Organizing for Success: Organization Theory and the Stage-Gate Innovation Process

Introduction

In today’s globalized world where information flows freer than ever before, the current generation of consumers is more discerning than any other generation in the past. There are more competitors in any given industry. Companies that fail to innovate, or fail to innovate at a fast enough pace face the threat of going out of business. However, it is not just enough to be innovative; almost half of the resources that are used for the research, development, and launch of new products go to products that never make it.

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Companies that have emerged as leaders have continuously worked to overhaul their product innovation processes by adopting sophisticated new product development models. One such model for new product development is the Stage-Gate Product Innovation Process. The model was first introduced by Robert G. Cooper in his book Winning at New Products (Cooper, Winning at New Products: Accelarating the Process from Idea to Launch, 2001) which was originally published in 1986 and revised in 2001.

The Stage-Gate process is a conceptual and operational road map for moving a new-product project from idea to launch. The process divides the effort into distinct stages that are separated by management decision gates (gate-keeping). Cross-functional teams must successfully complete a prescribed set of related cross-functional activities in each stage prior to obtaining management approval to proceed to the next stage of product development (Cooper & Edgett, Stage-Gate, 2009).

The complexity of the Stage-Gate Product Innovation Process, or any new product development model for that matter, makes it necessary that it be implemented with utmost care. A crucial ingredient of this careful implementation is the organization of the product development team that will carry out various tasks in the process. This task of organizing the product development team will be the focus of this paper.

Before tackling the task of optimizing the organization for successful organization, a brief overview of the Stage-Gate Product Innovation Process is provided to give the reader an understanding of the essential ideas involved.

 

Section I: The Stage-Gate Product Innovation Process – A Brief Overview

The process of product innovation starts with the generation of an idea and ends with the production of the envisioned product. Everything between these two end-points can be seen as a dynamic process, the Stage-Gate Product Innovation Process divides this dynamic process into activity stages and decision points or gates – hence the name Stage-Gate.

As may be apparent, the stages are where the research and development work is completed. The product development team undertakes in the stages the activities that will result in information which will allow for an informed decision to be made at the next decision point, or gate, by the decision-makers, or gatekeepers. It should be noted that each stage is cross-functional i.e., there is no stage restricted to just research, just development, or just marketing; rather each stage has a bit of each of these functional areas involved in it. These functions must be integrated to reduce the speed to market as well as to gather crucial information that is needed to reduce the risk present in the product innovation process. Thus, each subsequent stage is more expensive to complete but also has a lower level of risk – thanks to the work performed in the previous stage and the decision made at the preceding gate to continue work on the new product project.

In addition to the discovery (or idea generation) stage, there are five key stages. These are presented in Table 1 below.

Table 1: Stage descriptions for various stages in the Stage-Gate Product Innovation Process

Stage 0 – Discovery Activities designed to discover opportunities and to generate new product ideas, e.g. brainstorming sessions.
Stage 1 – Scoping A preliminary assessment of the technical feasibility and marketability of the project.
Stage 2 – Build Business Case A crucial foundation stage where technical, marketing, and business feasibility are assessed in detail, resulting in a business case that has three main components: product and product definition; project justification; and project plan.
Stage 3 – Development Plans developed in Stage 2 are implemented. This is the stage where actual product design and development occurs, the manufacturing or operations plan is developed in this stage as are the plans for marketing launch and testing (for use in Stages 4 and 5).
Stage 4 – Testing and Validation This stage serves to validate the project in its entirety from the product, its production or manufacturing process, to customer acceptance and the economic feasibility of the project as a whole.
Stage 5 – Launch Having been deemed feasible, the product undergoes full commercialization in this stage i.e. it enters full-scale production and is launched commercially.

 

The Stage-Gate Product Innovation Process can be represented in flowchart form as show in Figure 1 below.

 

Figure 1: Stage-Gate Product Innovation Process. Source: Product Development Institute, Inc. (http://www.prod-dev.com/stage-gate.php)

Stages

The structure of each stage is similar. Each has a set of activities that the team must undertake according to the project plan. They all involve an integrated analysis of the results of all the functional activities based on the cross-functional interaction (as discussed above). Finally, each stage has some deliverables. This is the presentation of the results of the analysis carried out by the team and its leader that will be used by the gatekeepers at the next gate or decision point.

