Innovation – “Just Like Starting Over?”

Can Large Companies Ever Really Be as Innovative as Start-Ups?

White Paper

Just Like Starting Over?

Can Large Firms Truly Be Innovative?

The success of start-ups particularly in the technology industry over the past decade has left many senior executives of established firms pondering whether they can truly compete in terms of innovation.

Elix-IRR’s latest white paper examines what these larger, established companies can learn from start-ups and how they can make their organisations more innovative.

A Digital Disturbance

The internet has unleashed the biggest wave of change on businesses since the industrial revolution in the 19th century. In the space of two decades iconic firms such as Kodak, Borders and Woolworths have fallen from grace, whilst some start-ups have grown into global giants in the blink of an eye.

For many established firms increased competition driven by the accelerating pace of change has highlighted the need for continual innovation in order to survive. The staggering success of start- ups like Google, Facebook and Amazon and their ability to continually innovate despite their size has led to soul-searching amongst senior executives of more established firms. These companies are starting to question whether they can ever replicate the ability of these firms to “be big but act small”.

“How Can We Be More Like…?”

There is much debate over what conditions are required to make a technology start-up successful, and whilst being in the right place at the right time is often a major factor, based on our experience the following are more often than not crucial to success.

Principles for Success:

  1. Have a clear (if ever changing) strategy
  2. Know your market
  3. Have the right people
  4. Get the right investment
  5. Be agile
  6. Brand yourself with innovation
  7. Create alliances

Whilst following all these rules may seem only possible within the context of a start-up, established companies would be wise to examine how the same principles can be applied to their own attempts to innovate. By thinking creatively and acting constructively, established companies can dispel the myth that their size and the need to create shareholder value deters innovation.

Start up, keep up!

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Estimated market value of recent start-up firms

Creating an Innovation Culture

Seven Key Areas to Address

Using Elixirr’s experience, we have identified the seven key areas of innovation culture large firms should adopt.

Have a Clear (if ever changing) Strategy

  • Start-ups, more often than not, rarely end up with the same product they started out trying to produce. For example, Flickr started as a chat service and Twitter started as an online SMS service.
  • The drive, desire and a structured approach to innovation is often of greater importance than the current project being undertaken.
  • Established firms need to recognise this by developing a clear coherent innovation strategy that outlines the people and processes involved rather than specifying outcomes.

Know Your Market

  • Successful start-ups generally have an excellent grasp of their target market and keep this up to date.
  • Established companies looking to innovate have an advantage when carrying out market research, their large number of employees provide an excellent source of information and testing ground for ideas.
  • Firms like AOL have employed crowdsourcing techniques such as those provided by Amazon, but few seek to crowd source ideas and solutions to problems internally.
  • Google employs a centralised database of all on-going projects to encourage staff with ideas to pitch in and to minimise redundancy

Have the Right People

  • Many start-ups begin as one or two man operations (think Jobs/Wozniacki, Zuckerberg/Saverin, Brin/Page etc.). Leadership is undoubtedly critical to cultivating innovation, however hiring the right people is just as important.
  • It’s no surprise that technology firms tend to cluster around universities – think Silicon Valley and Stanford, Silicon Fen and Cambridge.
  • People that tend to work forlarger companies are generally speaking more risk averse., Therefore innovation needs to be cultivated more carefully, which requires excellent leadership and a management and incentive structure that focuses on the broader value delivered by innovation teams rather than on short term return.

Get the Right Investment

  • Venture Capital investment is the lifeblood of start-ups– getting buy in from value-adding investors is a crucial financial lifeline and confidence boost for start-ups.
  • This logic can equally be applied to big companies looking to invest internally in innovation. Individuals need the right incentive structure in-place to encourage them and provide them with the confidence to come forward with ideas.
  • Innovation awards and internal investment funds open to all employees can provide a very effective means of cultivating ideas.
  • Siemens and Proctor & Gamble have taken this approach to heart by creating investment committees that act like VC funds to fund internal and external ideas.

Be Agile

  • Flexibility and agility is more than taking a “code and fix” approach to innovation.
  • It’s misleading to think that all successful small companies get by doing things on the fly. Structured development and organisation is more often than not critical to creating a successful start-up.
  • Innovators in larger companies need the right remit to ensure they are removed from burdensome and unnecessary bureaucracy and at the same time have rules in place that allow for greater decision making and flexibility.
  • Google has benefitted from following this forgiving and agile approach – they will be remembered for things like YouTube not Google Video Player.

Brand Yourself With Innovation

  • Consumers want to be associated with innovative companies, equally innovative people want to join companies that are at the cutting edge.
  • Creating a culture of innovation requires creating a brand that potential employees and clients want to be associated with – the perception of innovation is often more powerful than innovation itself.
  • With the right thought leadership and management companies have the ability to alter the perception of themselves in the marketplace.
  • Apple were a down and out brand 15 years ago, today they are seen as the most innovative company in the world, even when they recycle the same technology.

Create Alliances

  • Sharing ideas can spur and accelerate innovation which is why start-ups cluster in hubs around the globe.
  • Established companies can learn from this strategy – forming partnerships with smaller firms through acquisition or even outsourcing innovation.
  • Google have successfully achieved this through acquisitions of small firms like Zipdash and ImageAmerica which helped them develop Google Maps.
  • Having the right framework to find the right partners is crucial as Cisco found out after its disastrous spree of acquisitions between 1993-2000 and HP discovered after purchasing Palm, Compaq and Autonomy.

Conclusion

Established firms are naturally more risk averse and less agile than smaller startups, this is largely a result of managing shareholder interest and a continual pressure on management to generate short term revenue. Despite this, larger firms can innovate with the right structures, strategies and frameworks in place. Google, can create and maintain a culture of innovation and continue to “act small”.

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