01 Jul 2014

Yes, Big Corporations Can Innovate Too

I used to think, like many, that large corporations cannot innovate. I thought that they

01 Jul 2014

I used to think, like many, that large corporations cannot innovate. I thought that they are too large, too boring, and too riddled with politics and institutional inefficiency to move quickly and to innovate. Having consulted for a slew of large clients over the past decade, I realized that while these generalizations are often true, there are ways that large firms CAN, in fact, innovate. In this article, I present common problems that stifle innovation within a large company as well as how to overcome those obstacles.

What Is Innovation

This seems like an rhetorical questions, but it is not meant to be. Many people working at large organizations honestly forget what innovation is. Innovation is finding a problem that people have and providing a solution, which is superior to all available alternatives, to that problem. Sometimes, companies build products to address problems that are not pressing or are not in-line with the company’s core. Other times, companies provide inferior solutions and are shocked to find that customers shun them. Doing innovation right involves both finding a pressing problem and addressing it with an outstanding solution.

Common Problems Stifling Innovation

Over the past decade I have led product strategy, user experience design, and research for a variety of clients from brand nascent startups to huge financial institutions with hundreds of thousands of employees and billions in revenue. I started to notice some patterns after a while.

Executives of large corporations often say they want innovation but don’t really mean it. Without their honest buy-in, innovation will not succeed. Executives that are not truly committed to innovation can torpedo projects in many ways such as pulling funding or under-resourcing initiatives. Other times executives do not embrace the risk that is inherent in innovation. A team might find the right problem and provide a novel solution only to be sidelined by a tentative decision maker, who claims it is too new/risky/experimental. Entrepreneurs make their money on seismic shifts, while corporate executives are used to steady, incremental improvements–not innovation. Entrepreneurs will win when it comes to delivering innovation. Therefore, without true commitment to risk, a large corporation cannot innovate, only improve a little bit at a time.

A related problem is “innovation” driven by corporate politics and not by users. For example, a large bank might develop an application that allows their customers choose between a few hundred financial instruments because an executive has set a goal to create and sell a couple dozen new banking products. What’s great for that executive’s career is misery for the customer. Listening to the customer might reveal the fewer, clearer choices is really what most people need.

Another common mistake that I have seen is companies relying too much on marketing research. It almost seems that larger companies assume that given enough MBAs doing enough marketing analysis, they will find the perfect market, the perfect pain point, and the perfect solution. If that were the case, there would be no need for entrepreneurs in the world and startups like Google would not be able to compete with incumbents like Microsoft. In fact, it is impossible for find a perfect product-market fit from behind the desk. There is a reason why the lean startup approach has generated so many great products. Any innovator, no matter if a large company or a scrappy startup, must talk to their customers, try solutions, and refine their products until they find that magic recipe for an outstanding solution. Don’t get me wrong, you need market research and MBAs to chart a general direction. However, the little magical details, that make one product like Facebook trump another similar product like MySpace, are hashed out in the field not in Excel. This is at odds with the risk aversion inherent to larger firms, which precludes them from iterating in public view among other things.

There also exists a mentality among large corporations that if people are not buying a product, it is because the company has not spent enough on marketing. By extension, the way to sell more is to spend more on advertising. That is a fine strategy for eroding the bottom line. Why would you commit to a product that requires large marketing expenditure for a modest revenue? Fortunately, startups do not have this problem because they rarely have cushy marketing budgets. Startups focus instead on creating an outstanding product for a pressing need. Startups sometimes do such an outstanding job that they don’t have to spend a penny on advertising because their customers do all the advertising for them. The goal for any innovator should be to create such a compelling product that customers can’t stop raving about it. Even if you fall short of this goal, at least you won’t be jamming products down people’s throats and wasting your valuable resources.

Finally, I have witnessed a number of companies planning to use the same ‘ol team, working in the same ‘ol ways, in the same ‘ol corporate structure to develop ground-breaking innovations. Need I say more? However, I think we can agree that risk-loving, entrepreneurial types are less likely to work in a large corporation. Instead, established organizations tend to attract and retain workers that are a little bit more risk averse and less likely to challenge the status quo. Those are not the kinds of qualities that best serve an innovator. Moreover, I think we can agree that big institutions also tend to have a lot of protocol and complex business systems. For example, many of the big institutional clients require vastly complex documentation that needs to make its way through an equally complex approval and revision process. On the other hand, startups lack any of that. People that work in startups accept ambiguity and, instead, rely on their faculties to fill in the blanks and keep things move along swiftly. Therefore, it seems obvious that in order for innovation to have the highest likelihood of success in a large corporation you have to seed it with a team that is intrepid, resourceful, and free of institutional baggage. Sometimes that means bringing in a team from outside of the organization (which also has its headaches). Other times, it means separating a team from the mainstream corporate culture, seeding it with the right people, and providing backing and incentives that will compel them to take risks.

What’s Next?

As I hope you can tell from the above, most of the common hurdles to innovation in a corporate environment can be overcome. In fact, the only challenge that I think is difficult to address is buy-in from the executives. The reality is that innovators are amassing at your gate. You can only hold them off for so long before one will slip by and slay Goliath. Not only that, assuming you are not a monopolist, your competitors are likely eyeing innovation projects at this very moment. Therefore, the only way to stay ahead and stay alive is to innovate yourself.

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