A decision point or gate serves as a Go/Kill and prioritization decision point. Gates are where mediocre projects are culled out and resources are allocated to the best projects. Gates deal with three quality issues: quality of execution; business rationale; and the quality of the action plan.

 

Figure 2: Components of Stages in the Stage-Gate Product Innovation Process. Source: Product Development Institute, Inc. (http://www.prod-dev.com/stage-gate.php)

Gates

Like stages, the structure of each gate is similar. Each gate begins with the input of deliverables from the team that handled the activities in the preceding stage’s activities. Next are the criteria which will be used to judge the project in order to make the go/kill decision or to prioritize as necessary. The criteria are usually organized as a scorecard containing both financial and qualitative criteria. Finally, the gates have outputs. These are the results of the gate review. Each gate must produce a clear decision to go/kill, or to prioritize as needed. It must also provide a path forward and the goals and objective for the next stage.

 

Figure 3: Components of the Gates in the Stage-Gate Product Innovation Process. Source: Product Development Institute, Inc. (http://www.prod-dev.com/stage-gate.php)


Section II: Organizational Structures That Support Strategic Innovation

We have now looked at the Stage-Gate Product Innovation Process in sufficient detail to be able to study various organizational structures and how these may or may not be suitable for the implementation of the Stage-Gate system. The fundamental requirement of the Stage-Gate system is the presence of a cross-functional product development team. This requirement can therefore serve as a starting point, or baseline for any organizational structures that we consider for the purpose of implementing the Stage-Gate system. It is with this basic requirement that we set out to compare and contrast the following organizational structures and later analyze their suitability as organizational structures that are Stage-Gate friendly:

  1. Innovation Project Team
  2. Expert Network
  3. Shared Services Organization
  4. Innovation Community of Practice
  5. Ambidextrous Organization
  6. Innovation Council

Innovation Project Team

Such a team is a virtual group consisting of members who are brought together for a limited period of time in order to identify areas in which opportunities for innovation exist, or to deliver a particular new product project. The team consists of people from different functional areas of the organization, has diverse levels (of authority) and perspectives, as well as different mindsets.

Expert Network

Like an Innovation Project Team, an Expert Network is a virtual group of individuals that may or may not be working together to provide specialized expertise and knowledge on any given topic (related to the new-product project). Although these experts do not interact with each other on a regular basis, such interaction can be arranged in order to address specific issues where the expertise of multiple individuals is required to make a good decision.

If the interactions between experts within the network rise above a certain threshold, such a network may evolve into a Community of Practice (discussed below). These experts may not always be insiders; they could also be experts from outside the organization that are hired to consult with the organization as an external Advisory Board.

Shared Services Organization

In large organizations it may be difficult to provide the necessary resources to all business units (BU) that are involved in innovation processes. Having self-sufficient service units within each business units not only incurs prohibitive costs, it is also detrimental to the consistency that may be expected from various units within an organization. One way to overcome this challenge is to establish corporate-level functional groups to provide essential services like marketing, market research, and research and development. These groups act as a resource to their counterpart functions at the BU-level, only with deeper and broader skill sets than those available within the business units. The corporate-level groups are tightly aligned in order to provide services of maximum value to the business units, while pushing the envelope by exploring new ideas and activities that are not within the scope of the business unit.

Innovation Community of Practice

This is a virtual community supported by a technology platform with online collaborative tools. A Community of Practice, in general, is a self-governing, multi-disciplinary virtual community focusing on learning, generation of knowledge, and the building of capability around a specific topic. For an Innovation Community of Practice, this topic is innovation. Such a community may share several types of information including market research, consumer insights, new product platforms and concepts, procedures and ideas. The goals, level of formality, and size of such a community will change over time. While the initial focus may be on information sharing, the community may become a platform for collaboration in real-time on specific projects. Once such a community becomes successful within an organization, it is recognized and supported by senior management as an enabler and driver of innovation across the organization, and not merely as a rogue activity.

