Why big companies can’t innovate

October 2, 2019

Big companies are designed to move slowly, which can hinder innovation. Getty

Why big companies can’t innovateLast week I met with an executive of a large company that had identified a need in its customer group and wanted to create an innovative new product. The executive in charge was in his mid-40s, energetic and smart.

“What’s been the reaction to your new product?” I asked.

“Oh, we haven’t actually launched yet. We’re still in the research phase,” he replied.

As we continued to speak, it transpired he and a team of eight colleagues had been working on the project for 16 months and hadn’t sold it to a single customer. “But we’ve done lots of interviews,” he said. “People are telling us they really want this.”

It also transpired that the product he is looking to launch is similar to one that my start-up Zambesi has built. “With some minor tweaks we could get it up and running for you within two weeks,” I said. “It won’t be perfect, but you’ll be able to test the concept with real customers.”

It seemed like an obvious solution. But the more we spoke, the more reasons he found not to run a trial. “My boss has her heart set on using a certain software solution from the US. We’re still negotiating terms with the supplier. There is so much politics involved.”

I countered each argument with dwindling determination until a light in my mind flicked on, illuminating the real obstacle: the executive didn’t want to run a trial because he might have discovered that the concept wouldn’t work or needed to be substantially changed.

The company was funding his team to research and prototype. He had every incentive to prolong the development and defer launching something that might not fly. This is why big companies can’t innovate, I thought.

Colette Grgic is chief innovation officer at BlueChilli, a firm looking to bridge the gap between start-ups and corporates. “Big companies are so different from start-ups,” Grgic says. “They’re designed to move slowly, to optimise the core business, not to innovate and launch new products.”

BlueChilli runs innovation training and a “lean start-up accelerator” at large corporates, including Coca-Cola Amatil and Stockland. Its programs identify entrepreneurs looking to build new products related to the industry in which the company operates. The start-up founders team up with employees to develop the ideas and get to market quickly, transferring new skills and mindsets in the process.

Grgic says there are three key challenges big companies need to overcome.

Performance targets

“When we meet with a large corporate, we usually unearth a culture geared to improving things by 5 per cent each year,” Grgic says. “The teams will be incentivised to deliver slightly better results than the quarter before. It’s a huge risk to try something new.

“If a company wants to encourage innovation, then one of the first steps towards changing the culture is to change the KPI structure. It must adopt a pragmatic approach and put experimentation and risk-taking on the agenda. Executives should be rewarded for sticking their head out and trying something new – whether it works or not.”


My experience, mentioned earlier, shows how differently start-up founders and executives approach innovation. As a start-up founder, I have limited time before my money and energy runs out. It’s essential I release something quickly, test it with real customers and iterate. I’ll lie in bed sweating while a well-paid executive with seemingly unlimited resources sleeps in comfort.

“Start-up founders live or die based on the success of their product,” Grgic says. “They’ll get obsessively close to the customer, work out how to solve their problem and how to make money from it. That’s very different from the mindset of someone at a big company.”


Finally, start-up founders develop quite different skills. “We often find company executives have developed deep expertise in one area. But to innovate, you’ve got to launch, measure and learn faster than the competition,” Grgic says. “When we run programs in these big companies, executives are often shocked to find themselves doing the jobs of 10 people.

“We’ve found that teaming up corporate employees and start-up founders helps to shift the mindset and build new skills inside big companies; it exposes them to a new way of thinking and operating.”

It seems obvious that big companies need to innovate. The market is moving too fast to focus only on maximising an existing product – surely the risk of not innovating outweighs the risk of project failure.

But it’s easy to forget that companies are not entities that can be reasoned with. They’re full of individuals like the executive I met last week – executives whose primary motivation is to preserve the status quo, not launch and test a product quickly if it might mean failure.

Originally published in AFR BOSS Magazine

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