Can big organizations innovate? Yes.

One great misnomer about innovation is that big organizations can’t do it. There are many stories of great innovations done by big companies. We love entrepreneurial stories and small is beautiful philosophies, but there are many great inventions from big, and old, organizations.

Many of the greatest technological innovations of all time, landing on the moon (NASA), the creation of the first PC, mouse, personal network and laser printer (Xerox), and the development of the Internet (DARPA) all took place inside of large organizations. Then of course there is the ENIAC (first PC), the first jet engines (RLM), and countless other inventions created, or successfully made into products, by various large organizations throughout history.

I’m not saying innovation is easier in large companies (although occasionally it is) – I am saying that the size of an organization is rarely a deciding factor: it’s the organization’s attitude towards change that matters. For example,  If the CEO of SuperBig Inc. decides to pay $1mil to any employee who prototypes new product ideas, guess what he’ll have? Lots of hard working people willing to take risks with new ideas. Alternatively, if the CEO yells at people for taking chances, and pays bonuses exclusively for complacent status-quo behavior, he’ll never see innovation no matter who he hires, what he says or what books he reads.

One hypothesis is innovation hinges on two things:

  1. Willingness to take risks
  2. Commitment to hard work developing new ideas

Both are hard to achieve in any sized organization. Talent, resources, and luck are irrelevant if no one is taking the risk of pursuing something new  (#1) and working hard to make them pay off (#2).

There are many caveats. Risk aversion is rampant in big organizations, but a small team in a big company that is successfully lead by someone comfortable with risk, and capable of managing large company politics,  may be free from the problems the rest of the company suffers from. There are enough examples of innovations by (small or medium sized groups inside) big organizations to render size a less important variable than is commonly believed.

Instead of lamenting “my company is so big it never innovates” – a more accurate complaint is “my boss’s decisions don’t reward people with ideas for positive change”.

8 Responses to “Can big organizations innovate? Yes.”

  1. Kempton

    Hi Scott,

    Having the right incentive schemes are very important to generate wide spread innovative thinking in organizations. At the same time, having powerful teams also are important in major advances. The teams discussed in Warren Bennis’ “Organizing Genius” come into mind.

    Looking forward to your book.


  2. John P.

    And just where do you think #1 and #2 are more common? Big companies or small?

    No one claims big companies _never_ innovate, just that they do it so slowly it looks pathetic next to startups.

  3. chmike

    Good point. You may add the web to your list of examples. The web was invented at CERN, an international research organisation.

    It is not even required to invest 1M$ to get inventors to work. Just giving them “free” time is enough, like at CERN. The 20% of google is one step in this direction. Big companies can afford to have people spending up to 100% of their time doing R&D, explore and test things.

    Inventing is a matter of chance and letting people look around and explore things increase this chance. A company where all the employes have their nose stick in the handlebars, pedaling at full speed are very unlikely to make any innovative findings.

    The other difference between companys is how employee inventions are dealth with. If the company has not a fair and attractive handling of these, the company takes the risk that the employee lives it silently and develop its invention in its own startup or selling it,etc.

  4. Scott

    John P:

    On the surface it seems obvious that small companies would be bigger risk takers, but the more I’ve thought about it the more complicated it is.

    A small business owner has everything at stake – if they fail, they go under.

    We’re biased by high profile tech sector start-ups, which are in an extreme class of risk taking and opportunity. Many (possibly most) small companies don’t take on the same kinds of risks.

    But a team manager at a big corporation has much less to lose. Even if s/he fails he’s unlikely to get fired and certainly won’t lose his house because the project took the biggest risk.

    So again, I think the rough sketch of “small companies innovate more often than big” falls apart quickly . There are way too many counter examples in both directions.

  5. Michael Schulze

    I believe that both large and startup firms have the power to innovate.
    If you take large firms like GE or 3M who are known for their strong efforts towards creating an innovative climate you are definitely right.
    But other examples show that it is often the lack of resources of small firms that make them innovative.
    Finding new ways for doing things seems to be more important to small companies.
    Furthermore history tells us that many startups are the result of unsatisfied emplyees.
    SAP R3 for example coud have been an IBM product, to name only one.
    The boss`s strategy often doesn`t reward new ideas because he has to consider sunk costs resulting from former investments,
    a problem seldom found in startup firms. Therefore large firms usually innovate in much smaller steps, following a less radical path.
    From this point of view risk aversion is strongly related to size.
    Another point is entrepreneurial behaviour which is seldom tollerated in lage firms but which is in my opinion
    a very important lever in the innovation game. The concept of intrapreneuring which is supposed to overcome these boundaries shows
    that they are quite aware of this.
    At least some are! Companies like google may teach us that innovativeness is not a matter of size but a matter of generations in charge.

    My best regards,

  6. ashley

    Do you agree that big organizations being financially stable are more innovative than large firms?



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