Do you work for — or maybe even run — a company that aims to become an innovation leader in its industry, but so far has only achieved modest results in this endeavor? The reason might lie in the Dilemma of Innovation Management, which can be best described with the following metaphor: Simultaneously organizing a company for both high efficiency and high creativity is like trying to be at the North Pole and South Pole at the same time.

High organizational efficiency and high organizational creativity are the extremes on a continuum of different organizational models to structure the economic activities of a company. Organizing for high efficiency (the “North Pole”) means minimizing variances in your business processes, people, product and service offerings, and so on. In other words: You aim for making everything as standardized and similar as possible by means of rigid, clear guidelines, optimized processes, a uniform workforce with similar educational background, etc. Most manufacturing operations as well as companies in conservative industries such as banking are organized for high efficiency, and they are not known for producing an awful lot of innovation.

On the other side of the globe at the South Pole, the situation is completely reversed. Innovation is the result of taking action on meaningful ideas — and ideas thrive in an unrestricted, flexible and loose environment that encourages diversity, variances and differences. Companies like Apple or Nike are global innovation leaders in their product and marketing strategies and are exclusively organized for high creativity. These extreme “South Pole companies” have outsourced efficiency as all their production is done by external manufacturing partners that are mostly located in Asia.

Many companies that blindly embraced the Six Sigma and TQM cult a few years ago have noticed that innovation suffered severely as efficiency rose. 3M, a broadly acknowledged long-term innovation leader, was probably the most prominent victim of Six Sigma. After taking over the CEO position from Six Sigma devotee Jim McNerney, a former top manager of GE, in 2005, 3M’s new leader George Buckley stopped the five-year Six Sigma experiment to reverse the very negative implications on 3M’s innovation culture and innovation pipeline.

Of course, there are some organizational models in between the extreme poles, and each approach tries to solve the dilemma of innovation management in a different way:

• Right below the North Pole is the traditional model of organizing for innovation: the old-fashioned R&D department is isolated from the efficiency-geared rest of the operation and could thus develop an innovation-friendly culture within its R&D ivory towers.

• Further south but still well above the equator, we have companies that have set up innovation units within each division or — even better — cross-divisional project teams that work on an innovation project relatively independently of the rest of the organization. While the culture in the divisions still leans toward an efficiency-centered organization, in the innovation project teams the work environment is less rigid and tolerates differences and variances.

• A few companies apply an organization model that is based on the anthropological small village theory, which suggests that traditional human communities have split up when getting bigger than 150 people. Gore-Tex is the most prominent company that aims to balance the need for innovation and efficiency by having many “small village” companies within the group, where the small size allows both for flexibility and control.

• Further down south, a popular approach in the pharmaceutical and in the biotechnology industry is to spin off promising internal R&D initiatives from the core company by setting up a creativity-friendly new venture and retaining control in these entrepreneurial start-ups by holding the majority of shares.

• Another interesting shift in the innovation paradigm is the new trend for open innovation. This means that companies start to complement their internal R&D and innovation efforts with ideas and scientific solutions provided by external partners or individuals. For example, Eli Lilly has set up the website InnoCentive to “crowd-source” solutions to specified scientific problems over the Internet from a global virtual scientist community. IBM and other pharmaceutical companies have set up similar platforms. Another interesting open innovation initiative is Procter & Gamble’s “Connect & Develop” program that aims for a 50–50 split between ideas that are developed within the organization and those that are provided by outside partners and virtual networks.

Where on the “Innovation Globe” can we find the average Asian company? What are the best strategies for Asian companies to solve the Dilemma of Innovation Management? Many bigger traditional Asian companies can be described as steep hierarchies with many management layers and rather autocratic leadership structures that emphasize control. In connection with the outsourcing of production to Asia in the last two decades, most Asian manufacturing companies are organized for high organizational efficiency, too. I therefore argue that the average Asian enterprise is “very close to the North Pole” and will have massive change management challenges ahead once they attempt to transform into an innovation culture.

While some companies such as Siam Cement Group have already started the journey and have already made some way forward on the innovation highway, most traditional Asian companies will be better off insourcing expertise or even completely outsourcing the innovation process to external providers. The industrial design powerhouse IDEO has already set up an office in Shanghai for industrial design-related innovation projects. The author of this article is also ready to bet on this and plans to set up the THINKERGY Idea Factory in Thailand within the next two years, thus becoming another center of competence for ideation services for strategy innovation, service innovation and experience design.

© Dr. Detlef Reis 2007. This article was published in parallel in the Bangkok Post under the same title on 21 June 2007.