Why Big Companies Can't Innovate | Hacker News Reader

Why Big Companies Can't Innovate

hbr.org

93 pointschirau67 comments

Some can, some can't. IBM was once very good at innovation.

What hurt IBM was not lack of innovation. They got that part right. It was incremental production economies, the thing the article says is a big-company problem. Others could make generic PCs cheaper than IBM. Others could make disks (which were invented at IBM) cheaper than IBM. IBM eventually exited the low end entirely.

3M, GE, and du Pont are big, old companies good at innovation. Westinghouse was too good - too many high-tech products before their time.

Gerber, the baby food company, doing something stupid is not a good example.

I would also add Hitachi in there as well. Not as well known in the states for the massive conglomerate that it is but they have a great corporate outlook and focus on long term goals over short term ones.

Hitachi makes the best nailguns.

And massagers. For massaging.

I weep to see people sharing my viewpoints. Too often, quasi-professional observers of industries would make stupid anecdote examples into attention grabbing but misleading and ultimately stupid stories.

To add to your examples (and to bring this closer to hearts of Hacker news audience): Google released Gmail, GMap, GWT, etc. after its initial success; Amazon unleashed AWS after domination of online marketplace; Microsoft jumped into Xbox after establishing itself as "the tech company." Most notably, Apple is only accepted as a mainstream "innovator" (with the slew of products like iPod, iPhone, iPad, etc) after its revival and domination; before that, they were merely a niche player and their products (the many colorful boxes) were never quite celebrated as later creation as market leader.

GMaps were actually acquired by Google

Yes. Earth technology came from Keyhole, and you could buy it, or get it for free if you had an NVidia graphics card. It was really cool in 2003 to go flying over the earth. A dozen years later, it's really about the same, but with a bigger imagery budget.

Even acquisitions can be indicative of innovation. It takes a great deal of effort and vision alike to identify potential acquisitions and successfully build from them. Just buying the company is the easy part. Doing something with your new division, rather than just letting it continue to do its own thing, can be just as challenging as breaking new ground altogether, even if the nature of the challenges are different.

Microsoft's XBox experience is more about throwing money at the problem. The entire first generation of XBox devices was a net loss.

Not just the first gen, they are billions in the hole still

You beat me to the best examples. Especially GE. Anyone acting like big companies can't innovate haven't really done any research at all. I'd also cite the major defense contractors like Honeywell, SAIC, Lockheed, and Boeing. They do plenty of dumb stuff that basically generates jobs and bribes but a good chunk of their work requires smart people inventing new stuff. Maybe Siemens, too, along the same lines.

Also, thinking of the various jokes, how big is IKEA? Just their assemblies and pallets probably should be considered innovation in some way haha.

Or look at retail logistics and sourcing. Or big German car companies in the 90s, when they switched to common platforms that allowed more interchanging between models.

Exactly. Many of those organizations were slower to innovate due to low margins or high cost. Yet, they still did innovations periodically with significant to huge impact. I like focusing on low-margin firms as they provide a nice minimum of what I think is achievable in others.

German hard-discounter Aldi is taking over the Australian retail market very slowly. They have vowed to `suck the profitability out of retail'.

They bring in long-established practices from Germany, and force the Australian retail oligopoly to wake up.

Aldi and Lidl are doing the same thing to the British retail market as well. They are already forcing the other retailers to `simplify their pricing'; ie get rid of confusing multi-buy offers. (British supermarkets used to double a price one week to offer Buy-Two-For-One the week after.)

https://www.theguardian.com/business/2016/feb/11/sainsburys-...

> Aldi said: “In our view, complicated promotions, multibuy offers and price matching schemes are confusing, are not transparent and do not serve the best interests of consumers. We focus on providing quality products at transparent everyday low prices that consumers can easily understand.”

They keep talking about perpetual price wars between supermarkets in the UK, but it was a pretty cozy place for the incumbents before the Germans showed up.

Can you elaborate on the case of Westinghouse? That sounds interesting.

