The Six Barriers to Innovation in Large Companies.
Six fears against which large companies must fight to avoid becoming obsolete.
You may have already noticed that small and large companies do not behave the same way regarding innovation. Generally speaking, smaller companies are more likely to take risks and innovate in their processes or methods, whereas large companies suffer from their size which prevents the implementation of new innovative techniques.
The latest and most striking example for me was during the COVID-19 pandemic with pharmaceutical giants being overtaken by startups in creating effective vaccines. Where the pharmaceutical giants had to follow well-defined and complex procedures to find a vaccine against COVID-19, startups were able to leverage a revolutionary new technology (messenger RNA) to produce effective vaccines in less than a year.
What happened during this period in this sector is just one example of many obstacles to innovation within large companies. Here are the 6 main ones.
1. Fear of chaos
The big leap into the unknown in terms of innovation is de facto chaotic. Even with a good explanation and a real pedagogical exercise, some of the decisions taken can be misunderstood or even random.
In a large company where employees are used to working in a certain well-defined and structured way, it is difficult to change habits. In a startup, it is precisely the fact of changing what exists that motivates the people working there.
These people are more inclined to innovate because they thrive on the form of chaos that this brings. Nothing is defined? Good, because we are here to change and improve everything.
2. Fear of disruption
Every company has what Vijay Govindarajan and Chris Trimble - two professors at Dartmouth University, authors of the book “The Other Side of Innovation: Solving the Execution Challenge” and theorists of reverse innovation - call a “performance engine”.
In this case, it is the set of functions, processes, and resources that have been optimized over time to maximize the success and profitability of the core business. These key functions include sales, marketing, intellectual property, purchasing, IT, and liability. The people who work in these departments have predefined goals and expectations.
But an innovation team - especially one focused on disruptive innovation - can disrupt this finely tuned machinery. In large companies, this is something that will be unsettling, as humans tend to dislike change, which is more uncomfortable than falling into a well-framed daily routine.
Yet the world is changing, and to be disruptive, you have to change with the world. Otherwise, you'll end up outdated.
3. Fear of losing control
Large companies have strategies and any new entity to be integrated must be aligned with them. But if the added value of the entity in question is not understood, then the integration of the latter will not go smoothly. Even more so if this new layer is perceived as diverting resources from the initial business strategy.
Always this fear of novelty comes back and prevents big companies from really innovating. Startups thrive on these flaws of large companies by daring to go where the latter do not dare to go. To take the example of messenger RNA vaccines effective against COVID-19, big pharmaceutical companies knew about this technology too, but they had not chosen to invest fully in it like disruptive startups.
4. Fear of cannibalization
A good business model creates market differentiation and leverage. Over time, a company's dominant business model, as its performance driver, is optimized. But introducing a new business model, which is both costly and risky, can cannibalize the old one, resulting in a net loss.
5. Fear of resource dispersion
Growth tends to upset things and established balances. The scaling up of the company must be done with great care in order not to leave resources on the side of the road, without precise allocation.
It is to avoid this problem of poorly controlled growth that everything is so tightly controlled in large companies. This is a flaw that often affects startups that want to grow too fast and get carried away by the enthusiasm for innovation. This can end up in bankruptcy. As always in life, you have to find the right compromise.
6. Fear of misjudgment
When a startup is attractive on the market, it will inevitably attract the interest of large companies. But when it comes to "choosing the target", they will adopt a cautious and short-term posture rather than betting on a potential acquisition that is "riskier" but more likely to bring long-term added value. Managers need to change this timid mindset.
To solve their innovation problems, or even more prosaically to avoid being left behind, large companies often choose to acquire innovative startups to boost their innovation. It would not be surprising, for example, if large pharmaceutical companies ended up buying the startups responsible for creating effective messenger RNA vaccines against COVID-19.
Having failed to innovate, these companies will be tempted to take advantage of the innovation capabilities of startups. The hardest part is not to overwhelm the innovation capabilities in the company that will be integrated while being patient enough for innovations that may take time. Having a long-term mindset is not easy here, but it is the key.
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