Are You Networked for Successful Innovation?

Research and development projects fail more often than they succeed. In fact, out of every 10 R&D projects, five are flops, three are abandoned and only two ultimately become commercial successes.1 These statistics are certainly daunting for any organization making substantial investments in R&D.

A principal problem in managing innovation is that many companies don’t know how best to organize their labs to succeed. A classic hierarchical structure, for instance, tends to impede the rapid spread of knowledge. Its inefficiencies can be absorbed, to a degree, by allowing informal structures, such as social networks, to compensate. An alternative structure is the matrix organization, but it too has its shortcomings. Matrix organizations can suffer from information logjams, confusion and conflict, with the overlap of responsibilities resulting in “turf battles and a loss of accountability.”2 These sentiments have been echoed in a recent survey of new organizational forms by The Economist magazine.3 The conundrum remains: What type of organizational design will create and sustain a learning organization in which people share knowledge quickly and willingly, a design that will successfully address the tension between too little versus too much structure?

To answer this question, I conducted an in-depth study of six R&D projects at the laboratory of a Fortune 500 corporation (henceforth referred to as “Global East”). Among other factors, I investigated the social networks at the facility. (See “About the Research.”) Employees tend to form different informal networks depending on the types of relationships they maintain and the content of the information they exchange. These include friendship networks, professional-advice relationships, gossip-exchange circles and so on. In my research, I was concerned with the effect of multiple social networks on R&D projects and with the content of the information and communication flow that is specific to a technical environment. I was especially interested in the relation between the informal social networks and the formal organizational structures in place.

 

Four Social Networks

Workers interact with each other in myriad ways. In my study, I focused on four types of social networks. Instrumental networks map the relationships between individuals specifically with regard to work-related content, such as the transfer of physical, informational or financial resources.4,5 To uncover these connections, I asked respondents to identify the co-workers with whom they “primarily talked about problems that arose in the course of the project.” Expressive networks are marked by friendship and social support. Such relationships are not addressed by an organization’s formal structure, rules or procedures because they do not directly involve work-related attitudes and behaviors.6,7 To investigate these ties, I asked respondents to name the colleagues (especially those they socialized with outside of work) with whom they “felt comfortable discussing what is going on in the organization in general.” These two types of networks — instrumental and expressive — have been the object of thorough examination in numerous past studies.

In addition, I investigated technical-advice networks, which include the channels through which the scientists, engineers and technicians obtained advice on technical issues as well as organizational matters (regarding, for example, project scheduling, assignments and coordination). I asked the respondents to name the people in the organization to whom they turned when they needed “someone with technical competence and skills.” (Note: A technical-advice network maps the relationships that people tap to solve specific problems. It differs from an instrumental network, which presents a broader view of how work-related content is more generally exchanged.) Lastly, to investigate organizational-advice networks, I asked participants to identify the people they turned to when they needed “someone with organizational competence and skills.”

I also asked the respondents to elaborate and provide concrete examples in their answers to the four social-network questions. An analysis of the data helped identify the lab members who occupied positions of centrality in each of the four networks. Through extensive qualitative interviews, I explored the respondents’ understanding of why some projects turned out to be highly successful and others not, and I investigated the role that each type of social relationship played in the process of technological innovation. The interview questions also delved into the projects’ histories, objectives, time frames, budgets, leadership, communication patterns and ways of coordinating activities.

Lessons Learned

Highly successful projects had four crucial factors that acted in conjunction and reinforced each other.8 The first was strong and sustained project support from the company’s corporate management. For one highly successful project, a divisional vice president was listed as a sponsor and that individual participated in the decision-making process. Furthermore, no strict budgetary constraints were imposed on the project. A project considered much less successful had no high-ranking corporate officer who took a direct interest in the work, which translated into a lack of financial support needed for additional testing.

