Wednesday, January 15, 2014

'Top-Down' Strategy & 'Bottom-up' Innovation

It takes top-down’s systematic discipline and bottom-up’s agility to execute solidly and innovate boldly.

Digital organizations today face such a dilemma, on the one side; top-down strategy mapping is a logical step to ensuring smooth execution; on the other side, innovation takes freedom and flexibility, usually happens from bottom up. Consider a scenario, where an organization has performed the strategy mapping and made investment decisions for the budgetary period., and everyone knows this is what she/he needs to focus on and deliver and that's what his/her performance would be measured against. Now if someone sees an opportunity of innovation that doesn't directly map to his/her manager's objectives/scorecard for the year, chances are that the manager wouldn't cater to that idea; and the employee does not have the motivation to innovate. So does strict top-down strategy mapping strangle bottom-up innovation?

Both top-down strategy and bottom-up innovations can work together if there is an explicit linkage between all related artifacts such as strategy, business objectives, capabilities, projects, etc: The ‘micro-managed’ top-down as directing the specific outcomes will lead to a lack of innovation and in fact failure to adapt to changing market conditions. Let employees use their brains in helping solve for leaders intent. What is needed today is top-down to be more about the vision of the outcome; in broad terms of what is the intention of leadership; not how to get there. If leaders want to drive the train, then they have defined all the functions required for them and only need the functions to be filled by others.

Top down is OK if the enterprise intends to be what its strategy assumes it needs to be in the strategy time horizon, not in a strict way, but through a balanced approach: Top-down is beneficial when
- maintains coherence, while allowing autonomy
- maintains a balance between exploration and exploitation
- compensates short-term and short-range attention of daily operations, with long-term broad-range vision (and research, etc) that could steer the organization 
And if the top-down strategy cares about these three, the boundary-pushing at lower levels would be encouraged, a healthy amount of errors tolerated and the bottom-up innovation would not be strangled.

The top-down strategy should support incremental innovation. Disruptive innovations may be considered as drivers for emerging strategies. The strategy may be changed, as well as some capabilities which are implemented through innovation or process management. In some sense, improvements in the execution of the strategy will be carried out in "pinball" way. In dynamic environments, there must be a capacity to respond to new and emerging opportunities and to create new opportunities. This will inevitably lead to a bottom-up approach, leveraging existing strengths.

Neither top-down nor bottom-up will be successful in isolation - successful enterprises embrace top down and bottom up to best effect. Some best practices shared by industry leaders:
1) First, execution of Top-Down Strategy should consume no more than 70% of the companies resources; 20% supports Middle-Out Strategy, and 10% supports Continuous Improvement/ Local Optimization and Innovation.
2) Second: the Top-Down Strategy is developed from the outside-inward with a bias towards continuing the existing Purpose, Mission, and Vision and input from all levels. Middle-Out should challenge the current trajectory and condition.
3) Third: Strategy Execution should always be Bottom-Up where executives provide Vision and ask "How do we get there?"

There are digital shifts from the structural enterprise to the logical, then to the social and then onto those enterprises with demographic properties, the pyramid style of organizational structure is becoming flatter. Therefore, in order to solve today’s complex business issues, you have to make compromises that take you away from a strict top-down or bottom-up approach. And the pragmatic approach is well-mixed with top-down’s systematic discipline and bottom-up’s agility and flexibility. 


You said "Now if someone sees an opportunity of innovation that doesn't directly map to his/her manager's objectives/score card for the year , chances are that the manager wouldn't cater to that idea; and the employee does not have motivation to innovate".

If you design a business architecture based on systems (processes as business capabilities) based on workshops involving everyone (being forbidden to discuss "who does" and "how it is done" and only "what should be done") and deploy the strategy through it, you will get all the objectives and indicators that the organisation needs. Then you have to associate the objectives to people/departments and negotiate the goals. This way, top down and bottom up will not conflict and will complement. You should not define objectives for people or departments, but only associate the ones defined independently of the chart.

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