In thinking about innovation, executives would be well served not to focus exclusively on finding talented product design maestros or even process design experts, but rather creative institutional designers who can challenge and re-think their existing institutional arrangements from the ground up....
...In a world where profitable growth is the key to value creation, companies need to find ways to sustain and amplify the rewards of innovation. To do this, executives will need to expand the scope of innovation well beyond product and process to a much broader terrain – institutional innovation.
What do I mean by institutional innovation? It redefines roles and relationships across independent entities to accelerate and amplify learning and reduce risks. The next generation of institutional innovation will seek more productive ways to connect with talent wherever it resides and build relationships that foster and focus learning rather than taking the walls of the enterprise as a given.
Institutional innovation in the twentieth century focused on creating scalable institutions through standardized product design and design of business processes to cost-effectively serve mass markets. In the twenty first century, the focus of institutional innovation will shift to foster scalable learning across institutions.
And Thomas is right, you really do need to read the whole post. If institutional innovation in the 21st Century drives scalable learning, then one of the foundations of scalable learning will be social networking. Why social networking? Well, lets take a look at the Design principles Hagel lays out for institutional innovation. These include:
Diversity. As Scott Page and others have persuasively suggested, new insight and learning tends to increase with cognitive diversity.
Relationships. It is not enough to have cognitive diversity. By itself, cognitive diversity often breeds misunderstanding and mistrust, seriously limiting the opportunity for people and institutions to learn from each other. Long-term trust based relationships, on the other hand, make it easier to engage in productive friction
Modularity. When activities are tightly specified and hard-wired together, the opportunities for experimentation and tinkering are very limited. Segmenting people and activities into discrete modules with well-defined interfaces can help to create much more space and opportunity for distributed innovation and learning.
Federated decision-making. To encourage distributed innovation and learning, it is helpful to distribute decision-making into self-governing units while at the same clarifying dispute resolution and escalation protocols to ensure that prompt action can be taken across business units when required. If structured appropriately, these dispute resolution mechanisms can become fertile grounds for productive friction that in itself drives learning.
Reputation mechanisms. As relationships scale, it becomes harder to develop a clear view of the full range of experience and expertise available to address challenging problems. Reputation mechanisms can play a vital role in enhancing findability but also help to reinforce incentives to participate and contribute.
Feedback loops. More broadly, there is enormous value to investing in performance measurement systems and structuring performance feedback loops so that participants can reflect on their practices and focus their efforts to improve performance.
Incentive structures. Focusing narrowly on near-term cash incentives undermines the ability to build trust and foster learning. By expanding incentives to include talent development and capability building, institutional innovators have the potential to turn zero sum games into positive sum games
Now social networking alone obviously cannot instantiate these design principles into the heart and soul of an organization but it sure can help foster viral spread of these principles in an enterprise. Especially the principles of Relationships, Federated Decision-making, Reputation mechanisms and Feedback. These design cornerstones are today actively supported by social networking solutions and can be comprehensively supported in the enterprise Social Network implementations.
SAP for instance uses social networking and other systems internally for Reputation mechanics and Feedback. Other "20th century" systems are in place for incentives and federated decision making but here we need pure institutional design work to radically enhance the state of these institutional cornerstones. The Business ByDesign launch is a perfect opportunity for SAP teams to introduce Federated Decision Making for instance and we as a team have been discussing it. But we'd love to get some of these other large change issues on the table.