Technologies like 5G, artificial intelligence, and low and no code software design tools are changing how companies need to approach innovation. Specifically, they look to the edge of the organization where the business interfaces with its customers, suppliers, and other stakeholders, and where small-scale innovations are happening. Companies should adopt three practices: 1) free up small teams to act independently, 2) feed these teams with the systems, resources, and tools they need, and 3) funnel the best innovations back through the company.
In the next few years, new and expanded technologies will change the business landscape at unprecedented pace and scale. Consider the impact of a few major trends. 5G is expected to deliver network speeds that are about 10x faster than what 4G LTE networks offer, with expectations for significantly faster speeds on the horizon. AI-driven speech, written word, or computer-vision algorithms are projected to augment 50% of user touches by 2024. Global data creation is projected to grow nearly threefold between 2020 and 2025. And the low code development platform market — which is changing who can write powerful software — is projected to grow at about 30 percent compound annual growth, through 2030.
The result of these trends is an explosion of computing power, a massive expansion of data sets, and vast improvements in the way users access technology. This means it will become cheaper and easier to develop, launch, and scale new innovations quickly, leading to a much faster pace of innovation.
While many business leaders are broadly aware of these trends, few are prepared to harness the resulting innovations. Doing so is ultimately a scale and skill problem, and traditional top-down strategies and mechanisms (e.g., corporate venture capital funds) will struggle keep pace with the opportunities — and most lack the expertise needed to evaluate these opportunities, even if they could keep up. Instead, companies need to look to the edge of the organization where the business interfaces with its customers, suppliers, and other stakeholders, and where small-scale innovations are happening.
Specifically, there are two groups in this “edge” workforce companies need to empower: 1) the hands-on experts — engineers, chemists, product developers, and scientists — who are working on the most complex problems for the business, and 2) non-tech workers who can use low code/no code tools and SaaS products and services to act as “citizen developers.”
The question for today’s business, then, is how to empower these workers at the edge to operate as innovators, and how to bring in the best of what they develop so the entire organization can benefit. This is more than a matter of providing these would-be entrepreneurs with sufficient seed capital. Companies instead have to invest in an innovation model. Tech companies have been developing the muscle to innovate at the edge for years, and larger incumbents can borrow a page or two from their book. Companies that are doing this well have adopted three common practices:
Free small teams to operate independently.
To empower the “edge” workers in your organization, form a portfolio of small teams and give them the freedom to work independently along with clear goals and responsibilities. That means, for example, that if the business doesn’t have people with the skills they need, the team can go out and hire them directly. They can spend their allocated budget as they see fit, experiment and fail without penalty (within boundaries), and decide on technologies to meet their goals (within proscribed guidelines).
Some businesses McKinsey has worked with are already practicing this kind of approach. Haier, the appliance and consumer electronics company, has 4,000 “microenterprises” (as they call these teams), each with 10-15 employees. These teams have the freedom to self organize to address a specific opportunity that someone has identified. Teams need to convince people to join, and then need to show actual customer adoption to get funding. To enable this system, Haier reduced middle management oversight to give teams the necessary freedom to operate.
Itaú, the Brazilian financial services company, follows a similar principle. They have established about 70 groups aligned around specific products and services. Each operates as a “mini-company” that is empowered to develop its own solutions to deliver on a specific set of goals that leadership provides. These teams have broad remits to encourage innovation. Rather than focusing on mortgages, for example, the corresponding group is tasked with focusing on housing needs.
A single product manager is responsible each group but, critically, IT and a business sponsor have joint responsibility and share the same KPIs. Each team has a full complement of people from relevant functions (design, data science, automation, policy, etc) who operate in two-week sprints to track progress and impact. There are no “manager” positions in each group, to reduce bureaucratic overhead. This approach has led to significant improvements. One housing-related business line, for example, grew almost 60 percent in less than a year because of the new set of product lines and accelerated innovations the teams have developed.
Feed these teams with the systems, resources, and tools they need.
Freedom without structure often leads to chaos. To avoid teams working at cross purposes and wasting effort on work that doesn’t produce value, leading companies invest in tools, infrastructure, and processes to enable teams to work more quickly and effectively — such as establishing an easy-to-use system that any team can access to find people within the business based on skills and availability.
Itaú tech-focused groups have focused on automating as many processes as possible, allowing teams, for example, to set up new environments in the cloud or having code reviewed without the need to make requests of IT. The teams have also set up data “cockpits,” an easy-to-use tool that teams can use to run data queries without needing to pull in data engineers.
When it comes to providing resources, leading companies avoid the often-debilitating and time-consuming approval and allocation process. At the beginning of the year, Itaú leadership provides each group with sufficient funding and headcount based on the specific mission, a long enough runway that they can drive their own programs.
For tools, IT is given the role of providing services to support these teams, rather than managing large IT infrastructure. Think of it as democratized IT, where anyone can access not just the data needed, but tools, code, and infrastructure. In this case, IT is responsible for creating useful blocks of reusable code — sometimes assembling them into specific products — and making them available through a user-friendly cataloging system so the business can create the products it needs. It provides API libraries, data and analytics products, and a range of microservices that working teams on the edge can access.
Funnel the best innovations back through the company.
Individual developers or small teams working fast don’t tend to naturally think about how to scale an application. That issue is likely to be exacerbated as non-technical users working in pockets across organizations use as low code/no code (LC/NC) applications to design and build programs with point-and-click or pull-down menu interfaces. This is where the IT can play an important role in building up a scaling capability to funnel innovations to make them work for the business.
One way this has been successfully applied is in creating specific scaling teams to productize innovations. At Vistra Corp, the largest energy provider in the U.S., a dedicated team of software and machine learning engineers take proven AI models (such as one that provided recommendations for the most efficient generator settings to create power) and refactor it so that it could be easily updated and improved when applied to different power facilities.
Google enshrined a set of practices to spread the best ideas into the company that helped it become a leading innovator:
- Identify winners. Each product manager across the entire business has to report in every Friday on the percentage of user growth for their particular product. This made it easier to track progress. Initiatives that weren’t growing were quickly defunded. Those that did well attracted more resources.
- Spread innovation through people. A broad employee rotation program allowed innovations to be transferred to other parts of the business. An engineer, for example, who helped develop a distributed file system was placed into the HR team temporarily and implemented it in their systems.
- Create a standard pathway. Google developed a uniform build system (a set of tools and practices around CI/CD) that every product team can use as well as shared and massively scalable infrastructure resources that support the common needs of products and businesses. This approach made authentication, for example, much simpler and faster. Because all code followed this model, it was easier to spread it throughout the organization. By one estimate, this approach led to the vast majority of all code at Google being reused. With growth and growing business diversity, teams extend and adopt this tooling to fit the needs of new domains or build new capabilities on the fundamental layers.
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Given the accelerated pace of technological change, the current models of harnessing innovation are not sufficient. Fostering the spirit of innovation in everyone in your organization is the right mindset. But that won’t just happen. Getting there requires establishing mechanisms to support hands-on experts and scaling winning innovations to keep pace.
