Formal organizational structures are needed to coordinate internal activities. Organizations that stimulate innovation are commonly structured as flat organizations with limited bureaucracy, have a generalist division of labor, coordinate with cross-functional teams, and are flexible. They use small team structures. Use of informal authority is common, and authority is decentralized.

Many innovative organizations set up skunkworks projects. A skunkworks project is one typically developed by a small and loosely structured group of people who research and develop a project primarily for the sake of radical innovation. Employees need to take ownership in pride in being part of an innovative culture. The successful organizations encourage creativity and innovation. A method of encouraging risk taking is through encouraging intrapreneurs, people who start a new line of business for an existing company.

Part of being flexible is letting employees work on ideas that don’t seem practical or related to the business. With an open system, you seek innovation from within and outside the firm. Many companies today are turning to their customers, suppliers, and others for innovation.