This strategy is often informed largely by the need to be perceived as pushing an innovation agenda or having a 'focus on innovation' which attracts some level of 'goodwill' towards the company (whether real or perceived). Either way, the department is usually lead my an Innovation Manager with a team of officers and tends to be vaguely defined - after all, the perception is that innovation is kind of just meant to happen somehow, no one knows exactly how, but it happens, so just form a team and have them 'make things happen'.
This strategy has its cases of success and failure though intuition leads me to guess there are more failures than successes. And there are many points to call out and even fault the pursuit of such a strategy on. But key to this article is the fact that 'departmentalizing' innovation often does not result in a more innovative organization, and in fact threatens to make one less innovative.
Leaving a few people to carry forward the company's 'innovation agenda' is a hard way to get an organization to become innovative. Why?
The answer is stated in the problem - innovation is really a culture, which I've pointed out before - an organizational culture. Creating a department often just leads to kind of taking care of the headache of the constant demand from the market and other stakeholders for 'innovation', a reactionary move in many cases, not guided by anything beyond the need to be seen as 'innovative', a mere ticking-off of a box.
The strategy often fails to diffuse innovation through the organization. At worst, the innovation team becomes 'those innovation people' who sit somewhere (who-knows-where) with fancy colored furniture and 'cool' stuff but no one really knows what they do much less why they do it. Furthermore, it can breed a culture of entitlement among the people in the innovation department who might end up seeing themselves as special or different and unique from the others, further alienating them. If this happens, the company may well be on its way to becoming less innovative as the 'others' now look at the innovators and innovation in contempt. I've seen organizations where the innovation team is hosted in a totally different building several minutes drive away from the rest of the organization!
Creating an innovation department in itself is not a mistake, it is the purpose for creating it that is the issue. The main purpose of an innovation department should be to spearhead the diffusion of a culture of innovation to all levels of the organization.
Ideally, in the end, an innovation department should make itself obsolete (in a sense) when its mission of making the whole organization innovative is attained - who needs an innovation department when the whole organization is living and breathing innovation continuously?