Corporate Enterprises Cannot Innovate
The other day, at a meeting with industry representatives driving innovation, and STEM education, one of the members said: “Let's face it, the big end of town cannot innovate. All innovation today comes from start-ups and small agile businesses.”
What do you think about that? Are large companies doomed to a life of BAU at best, and bankruptcy at worst?
It seems the zeitgeist around innovation, especially in Australia, is very skewed towards start-ups. To be innovative you need to use 'Agile Methodologies,' be a student of 'The Lean Startup,' and whatever you do have a 'hackathon.'
Whilst it is true that current technologies, from SMAC to IoT and others are removing barriers to competition. There is a race condition between large organisations' ability to restructure themselves around agility, and start-ups achieving the scale they need to disrupt marketplaces. It is not true that start-ups, far less small business, hold the brains trust on innovative creativity.
Try a quick thought experiment: Time yourself, and in 2 minutes write down the names of the top 9 innovative companies you know…
Chances are names such as Apple, Samsung, Google, Microsoft, Facebook, Amazon, perhaps Intel, maybe even CBA will be on the page. Yep, you may have just listed the largest companies rather than the smallest. And yes, I know that some of them we still consider as startups. Of course they were all startups at one stage. However, for most of them their most recent innovations were as large corporates.
So what's going on here?
Why do we consider large companies as the most innovative, yet hold to the belief that large companies cannot innovate?
I observe 5 areas of overlap with these organisations
1. Strategic Innovation
All of the most innovative companies, almost by definition, have a strategic intent to innovate. For the most innovative, this is pervasive.
There are three waves of innovation:
Wave One – New products and services in the next 12 – 18 months.
This is the area most start-ups work in. Many companies struggle to bring new products to market within this timeframe because of Corporate Antibodies. Even Microsoft used to operate on a 3 year upgrade cycle. Not anymore.
Wave Two – Innovations for the next 18 months to 5 years.
This takes more investment and far more risk, especially with the increased rate of technology change. The increased risk also increases the rate of failure. Nevertheless innovative leaders have a roadmap that drives innovation through this time horizon.
Wave Three – Innovations for the next 5 to 20+ years.
Only the richest organisations can fund 'Blue sky' research projects of this nature. Many innovative companies: Pharmaceuticals, Oil & Gas Exploration, Travel & Transport, operate almost solely in this area. Start-ups that capitalise here often emerge from long-term government funded research.
All of the innovative enterprises have a strategy that invests in all three waves. Actually all the leading national economies employ strateges that facilitate innovation through all three waves.
2. Moore's Law
These companies are all architected around digital technology.
IT is no longer considered a support layer driving cost efficiencies like productivity, but the company exists almost entirely because of IT. Put another way, IT increasingly, or solely, drives revenue generation and development of new products and services.
This is risky because as mentioned above, digital is a great leveller. The diseconomies of scale can easily outweigh the economies. This means these organisations continually need to transform cost structures and operations to benefit.
3. Metcalfe's Law
These companies all benefit from the exponential power of network effects.
Whether B2C, B2B, or B2E, they harnessed the power of the Internet, and more recently Social Media to accelerate their reach. This is probably why most of the companies that come to mind are consumer brands. Partly this is because of the network effect brand awareness has, but when you consider companies like Apple, Google, and Samsung, they recognised that “the exponential power of the (networked) consumer is far greater than the enterprise.”
Many of these organisations are already considering the IoT as we move from Systems of Engagement to Systems of Insight.
All of the companies above now provide platforms for others. They have transformed from a vendor of products and services to a platform for others to build their businesses upon.
Apple doesn't just sell iPhones, but provides the most lucrative platform for software developers, musicians, authors and together with IBM, soon businesses.
Microsoft has been doing this, in enterprise, for years.
5. Business Model Innovation
Not only have the leaders in innovation developed world changing products and services, but they have innovated entirely new business models. Both internally, and for their customers.
Amazon has entirely changed the way that businesses can sell, warehouse, and distribute products. With AWS they've entirely changed procurement and budget cycles.
The Upside Down Bell Curve
It turns out that both competing viewpoints, viz. the most innovative companies are also large enterprises, and large companies struggle to innovate like start-ups, are not mutually exclusive. Rather there is an inverted bell curve. The most innovative companies are at both ends of the scale spectrum, with a large number of organisations in the middle.
The question then becomes, what is your organisations strategic approach to innovation, and how can you improve this to succeed in the digital economy?