Structure Your Innovation Teams to Drive Service Innovation

Different types of service innovation need different teams, decisions, and support to succeed.

Summary

Service innovation is crucial for staying competitive, but it doesn't happen by chance. The way your organisation is structured plays a pivotal role in whether innovation thrives or stalls.

In this article, we explore how aligning your innovation teams with the right organisational structures can unlock the full potential of your service initiatives.

From incremental improvements to transformative breakthroughs, each type of innovation demands a tailored approach.

Discover how the Hybrid Innovation Matrix can help you navigate this complexity and ensure your innovation efforts are set up to succeed.

Why Structure Shapes Innovation Success

Some initiatives thrive. Others stall or fade away—despite having the same leadership support, budget, and ambition. Why?

To succeed with service innovation—whether it’s about improving your current offerings or creating entirely new value—you need to structure your organisation accordingly. No single structure works for every type of innovation.

It’s not only about teams and reporting lines. It’s about decision rights, funding, governance, and how new ideas interact with the existing business.

So here’s the real question:
Why do some innovation efforts lead to real results, while others—with similar effort—struggle to get off the ground?

One of the most overlooked answers lies in how you structure your innovation teams. Getting this right is a key enabler of long-term service growth.

The Problem: Organisational Structure Is Often an Afterthought

Despite ambitious goals for service innovation, many organisations overlook one of the most critical enablers of success: how innovation teams are structured.

Most teams are launched with good intentions but without the right setup. The result? Slow progress, repeated setbacks, and growing frustration.

Awareness

One common issue is a lack of awareness. Many leaders assume one structure fits all. They apply familiar models—even when the type of innovation requires a different approach.

Capacity

Another problem is capacity. Teams are often pulled together with whatever people and budget are available. But innovation cannot thrive as a side job. Stretching resources across day-to-day operations and future-focused work rarely leads to breakthrough results.

Investment

There’s also a reluctance to invest. Innovation—especially long-term or exploratory projects—carries uncertainty. Leaders hesitate to fund new structures when immediate returns are unclear.

Cannibalism

And then there’s the fear of disruption. New innovation teams might challenge the status quo. They may compete with existing business lines, confuse customers, or cause friction internally. As a result, organisations often contain or delay bold initiatives.

These issues have real impact. Poorly matched structures lead to stalled initiatives, misaligned expectations, and limited scalability. Innovation becomes too disconnected from the business—or too tightly constrained to have any real impact.

This structural mismatch isn’t just inefficient—it actively undermines innovation goals, erodes trust, and wastes resources.

It’s not a question of whether your innovation efforts are ambitious enough. The real question is: are they set up to succeed?

Why it Matters: The Hidden Risks of Misalignment

When organisations fail to align their innovation teams with the right structure, they risk undermining their innovation goals. This misalignment can slow down progress, waste resources, and lead to frustrated teams. Here’s how this plays out in practice.

Incremental Ideas Die in Bureaucracy

In many cases, incremental innovations are bogged down by bureaucracy. The decision-making process becomes slow and tangled in red tape. Teams trying to improve existing services are forced to work within rigid structures designed for the status quo, not innovation. This stifles progress, and even small, valuable improvements can get delayed or lost.

Stuck in Business-as-Usual Thinking

Organisations often apply traditional business logic to innovation efforts. This means thinking in terms of existing industry norms, customer needs, and established ways of delivering value. While this works for day-to-day operations, it can hinder innovative thinking. Teams focused on incremental improvements may get trapped in “business-as-usual” modes, unable to break free and explore new ideas that disrupt current processes.

New Ventures Smothered Too Soon

When new ventures are integrated into existing structures too quickly, they risk being smothered. These ventures, whether it's a new service model or cutting-edge technology, need room to explore and evolve. But often, they are expected to fit within the existing structure or follow traditional KPIs. This limits their potential to grow and scale.

Teams Judged by Efficiency Metrics

In many organisations, teams tasked with exploring new ideas are still judged by efficiency metrics. These metrics are designed for operations, not for the uncertainty and trial-and-error required in innovation. This mismatch can lead to the wrong behaviours: teams rush to deliver results that fit within conventional expectations instead of focusing on exploration and experimentation.

Decision-Making Models and Risk Appetite

Different types of innovation require different decision-making models. For example, incremental innovations can be driven by clear business cases, while transformative innovations require a more vision-driven approach. But when teams are forced to follow the same decision-making models, they may not have the freedom to take the risks required for breakthrough innovations.