The second necessary condition involves open communication patterns and a low degree of formal reporting. At the Global East lab, the standard practice is to have members work on several projects simultaneously, and people are expected to help one another solve problems. The nature of the work requires that everyone must have access to each other and be knowledgeable of another projects; open, informal communication channels help to achieve this. They also serve as an awareness mechanism. Managers, engineers, technicians and researchers keep each other informed about the technical problems they encounter and the solutions they find by freely trading such information without the fear of being perceived as incompetent or punished for mistakes. One resulting benefit is that people can avoid duplicating the work of others.

Beyond those two necessary conditions, R&D teams also must have members who are networked in specific ways. Interestingly, people in the study did not explain project outcomes in terms of either the instrumental or expressive social networks. Instead, in their narratives, they cited only the informal advice networks —both technical and organizational — to explain how and why a project succeeded. (See “Technical-Advice Network” and “Organizational-Advice Network.”) This leads to the third and fourth crucial factors: R&D project teams must include a “technical star” and a “managerial star.”

Technical Stars The presence of technical talent benefits projects and the overall organization in three distinct ways. First, it facilitates communications, ultimately leading to greater efficiency.9 People with deep technical skills and expertise are able to speak and translate different “technical languages,” greatly easing the flow of information. These skills also help minimize misunderstandings as well as duplications of tests and procedures, thus conserving time and resources.

Second, the value of technical stars in an R&D organization clearly transcends any project’s boundaries. That is, not only are technical stars vital for particular projects, but also they contribute to the present and future technical success of the R&D facility, thereby enhancing that laboratory’s reputation within the organization and, by extension, the reputation of the organization within an industry. As such, technical stars help earn the respect of corporate management, often guaranteeing that a particular facility will be awarded challenging and highly visible future projects — along with the necessary resources.

Third, technical stars help create a much-needed sense of stability. This can be especially important in a fast-paced, highly competitive industrial environment. In critical situations, people with deep technical skills and expertise are looked upon as time and effort savers, as efficiency managers and as “islands of sanity.” The success of many R&D efforts is the result of trial and error. A good engineer is better able to determine what might work and avoid wasting time pursuing technological dead ends. On high-profile projects for which failure is not an option, financial resources may be abundant, but the timetable is often inflexible. That is, extension of a deadline frequently cannot be justified even if the additional time is likely to result in the creation of important new knowledge. The pressure is colossal, emotions are taxed, and team members have a great need to trust someone’s technical expertise. For such projects, technical stars are invaluable for helping to establish a work atmosphere that conveys to team members, the rest of the laboratory and the company’s management the important message that, although things are hectic, the daily work and overall progress are under control.

Managerial Stars Managerial stars help projects run efficiently and smoothly. Here, the word “managerial” does not necessarily refer to a person’s ability to lead and oversee a group. Instead it refers to certain competencies at the project and company level. At the project level, these skills are multifaceted, defined by one member in the lab as the “ability to quickly find the right parts and materials, to get the best provider, to make sure the equipment is available, to know everything that there is to know about a particular product line, to procure the things we need, to organize the process so that the work is uninterrupted.” At Global East, Nick is clearly the central person in the organizational-advice network at this level because he “keeps the place running” and “does it in a way that is fair to everyone.” (See “Organizational-Advice Network,” p. 53.) Nick is able to accomplish this “because he has the right connections in the company and outside [with manufacturers and suppliers].”

At the company level, the set of organizational competencies and skills is defined as “being well connected within [Global East] and outside,” “knowing how to play politics,” “upholding the image of the facility” and “knowing whom to talk to.” Tom and Olga are the laboratory members who possess such skills, and they are particularly adept at securing corporate support for a project, which, as discussed earlier, is one of the four necessary conditions for project success. People like Tom and Olga help ensure that worthwhile projects (that is, projects that make financial sense and have the potential to strengthen a company’s reputation) aren’t neglected. Because of this, their skills to persuade the decision makers are crucial for the success of a particular project and for that of the organization.

Converting Actual Relationships into Prescribed Ones The presence of all four factors will not, by default, result in a successful project. Not only must each of the four conditions be met, but also they must interact to reinforce each other in certain ways. The big question is, how?

