For long, innovative and new products are associated with entrepreneurs who pursue their passion and succeed. Many think that large companies get caught up in their routine operations and are not good sources of innovative solutions.
In fact, large companies have a few advantages over their start-up counterparts to create innovation. Scott Anthony published an article to “…call to arms for corporate innovators to seize the opportunities that only a big company can realize” (http://blogs.hbr.org/anthony/2012/09/how_big_companies_can_save_inn.html?awid=6166991183274468738-3271). Scott discusses three questions companies should be asking themselves to remain active in the innovation playground. In addition to asking these questions, companies should leverage the strengths that only large companies have:
1. Access to resources
Large companies have the most important resource for innovation: cash. Many entrepreneurial activities never come to fruition because of cash-flow issues. This is less of an issue in a large organization, where mature financial management is the norm.
Large companies have people, tools, facilities and partners that are difficult for start-ups to establish. In addition, international networks of large organizations enable them to quickly and effectively assess the value of their innovations, which again is a luxury for entrepreneurs.
Finally, large companies can get the attention of distribution channels much more easily than a start-up can.
2. Established brand
Think of the difference between Google introducing a social interaction medium versus a No-Name start-up doing the same. Even if Google+ is not much of a success so far, it still has attracted a number of users, who are trying it only because it is from Google. On the other hand, we have never heard of many Facebook-like tools being created by start-ups.
A large company can put its existing brand power behind a new product or service it is introducing. An established brand does not make a sloppy product successful but it certainly ensures that the new product gets some much needed air time with potential customers.
3. Talent acquisition
I recently worked with a client, which was struggling to attract talent to a new business they wanted to introduce. While the client had a viable product, they were having difficulty convincing top-talent join their ranks because the company was not known as a development company. In contrast, IBM, for example, would have no difficulty attracting the top talent for new business ideas they are working on.
4. Create and maintain momentum
Large organizations can dedicate resources to new development while start-up entrepreneurs struggle with basic needs of life. For example, an aspiring entrepreneur I know had to pause pursuing his passion in commercializing a medical device in order to focus on making some money to be able to pay his mortgage and put food on the table. By the time he secures sufficient savings to go back to his passion, he will have lost his momentum. In the worst-case scenario, he may even lose all his progress if a competitor beats him to market.
In closing, I echo Scott’s appeal to large organizations. There is tremendous opportunity to take the center-stage in innovation by learning from successful entrepreneurial practices and executing them in large organizations by leveraging above strengths.
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13 thoughts on “Large Companies and Innovation – An Oxymoron?”
I found this blog post extremely interesting. In today’s society, most innovative technologies come from a single creative, smart entrepreneur. As you mentioned, there are many advantages for larger companies to pursue more innovative practices and employees. I am curious if there are any instances existing of larger companies adopting this mindset. It seems like a difficult thing to embrace and welcome into the large company corporate culture.
Thank you for reading my post and commenting on it. I have personally operated in a few companies that adopt the mindset I described above. Unfortunately, it is a fragile mindset and it typically lasted as long as a C-level executive was firmly behind it. When and if immediate bottom-line concerns become dominant, this hard-built culture takes a quick tumble. It certainly is a difficult, but not impossible, thing to embrace and execute. It starts with a strong commitment to the longevity of the company and very hard work to establish it. In my opinion, it is effort well-spent because it is the only way to ensure that an organization will continue to deliver value as customer needs change and evolve.
Thanks a lot for sharing your insight about large companies and innovation. The story of your friend making a medical device make me wonder whether he will really benefit by joining a large company though, especially if the device he is making is essential for people but yields little profit in return. For instance, an advanced robotic arm/leg can be a very promising solution for many people who is missing a limb, but the size of market for this kind of product is not that big. Do you think top executives in large companies will prioritize this kind of project if it comes competing for funding with a more economically beneficial consumer product? In doing so, aren’t they violating their professional duties by not pursuing a course of action that benefits shareholders most?