They can innovate. Startups often make shit products the market doesn't want too, and often fail more slowly and expensively than the example of Gerber's adult food line; the article could instead have talked about how Gerber did successfully roll out a life insurance product. The followup articles mention Xerox and Apple: two companies which produced more game changing products as mature companies than 99.99% of Silicon Valley ever will.

If I was to propose my own cod theory of why big companies don't innovate, it would probably involve them seeing innovation as driven by MBAs formulating "innovation strategies" based on articles full of interesting anecdotes and open-to-interpretation theories rather than management saying yes to a higher proportion of projects their underlings want budget for.

One trip to Walmart or a large, grocery store shows you how much the big companies can innovate. Actually, they do it even more than that but often do focus groups in a form of fail-early and fail-fast. The bad ideas get weeded out before they can soil the brand or dilute the earnings. What we see is what at least seemed to work. It then usually makes plenty of money.

Also, the big companies' innovation usually nets them tens to hundreds of millions in extra revenues or plenty of profit. They care about making money, not growth to sell out. Changes the nature of innovation considerably.

Can't speak for all giant companies, but they care about percent growth. A product that might be profitable, but millions profitable and not billions profitable, it isn't worth the effort and gets axed or sold. A 0.1% profit boost isn't gonna matter to share price. Not saying I agree with it, just an observation.

It depends on the company. Many of the big companies... can't say most without data... get their money through a collection of products and services. They do care about millions because a million here and there accumulates. The low-margin business care down to the pennies of individual items.

So, that isn't a rule for big businesses especially in the Global 2000. Many care about that stuff. There's just competing interests that can axe one thing for another. The ones doing stupid, expensive stuff also make the news more since "incrementally improved operation to make more money" isn't as exciting over coffee. ;)

> If I was to propose my own cod theory of why big companies don't innovate, it would probably involve them seeing innovation as driven by MBAs formulating "innovation strategies" based on articles full of interesting anecdotes and open-to-interpretation theories rather than management saying yes to a higher proportion of projects their underlings want budget for.

Well said. Even at innovative companies like Apple or Amazon, it's amazing how many interesting and exceptional ideas get budgeted out of existence due to prioritization of top down initiatives from senior level executives that are several levels removed from customers and the people capable of solving the customers' problems.

Well, folks are already off to the races reading the headline and not the core of the story.

But, this is something I've thought of often over the last several years. If perhaps, a better angle would be to build a business around Unix-style philosophy, of "Do one thing, and do it well." Then, you simply start over with another brand new, small thing, and grow it from there, while lending it the HR resources of the core.

The closest company to trying something like that, that I know of, is Google. But even there it seems they've hit some stumbling blocks.

> while lending it the HR resources of the core.

"HR resources" is redundant.

> HR resources" is redundant.

No, its not. It does expand out to have a repeated word, but the reference is different (the HR resources -- Human Resources resources -- are resources dedicated to the Human Resources function.)

? Why is it redundant? For the love of God, why is HR redundant?

Let alone the other answer ("HR" == "other engineers"), which is brilliant, the HR department is the greatest weapon a large firm can deploy. Do you want insurance in case your kids get sick? Do you want days off to relax after a month of hard work? Do you want to ensure your boss ain't making inappropriate advances?

Why on earth would a smart people want to be burdened with all of those works? Why on earth would a smart people hitch non-core work onto main work hour? Why on earth would a smart person refuse to delegate?

"HR resources" is redundant. Such arrogance.

It's quite unlikely you've heard of Eckart Wintzen [1]. He was leading one of the fastest growing software engineering companies in the 70's and 80's called BSO using a 'cell management', where sub-companies have a set maximum size of 50 and need to split afterwards. I worked for a company called Topicus [2] in the Netherlands which followed a similar philosophy for a while.

[1] http://www.extent.nl/about-us/people/eckart/ [2] http://www.topicus.nl

Similar models exist in big business under the name of divisional organizations and matrix-style management. The latter is nowhere near as cool as it could be with some minor changes involving VR and AI's. Yet, it worked in real-world businesses well enough.