According to Putt’s Law, “Technology is dominated by two types of people: those who understand what they do not manage, and those who manage what they do not understand.” In other words, good researchers do not necessarily make good managers, and vice versa. Indeed, many brilliant scientists and engineers have been promoted to managerial positions only to perform abysmally at that level. Such organizational realities are fittingly captured by the well-known Peter Principle, which states that people in hierarchical organizations tend to be promoted to their level of incompetence. Yet what is also true is that the survival of companies that need to be technologically innovative is contingent on their having both technical and managerial talent. Furthermore, as has previously been suggested, it is the relationships among the people with the appropriate knowledge and competence on the project that matters, not simply the fact that these people are assigned to a project.10 Thus an organization needs to ensure not only that the right people are on a project but also that these individuals have the right roles and responsibilities. The following two steps can help in that process.

Step 1. Identify the hubs of the technical- and organizational-advice networks. When asked to explain to an outsider how a company functions, a manager typically will pull out a formal organizational chart and describe the reporting relationships. When pressed, though, the manager will often follow that description with a remark along the lines of, “But that’s not how this organization really works.”

To identify the actual paths of information flow, a company can use the techniques of social-network analysis.11 The resulting social-network maps will help uncover the focal individuals in a group. At Global East, for example, the people whose technical advice and expertise are most sought after are Fred, Tom, Olga, Natalie and Ted (see “Technical-Advice Network”). For organizational advice, there are just three hubs: Tom, Olga and Nick (see “Organizational-Advice Network.”) It is important to note that the central roles these individuals play in the lab’s advice relationships do not necessarily reflect their formal positions (see “Formal Structural Chart.) For instance, Natalie is listed as number 3 in group I, following the senior researchers Ariel and N3. Ted, an engineer from group III, is found even lower in the formal hierarchy. He is listed as number 4, the last engineer before the trainees and technicians. Such discrepancies should be addressed in the following step.

Step 2. Assign positions, roles and responsibilities that reflect people’s centrality in the technical- and organizational-advice networks. On the highly successful projects at Global East, the people who are central in the lab’s technical-advice networks are the project managers and are responsible for technical issues. The individuals who are central in the laboratory’s organizational-advice network are assigned to projects either as co-managers or as members, and their areas of responsibility cover managerial logistics (budget and time management, coordination of tasks and operations, and so on). This was not the case for the one project in the study that wasn’t as successful. That team had a technical star but lacked an organizationally central person.

At Global East, the number of managers on each project is determined by the project’s technical and managerial complexity and the availability of people who can fulfill these demands. If the lab has someone whose level of technical skills, expertise and experience match a project’s technical nature and goal, then that person can be assigned to the project as a technical manager regardless of his or her position in the lab’s formal structure. If that same person is a managerial star as well (or if the project requires only routine management skills), the project is assigned just one manager.

On the other hand, if no one with the required technical and organizational competencies is available, then two managerial positions are created. The areas of responsibility for each will coincide with the areas of strength of both individuals. In two highly successful projects in the study, for instance, technical star Fred was appointed technical manager, responsible for all decisions concerning the technological approach, the types of testing, the technical parameters and so forth. Nick, one of the three managerial stars, was assigned to both of these projects as co-manager. His areas of responsibility included budget and time management, personnel assignments, machine and testing scheduling, and dealing with suppliers. The needs of the two projects were met by a complement of Fred’s and Nick’s respective strengths.

In such ways, Global East has entwined the informal and formal structures in its R&D facilities. Both human capital12 (technical and organizational knowledge and skills) and social capital (relationships and connections among members and the trust and reputation they create) are interwoven into the formal structures of projects. In other words, the actual relationships are converted into prescribed ones. The process gives rise to several distinct benefits.

First, lab members aren’t forced into organizational boxes that prescribe behaviors and responsibilities inconsistent with their human and social capital. Put differently, the Peter Principle is circumvented as people are not promoted to their level of incompetence. This helps minimize not only an individual’s frustration but also that of the people he or she must work with or manage.

