Why corporations don’t innovate

by , under Uncategorized

Over and over again I see this question raised and discussed. Different reasons are proposed, but I think the main one is the corporate culture.

Innovation is, by definition, trying a new way of doing things that has not yet been tried before. This is inherently risky as failure is the most likely outcome. As I wrote in another article an environment that supports innovation must, therefore, be one that at least tolerates failure if not embraces it as an inherent part of the learning cycle.

This is how the world of startups operates, as most of them fail. Startups are created and initially managed by people who act like gamblers, trying and trying to hit the jackpot. The only difference is that they learn from each failure and try a new way to play the game every time. The “startup game” is a game of taking risks with innovation in search of success.

By contrast, the game played by employees in a typical large corporation is responsibility avoidance to maintain stability.

Since the cultural goal of a corporation (and the only thing it truly excels at) is prolonging its own existence, so the goal of each corporate employee is to keep his own position in that corporation – or at least within the corporate world. This is achieved primarily not by being associated with successes, but by not being associated with failures. That is why any form of excuse or cover that would allow a person to prove they were not responsible if a failure occurs is so sought after. The cover is, of course, stronger if it is formal and proves all precautions against failure were taken – a fixed contract, a risk management plan, an approved business plan etc. Also, that is why decision making by committees (responsibility dilution) or escalating unnecessarily decisions to executive level are so common in corporate culture.

Taking risk inherent to innovation is completely against the values of such a culture.

The question many ponder is how to create a corporation that would be open to risks, would embrace failure as part of the learning process – yet be large, rich and winning. I don’t think it is possible except in some rare cases. This is so, because the corporate culture is not a product of an evil conspiracy but rather of objective conditions such an organization operates in. It is above all expected by shareholders – and employees – to be predictable, stable. The best way to being predictable is by being efficient in doing what it already does – by – in short – avoiding risks.

However I think a better question is: would it be really good even if it was possible to create un-corporate corporations? Most people want stability and predictability both in their investments and in their work. And we all need mass produced functioning goods and standard services that are – let’s admit it – best provided by the corporations. Corporations don’t innovate – because this is not what they are built for.

From that prospective the fact that small & nimble startups innovate only to be later taken over by corporations or grow into ones is perfectly healthy. After all, if there were no “big boys” to buy out the founders many of them would loose their “exit strategy”.

  1. Wiktor Żołnowski

    Why corporations don’t innovate? Because they don’t have to innovate…

    Reply

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