Big companies by sheer dint of scale are less capable of achieving rapid innovation than smaller organisations. What are the ingredients that are most evident amongst those larger companies that do manage to innovate successfully and how can you engender them in your organisation?
First, what is innovation? There are typically three types of innovation that we think about in business – bringing a new solution to an old problem, restructuring processes to improve the performance of an existing business, and establishing a new business model.
Uber and Hailo are great examples of the first type of innovation. Commuters struggled with the efficiency and reliability of sourcing a driver service, and these services brought new solutions to fix an old problem for vast numbers of travellers. Amazon made it much easier for shoppers to purchase books, and now almost anything, by ruthlessly restructuring the process of purchasing, sourcing and delivering physical goods to consumers. The Financial Times was amongst the first to successfully disrupt the business model around newspaper content. In 2007 it began the transformation of its business from almost exclusive reliance on print advertising and sales, to a point where today over 70% of FT’s circulation comes from digital subscriptions.
None of these examples of new and existing companies that have achieved success through innovation, are rooted in grandiose ideas; but have emerged from the cut and thrust of innovation processes and systems. Here are some of the necessary components of such processes and systems in larger companies:
For larger organisations the driver to innovation can often be the final realisation that revenue from existing product lines or business model is no longer sustainable. The necessity to find new ways to make money are fueled by the simple fact that the old ways don’t work any more. High street video rental outfit, Blockbusters, realised this too late or simply stood back and allowed Netflix and other innovators to kill their revenue streams. Ryanair was famously facing financial ruin at the time when the young Michael O’Leary took his first trip out to the US to see how Southwest Airlines had dramatically modified their operating services. The FT was looking at revenues fall off the cliff in 2007 and knew that it needed to find new ways to monetise its small but dedicated readership.
Most big companies are reluctant to risk tampering with their proven business model until its undeniably under threat – by that time it can already be too late. In the face of declining revenues, the initial strategies will typically be “optimisation” of processes, products and prices. Consider how Mars bars have shrunk by 28% since the 1990’s and you can begin to understand how confectionary companies have tried to squeeze more revenue out of existing product portfolios. On a larger scale, in markets with little or flat growth, we often see consolidation amongst competitors in order to achieve cost efficiencies. Take note of the massive consolidation in the UK gambling sector right now with Paddy Power / Betfair and Ladbrokes / Coral merging in order to achieve multi-million bottom line growth without actually growing top line revenues.
When optimisations run out of road, something further is required. We are not advocating that companies operate innovation processes within a culture of fear. However the insurmountable evidence of significant threats to the fundamentals of the business, can sometimes be the first steps in the initiation of innovation in mature companies.
If many companies are driven to the edge of the cliff by fear, it is ambition that enables them to fly. Greatness comes not from reacting to fear, but by the ambition to achieve a great goal. Steve Jobs had the ambition to “put a computer in the hands of everyday people”. However, Jobs was not passionate about computers, he was passionate about building tools that helped people unleash their potential. He said “It’s the intersection of technology and liberal arts that makes our hearts sing.” Ask yourself, “What makes your heart sing?” Follow the answer.
CEO’s of big successfully-innovative companies clearly articulate ambitious visions and ensure that employees understand and share in this vision. The vision needs to cascade down into actionable objectives for individual teams, so that each employee can feel they are contributing to the overall vision. Quantifying and rewarding targets for growth will be a part of the mechanic required. Any targets must be big enough to force managers to innovate and prevent them from slipping back into accepting flat organic growth. If managers can make their targets by taking less risky actions, then of course they will.
The vision as mapped out by the company’s leaders must be inspiring enough to motivate a wide range of skilled resources to gather around. It must be achievable in the mid to long term in order to ensure that anchors performance through the thick and thin of working to get there over a sustained period of time. J. F. Kennedy’s bold aspiration, in 1962, to “go to the moon in this decade” motivated a nation to unprecedented levels of innovation. Any far-reaching vision can be a compelling catalyst, provided it’s realistic enough to stimulate action today.
Failure in large organisations is typically handled very differently than in start-ups. Cultures of blame and self-protection very quickly develop in mature companies, especially those which have been witnessing strong organic growth for many years. A failed initiative in such a culture typically comes with the ultimate punishment for at least one mandatory scape-goat. The higher up the food chain, the more culpability is apportioned. Faced with the prospect of derision or even dismissal for seeking to progress the business, it is no surprise then that in many large companies, failure is not adequately managed.
In the world of invention, failure and approaches to it are well understood. Thomas Edison said “I have not failed. I’ve just found 10,000 ways that won’t work.” James Dyson propounds “Enjoy failure and learn from it. You can never learn from success.” Henry Ford crystallised it best of all when he said “The only real mistake is the one from which we learn nothing.” The challenge for big business is how to instil such attitudes to failure throughout the organisation – from the CEO to the intern.
