Innovation Culture — Why Big Companies Lose It Over Time

Having spent time in the startup and small company world, one thing is very apparent. It’s how quickly things move. How easy it is to accomplish things. That twinkle in the eyes of owners and management.

They don’t have to deal with many strategic constraints. The world is their oyster. If they want to accomplish something, they do it. If they want to completely change direction, ditto.

Then when you go into the behemoth corporate structure, you notice the exact opposite. The culture is completely subdued. Nobody seems to be excited about the company’s direction. Getting menial things done becomes this big exercise in approvals, documentation, and procedure. There’s a reason people say corporations are soulless.

It’s pretty obvious what’s happening here. It works along a common life-cycle.

1. Startup founders think of a great idea.
2. They form a company to do it. They are living and breathing a dream each day.
3. Early success makes this dream come true.
4. They get investors to back them and all the resources to do what they need.
5. Now they’re hiring people. And making money. And seeing things in action.

But suddenly, the fun ends. It’s all business

1. The company has to standardize what they do. The company has become too big and needs policies and procedures to guide consistency.
2. Success means risk. They are a target for unhappy customers, lawsuits, and losing what they’ve worked so hard to build.
3. Owners and managers go into maintenance mode. Psychology studies show that the unhappiness from losing what we have is more substantial than the happiness from gaining something new.
4. Bureaucracy takes hold. Owners don’t trust middle managers or low level employees to make decisions so you get all kinds of “constraints”:

• Approval structures
• Hierarchical reporting lines
• Human resources that polices behavior
• A risk department that inhibits direct action

The ironic thing is that once success is achieved, the very factors that led to success are abandoned.

• Taking risks
• Thinking bold
• The vision to do what others didn’t think of or aren’t willing to
• Truly differentiating (not just minor product features or branding)
• Rewarding top performers through exponential wealth

Instead, they deviate to the average. Compensation deviates to the average and only allows incremental jumps. New product features are copycat rather than innovative. The brand must be maintained rather than constantly redefined. Research & development is de-prioritized in favor of safe initiatives that only make changes around the edges. Financial investments go through 3+ rounds of de-risking and have intensive project management (oversight). As I said, it becomes all about maintaining and not creating.

That’s a shame. Even when corporations realize they aren’t innovating, they go acquire a younger, leaner, impactful startup. And then they integrate them and their culture gets warped into this maintenance, low-risk bureaucracy.

Why does this happen time and time again?

There’s a logical explanation. We touched on owner psychology. We talked about the desire to manage something large with consistency. But if these companies are just going to “maintenance mode” why can’t they choose to maintain the innovative spirit? If they did, this would never happen.

I think companies just lose their way. They don’t even realize it. Apple is not innovating anymore. They have an ultra-profitable product and a hoard of cash. The IPhone X is just a slightly better version than the IPhone 2 or 3 and sure enough, sales are disappointing. This is why I predict they’ll buy a company like Magic Leap at some stage. They’ll force the innovation through acquisition.

Facebook doesn’t innovate anymore either. They are stuck on this same tired strategy of data-based advertising and are getting in trouble for it. And then bought Instagram, Whatsapp, and Oculus to apply that same strategy to other models. A company with such successful and well-utilized brands should be a customer darling. But no, they lost the innovative way that made them successful in the first place.

Amazon and Google still do it pretty well. They’re the model for how companies should keep innovation in their DNA even when growing large. But can they sustain it? Most case studies would say no.

Switching away from tech, do you think other large companies are innovating? Is an energy behemoth like Exxon-Mobil or BP going to innovate when the world inevitably shifts to alternative energy sources? I doubt it.

Are BMW or Ford really going to win when oil-fueled cars go away? I wouldn’t put my bets on them.

Are the big banks really going to beat the blockchain and fintech start-ups that are prioritizing the customer? They can’t even spell innovation.

The big retailers are already dropping like flies.

Big companies have staying power because of their vast resources and ability to acquire smaller, emerging rivals. But it’s far from fool-proof.

The solution?

They need to innovate. And this doesn’t happen overnight. They need to completely overhaul their recruiting, culture, policies and procedures, and general strategy. They need to go back to what made them successful when they were young. It was a winning strategy then and can just as easily be a winning strategy again.

But innovation is a tricky thing. You can’t just decide to become innovative. It takes a firm commitment and needs to permeate the entirety of an organization. I always take the position that it’s difficult enough that most R&D and new product development should sit completely removed from outside the company’s bureaucracy. And then the existing company and culture’s innovation should be addressed separately.

It’s no small task! But it’s certainly doable with the right commitment.

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