Being Innovative in a Big Company

By: Jeffrey Baumgartner

One of the problems that many large organizations face is how to innovate successfully within the confines of a massive, bureaucratic operational structure. Nowhere is this more apparent than in the area of research and development, where small, entrepreneurial firms routinely do end runs on large companies will multi-million dollar research budgets.

One of the problems that many large organizations face is how to innovate successfully within the confines of a massive, bureaucratic operational structure. In this article, we will focus on research and development innovation.

In theory, large companies with big research budgets and the resources to hire top scientists should have it made when it comes to innovation. In practice, however, small start ups with comparatively tiny budgets often manage to out-innovate the bigger, established competitors.

The culprit behind this discrepancy is the decision making structure in each kind of company. Large companies often have multiple committees which review each new idea before determining whether or not to go further, how much budget to grant the idea and what milestones should be established. Often, each decision is made by a different committee.

Sending proposals through multiple committees is very time consuming. And one person in a bad mood can kill an idea or stall its development by demanding more information. In fact, the latter is a more typical reaction. Many committee members do not want to take responsibility for rejecting an idea for fear of taking the blame should the idea later succeed or a higher-up buy into it. Instead, committee members demand more information as a stalling and reputation preservation tactic.

The result is damaging to innovation in two ways:

1. It takes a long time for good ideas to be approved and receive a budget for further development. Moreover, getting additional approvals and budget upon passing each milestone is also time consuming. A nimble competitor with a similar idea can often get it to market much faster.
2. For the same reason, it takes a long time for bad ideas to be rejected. This wastes time, budget and valuable resources.

The approach a number of large companies are taking to clear up such innovation blockages involves two steps:

1. Decentralize research and innovation into smaller units with fast track approval and rejection processes. This ensures good research ideas get developed quickly and bad research ideas fail quickly. And, of course it is important that failure is perceived as a learning process rather than a failure on the part of the researchers developing a failed idea.
2. Develop methods to facilitate buying in ideas developed outside the company. This takes advantage of the fact that even companies which decentralize their research and development innovation cannot always out-think their smaller, nimbler competitors. Those small companies, however, do not have the marketing might of the big-boys. Thus, large companies buying small company’s innovations – or sometimes buying the entire small company – can often be a win-win scenario for both firms.

One company that his taken this approach is GlaxoSmithKline, a global pharmaceutical firm. This is a much needed strategic improvement in view of the problems facing the pharma industry these days: several expensive recalls, demands for low-cost drugs in developing countries and complex drug approval processes.

GlaxoSmithKline recognized that their innovation process was highly bureaucratic and that this cost them many good ideas. Likewise, they saw that many poor ideas were taken too seriously for too long.

As a result, they did away with the company’s top-down research approach and established a number of autonomous “Centers of Excellence in Drug Discovery”, each with the wherewithal to decide which drugs to develop further and which to drop. These centers are relatively new, but initial results are encouraging.

Secondly, GlaxoSmithKline has changed its innovation rewards system. Managers are rewarded equally for successful inventions regardless of whether those inventions were developed in house or acquired from outside. This is a clever move. Most firms reward ideas and inventions that are developed in house. Thus managers have little motivation to buy in inventions from outside, even when buying in those inventions would be more cost effective than developing a similar product in-house.

Numerous other large companies – IBM and W.L. Gore & Associates come immediately to mind – have also succeeded by adopting relatively small autonomous business units to devise and develop new research and development ideas. In IBM’s case, this was adopted to save the company in the early 90s when the computer market changed radically. In Gore’s case, this is how the company has always operated.

So, if I may steal an ancient Volkswagen advertising slogan, when it comes to innovation in big firms, the best thing you can do is to “think small.”

By Jeffrey Baumgartner