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Creativity

Why Big Innovation Doesn't—Can't—Work at Large Companies

Organizations are like people. They care about survival, not succession.

Key points

  • When successful startups find their place in the market, focus shifts to keeping their place in the market.
  • Big innovations threaten the very workforces tasked with bringing them to market, creating natural resistance.
  • This explains some of the most remarkable business stories of the last 50 years, including Apple and Netflix.
  • Big companies should focus operationally on iterative innovation only, acquiring big innovation when smart.

Co-authored by Jerome Gouvernel

The rise of the “intrapreneur” heralded a new day in organizational innovation: large companies empowering people to experiment and build new things, except now with the advantages of resources and infrastructure to bring successful products to market.

It’s a fabulous strategy…for those who can place the organization’s best interests ahead of their own. But organizations are made up of people.

Once a company reaches a certain size, its capacity for transformational innovation erodes because it unavoidably transforms into something else: an organism concerned with keeping its place rather than finding it.

History proves that’s where innovation goes to die. Even when large companies have succeeded in creating transformational innovation, they have consistently failed to bring it to market.

Why? Because bringing transformative innovation to market threatens the jobs of the very people tasked with it. Which explains some of the most extraordinary business stories of the last 50 years.

Copy Cat

Steve Jobs and Bill Gates are revered as the creators of the modern personal computer movement. But the things we love about our computers were actually created by…a copier company.

In 1979, Apple was struggling to conceptualize an operating system that would make their boxes usable. They scheduled a fateful meeting with Xerox PARC, which showed them their latest transformative innovations: icons, windows, and a computer mouse.

What happened next is fuzzy and the subject of a giant lawsuit. But no one contests that a) Apple incorporated those innovations into the Macintosh, its breakthrough product, and b) Xerox knowingly allowed it.

Why would Xerox, at the time one of the largest and most powerful companies in the world, give something like that away? Because personal computers threatened the copier business.

It’s a Rental

Netflix was in the DVD rental business, with a fabulously innovative business model. DVDs arrived by mail, a big upgrade to visiting a store with limited inventory. But even better, no late fees, the bane of every Blockbuster Video subscriber’s life.

The only problem was that Blockbuster could crush Netflix any time they wanted. They simply had to flip a switch to enable the exact same functionality for their 65 million subscribers, eliminating any incentive to switch to Netflix.

They did in 2000. Netflix offered to sell for $150,000,000 and were laughed out of the room.

But when Blockbuster shareholders got word that late fees were going away, they revolted, demanding that Blockbuster immediately reinstate their cash cow, which they did.

That gave tiny Netflix a lifeline. It then engaged in some transformative innovation of its own. Goodbye DVDs, hello streaming and original content.

At its peak, Blockbuster Video had a market cap of $3 billion. Today, Netflix has a market cap of $400 billion, arguably Blockbuster’s for the taking. But the late fees.

If 3 Make a Trend, What Do 9 Make?

SAP, Unix, 3com, and Adobe are thought of as hugely successful market disruptors. Yet all of them were born at large, existing companies that could not, or chose not, to bring them to market.

And these are only examples of the products that made it out alive. No one can possibly know how many incredible innovations have never seen the light of day because they were created in large organizations disincentivized to bring them to market.

On the flip side, Kodak, Radio Shack, and Barnes and Noble ignored the Internet for far too long, despite having Netflix-like road maps laid out for them. In all cases, protecting the status quo was their intrinsic motivator, fueling a belief they could stem the tide.

Of course, it’s easy to make a point when you consider only one side of the argument. What about the success stories? The exception proves the rule.

Amazon Web Services may be the only example of transformative innovation from a large established company in the last 50 years—a complete departure from their original product that became the soul of the enterprise. (Amazon’s never-before-seen chasm between valuation and profit may have been why and how they were able to succeed when everyone else has failed.)

Can large organizations make iterative innovations, slowly improving on their core assets over time? Of course. And those innovations are crucial to longevity.

However, when large organizations make investments in transformative innovation—the kind that creates new operating systems, a new approach to workforce management, or any type of paradigm shift—they set themselves up for failure if they don’t first consider whether their workforce will reject those very innovations acting in self-interest.

Thinking Big and Little

If transformative innovation is impossible at large companies, what are they to do, particularly since not innovating can prove fatal?

Organizations must understand that challenges with innovation are more issues of culture (“the way things get done around here”) than skill. Innovation efforts that don’t offer a path to future status for employees is the equivalent of pulling commissions from salespeople and expecting the same level of effort.

Most often, large orgs need to resign themselves to the reality that they are not suited to initiate and carry through on transformative innovation. They can, however, leverage their size and reach to acquire promising, already commercially successful innovators and plug them into their distribution machine. Transformational innovation is much better achieved through acquisition, in which that innovation was free to find its ideal product-market-fit free of other constraints or conflicting considerations.

At the same time, large orgs can and should optimize themselves for iterative transformation, improving what they have as a means of retaining clients and customers.

And when lightning strikes and transformative innovation surfaces in a large organization, the best bet is not to internalize the new tech, where it will face intense resistance. Spin it off and let it grow unencumbered. Because when your Plan A eats your Plan B, you don’t get to create a Plan C.

Jerome Gouvernel is the Co-Founder and CEO of datascalehr. He was previously the Creator and General Manager of ADP Venture's award-winning product design team, TalentX.

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