When we respect failure, we recognise its role and give it the attention it deserves. The role of failure is very clear – it is the single best source of the data we require in order to progress. It enables us to identify weaknesses in the hypotheses which underpinned our actions. The difficulty with failure in many organisations which do not manage it properly is the defensiveness it can engender. Such defensiveness cripples the learning opportunity that comes with failure since behaviours which mask the failure will dominate. The role of the executive team is to ensure that failure is not used as a rod to beat, but as the most critical tool in the business to aid success. Processes of rapid learning from failure need to be baked into the innovation culture.
Even large organisations have limited capacity to deliver on multiple strands. The challenge in an innovation ecosystem is to foster the creativity across a broad range of areas and then to quickly identify the few options with greatest chance of success. Once a single or few high priority avenues have been identified, adequate resources should be assigned in order to give the greatest chance of success. Without the ability to bring a small number of initiatives into sharper focus, there is significant danger that every project drifts on without any firm conclusion.
To solve this problem, many organisations introduce rules or criteria to which every innovation project must adhere in order to receive approval to proceed. These rules can be simple and few in number. The Defense Advanced Research Projects Agency (DARPA), for example, is one of the world’s most innovative organisations, routinely producing breakthroughs such as brain-controlled prosthetics and climbing gear that allows soldiers with full combat loads to scale vertical walls without using ropes or ladders. The agency uses just two simple rules to evaluate which innovations to back. Firstly, a project must “further expand basic scientific knowledge” and secondly have a “practical use in society”.
McKinsey calls out four characteristics of simple rules which can be applied within large organisations to help mange innovation. Firstly, the rules should be few in number, thus making them straightforward to remember, communicate, and use. Capping the number of rules forces relentless focus on the things that matter. Secondly, effective rules should apply to a well-defined activity or decision. If they are too broad or generic, they will be useless, so they should be providing concrete guidance to specific activities. Thirdly, innovation rules should be tailored to the unique culture and strategy of the organisation using them. Rules that work in one organisation cannot be simply transplanted to another. Finally the criteria for innovation selection should supply guidance while leaving ample scope for discretion and creativity.
We’ve seen how in big companies it can often be easier to hide in the long grass and watch while others attempt and (often) fail to introduce innovative practices or products. Innovation is someone else’s job. The board and CEO must take ownership, however real ownership must rest with at least one senior executive who is not fully focused on business-as-usual but has enough capacity to drive through change. The assignment of ownership at a senior level ensures that the vision and ambitions of the CEO and board are not left on the shelf but have the best opportunity to cascade through the organisation.
The innovation owner must have enough seniority to ensure the process achieves buy-in and resources across the organisation. While innovation belongs to everyone in the organisation, separate structures are required along-side day-to-day operations to facilitate the process. Google for example, famously facilitated “20% Time” which encouraged employees to spend 20% of their time working on what they think will most benefit Google. The approach of empowering all employees to be more creative and innovative with their time is credited in part to the development of significant new product lines such as Google News, Gmail and AdSense. However, former Googler and Yahoo! Ceo, Marissa Mayer famously debunked 20% time saying that it is more like “120% time” and in practice it has turned out to be “stuff that you’ve got to do beyond your regular job.”
While each employee can be charged through their objectives and targets with driving incremental improvements, space must be created alongside daily operations to foster innovation. Some companies establish “innovation garages” where employees can gather unconstrained by regular work to build new ways of working that can be scaled up and absorbed into the larger organisation. There must be specific company goals and objectives, which are properly resourced and supported by appropriate leadership. That leadership will take responsibility for the processes around innovation and the successful delivery of innovation projects across the company.
Innovation happens in the fusion of often disconnected ideas, practices and technologies – finding new ways to solve old problems, bringing new technologies to bear on existing processes, or importing business models from unrelated sectors to solve problems in current sectors. James Dyson was inspired to solve the problem of inefficient vacuum cleaners when he witnessed the cyclone extraction system in a local saw mill. Making connections is central to successful innovation. The inherent “innovation power” of big companies, when compared with start-ups, is in the sheer volume of possible connections which can be made by dint of the number of internal and external collaborators at their disposal.
There are several ways to ensure that connections have the best opportunity to emerge. Cross-functional innovation groups can be established, comprised of employees from different functional areas who display an appropriate creative and ambitious mindset. These groups can even be temporary for the duration of a specific innovation project with employees seconded for the period. Thus the innovation process is both rooted within the operations but has the opportunity to stretch beyond. Employees coming back in from an innovation cycle can bring fresh perspective to problems and team members.
Collaboration must extend beyond the organisation. Harnessing the power of the ecosystem which exists around the company offers the bigger opportunity for successful innovation. This ecosystem can consist of business partners, suppliers, clients and educational and research institutes. Big companies need to demonstrate an openness to developing meaningful partnerships where innovation opportunities can be explored in a mutually beneficial manner with external partners. The components of Apple’s first iPod, for example, were developed almost entirely outside the company. Through external partnerships, Apple was able to move from initial concept to marketable product in just nine months.
There are no silver bullets to innovation in any organisation, big or small. It will arise with strong leadership and commitment from the top. It will survive with the right structures in place to support adequate processes. It will succeed if enough openness, creativity and ambition is applied.