In this section, we offer a vision of what an innovative company looks like so that an SME
manager knows what has to be done if his or her company is going to become more innovative
than it is now. Becoming more innovative means increasing the rate at which new products and
services that customers value are successfully brought to market each year. Success means
bringing them to market on time, within budget, and at prices that make them profitable within
an acceptable period of time. We build on the four key elements of an organization (formal
organization, work, people, and informal organization) introduced in the last section, but here we
focus on how they must be aligned with the company’s strategy and with each other. An
important question to ask is What kind of formal organization, work, people, and informal
organization would be required for alignment with a competitive strategy that emphasizes
innovation?
In the figure above, we show arrows describing three forms of alignment. First, is what can be
called horizontal alignment (Baird and Meshoulam, 1988) – the extent to which the four
organizational elements are mutually supportive and work together (the outer arrows). For
example, does the company’s culture support the formal structure and are employee skills
aligned with the tasks performed? The second form of alignment has been called vertical
alignment (Baird and Meshoulam, 1988) – the extent to which the four organizational elements
are aligned with the company’s competitive strategy (the inner arrows in the figure). Finally, the
third form of alignment is represented by the single vector arrow in the figure and represents the
alignment between the company’s competitive strategy and the external environment (discussed
in Section 3.2). The fact that there are so many types of alignment is a strong indication of just
what an important role alignment plays in innovation and change, and how challenging it is to
achieve and maintain it (Wright and Snell, 1998).