I read an article on LinkedIn recently written by a senior leader at a large global enterprise saying that despite claims to the contrary, large organisations can innovate as effectively as smaller ones. This is true, some can and do with great results. No one would claim that Google or Amazon have lost their innovative edge. However, far more common is the Digital Hub/Innovation Lab/Accelerator spun up by a traditional large enterprise. Hubs which are full of talent, hopes and dreams and often little real value. The funky satellite office in Shoreditch, AstroTurf instead of carpet, great coffee, bikes hanging on the wall and exposed ventilation ducts; ticking all the San Francisco office 101 requirements. It looks like Innovation, but its just window dressing or ‘Innovation Theatre’.
Why do so many large enterprises struggle? The venue (and many of these hubs are ‘venues’ to show investors, inquisitive board directors and clients) is the easy part. However, it offers little real value to the core business.
What are some of the real challenges driving innovation in large enterprises?
Integration with mainstream business
Some of the key challenges impacting enterprise innovation are rather prosaic basic processes and governance problems. Many are found within HR and Finance teams across all organisations.
At a recent Ntegra hosted meet-up that looked at driving agility and innovation in the enterprise the participants stated that the number one barrier for successful transformation to an agile business was budgeting and cost control processes. Almost all companies run annual fiscal cycles, with budgets being allocated by department, cost centre, quarter and month. We work with lots of organisations that five or six months into a year still haven’t agreed on the budget for the year they are almost 50% of the way through. Conversely, budgets are often driven by investment and business cases that start many months before the year does. I am aware of one organisation that makes their first submission six months before the beginning of the new fiscal year.
All of this crushes innovation.
Digital incubators can and often find themselves exempt from these models, hooray. However, one of the reasons they are established (to be unencumbered by the mainstream organisation) is the very reason they struggle to deliver as many of their innovations often need to be operated, maintained or integrated with legacy tech, teams and process, who haven’t put the cost of supporting the innovators ‘Skunkworks1’ project in their budget. I read an employer review on Glassdoor from a developer in an Innovation Accelerator for a FTSE 100 company; they said the team were great, what they built was great, but they were leaving because they never got anything meaningful live. The number one reason we see for Millennials and Generation Z developers leaving large enterprises is lack of actual delivery. They want to see their code go live and no amount of hipster brewed coffee makes up for this need. Many projects fail to enter day to day use as the transition and integration between old and new is not understood.
Another driver behind a lack of actual delivery is ‘fear of failure’. While lots of people believe they understand ‘fail fast’ the reality in the enterprise is that there are still huge hurdles to overcome before the concept becomes a reality – many organisations still operate with ‘blame’ based cultures lurking beneath.
On our research tour to Israel last November we heard from entrepreneurs and innovators how their culture is different to that found in many large enterprises. Everybody in Israel completes National Service in the Israeli Defence Forces (IDF). The IDF has a very flat structure, compared to many military organisations around the world – this speeds decision making and creates an organisation that can learn more efficiently. Each day in the IDF there are debriefs; groups reflect on what went well and, critically, what didn’t go well. These are very frank and honest sessions, where junior ranks are not afraid to speak up – everybody has a voice and is encouraged to speak up. Israelis take this know-how into their business lives once they have completed their National Service giving them a critical edge when driving innovation.
How to overcome these old ways of thinking
Twin speed (or bi-modal) is often considered the optimum way. However, this can reinforce the challenges already described. A good friend once said there are twin speeds for transformation delivery; on time and late. The best way to address these challenges is to get as much of the organisation as possible using new techniques and participating in the broader drive to be more innovative. We have clients who are successfully using agile techniques for managing their on-premise infrastructure, creating backlogs of demand and budgeting by sprint, managing change via daily stand-ups. This model has the additional benefit of educating the majority of the organisation in new techniques, spreading knowledge that will be attractive for retention and avoid White Elephants.
Not knowing how to work with Start-ups
Start-ups are hungry to grow, but not at any price and often not the one demanded by a large enterprise who often restrict what their suppliers can say about their work with them. This makes complete sense in areas where the innovation is going to affect shareholder value, for example the design of new a smartphone. However, the vast majority of companies are not operating in such sensitive areas. If you are a large enterprise let your partners talk about the work they do with you, help them build case studies. These may be of low importance to you, but they are priceless to the start-up.
The next challenge is IP. Some contract frameworks effectively give a start-ups customer the IP for everything they do while engaged. This can be fair, particularly if we are talking about change that drives competitive advantage; however blanket bans can be too restrictive for an early to market company looking to work collaboratively.
Commercial terms are the final hurdle.
Large companies increasingly finance their business via careful management of their creditors. Being asked to work at risk continually, lengthening payment terms or rate reductions with no consultation or notice all conspire to make working for a large enterprise a risky, nail-biting experience. Payment terms in some companies are now 90 or even 120 days; well over 50% of companies that have to publish payment data to the government are way beyond 30 days, many are in three figures. Realistically this is a problem for almost all organisations, but for a start-up it can be nearly impossible.
Finally avoid the temptation to buy the start-up – this does happen and whilst it will give lots of influence and control, ultimately these deals rarely work. Harvard Business Review recently reported that an estimated 70 – 90% of M&A deals fail. Whilst buying a start-up is a very different form of transaction there are very view examples of where start-up acquisition delivers value – the start-up looks like a star, that falls to earth and burns up in the enterprise upper atmosphere.
What can a large enterprise do to drive Innovation?