All organizations have two objectives: to be profitable today and to create the future. The challenge is to be both innovative and efficient.
In a complex world, excellence in management is hard enough without managers being pulled in opposing directions. But they are faced with two organizational objectives that are not easy to reconcile: how to make a profit today and how to create the future. This is not just a simple conflict between short-term priorities and long-term needs. It is the much harder problem of how to foster efficiency and creativity at the same time – two opposing skill sets and organizational cultures.
Managerial Success Criteria
Even non-profit organizations have to use scarce resources wisely. They need to be efficient, even without profit goals. Efficiency requires organization, discipline and smooth-running processes. When there is a premium on avoiding mistakes, the experimentation that is necessary for innovation can be stifled.
However, constant innovation is essential today for a competitive advantage. Think of Apple Computer, a very innovative company. At one time they struggled to make a profit because they were better at innovation than efficient execution. Other companies go under because they excel at execution but fail to innovate. For example, companies that failed to move from making typewriters to personal computers became obsolete.
Because we like simplistic solutions, there has been a great push to make companies more innovative, more entrepreneurial. But these companies are forgetting that it is not either/or but both. It is essential to be both efficient and innovative.
Balancing Innovation and Execution
An obvious solution is to assign different people or functions to these opposing tasks. But organizations have learned that a silo mentality does not work. Everyone needs to take some ownership for both tasks. Does this mean that specialization is impossible? Clearly not. Organizations could not function without specialization. In fact, the more complex the world becomes, the more specialists we need. No, it’s more a matter of cross-functional working than everyone trying to be generalists.
The real challenge is to get the organization’s culture right so that it is not overly dominated by either efficiency experts or totally creative types who can sometimes hate each other. The management challenge is to foster teamwork across both types, making them realize that business success needs them both. When designing an organizational culture, it is essential to match its complexity to its environment. All businesses need some innovation. If they don’t need a constant stream of new products, they still need to develop new processes to reduce costs or improve services. Where the need for innovation is lower, such as in a car rental company, the culture can focus on service, cost, and quality. But high tech or knowledge-driven businesses need a more even balance between innovation and efficiency.