Innovation Networks – Needed Now More Than Ever

Larry Schmitt

Innovation Partner

“This new mode of organization—a ‘network of teams’ with a high degree of empowerment, strong communication, and rapid information flow—is now sweeping businesses and governments around the world.” – Gen. Stanley McChrystal Ret.

Innovation Networks are no longer an option for large companies. Today’s VUCA world (Volatile, Uncertain, Complex and Ambiguous) requires that companies form robust knowledge networks to have any real hope of delivering the innovations, especially transformational innovations, that are needed for the growth which they aspire to or to prevent disruption from new entrants.

The concept of company networks is not new, and, for years, companies have created internal networks that have taken on many different forms and go by many different names – Knowledge Networks, Communities of Practice (CoP), Innovation Councils, etc… No matter what the name, the intent is the same: connect people in ways that break the barriers imposed by formal organizational structures so they can discover, aggregate, synthesize and codify new knowledge useful to the firm. The result is an enhanced form of a company network to get the following benefits.

• Accelerate information and knowledge flow throughout the company
• Collect, synthesize and make sense of vast amounts of constantly emerging information
• Create insights and catalyze actions that have real implications for the company
• Help expand the breadth and depth of the company’s competency landscape

An internal innovation network today can be the T-shaped entity of an organization that can effectively bring new knowledge, both know-what and know-how, into the company. New technologies, tools and systems make innovation networks more possible and more influential than ever. It’s time for a new look at your company’s networks to supercharge them for this accelerating VUCA world.

Changing Organizational Behavior in a VUCA World

A large, multinational company with several different business divisions, globally dispersed R&D and marketing operations, and a moderately hierarchical but highly matrixed reporting structure has a financial imperative to meet growth and profitability expectations. This company is optimized for operational excellence but has the mandate to innovate. In other words, it is like nearly every large company on the planet. Its recent experience with establishing internal innovation networks illustrates the advantages of thinking through the jobs the network needs to do and then how to get these jobs done.

Multi-national, billion dollar companies will always be hierarchical and siloed. They need to be to deliver the operational excellence that is their primary means of ensuring survival in the short term. The question is not how to tear down structural hierarchy and segmentation, but how to transcend its limitations to achieve a separate but also very important objective. To do this, you should be developing and supporting internal, knowledge-creating networks to participate in the transformational disruptions affecting every industry.

Networks, Communities, and Groups

The language of organizational structure is well established. Corporations are divided into business units and lines of business.  Functions are partitioned into R&D, Marketing, Operations and other disciplines. Work is organized by programs and projects and done by purpose-built teams. All of this is overlaid with matrices that involve direct and indirect lines of reporting. While these types of organizational structures exhibit a wide degree of variation from company to company, they are generally well understood, and, when working as intended, deliver great results for the operational excellence mission of the company.

Networks are a different breed and are not so well understood and formalized in tradition and practice. Networks are groups or systems of interconnected people and can be of any size, geographical scope and configuration. In large companies, the three levels of networks that are of interest are illustrated in Figure 1.

Figure 1 – Three Levels of Network

• Ecosystem – The loosest form of network where the members are related through their participation in a common domain (e.g., an industry, an endeavor or an interest). Individuals may not even know each other, but they are all interested in, and have some level of experience with, a common domain.
• Community – A diverse and dispersed set of individuals who have a common interest and level of expertise that enables them to sense, communicate and aggregate information across a domain. They are practitioners who define the Community and participate when the topic is of special interest or when they have something specific to contribute. Members of Communities of Practice are also members of the broader Ecosystem.
• Group – A collection of individuals who have a passion and level of dedication to advance the level of knowledge and insight within a domain and who have the energy and organization to nurture the Community over time to insure its continued existence. Members of Groups are also members of the broader Community and Ecosystem.

In other words, Ecosystems, Communities and Groups are differentiated by their size, their ‘coupling’ (loose to tight) and their level of activity and involvement. All three levels are important. Without a recognized Ecosystem, it’s difficult for a Community to function – and without a Community, it’s difficult for a Group to function. The influence, however, goes in the opposite direction. A well-functioning Group can enhance the functioning of a Community and a well-functioning Community can enhance an Ecosystem.

The Primary Jobs That Networks Do

The most important job that an internal network needs to accomplish is to cause changes in company knowledge and behavior. This is done by bringing new knowledge into the company in ways that will enhance and expand core competencies.