Ambidextrous Organization

Among the various organizational structures described in this section, ambidextrous organizations stand out for being the only non-virtual structural form. This type of organization is a small, autonomous, multi-disciplinary group, whose role is to drive rapid implementation. This tight-knit group typically has its own staff, a physically distinct location, dedicated funding, discrete performance metrics, and often a highly entrepreneurial culture, etc. This relatively independent operating structure is intended to allow the group to effectively manage its own destiny without interference from the larger organization.

With acute resource shortages a reality at many large organizations, functional managers are reluctant to allocate funding and staff. This is especially true for projects that managers believe carry high risk, or that don’t help them meet their own performance goals. The ambidextrous approach establishes strong operating agreements that protect fragile start-ups or experimental ventures, especially in the area of financial and human resource allocation. The ambidextrous organization draws upon selected corporate resources (both initially and over time) and may in some cases have special provisions that facilitate better access to resources or quicker turnaround.

Innovation Council

An innovation council consists of senior members from various functional areas within an organization; its role is to establish corporate priorities for new ventures, and to sponsor and support entrepreneurial efforts that may drive growth in new areas. The innovator – a venture team or individual – with an unfunded idea or business concept presents a proposal to the Council. The Council then provides feedback to the innovators, funds the most promising ventures, provides a variety of resources and facilitates introductions to external groups that can provide support.

 

 

Section III: Selecting the Best Organizational Structure

Having presented six common organizational structures that are considered to be supportive of innovative activities within an organization, we now move on to the task of selecting the one(s) that are best suited for the implementation of the Stage-Gate Product Innovation Process. In doing so we shall consider, among other factors, the level of integration of various functional areas, the efficient use of resources, the degree of independence of the product development team(s), and the flexibility of the organizational structure in question. In discussing these factors, we will take into account some of the general criticisms offered by Robert Cooper for the general form of some of these organizational structures and why they may not be the most suitable for the implementation of the Stage Gate system.

Interaction and Integration of Functional Areas

The level of interaction and integration between various functional areas of an organization varies greatly among the group of organizational models that have been presented above. Most notably, the level of integration is a factor that cannot be judged very reliably for virtual organizations. However, in theory the highest level of cross-functional interaction would exist in the innovation council, innovation community of practice, and to a lesser degree in the innovation project team.

The interaction and integration of functional areas is most notable in the ambidextrous organization, it is in this organization structure that representative from each functional area involved are physically included in the innovating group.

Efficient Use of Organizational Resources

While all organizational structures and forms strive to achieve maximum efficiency, goals like self-sufficiency, flexibility, and quick response time lead to varying levels of redundancy within an organization. The level of redundancy within virtual organizations is low since no new people are being added to the organization, the only resources required to implement virtual organizational structures are those related to technology platforms and funding required for the activities of the virtual organization.

The level of redundancy in shared service organizations is particularly high because of the very reason for their existence – to provide a corporate-level (or central) resource corresponding to business unit level functional areas. This can be seen as a relatively inefficient use of resources that is only justifiable in large organizations where the benefits of such a structure clearly outweigh the costs.

Independence of the Product Development Team

In most organizational structures discussed here, the product development team is answerable to senior management officials who are not directly involved in the product development and innovation functional area of the organization. This makes it difficult for the product development team to function with complete independence, making it more challenging to introduce new and novel ideas that are high-risk, but may also possess high-potential.

In this regard, the ambidextrous organization provides the most independent operating environment to the product development team because they have their own physical space, funding, resources, and the decision-making ability when it comes to their own project(s). This structure also ensures that the work of the product development team does not affect the other branches of the organization, so in effect the innovation is carried out in isolation with only the macro-level organizational goals and mission guiding it.

Flexibility of the Organizational Structure

This characteristic of organizational structure is similar to the degree of independence enjoyed by the organizations. The independence and flexibility of an organization is directly affects the speed with which innovation can take place. The inability to adapt the organizational structure to changes in the environments, or to have to wait for a long time to get approval from senior management can greatly increase the time taken by the team to respond to changes in the environment. This means that the product development team loses crucial competitive advantage – a loss that over time could prove fatal to even the best of organizations.  

