Innovation in Big Companies: Breaking the Myth of Stagnation

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Oct 03, 2024

This week, I want to dive into innovation in big corporations. We often hear that large companies don't know how to innovate, they don't "get" startups, or they fail to successfully acquire them. So, I decided to dig deeper into this topic.

Whenever I hear these critiques, one question pops into my head: do big corporations even need to innovate? If they often fail at it, maybe it’s because they don’t need to - or at least not in the way we typically think of innovation.

What is innovation, really?

Innovation is all about creating something new. But here’s the catch - there are two kinds of innovation:

Incremental innovation, which gradually improves an existing product or service;
Disruptive innovation, which shakes up the market by introducing a whole new way of doing things, a fresh product, or an entirely reinvented market.

Innovation in established companies

Here’s the dilemma: innovation in an already successful business can be tricky. Running a business is all about finding what works and squeezing every drop out of it - cutting costs, boosting margins, optimizing processes. In short, the classic business model isn’t exactly wired for continuous innovation.

That said, if they want to stick around for the long haul, big corporations have no choice but to evolve. They do innovate, but mostly in an incremental way. They double down on their core business with well-oiled processes, continuously improving their products, communication, or market approach. This gradual, step-by-step progress can give startups, who specialize in disruptive innovation, the impression that large corporations are incapable of true innovation.

Take Google, for example. What started as a search engine now operates under the Alphabet umbrella, which allows them to explore completely new areas like self-driving cars with Waymo or healthcare with Verily - all while still protecting their core business.

From incremental to disruptive

Big companies need to create something new without sinking their ship. Many of them have found a hybrid model, combining incremental innovation with disruptive innovation.

Incremental innovation is handled internally, with continuous improvement processes that push every employee to do better. Think of the Kaizen model!
Disruptive innovation, on the other hand, usually happens outside the company's usual structure, in environments with fewer constraints, where the only rule is to accomplish a bold mission.

The spinoff and strategic acquisition model

To innovate disruptively, large companies often adopt the spinoff or joint-venture model. This involves creating a new entity - sometimes in partnership with a research lab - aimed at developing a radical innovation.

EDF provides a great example of this with its spinoffs, ranging from SaaS solutions to micro-reactors. This allows them to focus resources on major innovations without disrupting their traditional activities. In parallel, some companies opt for strategic acquisitions of startups. Facebook acquired Instagram and WhatsApp, two startups that helped the company stay relevant in the face of new market trends.

But acquisitions come with their own set of challenges. If integration is poorly managed, the innovation can be smothered, and the company ends up missing out on the potential it just paid for. We'll dive deeper into this in a future paper - I've seen way too many acquisitions go up in flames, and very few turn into actual success stories...

Open innovation and internal incubators

Some large corporations rely on open innovation practices, collaborating with startups, universities, and other external players to spark major innovations. I’ve never been totally convinced by this model, though - it often feels more like a marketing stunt than a genuine innovation tool.

The challenges to overcome

Of course, none of these models are without their challenges. Here are the big ones:

Diverging values: Disruptive innovation requires an entrepreneurial culture that often clashes with the values of an established corporation. The “hacker” or “pirate” mentality can feel at odds with the discipline and processes of a big company.
Control: Building a startup is no walk in the park. The big corporation must know when to let go of control and trust the entrepreneur - whether that’s in terms of strategy or equity. This can be tough for companies used to centralized management.
Marketing and perception: Depending on the market, it might be best to maintain some distance between the spinoff and the parent company. If competitors see the startup as a data-mining tool for the big company, it could stunt its growth.

The pitfalls of incremental innovation

Even though incremental innovation is easier to manage, it can lead to innovation myopia, where the company only focuses on small improvements without seeing the bigger, disruptive changes coming down the line. Kodak, for example, kept enhancing its photographic film while ignoring the potential of digital cameras - ultimately leading to its downfall.

My Vision

At the end of the day, I’m convinced that big companies can and should innovate to stay on top - whether through incremental tweaks and game-changing disruption. But here’s the thing: it’s not about sticking to what worked in the past; it’s about embracing what I call the "Pulse" model.

Imagine this: a fully integrated ecosystem, laser-focused on innovation, dedicated to empowering entrepreneurs, and strategically positioned alongside the big corporation. Its mission? Supercharge entrepreneurs and innovation, then loop that innovation back into the larger company to create real, impactful synergies between the two.

In these ecosystems, you’ll typically find an incremental innovation team (think Innovation Labs), parts of the product team (R&D Centers), finance teams driving M&A and CVC strategies, and even startup studios creating and spinning off new ventures.

The concept is straightforward: build an environment where both the entrepreneur and the corporation thrive - without one exploiting the other. This is the model that drives today’s best synergies between startups and large enterprises.

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