Protecting the Existing vs. Building the New

There’s often a tension between protecting the existing business and building the new. Leaders may fear that supporting innovation could disrupt their core business. This creates a dilemma: do you protect your existing revenue streams, or do you take risks on new ventures that could change the game? Without the right structure, innovation teams may feel caught between these two priorities, making it difficult to move forward.

Political Power Struggles

When innovation efforts disrupt legacy operations, internal politics can complicate decision-making. Stakeholders who are invested in the current business model may resist change, seeing innovation as a threat to their power or resources. Innovation teams may face pushback from powerful internal groups, slowing progress and creating friction within the organisation.

Developing New Expertise and Business Logic

Innovation isn’t just about applying new technologies; it’s about developing new business logic. Service innovation often requires new ways of thinking—new customer problems to solve, new markets to enter, and new value propositions to offer. Organisations that fail to build the necessary expertise or provide the right environment for learning may struggle to develop the deep insights needed for successful innovation.

Conclusion: The Costs of Misalignment

When innovation structures are misaligned, it’s not just inefficient—it actively undermines the chances of success. Organisational misfit creates confusion, wasted resources, and poor decisions. Without a clear structure tailored to the type of innovation you’re pursuing, your innovation efforts may never reach their full potential.

The Solution: Adopt the Right Organisational Structure Using the Hybrid Innovation Matrix

To overcome the risks of misalignment, organisations need to structure their innovation teams according to the type of service innovation they are pursuing. The Hybrid Innovation Matrix provides a clear framework for this, identifying four distinct innovation zones that require different team structures, funding models, and governance approaches.

The Hybrid Innovation Matrix

The Hybrid Innovation Matrix consists of two axes:

• Horizontal Axis: Common vs. New Business Logic – This axis distinguishes innovations that build on existing business models and practices versus those that require entirely new approaches.
• Vertical Axis: Incremental vs. Transformative Change – This axis separates innovations based on their level of change, ranging from incremental improvements to major disruptions.

Each quadrant in the matrix represents a different type of innovation that requires distinct organisational structures to succeed.

Quadrant 1: Adaptive Improvements (Bottom-Left)

Examples:

• Incremental upgrades to existing services, such as improving customer onboarding or enhancing uptime SLAs.

Structure:

• Teams embedded within existing business units, with cross-functional ownership.
• Light project management to keep the process agile and responsive.

Enablers:

• Kaizen, Lean methodologies, and Value Stream Mapping to improve existing processes and systems.

Challenges:

• Innovation efforts can easily be overwhelmed by “firefighting” operational issues, so it's critical to create space for continuous improvement.
• Teams must focus on learning and refining rather than blaming failures.
• Aligning local changes with broader, global strategies ensures the efforts contribute to the overall vision of the company.

Adaptive improvements are typically low-risk and high-impact when well-aligned with the existing business.

Quadrant 2: Pushing Frontiers (Top-Left)

Examples:

• Predictive maintenance models, using AI to support field service teams, or automating advanced service operations.

Structure:

• Temporary or rotating project teams that are still connected to core business units.
• Dedicated project teams with strong project and programme management.
• A steering committee to manage stakeholder relationships and provide guidance.

Enablers:

• Strategic clarity and roadmap ownership to ensure projects stay on track.
• Higher funding thresholds to manage the risks involved in pushing the frontier.
• A robust risk management framework to balance the strategic risks with operational continuity.

Challenges:

• Managing the delicate balance between business continuity and strategic risk.
• Avoiding political infighting that can slow down decision-making.
• Preventing initiatives from becoming “dragons' dens,” where new ideas are squashed by internal resistance.

These types of innovations are more risky and require careful management of resources and alignment with the company’s long-term vision.

Quadrant 3: Business Model Innovation (Bottom-Right)

Examples:

• As-a-Service models, remote operations centres, or operational performance-based solutions like managed services and consulting.

Structure:

• Satellite innovation teams with high autonomy, often working outside the core business units initially.
• Innovation teams should operate separately in the early stages, with clear strategies to integrate once the model is validated and scalable.

Cultural Needs:

• Teams should have an entrepreneurial mindset, tolerance for ambiguity, and curiosity to explore new ideas without fear of failure.
• Driven by a clear vision of future opportunities rather than traditional metrics.

Decision-Making:

• Light-touch business cases that allow for more vision-driven discovery.
• Teams need the freedom to experiment with new business models and learn through iteration.

