Daily Business Life

Can Companies Continue to Innovate as they Grow? December 21, 2006

Innovation…The word conjures up images in one’s mind. Perhaps you think about companies like Apple Computer, or great individuals like Thomas Edison or out of the box thinkers like Albert Einstein. I bet if you created a list, the list would be filled with many individuals, but only a handful of companies. Why is that?

I think part of the reason can be illustrated by way of example. Microsoft was once a small company (I know that is hard to imagine today). You might even have called them a small innovative company back in the 80′s. Through the MS-DOS operating system and the BASIC programming language Microsoft became the de-facto standard running on most PC’s. Through smart marketing and decent product, they were able to leverage their advantage with other software packages including the much loved and often hated Windows operating system. Over time, they were able to muscle out most competition and their software has become a standard worldwide.

Fast forward to today. I think the best illustration of Microsoft are some terrific Apple commercials that depict Apple vs. Microsoft as personified by two people. The Microsoft actor looks a little like a heavy Bill Gates; smart, but a nerdy kind of guy. The Apple actor is more hip; sort of a hip and smart cool California dude. In the commercials, the message communicated is an insecure Microsoft guy, trying really hard to please, but struggling to figure out how. His solutions to problems are depicted as complex and contrived. As a contrast, the Apple dude is cool and relaxed. You get the feeling through him that Apple products are cool without hassle. The PC guy makes you feel like PC products (running Windows) are more complex and difficult to work with.

Another example is the new Microsoft Zune MP3 player. While I don’t own one, I have read reviews. All the reviews suggest that it is a decent product. However, it fails to be something truly innovative, instead copying many of the capabilities of the ipod with some improvements. Hardly as innovative as the first ipod.

Microsoft faces the same problem that many once innovative companies face as they grow larger. As the size and complexity of an organization grows, so too does the number of groups that get involved in any process. Decision making capability typically becomes distributed across many different departments each of whom want to have input into the final product. Thus, in many larger organizations innovative ideas get squashed or have so many hands involved that the original concept gets lost or homogenized in the process. This is especially true in public companies who are under pressure to gain revenue as quickly as possible and cut costs at the same time.

I do think Microsoft and other large companies have a potential solution to the innovation problem: Create small companies within the larger company. Allow these teams of people the advantages of the resources of the large organization, but give them the freedom to innovate without the corporate bureaucracy. Apple has been able to avoid having to do this because of the dynamic and visionary nature of their CEO Steve Jobs. While the Zune has not been a runaway success, Microsoft is on the right path in having appointed J. Allard to lead the team developed the Zune. J. Allard is like the cool Apple guy personified. He and his team successfully created the X box 360 and will likely continue to improve likelihood of success of the Zune over time.

This type of strategy is very difficult to institute for a large public company. So much of many larger companies corporate DNA surrounds hierarchy and control, that it is difficult to delegate decision making authority to a small group of people. However, companies that do not develop solutions to continue to innovate eventually will wither and disappear. Not only will they struggle in an increasingly competitive marketplace, they will seed talent to those companies that continue to provide opportunities to innovate.