The found business model
Steve Blank had a great post this week about Fairchild Semiconductors, the company that can be seen as the rightful parent of most of Silicon Valley, and its inability to see the value of integrated circuits when its own engineers created them:
When Fairchild engineers realized that its planar process of manufacturing individual transistors could now be connected together on a single piece of silicon, the Integrated Circuit was born. Engineering thought this could dramatically change the way electronic systems were built, but the head of sales tried to kill the Integrated Circuit program, loudly and vociferously. Engineering was confused, why didn’t the Fairchild salesforce want a revolutionary new product line?
It’s a very good reminder of the dangers of getting too comfortable with the business strategy your company is following.
Unfortunately, the main reason most companies get disrupted is that they become too enamored with the way things are. The concept of “we have always been successful with the current business model” engrains itself in a company. The longer the company lives, the more difficult it is to move away from that strategy.
Generally, the only way companies move away from their existing business model is when they face near extinction. A good example of that is IBM, which found itself challenged a few times and ended up with different business models throughout its history.
I would venture that the found business model is probably the biggest reason for lack of innovation in corporations. I’d suggest that companies with an established business model look at it on a regular basis. I recently heard a great idea: most companies fight budget battles on enhancements or new products but those generally represent a small portion of an overall budget. What if existing products and services had to justify their existence every year? It seems that doing so would force a company to rethink its business model yearly.
Successful coporations, by their very nature, tend to be large and have a lot of people working for them. One would assume that, as a direct result, they would be teeming with diverse individuals who are providing innovative ideas on a regular basis, allowing the companies to judge and decide on what the next big thing may be.
Unfortunately, because they are large and established, successful corporations tend to attract people who believe in safe situation (why that is probably ought to be the subject for another post as 30-40 years of mass layoffs cycles in corporate America should have left people understanding that there is not that much more safety in large corporations than there is in startups).
Unfortunately, radical innovation is not about safety. It is often about the unknown possibility of change and that, to many people is scary. So people who are innovative tend to be scary to recruiting managers (unless the mission is expressly to change culture, in which case they seek out “innovative people”). The net-net of this is that people who get hired in corporations generally tend to fit a more risk-averse profile. And when they go on to hiring more people for their teams, they seek out people not unlike them. In the process, innovative thinking is squeezed out of the everyday operations of most corporations, ensuring that the boat is not rocked too much.
I remember making a presentation to senior executives in the banking world around 2007 about the possibility of companies like Facebook starting to offer their own currency (something that came to pass with Facebook credits). After I made my presentation, the silence was deafening and many people later called my presentation “daring” which is coded language for “how dare you do something like that?” Needless to say, I was not invited to speak in that forum again.
One solution to this issue is to create senior-management sponsored startups internally. A good example of this is how Conde-Nast launched Gourmet Live, as described by Anil Dash:
Astonishingly, the smart people in charge like Conde Nast CEOChuck Townsend and President Bob Sauerberg heard this idea and after a bit of thought said, “Yes. Let’s do it.” Frankly, I spend a lot of time around startup folks who are always saying “Sure, let’s give it a try!” But I spend a lot less time around folks who have the responsibility of running huge media companies, and my surprise at their agreement was overshadowed by the huge respect I found for seeing that they had that level of curiosity and willingness to try something new.
Ultimately, Gourmet Live began by bringing together people at opposite ends of the continuum of big-and-powerful and small-and-nimble and let them come together as peers to do something awesome. Maybe I’m not as much of a cynic as I used to be, but I found that sort of inspiring. There is something great about discovering that a big, successful institution can still be hungry.
The enforcement of conformity, though, is also built through methods that sometimes defy common sense. In recent weeks, I sat in offices at four Fortune 100 companies and in each case, I bumped into what I called “the Great Firewall of Corporate America.” Much like China, corporate America worries about what its employees might see on the Internet. As a result, they erect firewalls that allow them to decide what employees can and cannot see. In the 1990s, those were used primarily for blocking things like porn sites. But as we moved into a more cloud-based era, companies are now starting to restrict things like external email or chat sites, document sharing sites, and most social media sites.
That firewall generally ends up leaving any employee seeking out innovative solutions out of the loop. The more persistent ones bring their smartphones to work, bypassing the corporate censorship and leaving it beyond corporate control. In fact, the next time you sit down at a computer inside a major corporation, check if they can access twitter or facebook. If they can’t, ask them if the company has a Twitter account or Facebook page. You’ll find that, in a lot of case, they do and their own employees do not have access to them from office computers, a great irony.
That firewall is itself a threat to innovation as it keeps employees from looking out, which can be a source of inspiration for innovative solutions. Scaling it back can help employees realize that there is a lot to be learned from the outside world.
As I’ve mentioned, innovation is scary. So few people attempt it in a corporate setting. The other reason for the poor record of innovation in the corporate world is that it is often difficult to push and innovative idea in a highly political sphere. With many nay-sayers poo-pooing an idea, innovators initially loose political capital when they introduce something that is different from the existing business model. And, on the other hand, if they succeed, other people in the company start attaching themselves to the success in order to claim credit.
This environment leaves many innovators fighting in what is essentially a more difficult market than outside of corporate America. The few that manage to launch innovative solutions are left fighting for proper credit on their contribution. Many get discouraged and leave corporate America, finding startups to actually be easier (though I beg to differ with them on that point) than innovation in the corporate world.
This is a trickier one to fix as those types of things are generally endemic to successful cultures. While politics cannot be avoided (the minute 2 people are in a room, politics happen), their negative impact can be diminished by removing barriers to innovation. Oftentimes, doing so is a process issue as innovative ideas are treated in the same fashion as regular business. A well-defined process to create new businesses, measure them, and either iterate or kill them may be the best approach (this is where the idea of having to re-justify your budget yearly makes total sense.)
The wrong definition
Ultimately, though, the challenge for innovation in the corporate world may have more to do with the way the view innovation. Most corporation look to one end of the spectrum or the other as the source for innovation.
Some believe that the only form of innovation is the kind that completely changes everything. The example given in those cases is that the internet is the only real innovation in the last 25 years. Those companies believe that, unless the innovation is of that scale, it’s not really worth pursuing. I generally answer that there are other ways in which one can be innovative without needed to change the whole world: a counter-example I give is zipcar, which created a whole new business out of renting cars by the hour instead of the day, a largely incremental change.
Other companies believe that incremental changes to their products are the only true form of innovation worth backing. They claim that their product and approach has brought them much success in the past and will continue to do so in the future with only a few tweaks. When it comes to those companies, I like to use the example of buggy whip manufacturers, which is often seem as the more extreme example. Another example I like to talk about is how network equipment companies asking people in the mid-1990s how they wanted their products improved might have missed out on wireless networking. That example, generally gets more notice.
Ultimately, I would venture that the best approach to innovation is to not worry too much about definition. Few entrepreneurs worry about describing how or why they innovate and focus on actually solving problems instead of concerning themselves with the right semantic around innovation.