W.L. Gore and associates does something like this:

https://en.wikipedia.org/wiki/W._L._Gore_and_Associates

(The company is famous for Gore-Tex. The structure is famous in part because Malcolm Gladwell used it as an example in his discussion of Dunbar's number in The Tipping Point. But I guess it was studied lots before then.)

When I worked for Microsoft, this part: "Then, you simply start over with another brand new, small thing, and grow it from there, while lending it the HR resources of the core."

...never worked. Because the core businesses (Windows and Office) were $10B products. Investing a little bit to get a 0.1% move in revenue there, brought in $10M more. It was bloody difficult to persuade anyone that the $ should be invested in a brand new startup idea, rather than re-investing it in the core, growing business. And who can blame them?

There were two businesses that mattered, and everything else was a distraction. Actually after a while, the combination of Windows Server and SQL Server became a business that mattered, too.

In those days, everything else was a weed that might/could grow, if it could shoot up and grab some attention and look pretty, before the groundskeeper just snipped it off at the base.

If you look at what succeeded at Microsoft since then, it has not been "investing in some some small thing." It has been MASSIVE investments in things, like Azure and Xbox. Of course, MSFT also made MASSIVE investments in plenty of things that did not work out.

But the point is, proposing to start with a brand new small thing, was a sure way to be asked to get with the program, or leave the company.

Well, small things are very competitive, everyone can do them and do them better than a large corporation optimized for innovation-killing efficiency. I guess it's only natural for a corporation to go big and do massive investments in big things, because there is almost no one on that level to compete on innovations, no matter how poor they are.

But a lot of that would depend upon support structure or company architecture, right?

After all, if the idea of starting something new gets you asked to leave the company, the company itself is probably hostile to new proposals, so it's fundamentally against what I'm talking about.

I don't disregard what you're saying- but it's a huge mentality shift, to be able to do things like this.

I also think it'd be beneficial to run such an organization in a smaller side-company, similar to what Alphabet does, than merely as a new department inside of a huge monolith like a Microsoft. Otherwise, you risk just this sort of thing, and being able to consistently maintain a culture of creation in something meant to last a century or longer is incredibly difficult.

From the article:

  > corporations exist to make money.

I'm so tired of hearing this. Contrast this with Steve Jobs's quote:

"My passion has been to build an enduring company where people were motivated to make great products . . . the products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It's a subtle difference, but it ends up meaning everything."

Public companies legally have to "increase shareholder value." If they don't, the shareholders can revolt.

Private companies aren't beholden to this mandate. Nor are Google and Facebook, which structured their public stock offerings to keep the founders in charge.

Apple was an odd outlier in that the stock holders had complete trust in Steve Jobs to ultimately increase the stock value long term, so let him spend the money on R&D as he saw fit. How many public companies not structured like Google or Facebook are like that?

Businesses are built from the ground up to succeed in the business they are already in. Any entrepreneur who's built one, or anyone who oversees operations of a company knows that each component has a specific purpose, and the process of ensuring they all work and click is painstakingly tedious, fragile, and requires maintenance overhead (the guy overseeing operations is one of them).

So to say "they have money and smart people, they can do anything, why not innovate" is completely ignoring how businesses grow, come to fruition, and ultimately profit.

Google's profit mainly comes from Adwords. Their history involves entrepreneurship, an awesome search engine, a new philosophy for a top page, and a ton of innovation. They even kept their innovative (and academic) roots for as long as they could in the form of Google Labs, which one can only assume they had high hopes for considering the talent they had and the amount of freedom they gave them. But it was no Bell Labs or an IBM in their heyday. It shut down in 2011, because the business arm couldn't justify it. They didn't need hobby projects. Google needed bigger and faster innovation to meet the scale of their resources and potential returns to match, so they focused more on phones, cars, AI, and robots. And now they exercise true big corporate innovation. Innovation is bought. They buy it, work on it, then sell it if it doesn't work out (as they did with their headless robotic dogs).

Big corporations cannot pay entrepreneurs to be entrepreneurs under their umbrella. No one can. They can pay researchers to do research, engineers to build things, and designers to come up with new products and services. But entrepreneurs are not for hire. The moment they're hired, they stop being true entrepreneurs. But their companies are often for sale -- the business they built from the ground up to succeed in the specific business they're in (or just for IP if they're a technology play). And innovation is easy to measure when it's already there for sale in front of you.

