The Tech Industry Balancing Act: Innovation vs. Process

The question of how to balance innovation and process is an age-old management argument in companies of many types, but is especially critical in software and hardware companies.

Which is more effective: a “loose” work culture that allows experimentation and “constructive failure”, thereby fostering innovation. Or a more tightly-controlled environment that puts a premium on efficient use of all resources, whether they be time, money, or human?

As usual, it depends on the situation

It’s impossible to generalize when answering this question. If you do, you will usually be wrong. We all have preferences on how we like to work. Some of us thrive with total flexibility that can sometimes cause a corporate culture to resemble chaos. Others can become very uncomfortable without well-defined processes to guide the day. It’s important to ignore your personal preferences in management/work style and culture. Independent of these preferences, what does the business situation itself call for?  There are a number of factors that I recommend be considered in your analysis.

Level of competition & the key components of it

How competitive is your market segment? Is the winner in your segment going to be the one with the most innovative product, or the lowest costs? It’s important to understand the competitive landscape of the market segment when deciding how tightly to manage your company. Is the runaway winner going to be the company with the best gee-whiz software application or widget? If so,  then it’s probably important to manage to maximize innovation with a less-constrained approach. Do you believe that the ultimate winner will be the company that can wring the most pennies out of their costs to offer the lowest price point? Given that, efficiency and cost controls can often be derived best by tightly controlling your processes. An individual analysis of the details of your competitive situation needs to be done by every company in their unique market segment and point in time.

Staff Composition

What are the tendencies of your staff? Depending upon how you respond, my advice may be somewhat counterintuitive. The important thing to remember is that process and innovation ARE BOTH IMPORTANT and need to be balanced. So maybe your staff is composed of “type-A’s” who are very innovative but have a tendency to run in their own direction. Then it might be important to rein them in a bit, so that your balance doesn’t get too far out of whack. Similarly, say the staff consists of very conservative folks who tend to be comfortable with the status quo. In this case, it may be beneficial to shake things up with open-ended, “out-of-the-box” goals to encourage them to step out of their comfort zone. That is, if you hope to extract any innovation from your internal staff. Otherwise, you might need to “purchase” your innovation through acquisitions or other strategic partnerships.

Market maturity

Are you at the beginning stages of a market segment in which the most important needs of the marketplace have yet to be met? If this is the case, maximizing innovation may be critical to deciding who wins and who fails. In this case, any process that might slow potential innovation should be avoided. That’s true even if you’re process-oriented by nature. On the other hand, what if you’re in a mature market in which the needs of the customer have largely been met? In these cases, the need to be a low-cost producer often puts a premium on process if you’re going to maximize financial results. Innovation usually only occurs in baby steps in mature markets. Often, it doesn’t amount to enough to “move the revenue needle” for the business. And it may require outsized investments to yield even modest results.

Stage of company development

Just as market maturity should be considered in your decision, so too should the stage of your company. Companies tend to experience many growth phases and often reach inflection points at certain levels of revenue and staffing. This is where additional processes need to be added, or chaos (and not the good, innovation-rich kind) ensues. Once you’ve added the appropriate level of structure/process to stabilize the business, you’re generally good to go for quite a while. Until you reach that next inflection point. This allows you to retain as much operational flexibility as possible, which will enable maximum innovation at that company size.

Do you accept my thesis that there is a natural tradeoff between innovation and structure/process? If so, the trick is to add only the MINIMUM amount of process required to stabilize company operations at that particular inflection point. Unfortunately, the human tendency for managers when things are starting to look a bit “out of control” is to over-correct and add levels of process more appropriate for a much larger organization. Guard against this!

Innovation Process Summary

In summary, the answer to this important question is highly dependent upon the specific situation of a particular company. As I stated earlier, innovation and process are both important to EVERY tech company. It’s not a question of one or the other; you always need some combination of both.

However, if forced to generalize my own philosophy in running software and hardware companies, I have a bias toward the MINIMUM level of process that is appropriate. I personally prefer a flexible and initiative-friendly environment. But I also believe that most of the time, this works better in a tech company. And it’s usually easier to add a process than turn back the clock and remove it. In a coin-flip situation, I lean toward flexibility. This flexibility needs to be tempered with just enough process appropriate for the particular situation, to ensure that company resources aren’t wasted and that chaos doesn’t consume the company.

That’s my take on the process vs. innovation balance–what’s yours? Post a comment with your own views.