Is it possible to innovate within a big company?

INNOVATION WITHIN A CORPORATION?

There are two ways to go about it. There is the radical way and the incremental one. Incremental innovation happens when you decide to improve an already existent product without overly changing its fundamental characteristics, like when the diesel motor got upgraded. There is instead radical innovation when you create a completely different product from the one that was already on the market.

The first car solely electric to be planned, produced and distributed for the masses was created by Tesla Motors, not General Motors: as of today Tesla is the technological leader in the electric car industry, growing competition by Renault-Nissan, GM and Ford notwithstanding. Video consumption on the Internet has been revolutionized, in 2005, by the then startup Youtube, later acquired by Google. The great majority of radical innovation is made by small businesses that do not posses a dominant position in their reference market.

So what? A big company can gain the fruits of that innovation in two ways: through research and development of new product lines within the company organization, or thanks to the help of a consultancy agency and the acquisition of promising startups.

 

THE INTERNAL WAY

Doing innovation the internal way becomes progressively more difficult depending on the growth of the company. Broadcom is a semiconductor giant that produces those components that make up the skeleton of the Telecommunication industry. From 2005 to 2013, the enterprise has quadrupled its turnover, employees and patents; the secret, according to its CEO Scott McGregor, lies in the application of some principles:
• The choice of highly qualified employees, that also possess classical managerial qualities. The combination of specialization and flexibility permits the company to avoid rigidity in the decisional process and protects it from sudden disruptions in the competitive context.
• The recruitment of the best talents available on the market, even at the cost of geographical dispersion.
• The alignment between the employee’s incentives and the company’s ones: When a researcher has the same objectives as the enterprise he/she works for, the innovative process will strike faster and deeper.
• The cross level sharing of information: when all the employees are on par with the professional activities of their colleagues, the knowledge is shared much faster and everyone feels free to contribute to the innovative process. The creation of separate centres for research and development where the researchers are isolated can be extremely counterproductive. An example is the Xerox PARC case, the mythical research centre of Xerox, where the first American personal computer was born (the universal record was set by Olivetti), the very one that inspired Steve Jobs to create its Macintosh.
• The realization that guaranteeing the perfect execution of day to day activities doesn’t have to stop one from thinking of the long term strategy. Many enterprises, like Google up to some time ago, would set aside, as part of their employees contract, 20% of their work time to dedicate to personal projects. This way the employees would not be entirely immersed in the company’s routine.

 

THE EXTERNAL WAY

Often big companies do not want or can make innovation the internal way; as such, they would rely on consulting firms, or would proceed with the acquisition of particularly attractive startups with amazing product quality, innovative licenses or a talented team. If a company is that big to have almost unrestricted financial resources, generally it prefers to directly buy startups. There are many examples to choose from; among those we cannot avoid speaking of Whatsapp, and its recent acquisition by Facebook, or the one, in December 2013, of Boston Dynamics and DeepMind Technologies from Google.

The Whatsapp case has become certainly infamous: 19 Milliard of Dollars in money and actions spent, in order to control a society born only in 2009, that could however count 450 Million of active monthly users and an immense network of contacts, data and relationships.

The second case is yet again different: Boston Dynamics is among the more innovative robotics Startups, while DeepMind Technologies is active in the Artificial Intelligence field. Google’s choice is therefore a signal of its choice to quickly enter a promising new sector. As such, Google, instead of developing internally the necessary technologies and competences, something that would have required time, has preferred to buy the two companies, automatically gaining a useful position on the technological forefront.

 

THE CHOICE

So, which one is the best strategy to choose from? For sure, innovating internally is less costly, but it is also a much longer process, that does not guarantee certain results, since the produced innovation may not succeed for a variety of reasons.

Buying startups and small enterprises, on the other hand, allows the company to reduce the production time and generally produces better results, especially since, when a company is bought, it would normally already have achieved a certain amount of success and its product would have already been tested. In many occasions this was exactly the reason why it was bought: Whatsapp, for example, has an enormous advantage in the mobile messaging industry, one that Facebook would have had difficulties to reach anytime soon; this is the reason why it decided to buy it.

Historically Google has demonstrated a certain amount of compromise between internal and external innovation: surely some of you still remember Google Labs, a website that the giant would use to publish and test new products before the mass release. From this platform we can remember Gmail, Google docs and many other successful services. Furthermore, in a little more than 10 years, Big G has bought 145 companies! Youtube, Android, Waze, Meebo, Nest and Motorola are only the most famous among those. In 2011 the research giant however decided to close the Lab. Did it decide the best way to go was startup hunting? That has for sure always been the Amazon way, of investing Millions of Dollars in acquisitions. However, while the acquisition of Alexa and of the Internet Movie Database could have helped to enrich the company’s offer, in many cases the real objective of Amazon was to simply get rid of all the e-commerce startup that had the potential to become dangerous. In these particular cases the choice was not motivated by innovation but growth, with the aim to enlarge their market share.

By Lorenzo Tondi, on Twitter as @lorenzotondi.