Why Large Companies Can't Innovate

Added on by Alexander Osterwalder.

Large companies are trimmed to execute established business models. The demise of e.g. Eastman Kodak, Nokia, or Blockbuster illustrate that this is insufficient in the 21st century. Companies that want to escape this fate need to excel at execution AND the creation of new growth engines at the same time.

There is nothing wrong with being good at execution. It allows companies to get the most out of a known and successful business model. The challenge is to improve one's existing business models while creating an organizational space to invent business models for the future at the same time. The reason this is so difficult is because both require very different cultures, skills, processes, and incentives. Watch the video below to understand how they differ.

I often hear people say companies need to create an agile innovation culture. That's nonsense and even dangerous. It's great to have an outstanding execution engine as long as you are able to build an innovation engine as well. That's where you will experiment with new growth engines by relentlessly testing business models and value propositions.

There are a couple of great thinkers on this topic. In The Other Side of Innovation Govindarajan and Trimble show that the execution and innovation engines need to work in partnership. In The End of Competitive Advantage Rita McGrath shows that the urge to hold on to one’s established competitive advantage is a vicious trap. She establishes the factors central to building the dynamic enterprise of tomorrow.

Another favorite of mine is John Kotter. In the video below he shows that the organizational structure predominant today is over 100 years old. It was not built to be fast and agile, but to meet the daily demands of running an enterprise.  Kotter advocates a new system that he calls the "dual operating system" in which execution and innovation operate in concert.

Dr. John Kotter on what he calls the "Dual Operating System"

Have you seen this phenomenon in your world as well? Share your experience with us!