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Big Companies Need to Rethink Innovation
February 27,2013 [ by Larry Chao ] 81629 Read and 1 Comment

While big companies are usually great at straight ahead operations, it seems the bigger they are, the tougher it is to innovate.

This is particularly alarming now, when the need to be flexible and to innovate is at a premium.

So how do you churn out products efficiently whilst innovating to address changing consumer needs?

Let’s highlight a couple of case studies and then explore a solution.

The GM Lesson

Case in point: Several years ago, General Motors (GM), the giant car company, was heavyweight champion of the automobile industry. But over time, GM succumbed to smaller rivals, who were more responsive to changing consumer demands.

It wasn’t as though GM lost its market share over a few months. No, GM died a slow death. Everyone saw it coming, but there was no sense of urgency to do anything. It was like the Titanic steering into an iceberg.

Why did the biggest most successful company of its time fail to stay ahead?

For starters, the market changed and GM failed to change with it. In the 1980s, people wanted smaller more fuel efficient cars to cope with high gas prices, but GM kept pumping out huge gas guzzlers.

Some blamed GM’s bureaucracy and focus on the bottom line instead of consumer needs that led to its downfall.

I tend to agree. GM’s infrastructure was geared toward single-minded operations. Its business model was based on a manufacturing formula. Anything out of the ordinary, such as innovations, conflicted with its performance objectives and was given second priority.

In a world where change and innovation was needed, GM was its own worst enemy.

Is Apple Next?

What happened to GM might happen to Apple one day.

When Steve Jobs was CEO, Apple produced hit after hit. Consumers loved Apple products. Yes, there were a few failures in between, but the hits overshadowed the mistakes.

Steve Jobs created change and innovation because he had full control. He also happened to be a genius who really understood what consumers wanted.

But Steve Jobs is no longer there. Now Apple has to figure out how to continue innovating in parallel with its operations.

I’m not sure Apple is ready to do this. For example, its iPhone 5 that came out late last year is strikingly similar to the iPhone 4. It is not the kind of innovation I am used to seeing from Apple, unless Apple planned it that way.

Samsung, meanwhile, seems to have figured how to innovate and manage operations, without an innovative star. How? For starters, Samsung has huge investments in R&D and has separated it from operations. Perhaps this split model is one reason why Samsung can deliver a stream of relevant new ideas, while meeting sales and operating targets for existing products.

Separate Innovation and Operations Structures

John Kotter in the November cover story of Harvard Business Review suggests that to be successful, companies need two parallel organization structures – one to manage operations and a shadow structure to develop strategic ideas and innovations. Both structures have their unique goals, but a subset of people from operations also works on innovations.

I think this idea needs to go further. I like the thought of separating innovation from operations, but I’m not sure having the same people do two different jobs would work.

Time and time again, people perform better when they focus on either innovation or operations, not trying to do one during the day, and the other at night. Of course, how to do this cost-effectively is the challenge.

Apple remains a healthy company and according to its CEO Tim Cook, Apple still has a full pipeline of innovations. True, maybe, but if a single organization structure is not the best model for competing in today’s fast paced changing world, then Apple will need to re-think its post-Jobs organization design.

John Kotter’s idea about two separate organization structures – one for strategy and innovation; the other for operations, is a step in the right direction. But it needs to be taken further to ensure strong decisions are made in both areas.


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