Over the past few decades, some large companies have prevailed while others withered and died. Amazon transformed from an online bookseller to an online everything store, to a cloud computing platform. Apple went from making desktop computers to transforming our media habits, to redefining what a phone is.
Meanwhile, the once ubiquitous Toys “R” Us failed to evolve and went bankrupt. Barney’s, once the shining example of luxury retail, rested on its laurels and eventually filed for Chapter 11. What this taught us is that no matter how established a company is, if they don’t evolve to the needs of the marketplace, they risk extinction.
At the same time, the larger the company, the harder it is to innovate: A 2017 report by PwC tracking 1,200 global executives and business leaders in 44 countries found that 54% of them struggled to align their business with their innovation goals.
This isn’t going to change entirely, nor should it. The structural safeguards and reinforcements that exist in the large enterprise are vital to its health and security. Instead, by partnering with firms that specialize in innovation, large companies can still rise to the top.
Failure to Launch
To better understand this, let’s break down why it’s so hard to innovate in the context of the large enterprise. A few major factors are:
- Organizational structure. A large company has, by definition, been successful. They’ve done this by finding a business model that works and created structures, cultures, and processes that supported this business model. Innovation doesn’t really fit into that machine. A disruptive innovation can’t be generated by a system set up for something else entirely. Innovating would require a change to that organizational structure.
- The intricacy of the functional budget. The sheer dollar amount of cash that flows through a large company is staggering. For the numbers to work, budgets must account for every eventuality. This makes for less flexibility in spending which hinders innovation.
Other challenges are entrenched in the culture and changes are slow:
- Lack of support at the top. An HBR article by authors Karan Girotra and Serguei Netessine cited a lack of involvement and encouragement by upper management as one of the top 3 challenges to innovation. While board and upper-level executives are initially enthusiastic, they fail to take the time or energy to engage with the projects. This causes projects to lose steam and fizzle out.
- Fixed mindset. The HBR research also showed that large companies develop tunnel vision. They stick to established goals and don’t pivot preventing new information from potentially illustrating a new path toward success.
- All or nothing approach. Girotra and Netessine also referenced large companies’ all-or-nothing attitude when it comes to new strategies or projects. The governing principle of the large enterprise is to ‘go big or go home,’ rather than experimenting on a smaller scale. With this approach, many projects are just too extreme and risky and don’t get lift off.
Why Innovation Is So Urgent
In today’s business landscape of disruptive innovators and technological breakthroughs, business model life cycles are becoming shorter and shorter. This is due to all of most innovative technologies finally making their way into business processes in recent years. From machine learning and AI to VR and blockchain, technology is evolving rapidly and disrupting industries constantly.
Large companies can’t legitimately match the speed and complexity of innovation. Yet, in order to stay competitive, they must. A conundrum.
To deal with this paradox, many large companies turn to agencies and labs that offer quick fixes for simple problems but can’t foster true innovation because they don’t fully understand a company’s business needs. Coupled with the relatively junior status of many agency members and a general lack of follow-through on involved projects, it’s still a piecemeal solution.
‘Tech for Hire’ vs. Innovation Partner
In order to keep pace with competition and remain relevant, large organizations need to partner with firms that both have vast experience and know-how in the space of technological innovation and also understand their business. Through such a partnership, the difficult and time-consuming task of innovation — a task that is fundamentally at odds with the day-to-day tasks of the company as it currently exists — is outsourced to a firm that knows what to do. Outsourcing innovation makes sense, for a number of compelling reasons.
Increased efficiency. It is inefficient to hire staff to do work that requires a multitude of narrow skills and diverse work backgrounds.
Clarity. By taking a two-pronged approach to the company’s competing goals of a.) delivering on a core value proposition (handled by the company) and b.) innovation (handled by the partner firm) you are able to do both with synergy.
Cost. Hiring full-time employees is a major financial risk and cuts budgets necessary for other parts of the business. It’s an unnecessary entanglement.
Nimble talent pool. As more businesses recognize the importance of outsourcing tech development and other non-core activities, the gig economy will grow. This allows for a bigger pool of tech talent available for highly specialized work.
Best of tech. Firms that specialize in innovation know how to keep pace with the complex and rapidly changing technology landscape. Perhaps more importantly, they understand how to apply tech correctly to launch a company to the next stage of success.
By the numbers. In 2000, the global market for IT Outsourcing was $40.7 billion. In 2018, that number was $85.6 billion.
Finding the Right Partner
In the search for a firm to partner with, companies should look for a number of qualities: They should excel at guiding organizational business units through the business process, understand how best to validate problems, and know how to align the right technology to the solution.
Ultimately, large companies don’t fail to innovate because they’re blind to what’s happening around them; they fail because of the very things that made them successful. It requires vast resources to overhaul that foundation.
The fact is large companies still have great value. If they can take advantage of emerging and disruptive technology and draw from the combined expertise and vision of a true innovation partner, the possibilities for future success are limitless.
– Grant Kaley, Head of Client Success, BLDG25