A survey by the Economist Intelligence Unit (sponsored by PWC) just released today has a very interesting finding that backs up something I have written about before: when it comes to innovation, don’t look for it in large companies.
In answer to the question:
“Small or start up competitors are more likely than large, established companies to create breakthrough products or business models” no less than 70% of senior executives “agreed” or “strongly agreed”, with only 10% disagreeing. Given the vastly greater resources and R&D budgets available to large companies, why the dearth of innovation there?
It is easy to argue that bureaucracy is the cause but I think there is another reason that I have not seen written about. I had some dealings with Oracle in the 1990s when they were concerned about the emergence of object databases, and they wanted customer input as to whether this was a real threat to them. What struck me in several meetings in Redwood City as I met with a range of senior Oracle technologists, was how that the most impressive people were the ones working on the database kernel, the core of the Oracle product. Less impressive were ones working on the applications, and least of all were some working on the tools layer above. This makes sense: if you are a top developer and join Oracle then you probably want to work on the crown jewels. Similarly in my dealings with my favorite Walldorf-based ERP vendor I have found the best people to have worked on the basis, the next best the modules, and the least impressive ones on the peripheral tools. Again, the key to SAP’s success has been its integrated ERP system, so it is hardly surprising that the top people gravitate there. Moreover the area which made the company initially successful is probably the one where the greatest understanding of the customer issues resides. The farther you move away from this the less likely it is that the best people will be working, and also the less likely it is that the senior executives (who built the company n the first place around a core technology) will grasp the opportunity and back innovation. Hence the ideas leak out of the company as those passionate about them leave to set up start-ups.