A recent post by Mark Lewis on innovation in large companies (see Episode 105: Innovation – a process problem?) brought to mind some ideas that have been intriguing me for quite awhile now. While Mark’s post is only the start of his discussion on the management of innovation, I think the problem goes far beyond what he has outlined there.
Outside of Apple and a few select others, there doesn’t appear to be many large corporate organization that continually succeed at technology innovation. On the other hand there are a number of large organizations which spend $Millions, if not $Billions on R&D with at best, mediocre return on such investments.
Why do startups innovate so well and corporations do so poorly.
- Most startup cost is sweat equity and not money, at least until business success is more assured. Well run companies have a gate review process which provide more resources as new ideas mature over time, but the cost of “fully burdened” resources applied to any project is much higher and more monetary right from the start. As such, corporate innovation costs, for the exact same product/project, are higher at every stage in the process, hurting ROI.
- Most successful startups engage with customers very early in the development of a product. Alpha testing is the life blood of technical startups. Find a customer that has (hopefully, a hard) problem you want to solve and take small, incremental steps to solve it, giving the customer everything you have, the moment you have it, so they can determine if it helped and where to go next. If their problem is shared by enough other customers you have a business. Large companies cannot readily perform alpha tests or in some cases even beta tests in real customer environments. Falling down and taking the many missteps that alpha testing would require might have significant brand repercussions. So large companies end up funding test labs to do this activity. Naturally, such testing increases the real and virtual costs of corporate innovation projects versus a startup with alpha testing. Also, any “simulated testing” may be far removed from real customer experience, often leading corporate projects down unproductive development paths, increasing development time and costs.
- Many startups fail, hopefully before monetary investment has been significant. Large corporate innovation activities also fail often but typically much later in the development process and only after encountering higher real and virtual monetary costs. Thus, the motivation for continuing innovation in major corporations typically diminishes after every failure, as does the ROI on R&D in general. On the other hand, startup failures, as they generally cost little actual money, typically induce participants to re-examine customer concerns to better target future innovations. Such failures often lead to an even higher motivation in startup personnel to successfully innovate.
There are probably many other problems with innovation in large corporate organizations but these seem most significant to me. Solutions to such issues within large corporations are not difficult to imagine, but the cultural changes that may be needed to go along with such solutions may represent the truly harder problem to solve.