We advise many large companies (more than ten percent of the Fortune 1000, in fact) on how they can be more innovative. I’m thrilled to share the stage with GE, Rapid7 and Pluralsight at Bostinno’s hallmark State of Innovation event later today to discuss Innovation at Every Stage. Before the panel, I sat down to organize a few thoughts.
Every large company was once a startup. But as these companies grow, they often lose the entrepreneurial spirit that made them what they were. As a large enterprise, they can become process-driven, slow moving, and risk-averse, leaving them vulnerable to younger, faster moving competition. But this does not have to be the case.
Can big companies truly be innovative?
We think so. In collaboration with four key enterprises (GE, Intuit, Amgen and BASF), we recently undertook to study how enterprises can remain more lean, make decisions more quickly, and stay thisclose to the voice of the customer (and the employee). Here’s what we found:
Lean startups excel in three areas that become difficult to maintain at scale:
Staying close to the customer
Now, nothing about large scale, per se, inhibits any of the above. Indeed, one could reasonably believe that with scale might come true associated benefits in (1) gathering varied and statistically significant feedback; (2) leveraging scale to drive a rapid prototyping and iteration engine, and (3) amortizing efficiency investments (technology, systems) over a larger revenue base. But, repeatedly, we see companies fail to innovate, become bloated and get replaced by upstarts. To wit: 88% of 1955’s Fortune 500 are gone; in the last fifteen years alone, approximately 50% of the list has turned over. Staying on top is hard.
What can we learn from the counter-examples, the companies that have remained large, profitable and kept growing over decades (in GE’s case, since 1892)? These companies, presumably, have stayed close to the voice of their customers, been quick to market with innovation, and operated efficiently. A quick review of the 1955 Fortune 500 (GM, Exxon, Chrysler, DuPont, Boeing) does suggest that operating in complicated, heavy industries with a strong tendency towards natural monopoly/oligopoly via scale production carries an advantage. But plenty of similarly large companies fabricating complicated things have disappeared.My claim: a mindset difference. We observe this firsthand with GE, one of our largest and most innovative clients. Anecdotal evidence, for sure, but what we’ve seen separates the great scale operators in our client base from the rest:Institutional culture (from the top) of innovation: listen to Jeff Immelt or Beth Comstock’s public commentary and the words you hear again and again are innovation, technology, disruption. The proactive, deliberate move to Boston is the strongest statement they’ve made to date, along with a formal recruiting drive and the roll-out of best-in-class industrial internet of things software.
Appropriate rewards and framework for risk-taking: the best of our clients have isolated innovation/disruption groups to preemptively push the boundaries of their existing businesses, challenge internal stakeholders and destroy long-standing assumptions. One of our large CPG clients has an physically isolated stand-alone group to drive radical innovation in its core (low/stable growth businesses).
Growth (rather than profit) orientation: particularly a challenge for publicly traded companies, we find that our most innovative clients focus public messaging (despite the inherent challenge at their scale and stage) on driving growth. Cost actions can be a tempting focus for mature management teams, but rarely have we ever them create long-term, sustainable shareholder value (in the absence of growth). Profits matter, no doubt, but we’ve found our best clients are driving EPS growth through top-line and gross margin expansion rather than pure cost leverage in operations.
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