Do Innovation and Entrepreneurship Have to Be Incompatible with Organization Size?
Like a good case study, this month's question divided respondents nearly down the middle, says professor Jim Heskett. Can managers lead both a large, established organization and encourage intrapreneurial effort inside it? Readers weighed in. (Online forum now closed. Next forum begins June 5.)
Where are the leaders that can help elephants avoid a stall? Like a good case study, this month's question divided respondents nearly down the middle on the question of whether or not organizations naturally "stall" because their size interferes with innovation and entrepreneurship. Several questioned whether organization size is the appropriate variable. C.J. Cullinane attributed it to "bureaucracy." David Wittenberg said that "Culture, not size, is the determinant." Adam Hartung's work has found that "stall points" are associated with continued "focus on execution … doing more of the same … when they stalled," not size.
Many reasons were put forth to explain why there is a perceived relationship between size and stalls due to general lack of innovation. Jeff Herman suggested that it can be attributed to a diminished ability of managers to "'personally' drive innovation and competitive advantage." Gerald Nanninga placed the blame on "infestation" (parasites that successful organizations attract) and "cannibalization" (fear of damaging existing businesses). Phil Clark pointed to the "boundaries" that form when organizations grow that present the "potential for clashes and struggle." Bob Brown attributed it to "risk aversion combined with lack of vision, drive, and prescience for the market in … second generation (managers)." Leighton Carroll cited "very strong finance and legal teams" as sources of risk aversion.
But other respondents concluded that it doesn't have to happen, and proposed antidotes to the phenomenon, starting with David Levine's "list" of "a strong force at the top … to drive a central vision and … give resources and energy to priority areas for innovation." Amy Sauers added findings that suggest that large firms succeed that "attempted to 'get small' (through the vehicle of) 'lean, mean, heavyweight teams.'" Another ingredient suggested by Eric Ries is that of a "built-to-learn culture (centered) around rapid iteration and customer insight." One way to address the challenge, according to Jeffrey Vetter, is to "separate out forward thinking groups from the day to day business." Dave Schnedler suggested hiring the best creative engineers, giving them "tremendous latitude," and insuring "no negative consequences" associated with failure of innovative ideas.
The right kind of leadership—capable of building trust, the willingness to take risk, and establishing a culture tolerant of failure—was cited often as the most important ingredient in supporting innovation and entrepreneurship in organizations of any size. If that's the case, one has to conclude from the comments that there is a shortage of such talent. Can someone lead both a large, established organization and encourage intrapreneurial effort inside it? Or are the requirements so different that it is too much to expect one person to be able to do, as Forrest Christian suggested? Referring to the same problem, Jim Johnson invoked my colleague Michael Tushman's work on "ambidexterity" among leaders, concluding that "Most leaders are just right-handed." Richard Eckel pointed out that "Business schools … teach 'mature' organization skills, primarily because entrepreneurial and creative organizational skills are not teachable." Do you agree? If that's true, we may have to look elsewhere for the kind of leadership we seek. Perhaps it will come from a "younger culture" that is now infusing organizations with "teaming and a desire to be more cohesive (which will) actually foster more effective innovation," as Paul Davis suggested. What do you think?
On the day two weeks ago when I put this piece together, several pieces of news reminded me of the importance of this question. It was reported that Saturn dealerships were closing in anticipation of the announcement by General Motors that Saturn was one of three brands that it would drop. Saturn, arguably the most innovative undertaking by the company in several decades, is on the auction block. Consumers apparently loved the car more than GM executives, who couldn't figure out how to make much money with it. The same day, Google announced its earnings: In discussing the announcement, analysts reminded investors that 97 percent of the company's revenues still come from one source, search and advertising, despite the organization's emphasis on providing time and an organization for innovation among its associates. I remembered the airline Song, which had introduced service innovations until it was folded back into parent company Delta and oblivion, just one of several unsuccessful attempts by large airlines to compete with smaller, more focused, low-priced competitors. Then I picked up Stall Points, a book by Matthew S. Olson and Derek van Bever.
The books Built to Last and Good to Great have informed us about success. Stall Points is of the same genre in the sense that it is based on extensive quantitative research of a large database followed by more detailed examinations of a subset of organizations. But instead of success it deals with failure and its causes. The sample of organizations here is composed of 400 corporations that at one time or another have comprised the Fortune 100 since 1955 as well as some 90 non-U.S. based corporations. From the larger base, the authors selected 50 organizations whose experiences met the criteria for a stall and whose profiles were representative of the entire group in terms of industry mix and age. They were studied in-depth and provided the basis for conclusions of the study.
For the group as a whole, the authors found that growth rates: (1) increased up to the "stall year," (2) dropped precipitously in the following year, and (3) faced increasingly difficult odds of regaining momentum with the passage of time after the stall. Of the companies in the study, 87 percent had experienced a stall. Fewer than half of those were able to return to prior rates of growth within a decade after the stall. Of the reasons for the stall, 87 percent were within managers' control. The four most important causes of stalls were found to be "the presumption of an unassailable competitive position" by management; "innovation management breakdown," including such factors as slow product development, too much decentralization of research and development, or curtailed R&D spending; premature diversification from "core" activities; and a "talent bench shortfall." In the stalled companies, innovation suffered from a concentration on smaller and smaller niche opportunities, brand extensions, or generally ideas with small business impact.
All of the companies in the sample had reached substantial size at the time they stalled, suggesting that organization size must play a role in this mix of phenomena that includes "innovation management breakdown." But why do these phenomena occur, especially given what we generally assume to be the availability of superior resources to support innovative activities in larger organizations? Whatever happened to the focus on intrapreneurship (within large organizations) that fascinated us in the 1980s? How do a few well-known large organizations, such as Apple, Virgin, and Tata continue to innovate and support entrepreneurship? Or are they just delaying the inevitable? Do organization size, innovation, and entrepreneurship have to be incompatible? What do you think?
To read more:
Jim Collins, Good to Great: Why Some Companies Make the Leap … and Others Don't (New York: HarperBusiness, 2001)
Matthew S. Olson and Derek van Bever, Stall Points: Most Companies Stop Growing—Yours Doesn't Have To (New Haven: Yale University Press, 2008)
James C. Collins and Jerry I Porras, Built to Last: Successful Habits of Visionary Companies (New York: HarperBusiness, 1994)