Large Companies and Innovation


“The pace of innovation is about to surge – and more powerfully than ever before”

That sentiment comes straight from a new book titled: The New Killer Apps: How Large Companies Can Out-Innovate Start-Ups. As obvious as that statement seems, many leaders still act as if nothing is really changing – or any impact to their business is too far into the future to worry. This well written book focuses on the problem with this kind of thinking. Anyone that has worked in a corporate setting will resonate with the challenges identified in this book. Behavior at every level of an organization is the biggest obstacle to innovation and the identification of what the authors call “Doomsday Scenarios”. Most of us are familiar with traditional company politics and turf-driven behaviors. The authors conclude as I have, that most bias in an organization goes toward keeping the status quo.

The authors (Chunka Mui and Paul Carroll) provide plenty of real world examples to support these historically difficult change management challenges. The context is large company innovation in the face of a highly disruptive future. As the title suggests, Start-Ups seemingly have the advantage when it comes to innovation – and most of that advantage comes from the absence of baggage that weighs most traditional companies down. Much of the Digital DNA (enterprise characteristics) necessary for future success is a natural part of an entrepreneurial environment. But the authors argue that big and agile beats anyone – and though I agree, a lot rides on that simple word “Agile”. I believe it could be the single most difficult trait for traditional company structures to enable. That aside, it’s our humanness that could be our undoing. For example, the book describes how Microsoft saw the potential for tablets early in the game, but development efforts were sabotaged by the dominant office group’s refusal to let Office applications work properly on the tablet. How many of us have experienced something similar in our careers? If it impacts my budget, bonus, or future success – I have to find a way to derail it.

We can be short sighted as well. Microsoft began developing an e-reader in 1997 – almost a decade before Amazon brought its Kindle to market. But executives resisted because the interface did not look enough like Windows. These examples – and others like it in the book – describe the inability to overcome traditional structures and thinking in a way that enables innovation. Readers of my Blog know that I believe structural change is inevitable. The authors imply something similar, as they point to strong central organizations and functional structures that tend to have rigid processes with an emphasis on efficient operations. Those companies tend to keep doing what they are doing, just a little better each quarter.

So the book focuses on examples of the massive changes that lie ahead – a re-imagining of complete industries like Auto, Insurance, and Healthcare. They believe the existence and eventual convergence of a perfect storm of mobile devices, social media, cameras, sensors, cloud, and emergent knowledge means that more than $36 trillion of stock market value is up for what some venture capitalists are calling re-imagination. That $36 trillion is the total market valuation of public companies across ten industries. With this type of re-imagination in play, how do large companies address traditional challenges with innovation? As the book points out, Executives underestimate how hard it can be to drive people out of their comfort zones – the old line culture eats strategy for breakfast. The authors through their years of experience have found that many executives believe they can change a culture to suit a strategy, rather than try to make the strategy fit the culture. They conclude that when aspiring strategies clash against cultures, culture wins – and leaders must focus on getting everyone in sync within the constraints of the existing culture. On the topic of culture, a critical success factor is creating a culture of failure. Failure in most traditional companies is not viewed in a way that encourages people to attempt new things. How many of us have been involved in efforts that should have been shut down, but were not because the sponsor would not acknowledge failure?  Or how many good ideas have we not pursued, because failure could damage our careers?

Another really good observation – and one that I struggle with to this day – is that Finance distorts the innovation process. The authors point out the difficulty that big, long term, and uncertain ideas have in passing the short term tests that are applied to existing business. By definition, disruptive innovations deal with future scenarios, and we are advised not to pretend to have numerical certainty about new ideas before we really know what will happen. A recent Article by Steve Denning takes a closer look at this observation. Instead of applying those short term financial tests, less time should be spent planning and more time testing. The extensive use of prototyping allows us to explore key questions, gathering information that provides evidence of potential success or failure. There are a number of good examples that really underscore the need for prototyping. Throughout this book, the authors are very effective at using real world examples to bring their ideas to life.

We learn from the experience of the authors – gained through their work with both companies that failed and succeeded. The main learning is that successful companies thought big, started small, and learned fast. These companies were successful at blocking the antibodies that could undermine killer options before they prove themselves. A killer option generates the possibility of a business that will either transform a company or generate a new business that kills the old one. From their years of experience, the authors identified eight rules to enable large companies to out innovate start-ups. They are:

  • Context is worth 80 IQ points
  • Embrace your doomsday scenario
  • Start with a clean sheet of paper
  • First, let’s kill all the finance guys
  • Get everyone on the same page
  • Build a basket of killer options
  • A demo is worth a thousand pages of a business plan
  • Remember the Devil’s Advocate

I’ll let the book do the rest – and I highly recommend it. In addition to learning from their experience, there is a wealth of information regarding potential paths that some industries may take in the future – fascinating. They use the driverless car scenario to anchor some of their ideas. To whet your appetite, here are some excerpts from the book:

  • Artificial intelligence had a bad reputation for failing to live up to early promise – but the field is now delivering on its early promise
  • Nissan CEO Carlos Ghosn says driverless cars will be in Nissan showrooms by 2020
  • A prominent engineering group estimates that 75 percent of cars will be driverless by 2040
  • Developing countries actually have much greater incentives to adopt driverless cars because their rates of accidents and fatalities per 100,000 miles of driving are far greater than in the U.S
  • Volvo predicts that it will be able to eliminate crashes altogether for anyone driving one of its cars by 2020
  • Ericsson predicts that by the end of the decade 50 billion devices will be connected and communicating with one another
  • A large Property & Casualty Insurer is focused on connected cars and homes trying to understand the implications to underwriting
  • The need for knowledge – not just data – is why the authors prefer the term emergent knowledge over Big Data
  • People will have 3D printers at home where they can print screws or other parts rather than go to the hardware store

Regarding the driverless car, here is another discussion on the Choice between Lives and Jobs. This discussion addresses the impact that the driverless car could have on jobs. Hope you enjoy this look into the future – and the guidance provided by the authors.

18 thoughts on “Large Companies and Innovation

  1. Hi Frank,
    thanks for this book review. I have not (yet) had the chance to read this book, but I have given myself a few thoughts on this, especially since my previous job has been killed by such short-sighted reasoning (I have named this “penny-pinching innovation”…)
    But I believe there is something missing, that is the type of management that is leading the whole process, in relation with the company’s life cycle.
    Actually, the eight rules provided by the authors may be summarized in one, i.e. is the company led by an entrepreneur, one willing to develop his/her company, thinking about (big) future? or is it already in the hands of managers, thinking more about protecting their margin than investing into risk? Much more than in the Politics field, I do believe that the personality and the vision of the leader is key to innovation, disruption, nonconformism. Actually, most of the companies which survived their founder’s departure did so by implementing a kind of routine, defending their niche, milking the cow as ong as they could…
    So, in a few words, leadership is the real driver of innovation. Don’t you think?

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  2. If you follow the trend and meet your consumers right where they are, you’ll harvest the fruit of your efforts and enjoy additional exposure and profits.
    And if you think about it, people and attention
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    Like

  3. “A demo is worth a thousand pages of a business plan” is why I’m a big fan of prototypes. Find a large company without a prototyping capability and I guarantee you they are struggling with revolutionary innovations. Conversely, companies that can rapidly prototype have way more success.

    Like

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