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Do Large Companies Remember How To Innovate?

Has a history of success dulled their innovative edge?

17Jun

When it comes to innovation, many believe that it solely belongs in the startup world. Such association exists because startups must come up with the innovative ideas, fight for funding, and battle larger competitors, just to survive. Large companies on the other hand, have an established reputation and strong financial capabilities that means that they do not necessarily have the same competitive spirit that fuels innovation.

Opinions on this differ considerably, with some suggesting that large companies have as much capacity to innovate as startups, if not more. Others believe that the startup world is breathing innovation, because, at the start, entrepreneurs are brave enough to experiment and take risks as there is nothing to lose, compared to the multi-million dollar revenues, reputation, and historical recognition that large businesses have.

There is a big difference between how startups run their business compared to large companies. The challenges are different, with startups worrying about how to get capital and make sure the business won't fail before they even launch. On the other hand, large companies are concerned about retaining revenue and making sure there is a stable growth.

However, larger companies can innovate, and have as many capabilities for that, it's the wrong prioritization that may be disrupting such processes. Co-founder of Intuit and a Director at eBay and Procter & Gamble, Scott Cook believes that large enterprises have to change their decision-making process. Instead of decisions being driven by bureaucracy, persuasion, position and power, they should be driven by experimentation. However, reversing the strategy for the sake of experiment is challenging, to say at least.

One of the factors that indicate a company's potential for a change is a good leadership team as it is this team who are responsible for encouraging employees to generate new ideas and innovate with limited resources. The CEO of Idealab, Bill Gross, recalls the example of Steve Jobs who managed to retain Apple’s innovation culture by taking risks and experimenting. In his interview for McKinsey, Gross pointed out that it was Jobs who 'cannibalized' his iPod’s $5 billion a year revenues by integrating mp3 player into his phones. Some colleagues at that time warned him not to, but his decision ultimately paid dividends.

Another example that shows large companies' innovation capability is Google X, an experiment platform where Google boldly invests millions in various projects. This includes driverless cars, Deep learning techniques, wearable technology and robotics. Whilst Alpahbet Inc, the umbrella company, funds these new ideas, it is also sensible enough to reject many more. The projects rejected for further development are done so at the earliest stage when their lack of viability becomes clear, saving money that can then be reinvested elsewhere.

The failed projects included a space elevator, that turned out to be unfeasible, a user-safe jetpack which sounded exciting but too energy inefficient and loud, and the most mind-blowing was teleportation that was found to violate the laws of physics. It is good for Google to be considering even the craziest projects but being careful and filtering those with real potential from those that sound good but may not be worthy of funding. A risk aversion to investing in products which may fail is another element that often holds large companies back from innovation. It is often the ‘do-or-die’ attitude that startups have that forces them to innovate and adapt to make a project profitable.

Startups have one advantage in that they don't have a huge catalogue of past successes. Sometimes large companies adopt the same approach because it is shown to work. However, this is exactly what often stops them from innovating today. Not all fall into this trap though, and those that can put real money and effort into their innovation efforts are finding they are increasingly innovative.

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