Why Big Companies Can’t Innovate
From The Harvard Business Review:
Big companies are really bad at innovation because they’re designed to be bad at innovation.
Take a story plucked from the pages of Gerber’s history. In 1974, the company’s growth potential was waning. In order to grow profitability and fight margin pressure, Gerber executives turned towards a market they hadn’t successfully penetrated for decades: adult food.
Luckily for a company adept in sourcing and processing vegetables and fruits, tens of millions of busy Americans were spending more time at work and fewer hours in front of the stove. Gerber’s team knew if they could develop a quick, healthy meal for adults, they had an avenue into meaningful growth.
When Gerber launched its product targeted towards this opportunity, it flopped disastrously. It’s no surprise: Instead of developing a novel line of food suited to the needs of busy Americans with distinct branding and its own distribution strategy, Gerber slapped a new label — excitingly named ”Gerber Singles” — on existing pureed products and shipped them out for placement in a different aisle.
. . . .
For those who would admonish Gerber for their approach to transformational innovation, it might be wise to consider that the company did exactly what it was designed to do: create operational efficiency. This deeply-rooted tendency goes all the way back to a corporation’s typical life cycle. In its infancy, it’s designed to bring innovation to the market. A start-up’s success is not gauged by earnings or quarterly reports; it’s measured by how well it identifies a problem in the market and matches it to a solution. If venture capitalists think entrepreneurs have identified a big problem with an interesting solution, they’ll fund the start-up. If those entrepreneurs match and improve this solution, they’ll see growth in revenues and, ultimately, profitability.
But that’s not what life is like within a mature organization. When corporations reach maturity, the measure of success is very different: it’s profit.
Once a business figures out how to solve its customers’ problems, organizational structures and processes emerge to guide the company towards efficient operation. Seasoned managers steer their employees from pursuing the art of discovery and towards engaging in the science of delivery. Employees are taught to seek efficiencies, leverage existing assets and distribution channels, and listen to (and appease) their best customers.
Such practices and policies ensure that executives can deliver meaningful earnings to the street and placate shareholders. But they also minimize the types and scale of innovation that can be pursued successfully within an organization. No company ever created a transformational growth product by asking: “How can we do what we’re already doing, a tiny bit better and a tiny bit cheaper?”
. . . .
For those executives who aren’t willing to engage admit to their organizations are built to be bad at transformational growth, the other option might as well be to give up.
Link to the rest at The Harvard Business Review
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Early in his career, my husband worked at a large company famed for its research labs. Unfortunately, it was also infamous the number of startups that former researchers formed because they were frustrated at trying to ever move anything from research to product within the company. Part of the problem was that the company wouldn’t even approve an attempt unless you had a business plan that would show 10% margins from the beginning.
This is really interesting. So by having successfully fostered operational efficiency at producing print books, traditional publishers have boxed themselves into the corner of doing just that one thing very well. Now they need to produce ebooks, too, but they do it at great cost and very slowly, perhaps because they’re using mechanisms originally set up for print production?
The four stages of an organization correspond to the professions necessary at the top level:
1-Inception-Engineers
2-Growth-Sales and Marketing
3-Maturity-Accountants (Bean counters)
4-Old/Death-Lawyers
I’ve worked at big companies and it’s so true. Along with the focus on the bottom line, they also have a huge culture change to make if they move away from the ‘normal’. Sometimes even the best attempts fail because of employee disengagement.
Yes. Innovation requires risk, and when you have a huge infrastructure that is designed to be stable, make money, and keep getting bigger, risk is the last thing that will feel comfortable.
Although, the personality of the company definitely matters. Google and Amazon come to mind as companies that are very big and not afraid to innovate (although I’ve heard rumors Google is getting old and stodgy). The personality of the Big Six, is, however, not the type of personality that is nimble and creative. It’s the type of personality that is hard to wake up from its nap.