Counterexample: Goldman Sachs and Buffet's stuff. They hire and pay entrepreneurs to be entrepreneurs, managers, and product developers. Many of their top people bringing in big dollars have attributes of all of these. Their job function just brings the money back to the parent company instead of a random investor. There's nothing about big companies that prevent entrepreneur-like activity within. Usually, just their management culture if anything.

It's not a counterexample. What you provided is an example of an entrepreneur managing business. Many large corps have tried this, and for the most part have gotten more out of these efforts in the form of brand benefits and PR (as an innovation first company, yada yada) than actual profit. Toyota in Japan is highly entrepreneurial per se, except they still only make their billions from cars.

And the problem with these efforts is in the entrepreneurs. If they're working on sure businesses from scratch, then it's like opening a Starbucks where you know it will make money. That's not innovation, that's just good aggressive profit-sniffing business.

The best entrepreneurs will continue to quit their jobs to focus on their companies. Hence all the ex-Facebook, ex-Google, and ex-Wall Street founders doing startups. I doubt Jeff Bezos would have considered a career at Goldman Sachs for what he hand in mind with Amazon. Doubt they'd even hire him to do it.

And them hiring entrepreneurs to be managers and product developers is exactly what I said. They stop being entrepreneurs.

Too many overconfident anecdotal HBR 'instructive stories' remind me of the old adage 'an economist is someone who can tell you a thousand ways to make love but has never actually met a member of their opposite sex'...the authors often appear to be hackademics, VC bag handlers and other theorists with little practical experience...

To be fair, most small companies can't innovate either. The ones that can are the ones that stand out.

The whole article is about Gerber, it should have been called "Why Gerber can't innovate".

As plenty others have already pointed out, the tech industry is currently being led by very big companies that are frighteningly effective at innovating.

Disappointing content from the Harvard Business Review.

It's a good article, with a simple-enough premise: large companies do one thing, well, and have difficulty changing to do another thing, perhaps less well at first but better later. However, this leapt out at me:

> In it’s infancy,

You'd think Harvard could afford an editor …

No, it's a terrible article. It's factually wrong, and then it tries to explain, with parables and no real evidence, something that isn't even a problem - at least, not in tech.

I'm even not sure it's a problem in most industries. I suspect that companies that do the same thing over and over without any successful innovation are freakish exceptions, not the rule.

It would be far more useful to (e.g.) think about how to match innovations to the market, and how to create balanced corporations that include a working mix of all the so-called corporate life stages.

AMZN is pretty good at innovation, according to my recent memory....

tl;dr: because innovation is what you have to do when you don't already have a business.

Call it an "executive summary" and you can charge for it

From part 2 of this series: https://hbr.org/2012/10/how-big-companies-should-innovate

"If the antibodies already exist within your organization to destroy new endeavors, you need to go outside of the organization to overcome them."

Another option is to just fire or move employees that are resistant to change and innovation to other parts of the company where their resistance to change might be more helpful. I don't understand why this option is not considered or discussed.

Well, there's more than one way to block new endeavors.

Many organisations sometimes have costly problems, and try to learn from them by adding new procedures to stop the problems recurring. After a few years, an accumulation of such procedures can raise the costs of a new project significantly - even though every rule is a reasonable one put in place with the best of intentions.

For example, where a startup can test a concept with a PHP website on a single server using MySQL, a large company might have standards calling for a high availability configuration, a 24/7 support rota, monitoring logging testing automatic scalability change management backups and security to these standards/levels and independently audited, a bug bounty program...

Before you know it a project a startup could have prototyped with one guy and a week needs several guys and several months - but the reasons for it are all individually reasonable and firing the people behind them makes no sense at all.

I think this is hard for most companies to understand. The natural growth pattern is to take what you're good at, tweak it and sell it to another market. The problem is that instead of creating a process or product that's tailor made for the market it's meant to serve instead you get something that's close yet just not right.