1. Accelerate information and knowledge flow throughout the company

• Identify and nurture sources of knowledge and expertise across organizational boundaries
• Attract the right people to participate at the right level of engagement
• Increase knowledge velocity (i.e., intake and dissemination) and the likelihood of serendipitous connections

2. Collect, synthesize and make sense of vast amounts of constantly emerging information

• Increase the breadth, sensitivity, density and frequency of sampling a domain ecosystem
• Sense and sort signals – strong and weak. Separate signal from noise.
• Understand what is happening in the domain ecosystem – complex system dynamics

3. Create insights and catalyze actions that have real implications for the company

• Uncover hidden truths the company needs to know
• Accelerate decision velocity in areas of high uncertainty
• Recommend and support important, strategic initiatives

4. Help expand the breadth and depth of the company’s competency landscape

• Expand scope of understanding of new areas (competencies)
• Codify information and knowledge in ways that can be used by others (tacit -> explicit)
• Improve current competencies with new knowledge and practice absorption

It should not be the job of a network to create innovation outcomes – new offering concepts or new business ideas. This is the job of specific innovation project teams and business units. Instead, internal networks create the knowledge foundation and environment within which project teams and business units operate. By expanding the envelope of readily available knowledge and capabilities, a well-functioning network expands the landscape of possibilities for people to come up with ideas for new opportunities and for the company to internalize new competencies. Ecosystem members are good candidates to participate in innovation initiatives.

Moving from Ad Hoc Networks to Formal Innovation Networks

Networks form naturally – they emerge from the innate human desire for connection, communication, learning and sharing. Leave a hierarchically organized and siloed company alone and people within those structures will naturally form networks. They will reach out to others, talk and meet, share information and expertise and work together as much as they can. But in today’s VUCA world, these ad-hoc networks are not enough, they need to be supercharged.

Once a company gets beyond the ad-hoc network and develops a formal network tasked with impact, things become more difficult. Many companies already have internal networks that have emerged organically or have been explicitly chartered and organized. The fact remains, however, that most of these networks often struggle to have impact and even those that do could use some explicit support to become more influential.

Internal networks face many barriers:

• They take work to create and sustain
• They are always a part-time gig and usually extra work
• They cross natural corporate barriers, creating trust issues
• The few metrics that track impact and results are not always visible

But companies also have a tremendous advantage when it comes to creating Innovation Networks. Individuals within a company already share a special relationship with others in the company. This relationship can be easily formed – you can find someone and they will return your call or email and meet with you. It is also a relationship that is unrestricted in knowledge and information exchange – confidentiality constraints don’t exist and a base level of trust is implicit.

Given this environment, there are several criteria for the successful creation and operation of a network that has meaningful influence on the company’s future.

• Define a salient domain – A relevant and significant theme with a clear charter
• Committed sponsorship – money, time, interest, oversight
• Structure the network into three tiers – Group, Community, Ecosystem
• Make sure there is a working group nucleus with a facilitator
• Constantly cultivate the working group nucleus – people moving in and out
• Solicit a broad and diverse community
• Establish a Group and Community ‘rhythm’
• Use tools and systems that decrease the friction of interaction and collaboration
• Produce tangible outputs (see below)

The result will be engaged individuals who are interested, motivated and highly influential.

Examples of Relevant and Significant Network Domains

Here are just a few examples of networks that various companies have created. Each situation and context is different so effort must be put into defining a salient domain that will get buy-in from not just the members, but from the broader company as well.

• Digital Transformation – How does the rapid digitalization of everything affect our internal operations and our offerings? What should we be concerned about? How should we change? What new opportunities are open to us?
• Early Stage Innovation – How should we be enhancing our innovation system? What new processes, methods and tools should we be employing to discover and incubate?
• Talent and Work-life – How do we identify and retain the talent we need to support our growth? What should the new work environment look like? How does work change in the new world of automation and the gig economy?
• Foresight and Forecast – How do we create future insights that guide our strategy and opportunity discovery? What specific futures will impact us and which ones can we influence and how?

Each one of these crosses organizational boundaries to affect every part of the organization. Each one deals with an area of tremendous change and transformation. Each one involves an information ecosystem that is high velocity, vast and accelerating. Each one defines an on-going area of importance that crosses organizational boundaries and requires long-term action.

The Influence That Networks Have

A network can survive merely through member interest. But a network will not have influence unless it has a measurable impact on a company’s behavior and outcomes. For this to happen, a network must:

• Be interesting by creating insight that are surprising and relevant
• Be visible in words and deeds
• Be accessible and transparent with ongoing works in progress
• Be authoritative by promoting member’s external validation of expertise
• Be accepting of a diverse membership
• Be demanding by expecting members to contribute
• Be engaged with company stakeholders, especially executives
• Be supportive of uncertain initiatives that can expand the mind of the company

All of this is possible but it does take effort. Luckily, there are new tools that make the job of creating and running networks easier today than they were in the past.

New tools

While the health and vitality of a network is ultimately determined by the engagement of its members, the tools and systems used to support the networks functioning can make a dramatic difference in how the network functions and ultimately survives. If the network takes a lot of effort for its members to participate in, it will be harder to solicit membership and get meaningful engagement. If, on the other hand, participation is natural and seamless with other work activities, network growth and engagement will be greatly augmented.

Here are the things that you need your network tools and systems to accomplish.

