Innovation can laugh different roots, it can come from a given enterprise, from outside or it can be the result of cooperation of various enterprises in the process of creating innovations. The process of creating innovation is as follows, at the beginning of course there must be an idea for a new solution. The next stage is to create the concept of an innovative solution. Later, one person or a designated team develops a given innovation. The innovation developed and used in the company is put on the market and sold as a product. It is important to remember that all innovations that relate to the company should above all meet new expectations.

Factors and sub-factors influencing an organizations ability to manage innovation

  • Technology (utilization of technology, technical skills and education, technology strategy) - output of innovation
  • Innovation process (idea generation, selection and evaluation, techniques, implementation mechanism) - means the implementation of a new or significantly improved production or delivery method
  • Corporate strategy (organizational strategy, innovation strategy, vision and goals of the organization, strategic decision making) - defines organization goals and how they impact the innovation process
  • Organizational structure (organizational differentiation, centralization, formality) - how structure of the organization affects the ability to manage innovations
  • Organizational culture (communication, collaboration, attitude to risk, attitude to innovation) - business personality, beliefs, assumptions, values and how these impact the ability to manage innovation within the organization
  • Employees motivation to innovate (employee skills and education, employee personalities, training) - refers to personal characteristic, motivation, how they are affecting innovation management
  • Resources (utilization of slack resources, planning and management of resources, knowledge resources, technology resources, financial resources) - all the resources that the organization has and how they are managed
  • Knowledge management (organizational learning, knowledge of external environment, utilization of knowledge repositories) - the process of innovation depends heavily on knowledge
  • Management style and leadership (management personalities, management style, motivation of employee) - refers to employees who are responsible for the management of the organization, good leadership is significant during innovative processes.

Barriers of organizational innovation

  • Lack of organizational slack - in order to generate new ideas people need space, time and permission. A barrier to the successful implementation of a strategy involving creativity and innovation can be the absence of slack.
  • Bureaucracy - it is not conductive to flourish creativity and innovation. However, it is often introduced in organizations.
  • Structure - it is not easy to identify the ideal organizational structure enable the development of creativity and innovation within the organization
  • Lack of communication- effective communication in an organization is essential because thanks to that creativity and innovation can flourish. Without effective communication the chances for that are very slim
  • Risk aversion - creativity and innovation requires taking risks.

These barriers can be overcome by:

  • Removing fear and increasing trust
  • Incorporate innovation into the performance assessment system
  • Building looseness for staff to discover new opportunities and collaborate with others both inside and outside the system
  • Staff training to scan the environment in search of new trends, technologies and changes both within and outside the organization
  • Encouraging employees and raising awareness about the key importance of diversity styles of thinking, experience, perspective and experience.
  • Developing an idea management system

Examples of Organizational innovation

  • Introducing a new organizational structure: Many companies have introduced flat, matrix, or virtual organizational structures in order to increase efficiency and reduce costs. These structures enable organizations to become more agile and responsive to customer needs.
  • Introducing new roles and responsibilities: Companies may also introduce new roles and responsibilities to streamline processes and improve communication within the organization. For example, a company may create a Chief Innovation Officer who is responsible for researching new technologies and introducing them to the organization.
  • Introducing new methods of employee evaluation: Companies may also introduce new methods of employee evaluation such as 360-degree feedback or peer reviews. These methods allow for more accurate insights into an employee's performance and provide an opportunity for employees to give feedback to their colleagues and supervisors.
  • Introducing new technology: Introducing new technology can help streamline processes and increase efficiency. For example, a company may introduce a cloud-based customer relationship management (CRM) system to help manage customer relationships.
  • Introducing new processes and procedures: Companies may also introduce new processes and procedures in order to improve the quality and efficiency of their operations. For example, a company may introduce a Lean Six Sigma process to streamline their production process and reduce waste.

Advantages of Organizational innovation

  • Improved efficiency and productivity - Organizational innovation can help improve the efficiency of operations by streamlining processes, providing clearer lines of communication and collaboration, and implementing better management structures.
  • Increased profitability - By improving efficiency and productivity, organizational innovation can help increase profitability by reducing costs and increasing sales.
  • Increased customer satisfaction - Organizational innovation can help improve customer service and satisfaction by providing faster and better responses, clearer communication, and more efficient problem resolution.
  • Improved morale and motivation - Organizational innovation can help create a better working environment with increased job satisfaction, improved team morale, and more motivated employees.
  • Increased flexibility - Organizational innovation can help make companies more adaptive and flexible in their operations, allowing them to quickly adjust to changing markets and customer needs.
  • Improved innovation and creativity - By encouraging collaboration and innovative thinking, organizational innovation can help foster creativity and new ideas, leading to new products and services.

Limitations of Organizational innovation

  • Organizational innovation can have major benefits for an organization, but it also comes with some limitations. These can include:
  • The cost associated with the implementation of the new organizational method, including the time and expertise needed to develop and implement it.
  • The potential for resistance from existing staff or stakeholders to the change, and the risk of losing key personnel or resources due to the disruption caused by the innovation.
  • The potential for the innovation to fail, either because it is not properly implemented or because it does not meet the desired goals.
  • The difficulty in measuring the success of the innovation, as the outcomes may not be immediately visible.
  • The risk of an over-reliance on a single organizational innovation, rather than building a system of multiple innovations which can combine to create a more resilient and successful organization.

Other approaches related to Organizational innovation

  • Lean management: Lean management is an approach to organizational innovation that focuses on eliminating waste, improving quality, and increasing efficiency. It involves streamlining processes, reducing inventory, and other measures to produce the desired outcomes.
  • Six Sigma: Six Sigma is a quality management approach that uses data-driven methods to reduce errors and improve quality. It focuses on measuring and analyzing processes, identifying areas for improvement, and implementing changes.
  • Agile methodology: Agile methodology is an organizational innovation approach that emphasizes rapid development, collaboration, and customer feedback. It uses iterative cycles of development, testing, and feedback to rapidly produce high-quality products.
  • Design Thinking: Design Thinking is a customer-centric approach to innovation that focuses on understanding customer needs and developing solutions to meet those needs. It uses creative problem solving and an iterative process to develop innovative products and services.
  • Kaizen: Kaizen is a Japanese term that refers to continuous improvement. It involves making small, incremental changes to existing processes to improve efficiency and productivity.

In summary, organizational innovation typically involves the implementation of new strategies, processes, and systems to increase efficiency, reduce waste, and improve quality. Common approaches to organizational innovation include Lean management, Six Sigma, Agile methodology, Design Thinking, and Kaizen.


Organizational innovation — recommended articles
Innovation and change — Smart organization — Innovation management — Change management model — Innovativeness — Innovation models — Methods in management — Change management — Transformational change

References

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