Challenges:

• Building new knowledge networks and expertise in uncharted areas.
• Overcoming the “corporate antibodies” that resist change, especially in larger, more established companies.
• Managing the potential for cannibalisation, where new innovations might threaten existing revenue streams.

This quadrant involves creating entirely new business models, which require flexibility, risk-taking, and the ability to experiment outside the constraints of traditional operations.

Quadrant 4: New Markets & Solutions (Top-Right)

Examples:

• Cross-industry data platforms, ecosystem-based solutions like predictive healthcare, or emerging technology applications.

Structure:

• Independent ventures or external partnerships to explore new markets.
• These innovations are often so different from the core business that they require separate business units or joint ventures (JVs) to thrive.

Enablers:

• Exploratory research, rapid prototyping, and ecosystem participation to drive new opportunities.
• Collaboration with external partners to tap into new networks and technologies.

Funding:

• Ring-fenced, long-term innovation budgets that are protected from short-term pressures and allow for sustained investment.

Integration Strategy:

• These ventures may never fully integrate back into the core business but can be managed as separate entities or spun off as JVs, allowing them to operate independently.

Decision-Making:

• Driven by foresight and early market signals rather than traditional ROI measures.
• Focus on experimentation, multiple parallel bets, and anticipating emerging solutions in a new domain.

Cultural Enablers:

• High trust between teams and external partners, with a focus on experimentation and learning.
• An environment where multiple innovations can be tested simultaneously, allowing the organisation to spot weak signals of the next big thing.

Case Example:

• Participating in new energy ecosystem pilots, where companies are working with a variety of partners to explore entirely new solutions.

These innovations often require an open, flexible approach, with an emphasis on external partnerships, long-term investment, and exploring new market opportunities.

Time Horizons and Budgeting

The Three-Box Framework:

The Three-Box Framework helps organisations balance short-term needs with long-term innovation goals:

• Today: Focus on adaptive improvements to keep current services competitive.
• Tomorrow: Push the frontiers with new technologies or service models, reconfiguring the business where necessary.
• Day After Tomorrow: Explore entirely new markets and solutions that will shape the future.

Ring-Fenced Budgets:

To succeed across these time horizons, it's crucial to ring-fence budgets for long-term projects. This prevents innovative efforts from being cannibalised by short-term financial pressures and ensures a balanced innovation portfolio that can drive sustainable growth.

By using the Hybrid Innovation Matrix, organisations can tailor their structures and resources to match the type of innovation they want to pursue, helping them navigate the complexities of service innovation.

Conclusion: Structure for Growth, Not Just Control

Service innovation is not a one-size-fits-all endeavour. It requires different approaches, mindsets, and organisational structures depending on the type of innovation being pursued. Whether you are making incremental improvements to existing services or exploring entirely new markets, the right structure is a key enabler of success.

Organisational alignment is critical—when your teams, funding models, and governance are tailored to the specific needs of each innovation type, your chances of success increase dramatically. Leaders must be intentional about how they structure, fund, and govern innovation efforts. This deliberate approach helps to overcome the inherent risks and challenges that can arise from misalignment.

Successful service innovation demands more than just control—it requires the freedom and flexibility to explore, test, and scale. With the right organisational setup, your team can focus on building lasting value for both your business and your customers.

Is Your Organisation Set Up for Innovation Success?

Take a moment to consider your current innovation efforts:

• Where are most of your innovation initiatives focused today? Are they incremental improvements, transformative changes, or new business models?
• How well is your organisation structured to support these efforts?
• Are you giving your innovation teams the space and resources they need to succeed, or are they being held back by outdated structures?

By asking these questions and aligning your organisational structure with your innovation goals, you can set the foundation for lasting growth and success. Where are you today, and where do you want to go next in your service innovation journey?

Join the Service Transformation Summit

Ready to dive deeper into designing innovation ecosystems and accelerating your service transformation?

At the Service Transformation Summit on Driving Service Innovation for Growth, you will:

• Explore practical strategies for structuring, funding, and governing innovation teams.
• Learn from real-world examples of service innovation leaders successfully navigating the growth zones.
• Connect with peers facing similar challenges and opportunities in their service innovation journeys.

Join us to gain insights, expand your network, and shape your roadmap for long-term service innovation. Together, we can transform service into a powerful driver of growth.

Register now and take the next step toward building a future-proof innovation strategy.