Since only an ambidextrous organization employs an actual physical organization structure to support the innovative function within an organization, it is also the only one that can respond swiftly to environmental changes. This is in part because of the independence of the product development team. They are not competing with other functional areas of the organization for precious resources like manpower and funding, nor are they faced with the uphill task of convincing senior management from several different functional areas to support them.

Criticism of Virtual Organizational Structures

As pointed out earlier, all but one of the organizational structures discussed are virtual organizations. What this means is that the functional structure relies on the organization of individuals from various functional areas, or operational units that are physically separated, and answerable to different members of senior management. Hence, the task of product development and innovation is not their first duty. It is essentially a second layer of responsibilities that makes these individuals an organization.

Robert Cooper expresses deep concern about the ability of such organizations to deliver the services that are needed from an innovation team with the flexibility and agility that should be characteristic of a well-implemented Stage-Gate system. Cooper asks that we ‘organize around a true cross-functional team with empowerment’. The cause of failure in 75 percent of new product development projects is slippage attributable to the following factors:

  1. ‘Siloing’ or the need to send decision tasks up and down vertical organizations
  2. Use of sequential problem solving, as opposed to parallel processing

While the first attribute may not exist in some organizations that have very flat organizational structures, it is nevertheless introduced to the product development team if it is of the virtual kind. Any decisions that have to be made by a virtual organization need to be sent ‘up’ to senior management officials that exist in the physical structure.

The presence of the first problem, even to a small degree, leads to the amplification of the second problem. It is nearly impossible to efficiently manage a virtual cross-functional team to implement parallel processing. The primary responsibilities of the members to their duties in the physical organization structure do not allow them to dedicate the time and energy that is required to achieve large goals through collaborative work in scenarios where all members have their own areas of specialty and are working simultaneously on tasks that may not be directly related, but are required for the achievement of the overall goal. Such a ‘relay race’, as Cooper calls it, reduces the efficiency of the organization so much that it no longer remains competitive. (Cooper, Winning at New Products: Accelarating the Process from Idea to Launch, 2001)

 

 

 

Section V: Conclusions

In conclusion, I believe that it is best to use an ambidextrous organization structure for the implementation of the Stage-Gate system. This particular organization structure is superior to the others that have been discussed in this article, and also offers a degree of flexibility within itself. An ambidextrous organization may be implemented in two different ways, at two different scales hence catering to the different needs of organization of different sizes. The two possible implementation of an ambidextrous organization are shown in the figure below.

 

Figure 4: Two ways to implement an ambidextrous organization structure to support the Stage-Gate system. Source: http://www.innovation-point.com/Ambidextrous%20Organizations.pdf

The growth incubator model identified new opportunities and then either established these as new business units, or integrates them into existing business units. Alternatively, a business unit can create and protect its own ambidextrous organization in the form of a new venture house within its own walls. (InnovationPoint, 2004)

With these qualities in mind, it can be concluded that the ambidextrous organization is the best structure to support and sustain the successful implementation of a Stage-Gate system.

 

 

Bibliography

Cooper, R. G. (2001). Winning at New Products: Accelarating the Process from Idea to Launch. Cambridge, MA: Perseus Publishing.

Cooper, R. G., & Edgett, S. J. (2009). Stage-Gate. Retrieved May 5, 2009, from Product Development Institute Inc. : http://www.prod-dev.com/stage-gate.php

InnovationPoint. (2004). Organizing for Innovation. Retrieved May 15, 2009, from Innovation Tools: http://www.innovationtools.com/PDF/Organizing_for_Innovation.pdf

Karol, R., & Nelson, B. (2007). New Product Development for Dummies. New Jersey: Wiley Publishing, Inc. .

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  1. […] Organizing for Success: Organization Theory and the Stage-Gate Innovation Process by Nadir Sharif is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.Based on a work at nadirsharif.com.Permissions beyond the scope of this license may be available at https://bucknellorgtheory09.wordpress.com/2009/05/07/organizing-for-success-organization-theory-and-t…. […]

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