Why the Behemoths Can’t Innovate

Dietrich Kappe, Monday, December 14, 2009 @ 5:29 am

photo credit: sanchom

In some past posts I've looked at some of the cultural, organizational and process issues on why large companies find it hard to innovate with new, quality software. Today I want to take that process a step further and look at why established players have such a hard time innovating in general.

First two anecdotes, where I will combine the topics of Susan Boyle, chess and the Kindle. First, chess and the Kindle.

So I now am the proud owner of two Kindles, the small format Kindle 2 and the large format DX. It's great for reading novels, less so for reading reference books where you jump around a lot (even setting and using bookmarks in a small 30 page PDF is a pain). There are two areas where the Kindle falls short: there are very few chess books for it and there are even fever German language books. Hopefully that will change with the advent of the international Kindles and soon amazon.de will start selling ebooks.

Until such a time as more chess books are published for the Kindle, however, I have buy from Amazon the old paper way or go to my local Borders and Barnes & Noble to browse chess books (yes, there are playable ebooks from ChessBase and the great ChessPublishing.com, but not everything is best consumed with a laptop and a chess engine). Yesterday I stepped into Barnes & Noble to see what they carried in their chess section. The two small shelves were stocked with crap. How to Beat your Dad at Chess was probably the most sophisticated title. I went over to information and asked them what was up with the chess section. A nice young man told me that they had recently "optimized" their store, and they had reduced the chess section to the titles that actually sold.

Now I buy a lot of books. I buy fewer physical books these days because of the Kindle, and I buy more books from Amazon than anywhere else, but I still buy a fair number of expensive books in stores (such as technical books on software development). As a result of this "optimization", when I make my decision on which bookstore to visit to buy the latest GWT tome (because it's not so great reading reference books on a Kindle), I'll say "well, maybe I'll swing by the chess section and see what they have." So that now means Borders, as B&N's chess section has gone from bad to crap.

B&N has pretty much lost me as a customer, and that means that the next time they "optimize" their store, they'll narrow down their selection even further until the only customers they have left are those whose tastes are the broadest or the most bestseller driven. They've gone down market and become Walden or B. Dalton.

Contrast this depressing tale of retailing myopia with the success of Susan Boyle's debut album. Her's is the most successful female debut album of all time in the United States -- more successful than Beyonce or Madonna. This improbable feat was achieved with mostly physical CD sales, as her "more mature" audience (read "old luddites") still buys albums rather than buying singles off of iTunes. Some industry folks are seeing this as a sign that all may not be lost for their industry, that by appealing to a broad audience and "optimizing" their product for baby boomer tastes will save their industry. I see it as something else: the last gasp of a dying business model.

Ok, finally we get around to the innovation angle: these two anecdotes illustrate why it is so difficult for established players to innovate: because innovation is risky. True revolutionary innovation risks upsetting the established order of things -- an established order where you're on top -- and throwing everything into chaos (think travel agents, newspapers and...record publishers). Rather, established players are focused on improving or "optimizing" their products along one or two parameters that they think matters to their existing customers.

This certainly isn't an original insight on my part. If you're interested in exploring this idea further, you need look no further than another HBS professor: Clayton Christensen. From his site:

Because companies tend to innovate faster than their customers’ lives change, most organizations eventually end up producing products or services that are too good, too expensive, and too inconvenient for many customers.  By only pursuing “sustaining innovations” that perpetuate what has historically helped them succeed, companies unwittingly open the door to “disruptive innovations”.

We see this often when we work with large companies to bring out new versions of an existing software product. Too often they fail to see that their competitors aren't eating into their market share because their products are "flashier" or "webified." Rather, these competitors are changing the business model by changing the marketplace -- making the product or service available to a whole new audience -- or changing the business model -- operating effectively under lower gross profit margins. (Often there are changes in their customers' marketplace as well.) Being the product manager that put the company's core business at risk is not a way to ensure job security.

The only way revolutionary or disruptive innovation can happen in larger companies is if the commitment to change comes from the very top. In our experience, the companies that succeed in innovating new software and changing and often abandoning their old business are the ones where the CEO is directly and personally involved in seeing through these changes.

Related posts:

1. Microsoft to Jump on Board EC2
2. Open AJAX Initiative
3. Porting Java Libraries – Jazzed About GWT
4. Innovation Through “Crowdsourcing”
5. March of the Games

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