Tim Kastelle wrote a post on “Staying Innovative While Growing”. I fully concur with his conclusion: “But it’s another innovation paradox – the small firms that might be most innovative often don’t have the market clout to get their ideas to diffuse. The firms that are big enough to get ideas to spread might not have ideas worth spreading.”
I think this paradox is related to an inherent ‘job sharing’ between firms of different size when it comes to innovation. Basically, both big and small firms are innovative – however, innovation tends to take place in different fields for them.
Utterback and Abernathy have provided great insights into the interplay of product and process innovation. I just came across their paper from 1975 – it’s a great piece of research on the emergence of dominant designs.
Considering the progress of new technologies, the following phases can be observed:
- At the beginning, a few small firms usually drive the new technology. This phase is determined by uncertainty, hardly allowing huge investments – which in turn is required for serial production. Therefore, big firms usually hesitate during that phase and do not immediately “jump” on the new technology. The flexibility of SMEs allows tapping into new, small markets and to further drive the new technology by launching additional innovations.
- Once a dominant design has been established, the market starts consolidating and innovation of the product slows down. Process innovation is taking over now. At this point, bigger firms can play out their strengths: optimizing manufacturing processes and lowering production costs require significant investments. Small firms are mostly not capable of accomplishing these. Furthermore, big firms often have a higher credibility in the marketplace as well as globalized sales channels, being capable of covering high revenues. When the technology has achieved a certain maturity, the market is dominated by a few big, specialized firms only.
It seems that firm size corresponds to certain strengths and weaknesses when it comes to innovation. Although it might be indicated to strengthen
- radical, groundbreaking innovation for bigger firms and
- innovation marketing and continuous improvement for SMEs,
– the primary field of innovation tends to be pre-determined by firm size. Innovation strategy and portfolio (incremental vs. radical) needs to comply with size. Interestingly, firms in the marketplace seem to complement each other and practice an inherent ‘job-sharing’ throughout a life cycle.
Yet, I think growing firms are able to maintain their innovativeness for novel offerings by keeping ‘start-up attributes’ incorporated in their organization. This can be leveraged by:
- forming and growing an ambidextrous organization, i.e. being capable of balancing exploitation of current and exploration of new business,
- establishing and nurturing dedicated units for growth and innovation – those ’incubators’ need to be separated from core business in order to develop the required culture and mindset.
- reinventing and realigning the organization, in case it’s stuck in the ‘short term thinking trap’. Bring the elephant to dance again!, as Steve Blank puts it.
I’m convinced, the future belongs to firms that understand best how to integrate and balance opposites. As Steve Denning has pointed out: we need to break free from the 20th Century ‘either-or’ thinking. In the 21st Century we need ‘both-and’ thinking – firms are required to be big and small, efficient and risk-taking, ordered and creative, sustaining and innovative.