What the article is implying that the only way to combat this is for there to be a substantial buffer between the established company its innovation group lest their be some amount of tainting. They only thing innovation group should be provided is money to try to come up with their own solutions without any interference or guidance beyond the main goal. Quite honestly I think this is impossible unless you hire people with nearly no knowledge of the established processes at the company unless you want intellectual incest. Maybe a single manager might suffice but beyond that I don't think it would work.

I have to wonder how amazon is coming up with its new ideas. They seem to be batting at least .100 when the field is batting 0.

Gamestop is not really a good example to end the article with as a company that has given up on innovation. They've pursued the other strategy: buy it. Since 2010 they have made several acquisitions including Spawn Labs, Simply Mac, BuyMyTronics, Spring Mobile, and a bunch of Radio Shack stores.

That's buying something, but is it innovation?

" that has given up on innovation. They've pursued the other strategy: buy it."

Writer claimed they were doing the opposite. Or am I misreading what you're asking? Did you mean to ask if buying something was itself an act of innovation as in other comments?

I was asking if the things that they are buying are fairly described as buying innovations.

I'd say so. You can build it or acquire it. Steve Jobs, echoing Picasso, used to say that "good artists create but great artists steal." Allegedly, anyway. ;) I'd also say, as some others did, that it takes a certain amount of insight to see through the noise of the market to spot the claims (eg innovations) that will become part of your vision and integrate with your offerings. A track record of doing that right most of the time is certainly a form of innovation even if not as brilliant as a startup. Each time, the company's portfolio is stronger and providing more value to customers and shareholders that competition might not have.

This article was written in 2012. Mods, can you please update the link?

Has HBR recently changed its page layout? There is a 20% top bar, that hides a few lines of text when I hit page down. I couldn't finish the article, too frustrated with that POC top bar.

As a note though: walk down the aisles at your nearest Target and you'll find just as many single serve pureed fruits+veggies in the food aisles as the baby aisles (many coming in the same pouches and a couple the same branding). I admit, marketed toward parent who want to spend too much money trying to get their middle schoolers to eat vegetables at lunch more than adults proper.

This example doesn't make much sense, since adult baby food is one of the hottest food trends right now. It's usually packed in squeezable pouches rather than plastic containers, but other than that it looks like they were just ahead of their time.

It's still all just humans making decisions, nothing structural or insurmountable.

Once you have ossified middle management machiavelli banally evil sociopaths that only care about maintaining their miniempire, all the big companies can do is leverage monopoly power, startup gap, and government largess to persist.

Xerox Parc innovated. It's usually based on the a high pain point the founder has with the product.

Google can?

I think innovate meant in the form of creating successful businesses. Most of googles revenue is still advertising.

> Most of googles revenue is still advertising.

That doesn't mean that Google's other businesses aren't successful. There are lots of independent, successful businesses with vastly less revenue than Google's advertising operations, so why wouldn't an internal Google business that is profitable but has vastly less revenue than its advertising business be evidence that Google can create successful businesses?

Sure but I think that's the spirit it's meant in.

I.e. why is it hard for companies to mostly have one cash cow and not develop several. Or why is it hard for them the develop a new business as old ones die out.

why is it hard for companies to mostly have one cash cow and not develop several

In other words, why can't more companies be like Apple? Or Oracle, or Microsoft, for that matter.

Because the cash cow has a say in everything. Tablett? Put the cash cow on it. Mp3 Player? Cash Cow it.

If there is one lesson to take from all this, once something had success - it should be held far away from anything new developing. If they want to give a prototype bovine-cash-madness - it should happen completely independent from the actual prototype and have no effect on the evaluation of said prototype.

Yup. It'll be interesting to see if Apple can continue Macs to iPods to iPhones to ipads to ??

I think the next step was supposed to be watches.

Apple watch sales have been amazing: http://www.wsj.com/articles/apple-watch-with-sizable-sales-c...

Selling better than the iPhone did in its first year. If miniaturization improves to the point that we can fit reasonable processors battery life in the phone form-factor, then expect to sell even better.

Reply on news.ycombinator.com