But Gerber faced the internal pressure of its organization, the need to operate efficiently, to deliver billion-dollar growth businesses every year, to satisfy existing customers — and to do all this without threatening existing net income levels. The problem wasn’t the idea; the problem emerged from the relentless pursuit of incremental profit within mature organizations.
Source: Why Big Companies Can’t Innovate
I’ve been listening to a lot of the a16z podcast, which frequently covers the business aspects of technology, and this topic has been brewing in my mind as a result.
Basically, I’ve been trying to grok why certain types of organizations are good at innovation and others are not. It obviously requires smart people, proper management, and the right incentives, but what does that actually look like.
Another good way to position it is to ask why so many large companies seem to be bad at it, which is what the article above talks about.
So let me try to capture what I know so far:
- Big companies tend to not be good at innovation
- The reason is that their overall goals and incentive structures run counter to the attitude required for innovation
- For innovation, the goal has to be to solve an interesting problem in a way that people can use
- For corporations the goal is to make consistent short-term profit
- As a result, the best way to innovate in a big business is not to have some small department, or a team, that’s responsible for it, but rather a division, or a subsidiary, that functions quite separately from the corporation
- This allows the smaller group to function like a startup and not be crushed by corporate incentives and requirements for profit
- Large companies need to see the money going to that group as R&D, where it may be completely lost, with nothing to show for it, and still view that as a worthwhile endeavor
- Once that separation is made, both groups are likely to be able to maintain a far healthier relationship, and have a higher chance to find success independently using their own models
These are my thoughts so far. Seems pretty obvious, but thought it was worth capturing.