Why big companies don’t innovate: Structured risk aversion

Summary : It is a mistake to believe that risk aversion or the tendency for meeting quarterly numbers to always trump product development are the primary reasons why big companies don’t innovate. Yet, in removing barriers to innovation big companies typically remove accountability for innovation.

It is a mistake to believe that risk aversion or the tendency for meeting quarterly numbers to always trump product development are the primary reasons why big companies don’t innovate. It is not the case because when these constraints are removed, they still don’t innovate. The reason is that in removing the barriers to innovation big companies also typically remove accountability for innovation. Research divisions become big sandboxes where nothing of value is accomplished.


In start-ups, accountability means that failure results in job loss, plus years of underpaid work where your sweat equity evaporates. The reason is that the firm cannot survive if individuals fail.


In big companies, revenues continue to come in whether or not there is innovation. Worse, innovation often has little incremental impact on revenues, but the development costs have a large impact on profits. So innovation is subjected to ‘death by meetings’ with too much planning, too many approval points, and too little action.

By G Dan Hutcheson

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Another problem in big companies is they are structured so no one gets fired for saying ‘no’ to a new product idea that becomes a hit somewhere else. You get fired for saying ‘yes’ to a product that bombs. There is no accountability for the ‘no’ decisions. For example, when Nokia management shot down a button-less touch screen smartphone developed before Apple introduced the iPhone. Nokia let Apple run free for four years before there was a firing. And that was only when it was clear that Nokia was in dire trouble.


If you look at the big companies that do innovate; like Apple, ASML, or Applied Materials; there is real accountability for innovation in the critical development groups. They also have accountability for the no decisions, which lets the cream of the deciders rise to the top. This is the real difference between Apple under John Scully and Apple under Steve Jobs.

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