How Big Companies Kill Innovation

Real learning occurs at the point where theory and practice meet. As the saying goes, "I've learned it the hard way". And learning things the hard way is always humbling.

It has been a goal of mine to continually innovate. Innovation creates demand - which is what drives economies. It is only when something innovative is created that we discover we actually need it. I have had the experience of innovating inside large companies and through my own start-up. What my experience has taught me... is that large companies have an extremely difficult time innovating inside or out.

The classic challenge inside large companies is for the business units to think beyond the coming quarter, next model or feature. While they race to capture the revenue stream that exists today, new entrants disrupt the market. Often, companies will have R&D groups that are flush with innovative ideas but completely disconnected from the business units. One of the ways to overcome this is to have the R&D group and the business unit agree on a time frame and a shared vision. The R&D group can then go off and execute in line with that vision, with the business unit's buy-in. This is important inside a large company - but buy-in alone does not equate with successful innovation.

The challenge outside is different. Sometimes, large companies approach small start-ups to see how they can benefit from each other. This can be a very risky proposition for a start-up. You must be hyper aware of the fact that everything is going to take much longer than you anticipate. Alternatively, large companies should be very careful about engaging small start-ups. If you are a large company thinking about approaching a start-up, make sure you have a clear goal with a set time-line and budget on hand. If you don't have all these things, please don't waste their time. Time is the life-blood of a start-up.

As a small start-up, you have to be ruthless about how much time you are willing to invest in a potential partnership. Be very clear about what your expectations are. If the conversation does not unfold according to plan - deadlines are missed, calls are pushed back, more information is requested - stop. Refocus on where you are going and move things forward on your own path. Set a hard time-line with a definable goal - and if you don't meet eye-to-eye with your potential partner, let go.

So what is the path of innovation? It's taken me a lot of time and money to come to what I believe is a better understanding. First of all, big ideas start small. Now, I'm not suggesting that you shouldn't think big - thinking big is critical for innovation - but you must scale back what you attempt as the first iteration. Find the essence of the idea by removing complexity. Start with this essence and scale-up according to the real data you collect from the implementation of your idea.

Second innovation requires a small inspired team or individual. In many ways, this is the most difficult part to get right. People are complicated - often, they can't help but make things even more complicated for themselves. You have to know that everyone on the team respects each other. The wrong person can poison your team and lead you astray. Innovating should be joyful. I don't know how many times I was put on a team in a large company and thought to myself, "I would never choose to work with these people". As an aside - if you haven't heard of non-violent communication, please Google it. In general, people can really afford to learn how to understand and express their needs better. The big lesson here is to always take responsibility for what happens to you and accept that you always have a choice - nobody but you is to blame.

I have to admit I've been an innovation snob. I have had this misguided belief that innovation happens in the sleek and shiny black, silver, and reflective surfaces of corporate R&D labs - or somewhere in the 5 feet between my bed and my desk, in my home-based start-up. But innovation happens on the street. It happens wherever there is the immediate potential for money to exchange hands. Of course, you need to think about what's desirable and what's feasible - but you must not forget what is viable. All three have to be present from the inception. I live close to LA's fashion district. Strolling past the shop vendors selling garments, you will notice that they're constantly yelling out their offers. It's a dynamic marketplace that is super efficient and in order to succeed, you have to sell - and sell now. The global pace of innovation has made the world into a bazaar. If you fancy yourself an innovator, you don't have much time to dream up your ideas, refine them and coddle them. You need to know if they sell or not. Innovation is about generating a small revenue stream to start with and then iterating on it. If you're a large company, your best approach to innovation may be spinning off teams. You need to find the right people willing to take the risk and let them break free of corporate bureaucracy.

Iterate on your idea. Iterate on your team. Iterate on the implementation. Iterate on your revenue stream. Iterate and improvise. I really enjoy musical metaphors - I can't stop thinking about large companies as faded-out pop stars from yesteryear. They're still getting their residuals, but they're burnt out. Some of them still make decent music, but they've become so big that they're like gigantic marching bands - very impersonal. Everyone thinks and acts the same inside the organization and everyone is counting on the band leader. A good place for innovation is a small jazz band. The musicians respect each other, share the joy of music making, improvise, and speak the same shared language - yet each voice is unique to its instrument. If you want to innovate, be in that jazz band - and make certain that it's got gigs.

--written by Eduardo Sciammarella --editor Lucia Micarelli

Comments

[Edu]

Tosh thanks for your thoughtful comments. Apple is a great example of a company that executes on innovation. I am not deeply knowledgeable about their process. I do know that during the early production process they work very hard to iterate on site at the production facilities. It's true that innovation can happen at large companies, but I believe that it has a better chance when it's a small - tight unit with modest goals to start with. I recently watched an interesting lecture - http://tinyurl.com/8n8awn - by Professor Don Sull of the London Business School. One of his points that really intrigued me is he challenged the idea of process with the concept of promise. To paraphrase - when people inside an organization work on the premise of personal promises it can be a very effective method for achieving goals. Another point he makes is that vision needs to be challenged by reconnaissance. The basic idea there is that you probe with breadth and once you find an opening to a new market or opportunity you flood.

[Satoshi Tanimoto]

I think there are many large companies that fit the profile above, but I think it's also a one-sided generalization - there are companies out there that are very focused and execute well.
I like Carl Icahn's idea of "survival of the unfittest" related to the senior management of many companies, and how the guy that's popular bubbles up to the CEO position - not necessarily the right person for the job.
http://abcnews.go.com/Business/Economy/Story?id=6610974&page=1

...but there are big companies that do it right too. Apple is one (yeah, everyone talks about Apple) if you listen to Jobs related to company growth, one of the things he is keen on is that it is very difficult to hire the right talent. They grow much slower than many companies of similar market stature. I think they take pains to figure out what skills they need, and hire people that is best suited with those skills. They also have a clear R&D pipeline - R&D has a direct outlet to production teams. Many times in companies that have grown too big, or companies that are too diversified, they still have R&D which they realize is important, but it turns into research without an outlet - disconnected from any product division. Any output from R&D becomes a sales pitch process.

Another one is Belkin - who knew there was good or interesting innovation left in something like a power strip? They did little travel surge power strips with USB ports built-in, power strips that have covers to hide the mess of cables. That happens because they have a need, they innovate on that need. They use their R&D resources well.

An industry that has a matured R&D process is the drug sector. Often the pure R&D is done by the small startups funded by venture money. (I think because internal R&D in their case becomes misdirected, or is difficult to incubate) as a startup, they are free to innovate in isolation, when they create a drug of market value, they get acquired by one of the large pharmaceutical companies.

Your point about small company / big company interaction - large companies reach out to startups usually when they have already realized they have no direction. By nature of their situation, they will never be clear on where they want to go, or goals, as a small company the way to approach it is to be quick and up front about if both companies are aligned in direction. It also helps to lock in early to get commitment on payment in phases - if they don't know what they want, at least they are wasting your time on THEIR dime not yours.

Small companies and large companies alike can poorly innovate. To do it well, it all comes down to the vision of the principles, and how clearly that is managed, and how clearly that's communicated as growth occurs.

[Erik Wingren]

Edu - in reference to your Jazz-metaphor, have you heard of John Kao and his book "Jamming - The Art and Discipline of Business Creativity"?