• Shared content space – Items of note, trends, concepts, insights, etc.
• Shared creative space – Discussion of ideas, problem finding, problem solving
• Seamless communication – Foster engagement, capture interactions
• Sensing – Internal and external ‘sensors’ to detect relevant signals
• Measurement – Metrics to see how well the network is functioning
• Trust building – shared experiences, active communication, and mutually respective behavior

Unfortunately, the tools most used by companies for their operational excellence are ill suited to the demands of a network. E-mail (with attached files) and SharePoint just don’t cut it as the basis for the networks needed. Fortunately, there are many other tools and systems that are available (with more being introduced every day) that can create the seamless, participatory and engaged interactions that networks require. Some of these are shown in Figure 3 below.

Figure 2 – Tools for the New Age of Networks

Conclusion

How often have you heard the phrase ‘feed the machine’? It is a common phrase in large companies and refers to the activities needed to provide the corporate hierarchy with the data and information that is demanded – by the ERP system, by executives, and by Wall Street. The phrase is symptomatic of a company’s operational excellence orientation but it is antithetical to innovation.

In contrast, Innovation Networks nourish the mind of the company by creating new knowledge and competencies. Innovation Networks can help break the constraints of short-termism and the hierarchical and matrixed structures designed for operational excellence.

As mentioned in the introduction, Innovation Networks are the T-shaped entities of an organization. They stretch across the breadth of the company and can go deep into the domain. As companies adapt to the VUCA world, the Innovation Network is one of the most effective means to do so. Creating these networks is necessary if a company expects to innovate and compete in the future.

Readings

1. Nonaka, S and Takeuchi, N.; The Knowledge Creating Company; Oxford University Press; May 18, 1995
2. Wegner, E. and McDermott, R.; Cultivating Communities of Practice; Harvard Business Review Press; January 8, 2002
3. Buchanen, M. ; Nexus: Small Worlds and the Groundbreaking Science of Networks; W. W. Norton & Company; May 2002
4. Pentland, A.; Social Physics: How Good Ideas Spread-The Lessons from a New Science; Penguin Press; January 2014
5. Bates, T.; The role of communities of practice in a digital age; Online Learning and Distance Education Resources; October 2014
6. Liguori, S.; Social Networking Breaks Down Corporate Silos; Forbes, July 27, 2010
7. Ivanon, E.; Internal Innovation Networks as a Basis for Corporate Intrapreneurship; LinkedIn; September 29, 2015
8. Webber, E.; Communities of Practice: The Missing Piece of Your Agile Organisation; InfoQ; September 16, 2016
9. Kotter, J.; Hierarchy and Network: Two Structures, One Organization; HBR; May 23, 2011
10. Stephenson, K.; Neither Hierarchy nor Network: An Argument for Heterarchy; People & Strategy; V32 Issue 1; 2009; pp. 4-13
11. Quinn, C.; Can Hierarchical and Networked Organizational Structures Coexist?; Litmos; July 27, 2016
12. Preece, J.; Etiquette, Empathy and Trust in Communities of Practice: Stepping-Stones to Social Capital; Journal of Universal Computer Science, vol. 10, no. 3 (2004), 294-302

Appendix A – It Started With ‘The Knowledge Creating Company’

Human networks have been around since there were humans. It has only been since the early 1990’s however that the role they play in a company has been explicitly studied. And it has only been since the early 2000’s that there have been explicit attempts to develop the models, methods and tools that would let companies purposefully create and nurture the networks they need. And it has only been in the last few years that the formal ‘mathematics’ of networks has been developed and new tools and systems have become available to support diverse, dispersed and dynamic networks both within and without organizational boundaries.

In 1995, Nonaka and Takeuchi published their seminal book ‘The Knowledge Creating Company’ and in 2000 Etienne Wegner published his book on ‘Communities of Practice’ and in 2002 another book (along with Richard McDermott) on ‘Cultivating Communities of Practice’. Because of these works, and many others, the concept of a company as a mechanism for aggregating, synthesizing and transforming knowledge has been central to the theory of the firm and it has become widely accepted that internal knowledge creating networks can create tremendous value for a company.

Nonaka and Takeuchi got things started in with their book ‘The Knowledge Creating Company’. They focused on the ways that companies are knowledge creation entities and the mechanisms of transforming knowledge from tacit to explicit forms. Figure 1, taken from their book, illustrates the model of tacit and explicit knowledge creation they developed based on their research.

Figure 1 – From The Knowledge Creating Company

In this model, they articulate the role of the individual, the group and the organization in the process. By interposing the intermediate entity the group, they identified the central importance of something in-between the individual and the organization. But what is a ‘group’? It could be anything from a formal and structured organizational unit, such as an engineering team, to a loosely connected collection of individuals with common interests.

The next major advance in the study of knowledge creation within a firm came in 2000 and 2002 when Etienne Wegner developed the concept of a communities of practice (CoP). People were already very familiar with formal organizational structures, such as business divisions, hierarchies, matrix organizations, functional units, project teams etc., but the more informal and organic means of knowledge creation were given a name and a purpose by Wegner and subsequently others. CoPs, by whatever name they go by, have continued to be something that many companies work to establish and get value from although they often struggle to deliver what is expected of them.

Since Wegner, there has been a tremendous amount of research on networks – how they form, how they work, their social dynamics, their communication and knowledge creation mechanisms, etc.. See the readings section above for more information.