Why large companies struggle to innovate

You would think that with the market share and resources at their disposal, large companies would be at the forefront of innovation, so why is it just the opposite? When it comes to innovation, it’s about culture and intent as much as it is about the resources to make it happen. Here are the 4 characteristics of large companies that often hinder innovation.

    1. It’s not really one large company but lots of small ones

Large companies are siloed into departments and behave like lots of smaller businesses working “together” but often with conflicting goals. For example, the R&D division may want to develop new products whilst Finance may challenge the ROI. Sales wants to sign up as many clients as possible whilst Technology are working tirelessly trying to meet the subsequent deadlines promised by Sales. These conflicts build barriers that are difficult to break down resulting in the lacklustre innovation culture we associate with large companies.

    2. They often work from a position of fear

“Nobody gets fired for hiring IBM”! The culture of fear is rampant in large organisations yet many will attempt to cover it under the guise of being risk averse. Learning from failed experiments is often undervalued and many companies see failure as failure regardless of context. Leadership must accept failure as part of innovation otherwise individuals won’t risk their careers to innovate. And so, they play it safe and make decisions based on risk mitigation rather than innovation and change.

    3. Shareholders and the need for results

Shareholders in the Roman Empire may not have expected Rome to be built in a day, but definitely by the end of the quarter. The pressure on companies to perform quarter after quarter has a detrimental effect on a company’s ability to innovate. Innovation is often de-prioritised by boards and shareholders as results may take years to appear and they need results this quarter. Only when the CEO’s gravitas and vision outweigh the shareholders’ desire for immediate results do large companies succeed at innovation. There are very few companies with this dynamic in place and they disproportionately dominate their industry (think Amazon and Facebook).

      4. Circumstance creating complacency

Large companies are large for a reason. They’ve built themselves up over time to offer their customers what (they think?) they want and receive substantial revenue with (hopefully) decent profit. Mix this with the “if it ain’t broke, don’t fix it” attitude many companies embrace and you have yourself a classic complacency dynamic. Innovation comes from a hunger to learn, improve, help, revolutionise and fundamentally disrupt, as far from being complacent as you can get.

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