Why Big Business Fails At Innovation

21 January, 2015 / Articles

Big businesses don’t seem to be very innovative. An informal glance around the big business landscape won’t reveal much in the way of innovation beyond perhaps the routine adoption of a new technology, a bit of chasing the most current business model paradigm or acronym, or maybe rejiggering organizational charts here and there. But, innovation? Not so much.

A little speculation about why big business doesn’t seem to be innovative might lead to any number of hypotheses. Perhaps it is the case that large-scale business is based on risk mediation, so don’t look for much strategic risk-taking. Or it might be that because big businesses are so technology dependent — and more often than not, legacy technology-shackled — that you simply won’t find much innovation requiring significant (read, “expensive”) system changes. Or maybe regulatory constraints put a damper on imagination and creativity or anything that smacks of drawing outside the lines. Or, a little cynicism just might suggest that for the most part most big businesses are at their core a commodity enterprise, with a relatively sticky customer base that rarely leaves; consequently, there is little motivation to pursue game-changing product or service innovation.

There are plenty of other speculations to go around, all of them in some measure based on market realities. But these speculations and constraints don’t speak directly to the challenge of innovation in big organizations, in spite of the measure of truth they all contain. They miss the mark because none of these characteristics of large-scale enterprise have anything to do with the presence — or absence — of innovation, necessarily. They are all simply prevailing conditions — indisputably real, a part of the landscape. These conditions and constraints, in and of themselves, are not the problem. Innovation, if it is to operate as a constant in any business has to be in the real context, of real conditions, in the real world. So, yes, big businesses are constrained in very specific ways — technology, regulatory environment, capital, risk. But it’s not these real-world constraints that inhibit innovation.

It’s business culture.

If you look around inside any large-scale operation nowadays, you’ll probably find any number of innovation-labeled initiatives — accelerators, incubators, labs and so on. You might even find an innovation officer or an office of innovation. Most of these efforts or initiatives will be managed and structured in ways that are similar to other external supplier relationships, even if the office or initiative dedicated to innovation happens to be internal. That is, what you’ll find is that in all of these cases, innovation is being delegated, or outsourced, or in some manner separated from day-to-day operations, as if innovation is something that happens there, but not here. The challenge of course, is that here — inside the organization’s culture — is exactly and precisely where innovation will occur.

There is a strategic distinction that helps to better understand the strong, direct correlation between innovation and culture, and this distinction is critical to understanding and engineering broad cultural change: That is the distinction between innovation and output, or between innovation and invention. Output — the inventions, ideas, and new things that can be seen and touched and measured — is something organizations may very well be able to buy. Businesses buy output every single day: newly invented technologies, or new management paradigms from consulting firms, or things – like merchandising or signage. In fact, big businesses can be very, very good at establishing powerful relationships with multiple suppliers who are providing inventive, new output. And there’s nothing wrong with that.

But two deep, strategic challenges present themselves in this outsource/purchase approach to innovation:

Herding: When businesses outsource innovation and limit themselves to the purchase of innovative output from suppliers, they inevitably position themselves in the “me too” category. If there is a truly innovative product, strategy, market positioning or management paradigm out there to be bought and sold, then of course everyone is in the market for it. And inevitably this competition to buy the newest innovation leads to purchase herding behavior, with everyone leaping into the market place to “buy innovation.” As an example, one need only think of the early days of data mining technologies, and the rush to buy data innovation (read: “data technology”) followed by a long, long period when deployment of these purchased technologies languished in an operational no-man’s land. It was a case of “great output,” followed by “low innovation” — at least insofar as execution is concerned.

Optimization: Even if it were the case that somehow an organization managed to buy into an innovative “thing” and somehow managed to be first to market with a particular innovation, the deployment of that innovation is directly dependent on its culture. It is one thing to have a new technology, or a new product, and quite another to take that technology or product and deploy it with efficiency, focus, drive and commitment. A moment of honest, deep reflection will reveal the truth of this problem. How many strategies (service differentiation), or technologies (call center interactive technologies) or products (mobile payments) come onto the market as potentially innovative solutions, and then stall or limp along in the deployment? Most? All? The difficulty sits inside the conflation of output and innovation — “the thing” and culture. Owning the most innovative product in the world has little real value without the cultural ability to absorb, institutionalize and deploy that product.

As a rule, though, mention the word “culture” – especially “innovation culture” — and eyes begin to glaze over. Where is culture? What is it? How do you change it? How do you even know what to change and how to change? With these questions in mind, little wonder that the default strategy of business is generally to focus on outputs, rather than culture. It seems to be a choice between doing what you can understand, even if what you understand is incomplete, or doing what you don’t understand, even knowing that what you don’t understand is the critical piece of the puzzle.

Still, the issue, the challenge, the opportunity remains: How to build a big business culture (or any culture, for that matter) that can execute, innovate, deploy and differentiate itself, using the same products and strategies as its competitors? The answer to that question is one of language, of complexity, of measurement and of leadership. But more than anything, it’s a matter of first and foremost simply recognizing the need to get to work on the entire culture of the organization, and making a long-term commitment to understanding, building and nurturing those aspects of organizational culture that lead to innovative practices. The doing of this — the engineering of an innovation culture — requires a framework, an empirical paradigm or guide that provides a common language, a common set of beliefs, and a common set of meaningful, leading cultural indicators.

This framework, this approach, this roadmap for innovative cultures will be the subject of my next installment.

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