Second, the organization can capitalize on the benefits of informal networks and the social capital that originates from them. Prominent among these are increased efficiency through the coordination of critical task interdependencies,13 better access to information,14 greater learning opportunities15 and increased respect, trust and trustworthiness among people.16

Third, converting actual relationships into prescribed ones helps to legitimize the authority on specific projects as well as within the organization as a whole.17,18 Specifically, the incorporation of human and social capital within the formal structures of projects helps to validate the formal authority of each of the project managers by eliminating possible discrepancies and tensions between the formal and informal lines of command. As has been aptly pointed out, “Legitimacy does not come with the job; it has to be established.”19

Fourth, intertwining the informal and formal structures in an organization helps encourage the speedy exchange of quality information among relevant parties, as opposed to between any parties. This improves the decision-making process at the individual, project and laboratory levels. It also helps maximize the utilization of organizational and project resources because of the overlap between the formal and informal decision-making channels. As a result, important resources — including time, money and man-hours — are conserved, and performance improves.20

Fifth, resources can be deployed more effectively. When human and social capital is embedded both behaviorally and structurally within an organization, the result is greater utilization of these resources. And when both human and social capital is mobilized so that neither stays idle, this in turn provides better access to financial capital.21,22 At Global East, technical and managerial stars are highly visible within the laboratory and on the projects in which they participate. They are also the people who occupy key positions in the formal organizational and project structures, and their legitimacy transcends boundaries because their expertise and services are often requested by other groups. Global East increases the utilization of its human and social capital while avoiding the duplication of roles and responsibilities. The result is that the overall social capital of the lab grows, which then increases the likelihood of corporate support on future projects.

The Culture to Succeed

The four critical conditions of R&D project success — support from corporate management, open and direct communication channels, and the utilization of technical as well as managerial stars — are interrelated, often acting to reinforce each other. At Global East, technical and managerial stars (as well as all other lab members) are expected to help one another by sharing knowledge freely. The mind-set is that people should care about the success of the laboratory and not just about the progress of their own projects.

This type of culture does not arise out of serendipity; much of it has to do with how a group is organized.23 At Global East, people tend to work on multiple projects simultaneously, and the facility is small enough that everyone knows each other well. Moreover, the roles that lab members play on different projects do not always reflect their formal positions — the lab director and the three group managers are the only people whose positions are strictly demarcated by hierarchical lines. In general, except for the director, all lab members are directly involved in projects, and a person’s position within the lab’s formal structure does not determine his or her role on a project. A group manager or a senior scientist could be a project manager for one team and a member on another that is led by his or her subordinate. Individuals are assigned to projects based on their expertise and as various needs arise. All lab members are expected to learn from one another continually, and people are willing to expand their expertise relentlessly so that they, in turn, can help others on even more complicated matters. A coveted social prize for lab members is having colleagues respect them as competent team players.

This work environment is reinforced by an incentive system that emphasizes the performance of the laboratory overall. Individual performance is evaluated annually and is not associated with specific projects. Rather, the evaluation encompasses an employee’s performance and professional contributions throughout the year. At the end of each project, regardless of how successful it proves to be, the team receives no rewards other than perhaps a dinner party, a formal written acknowledgement of people’s contributions and a small bonus. Here, social recognition is what really counts: the prospect that one’s next assignment will be a project of even greater importance. Financial rewards and promotions are tied to a person’s yearly performance. Therefore, lab members can’t be cooperative and selfless on only one project; they must adopt this behavior across the board. In other words, the behavior must become more than just the modus operandi for a given project — it must be the modus vivendi for work in general.

AN UNDERSTANDING OF THE INTERPLAY between informal and formal structures can help companies design and maintain learning organizations in which employees exchange pertinent knowledge efficiently and willingly.24 This type of sharing is becoming increasingly important, especially in knowledge-intensive industries in which the volume of information can increase exponentially over time. General biomedical knowledge, for instance, doubles every 12 months. Such environments place substantial demands on companies to organize their laboratories in ways that maximize the utilization of knowledge. To accomplish this, firms need to ensure that the informal structures of their social networks are being reinforced — and not thwarted — by the formal structures of the organization. Otherwise, they risk their R&D projects becoming statistics — more likely to fail than succeed.