Why is it so hard for big tech companies to innovate ?
You look around in the valley and see behemoths like Oracle, Cisco, Nokia, Google etc spending so much on innovation(almost 15-20% of their revenue) but unable to introduce any new credible streams of innovation, with the exception of a few. Might want to ask this question - what really spurs innovation and why cannot large companies innovate? Possibly comes down to the organizational structure and incentive structures -
1. Business unit managers - Usually, ideas are funded at individual business unit levels, whose focus is to keep the lights running and grow the main business line. Investing and spending time with "other" innovative ideas is not a priority, rather taking too much risk with such nascent lines of business may be detrimental to near term growth . In Steve Blanks words "people who are best suited to search for new business models and conduct iterative experiments usually are not the same managers who succeed at running existing business units". He further argues that Instead, internal entrepreneurs are more likely to be rebels who chafe at standard ways of doing things, don’t like to follow the rules, continually question authority, and have a high tolerance for failure. Yet instead of appointing these people to create new ventures, big companies often select high-potential managers who meet their standard competencies and are good at execution (and are easier to manage).
2. Lack of a sense of urgency - A start ups CEO is compelled to innovate and turn an idea into a product that people are willing to pay. There is a sense of urgency, a burning desire to "pivot" and create a product that customers will find value. On the other hand, well established companies have the luxury of time, as the cash cow brings in revenue for the next paycheck. The sense of "do or die" sometimes gets lost and innovation remains a buzz word or "good to have" water cooler talk.
SO, then how can they improve? Can we learn something from people who have been able to make changes in their business models -
1. Focus on automating tasks rather than increasing headcount or off shoring - Facebook focuses its energy on automating and making tasks efficient rather than hiring more and more people or sending work offshore. No wonder, Facebook has the highest revenue/employee among its peers as well as able to turnaround and innovate on its mobile advertising platform.
2. Do sensible growth acquisitions - Most large companies try to buy their way out of organic growth. However, there are only few examples where the acquirer has made something big out of their billion dollar acquisitions. The key is to "date" the target before the marriage, be very clear what you want to achieve with the acquisition and get your company ready for it as well.
3. Have a separate group to manage innovation - Have a separate team and organization manage new business ideas. A venture capital firm will rarely invest in a private equity deal and vice versa, why then do we expect our mature business managers to nurture and grow nascent business lines?
