After a dinner at which I sounded off about the inability of big companies to innovate, my friend sent me a link to this article, ‘Why Big Companies Squander Good Ideas’ . It is another interesting read and it strikes a chord with me because it does not buy into the typical disruption model or assume that everyone is an idiot.
The Financial Times article by Tim Harford lays out a number of cases where successful companies had failed to take advantage of or respond to disruption. After dismissing the belief that idiocy was at fault (tempting though it may be), Harford focuses in on why these companies failed to make the necessary changes. He quotes Joshua Gans, an economist at the Rotman School of Management in Toronto and author of ‘The Disruption Dilemma’, as follows,
“Disruption describes what happens when firms fail because they keep making the kinds of choices that made them successful.”
Gans believes that incumbents often realize the implications of new technology, they are simply unable to adjust their organization to leverage it successfully. Kodak, Blockbuster, Nokia were all stuck in the comfort zone where it was easier to do more of the same than do something different.
Referencing work by Rebecca Henderson, Harford suggests that companies are most likely to fail innovate if the innovation requires a change in organization. Structures and capabilities that had once served the company well now become a hindrance not a help. Harford cites the example of Xerox Parc, which, he says,
“[they] developed or assembled most of the features of a user-friendly personal computer, but Xerox itself did not have the organisational architecture to manufacture and market it. Xerox Parc did develop the laser printer, a product that matched the company’s expertise nicely.”
Once you start looking at the world through this lens of organizational structure and capabilities you start to see it everywhere. Harford cites the inability of big oil companies to adjust to a world of cheap solar power, but we can see it in the world of marketing too; particularly when companies seek to enter new markets and fail to adapt their offering to meet local market needs. As I have noted elsewhere, it seems to be particularly prevalent among retailers, as witnessed by the failure of Tesco’s Fresh and Easy and so many more.
For that matter, you could argue that the advent of digital, social, and mobile technology has disrupted marketing and most companies are still trying to change their organizational structure to cope with it. But what do you think?