Do Rules and Systems Help or Inhibit Innovation?

First, I feel it is important to tell you that this post was inspired by some awesome data I learned about while doing some wisdom mining for a project. The article uses some more technical language, but I promise you that nerdiness of the data, research and information is totally worth it.

And, a quick clarification before we move forward Formalization is the extent an organization has clear rules and processes with consequences. Innovations are new products and services, but also includes process improvements.

Here are the hypotheses:

  1. Organizations with high formalization, have a higher absorption capability (ability to learn more than competition) and therefore more innovation.
  2. Organizations with high formalization, take longer to make decisions, thus inhibiting innovation.
innovation process

Based on the organizations that I've working with, my gut instinct says that it depends on what the systems and individual rules in place are requiring workers to do. I've seen checklists that slow down the process, but they also help everyone learn and decrease risk. I've also, seen rules in place to discourage failure and result in lack of experiments and research.

Good news is that the study measured 260 organizations, so this post is grounded in data and not my personal experience.

Sow what did they learn?

The data supports both of their hypotheses.

The moral of the story and what you should do is think about your own organization. If you don't think you have the ability to do innovation or be successful with innovation, then it is time to implement more formalization into your organization. I believe a bad system is better than no system. Bad leadership is better than no leadership at all. Doing something new is better than not doing anything. On the flip side if you are already successful with innovation, but really might be time to ditch some rules.  Ask yourself what processes are costing you more in time than benefiting you by lowering risk?

In case you would like to learn more here is the study that sparked my post:

The Effects of Absorptive Capacity and Decision Speed on Organizational Innovation: A Study of Oganizational Structure as an Antecedent Variable (published in Contemporary Management Research)