Can Large Companies Really Innovate Like Startups?

By: Dr. Irene Spitsberg, the Managing Director at InnoVentures LLC

Large companies are not start-ups and never willbe. They are designed and operate differently. To innovate effectively, large companies can’t just replicate start-up principles. Rather, they must adapt them in ways that are smart and tailored to their organization.

Visionary leaders understand the marketplace is rapidly changing. Businesses mature, growth plateaus, profits diminish. Disruptions—i.e. business version of the “Kodak-moment”, or Netflix’s shift in business model—are part of the ever-changing business landscape that today’s leaders face.

Long-term success requires organizations’ short-term adaptation. Effective leaders look to new models of innovation. Take, for example, Business Model Innovation, Agile Innovation and Lean Start-ups. These models help big companies embrace change through disruptive thinking.

Large companies have tried applying these concepts for some time. Particularly challenging is this:Companies have to facilitate innovation, which disrupts regular modes and methods of operation, while, simultaneously, reallocating financial and human resources to development, production, and testing of new ideas, process and products.

For example, Company “X” struggles to apply an Agile approach to its already innovative culture. Moving away from their standard workflow in favor of execution speed has generated real internal chaos (and employee dissatisfaction). The reallocation of resource relied too heavily on individuals’ power plays to drive multiple projects. Suddenly, “agile” projects aren’t moving so fast.

Or look at Company “Y”: a manufacturing technology-based firm. Company Y’s “agile” teams were untethered from standard development process, to the point where they were no longer guided by anyprocess, becoming isolated from the rest of the business. Too focused on technological components, the team returned with a “developed” product that the rest of the business was ill prepared for—and it could not be commercialized quickly. Their disruptive line of thinking—meant to depart from the norm and foster innovation—was actually disruptive to operations.

How can process changes produce better results, orin what ways can other organizations, like Companies X and Y, adopt and adapt start-up methodologies without confounding internal teams, disrupting workflow, or staging clashes between the new and old, when company culture is in transition?

Answering this multifaceted question means a deeper understanding of the challenges leaders face as they move their businesses along an agile path: (1) Generating disruptive ideas, (2) Quickly redirecting resource, adapting disruptive ideas, (3) New Leadership Model.

Generating Disruptive Ideas

Start-ups are built around embracing change. They rely on generating and adapting to disruptive ideas and outside-the-box thinking. Without legacy in place that binds or stalls large companies, smaller firms strategically utilize limited resources to actualize new ideas.

By contrast, large companies spend more time and energy assessing if something fits strategically. It’s very difficult to break out of legacy operation and limiting behaviors. Their narrow focus solidly entrenches them in the status quo.

Generating disruptive ideas is the first and biggest challenge faced by large companies seeking to innovate. Because in reality it isn’t about ideas, it’s about uncovering opportunities.This requires connecting market and technology insight with deep customer understanding. To identify opportunities, you must also understand the industry ecosystem within which your company operates. This is why traditional brainstorming methods rarely lead to identification of large, disruptive opportunities. And treating idea generation solely as a numbers game is a misguided approach.

To successfully uncover disruptive opportunities, organizations must:

1. Reframe core competencies to support idea generation
2. Embrace concepts that focus on recognizing disruptive opportunity
3. Cultivate new skill sets, absent or weak within the existing organization, that are necessary for developing and pursuing new opportunities

Quickly Redirecting Resources, Adapting Disruptive Ideas

Start-ups are built around experimentation. Ideas are prototyped and quickly brought to market. If the test fails, then the business regroups, adapts, and releases another prototype for testing.

Large companies can develop the same capacity by incorporating Agile Innovation principles and Lean Start-up methodology into standard practice.

But here is the challenge: Applying these methods on a project level may make sense, but can pose significant challenges at the organizational level.

Consider that large companies have much greater resources and capacity than startups. The problem is that the resources have generally been allocated.

To innovate successfully, larger firms must leverage resources toward testing new ideas. If the idea shows promise or warrants further testing, they must reallocate resources as appropriate to support disruptive projects.

This kind of innovation requires participation through all levels of the organization, with a radical shift in how R&D innovation teams connect with other parts of the business. Without this shift many great ideas fail even after they pass market tests.

The ability to reallocate resources for disruptive innovation allows larger companies to assert their traditional advantage over smaller companies or start-ups. They are able to leverage existing brands, established relationships, and internal or external market and supply chain channels.

New Leadership Model

Executive level support is critical to the success of disruptive innovation—this is a given. But what many companies overlook is strengthening the “scaffolding” of their new ventures. Organizational structure and methodology that support disruptive innovation as a processmust be integrated or “installed.” New ventures require cross-functional and departmental alignment as they move towards commercialization.

Executives might authorize new investments, but they don’t assign resources. As a result, mid and senior level managers can be pulled in several different directions at once, especially when several leaders sponsor multiple projects.

One solution is to establish a team entirely dedicated to innovation, with authority and resources to establish manufacturing pilots. In reality, though, this is frequently impractical. Most companies need to test ideas within their existing organizational structure.

Another Solution Is The Combined Approach

1. Applying Business Model Innovation to embrace disruptive idea generation
2. Using agile development and lean start-up methods to develop models for iterating
3. Designing multi-level organizational strategies and agile but systematicprocesses to support start-up thinking and methodology

Combining approaches helps identify strategies that don’t disrupt operations while still introducing new methods. The goal is to help businesses commercialize their disruptive ideas by connecting innovation efforts to the existing organization.

It’s important to embrace tradition (i.e. core values, validated process) and change. Multi-level strategies then help to re-align the organization as a whole as it integrates disruptive change. The result is the ability to adopt disruptive ideas without disrupting operations.

About the author:

Dr. Irene Spitsberg is the Managing Director at InnoVentures LLC, a strategic innovation company, where she works with Fortune 500’s as well as smaller companies on their toughest innovation strategy and execution problems.

Irene was the key strategist and driver in establishing Innovation Ventures Group at Kennametal, where she was responsible for multi-national cross-functional teams working on the development and commercialization of new offerings in adjacent and new spaces.  Her other roles included Director Global R&D Business with Cristal and a number of technology leadership positions with GE Aviation. Known for developing and implementing leading-edge innovation management frameworks and organizational solutions, Irene is a frequent speaker and author on the topics of Innovation management. Irene holds a PhD in Material Science, is the inventor or co-inventor for over 80 US patents, is a leading author of two featured papers in Research-Technology Management journal and is a recipient of NASA’s “Turns Goals into Reality” Award.