These are great questions. First, let me start with my friend making a medical device. He would not benefit from joining a large company unless the company is interested in commercializing his concept. My point is that, if the large company had intended to develop the same medical device, it would have had some advantages over an entrepreneur. Unfortunately, large organizations make investment decisions based on financial tools like ROI and NPV analysis. The problem with these analyses is that nobody really knows how big a market is and how many ways a new product can create value for its creators. Let’s take your example: a robotic limb for humans require better versions of robotic technologies we have today. Those improvements may be used in other areas, which can significantly expand the market reach. Shareholder value is a big can of worms, in my opinion. Executive duties are to maximize shareholder value but nobody really knows what will “maximize” value. In the end, it becomes a risk management and numbers game. For example, did Ford maximize shareholder value by taking a more risk-averse approach in the years leading to 2008 meltdown? Or, did GM and Chrysler maximize shareholder value by accepting bail-out money, going into bankrupcy protection and emerging as viable businesses? I think value is not only measured by the cash a product/service creates. Otherwise, there would be no reason to pursue green alternatives or deliver medication to African nations. Companies that operate in these industries create benefits for shareholders and for the society. Large organizations that realize that innovative initiatives cannot always be measured by traditional and risk-averse tools make progress while others (unfortunately, many others) trail from behind.
On the paper it is hard to argue on what a corporate has in hand but as in Apple, first it takes a leader to create a culture that utilizes these resources and advantages which is hard to find today’s business world. And it would not be fair to blame executives while they are the ones whom to answer on a quarterly basis when the results are tad below the analyst’s expectation even if you made billions of dollars per qtr. Therefore start ups will be always more advantageous where they can be more adventurist, free thinker and risk taker than corporates due to being less structured, driven and flexible. Also, for funding, angel investors, VC’s are more accessible than ever before when you come to table with real value added executable business model. History prevails that innovation is most accelerated during the wars and it is hard to be in that motivational psychology while you are making billions with no life threat but parachute exit contracts. On the other hand as an individual you are in a similar situation like war where stakes are probably quite higher than the big corp which will always keep the start ups one step ahead of the corps. ps..i do not mean to give impression that i support wars in any way.
There is a great article in Harvard Business Review’s September issue by A.G. Lafley, Roger Martin, Jan Rivkin and Nicolaj Siggelkow titled Bringing Science to the Art of Strategy. The article addresses the flawed “strategic planning” practices of organizations and how it does nothing other than perpetuating the status quo. The solution is to change the way planning and investment justifications are done. Your example of wars is a good one. Desperate times call for desperate measures and all those “generally accepted practices” go down the drain at such times. The result: better ideas, faster time to market, quicker market adoption. Now, only if we can turn those practices to “generally accepted practices…”
I’m really interested in this subject area as I am going to write my thesis on a question in this field. My area of interest is technology companies where change is happening at an ever-increasingly rapid pace. I guess this is true for most industries. Larger organisations have the resources etc as you rightly state, but the sheer number of people brings inherent obstacles unless the organisation is doing two things: 1) Constant focus on appropriate organisational design (including processes, R&R, systems etc. 2) Taking advantage of technology and automating where it makes sense.
In my experience not many larger companies do this effectively for lots of reasons. And actually my experience is that the momentum is easily lost in a larger company for innovative initiatives for roughly the same reasons.
Do your experiences mirror this or are they very different?
You make very good points and i fully agree with you that innovative large companies are hard to come by. Some get it right, most do not. In fact, my job would not exist if companies did it right. And, i really hope to make myself obsolete one day by helping companies integrate innovation into their “business as usual” rather than treating it as if it is something special.
In my experience, innovation in large organizations work if:
1) There is a clear direction and specified goals for innovation,
2) The responsibility is internalized by everybody in the company,
3) There is clear leadership and ownership at the top level,
4) Culture supports calculated risk-taking.
i would agree with your point (1) but not with (2). Technology and automation are more suitable for operations. While they have their place in innovation, I would not put them in the “must have” category.