Can Large Companies Successfully Innovate?

Who wouldn’t want to capture some of the estimated $6 trillion in play with the Internet of Things (IoT)? Companies embrace IoT solutions for a number of reasons, such as lowering operating costs, increasing productivity, expanding into new markets, and developing new products/services. However, it may seem as if only small, agile companies are reaping the benefits of the IoT: innovation appears to be the domain of upstarts. A recent Accenture study simply underscored what the leadership at large companies already understand—mature, established firms struggle with innovation. Large corporations have been given the black eye in the technology-driven marketplace.  It is, however, possible for large companies to enjoy the benefits of innovating with the IoT while still maintaining a strong brand presence. In essence, you can have your cake—and eat it, too.

Big Business, Big Challenges

The rapid pace of innovation in technology has been a boon to small startups, since these companies can quickly pivot to address the needs of the market, but it is also affecting other areas of the marketplace. For example, innovation is creating a new set of expectations among customers. They are more likely to demand the very latest in developments in products and services, even from the largest of vendors. Technology is changing business, as well. IoT-driven solutions can effectively reduce waste, streamline workflows, increase efficiencies, and promote a safer work environment—but implementing these types of solutions requires a significant investment in the future of the technology.  

While technology (and specifically, the IoT) is disrupting every industry, mature companies find that innovation is extremely challenging. Large companies suffer from a range of ailments that keep them from realizing value from innovation, such as a fear of risk, operational efficiency blowbacks, and communication issues. While big businesses enjoyed prominence in the past, the current technology-driven market is actually against them. The most innovative solutions are being created via the ecosystem of small startups, research facilities, venture capitalists, and universities—large businesses do play a role here, but since they are not the primary drivers of innovation, they are failing to capture the full value of the IoT.   

We Shall Overcome

Overcoming the obstacles to innovation involves creative solutions, and these solutions require a significant alteration in the mindset of leadership. In Gallup’s Business Journal, Shelley Mika highlighted four ways to drive innovation: hiring and supporting talented employees, encouraging creative mentorship in management, understanding customer needs and co-workers’ needs, and retaining top leaders. While these are all important aspects of supporting innovation, a more concrete approach is needed. Maxwell Wessell noted that part of the reason large companies cannot innovate is that, although they are driven to make a profit, they are effectively organized around doing what they do best. In order to embrace the disruption brought about by the IoT, large companies need to alter course to effectively do something they are not designed for—a big task, but not an impossible one.    

One step a big company can take is to create its own “startup” or innovation lab. For example, Wessell  noted that in The Innovator’s Dilemma, Clayton Christensen highlighted the need for autonomous business units within the larger corporate family. These units can operate as smaller, more nimble operators that drive product innovation and avoid the pitfalls of increasing efficiency. Since these autonomous units  enjoy the support and resources of the parent company, they can tap into a significant asset base not available to the average startup. These innovation labs still need to deliver results in order to remain viable.

Wessell further noted that while the new business unit should definitely enjoy support from the parent company, at some point—just like an adult child—the support needs to be removed so it can operate on its own. Large companies have tremendous resources that can be tapped to provide greater leverage for a new product, but this can also create another problem—how viable is the product without that support system? Is the innovation lab really making more money, or is it simply relying on the parent’s marketing team, sales force, or other assets? A roadmap for the success should be developed prior to the genesis of the innovation lab. A number of key issues must be included in this plan, including how the new company will create value. How long will the autonomous unit need the resources of the parent company? Will the parent company allow for total access to all resources, or perhaps limit access? While large companies will undoubtedly want to give the new unit a boost, actually limiting some resources can increase the unit’s innovative ability and keep costs low.

Populating the innovation lab with the best employees requires a mix of corporate talent and qualified outside experts as well as creating the appropriate work culture. Of course, some of the qualified employees should come from the parent company, but leadership should target employees outside of the corporate family to ensure an injection of fresh ideas and approaches. However, the selection of the management for the innovation lab should be undertaken with caution. For example, Steve Blank, co-author of The Start-up Owner’s Manual, warned that while  managers who operate well at the parent company may be superstars, they may not be the best choice for an innovation lab, since they tend to focus on operational efficiency over innovation. A short piece in Fortune showed that leaders can improve innovation at their companies by identifying the “black mark” employees. These employees are highly motivated to succeed in their work, but may not always work well with others and may struggle with corporate rules; their outside-of-the-box mentality supports innovation. Management at the autonomous company should emphasize a culture of innovation that targets ideation, informed risk-taking, and cooperative projects. A culture of innovation not only supports the cultivation of new ideas, but also the opportunity to fail, which drives insight and understanding. The culture of the autonomous unit will be strongly tied to the employee approach. Research veteran McKinsey interviewed Intuit’s Scott Cook, who pointed out that leaders must encourage and promote a culture of innovation. Management should remove the barriers for communicating ideas by implementing a system so employees with great ideas can quickly prove their worthiness.

Wessell also noted that large companies can gain insights from how startups function: innovate and test quickly to identify what works (and what doesn’t). Startups are typically lean businesses, so they do not have the resources or time to spend on ideas that may not have merit; instead, they quickly try out many different options to uncover the best route to take. Testing ideas and products also avoids the pitfall of making assumptions about how a product will operate or be received.  This quick testing phase should employ limited amounts of cash—the whole point is to get quick insight into many possible prototypes and then see what seems to work best.  Companies should strive to avoid “entitlement funding” because the limited amount of cash forces employees to only focus on the very best ideas.

Wessell also highlighted the necessity of clear-sighted leaders. In today’s technology-driven market, it is easy to be awed by the many IoT solutions or data-driven services, but it is not easy to understand where the future of these technologies lies.  Good leadership considers that the investment in the long-term will lead the company in the most profitable direction.  

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