Maxwell Wessel, a member of the Forum for Growth and
Innovation at Harvard Business School, provided a number of answers to this question, which I consider to be an accusation against big companies, in a series of blogs. Actually, I would argue that the concepts
presented would apply to any mature firm, both large and small. Having worked for the same relatively small company
for over 20 years, I can concur that they experienced many of these same
problems in their attempts to innovate and the solutions recommended would make
a difference going forward.
"Big companies are really bad at innovation
because they're designed to be bad at innovation." Mature companies are gauged by earnings or
quarterly reports and are therefore focused on profit first. Start-ups on the other hand are measured by
how well they identify problems in the market and match solutions to them. Having already identified customer problems
and provided solutions to the market, more mature firms shift their attention
towards efficient operation, making changes to both processes and organizational
structure to accomplish this. Over time
they are redesigned to create operational efficiency, to "execute on the
science of delivery", which is counter to the environment required for
optimal innovation. The focus is on
manufacturing your product or service as economically and quickly as possible,
minimizing cost. What follows is product
development that occurs in an operationally-efficient fashion.
Companies do not necessarily lack vision. "The problem isn't the idea; the problem
emerges from the relentless pursuit of incremental profit within mature
organizations. It's a pursuit that
drives us towards incremental wins by leveraging underutilized assets." They must recognize the limits of their organization
as it exists today and "empower groups to function with very different
goals and operational metrics."
Development teams cannot be forced to fit their potential solutions
within the parameters of how business is conducted today, if they wish to
create truly innovative and potentially disruptive products that will transform
the business.
Mr. Wessel provided these four solutions to the
problem:
1.) Create autonomous business units. "The constant need to drive towards
operational efficiency can be avoided through the creation of new
organizations." Negative influences
that would come from within the parent company can be blunted, if a separate
business unit has full authorization to develop and produce the creations they
innovate.
2.) Incentivize for long-term viability. "Leaders must make sure their innovators
develop sustainability... and manage internal transfer pricing to ensure the
development of viable business models."
This means that free access to manufacturing capacity, salespeople and
marketing dollars, which may be in excess in the organization and underutilized
at the moment, should be controlled and limited. At the end of the day, the product or service
must be able to support itself, with revenues covering its share of the costs
of these resources.
3.) Test to
learn. "Systematically test your
business model against the assumptions you're making... move from uncertainty
to certainty using the fewest dollars and in the shortest period of
time." Encourage testing early and
often to turn hypothesis about the market into proven results and gain supporting
evidence for the product or service.
Negative results will help to quickly identify any fallacies in the
business plan, which will allow for pivoting or termination of the project.
4.) Use your brain.
"Vision can be invaluable in forecasting where profits will flow if
the world changes. So when common sense
and your Excel spreadsheets don't line up, use your brain." Listen to your intuition. Think.
Act.
Finally, Mr. Wessel recommends that companies pursue
innovations, not half-heartedly, but with full commit, and not just to the
idea. My understanding is that means all
the way through to realization of the product, if it is deemed viable. I feel that if your company is going to go
this route... to innovate, then it must have the backing and support of senior
management, the full effort and resources required to determine if it can
produce a solution that will be embraced by the market and bring profits to the
company. Anything less compromises the
validity of the results and the direction taken as a consequence.
