The entrepreunerial or “start-up” economy is growing and starting to take down “too big to fail” companies in its path. But how? Aren’t those big companies set up with internal innovation labs of their own? All companies spend money on R&D right? Why do big companies dislike innovation?
The issue is that innovation for big companies usually occurs as a reaction to an event that almost always has to do with revenue. It is not proactive on behalf of big organizations because they are not designed to have innovation ingrained within their DNA. Some companies try to create an environment of innovation by encouraging employees to share ideas or brainstorm new initiatives. Concurrently these new ideas most likely will alter the existing strategy or business model of the company. As a result, the usual answer from authority within these large groups will simply be met with “great idea, but that goes against our stated objectives or ruins our profit margins. Let’s table innovation for now.”
Let me be clear here. It is not easy to innovate whatsoever. Most companies of a Fortune 1000 size have spent years and multimillions of dollars to build a model and to become a dominant company utilizing this model of scale to simply grow bigger. These companies have hired and trained managers to execute on this model. They have told shareholders about the efficiencies of this model and promised growth and success in perpetuity (although that goes against Physics). An idea built around disruptive innovation comes out and basically thrashes your “too big to fail” model until they become the dominant player, begin growth and the cycle repeats itself.
The reason big companies dislike innovation is that innovation is sometimes seen as he troublemaker who wants to stir things up. Cause chaos. Create inefficiency in the name of new prosperity. Of course when the revenues drop because the customers have left innovation is welcome with really wide open arms but at that stage of the game it’s not an initiative it’s based on mere survival. Usually this form of defensive innovation loses to proactive innovation.
Established companies exist to execute a model. To make sure it’s efficient and satisfies customers. But a start-up exists to search for customer needs and what the company can profitably offer that the established firm cannot. For start-ups, innovation isn’t simply to implement a creative idea. It’s to turn some aspect of that idea into something customers are willing to pay for that possibly didn’t exist.
The other issue on why big companies hate innovation is that larger companies usually hire people to run their model. They don’t have people who are best suited to search for emerging business models and experiment. That type of executive usually lives in the entrepreneurial world free of big company chains. Those internal entrepreneurs that happen to find themselves at big companies are usually perceived as rebels. Constantly defying the status quo, possibly even mocking or demeaning it. They dislike the standard way of doing things, don’t like to follow rules, question authority and have a high tolerance for failure.
Yet instead of appointing these people to create new ventures or disrupt business models in order to find the future and build future revenue, big companies often select high-potential managers who meet their standard competencies and are good at running the status quo.
Small to midsized companies have no choice but to innovate. In fact, their business model thrives on it. It’s their fuel. It’s why the employees of such organizations wake up in the morning. Their motto is “disrupt or be disrupted!” They take satisfaction in destroying the big boys. It literally is a modern day “David and Goliath.” Furthermore, their rank and file is most likely staffed with the “troublemakers” from these larger institutions. They always wanted to innovate but were told, “shut up and sit down!” They probably spent a lot of time at a big company and understand the weaknesses of those companies. So when they get into a position to “muck things up,” they are more than happy to disrupt and destroy. Remember, there are some big companies out there who do innovate well (Apple, IBM, GE, Microsoft) because that is what they built their business model on from the beginning. Unfortunately for the handful that do exist, there are thousands that don’t or never will implement innovation based on an intolerance toward experimentation.