Big or Small Innovation – Dialogue from Financial Times FTInnovate

by Kevin McFarthing

Big or Small - Which is Best for Innovation? - innovation excellenceLast week I went to the Financial Times’ FTInnovate conference in London.   The conference theme was “Big vs small: which one is better?”  The conference chair freely admitted that the intention was to provoke debate, not to have a fundamentalist binary position with only one right answer.  And there was a lot of good discussion and debate.

An early session asked for a show of hands in answer to the conference theme.  The vast majority of hands voted for small; my response was for the big company, along with a couple of other iconoclasts and, fortunately, one of the two panelists on stage.  Here’s why.

IT HAS TO BE IMPLEMENTED

My preferred definition of innovation is implementing something new that adds value.  The key word in the context of big vs small is implementing.  This was nicely summed up during the parallel Twitter debate, when @JohnWLewis reminded me of a quote from the BIF 9 meeting from David Butler of Coca Cola – “startups can start but don’t know how to scale. Large orgs can scale but don’t know how to start.”

This is of course not an absolutist position; I’m sure we can all think of examples of small companies that have been able to scale and large ones able to start.  It is however not a bad generalization with which to start.

The key is access to the relevant market.  A company like Über can scale their business model rapidly, because they need very little infrastructure.  On the other hand, a small company would find it very difficult to successfully launch a new car without access to engineering, manufacturing and distribution.

BIG COMPANIES START A LOT OF STUFF, TOO

They just don’t shout about the ones that don’t make it.  The hit rate for truly original, high potential innovations is relatively low.  A lot of startups and small companies fall by the wayside trying to deliver them.  Most of these play out in the public domain as – for very good reasons – startups talk about what they are doing.

Big companies on the other hand like to keep quite about starting new stuff, until it’s on a relatively secure footing and becomes of interest to shareholders.  Almost all the ones that fail stay in the dark.  That’s why there is a distorted picture of who comes up with all the novel ideas.

BUT AREN’T BIG COMPANIES CAUTIOUS?

Yes.  They are certainly more cautious than small ones.  They often find it difficult to explore options that drive towards new business models, meaning that a lot of innovation ends up being incremental.  There’s nothing wrong with incremental innovation, but there is a real challenge for large organizations to deal with radical or disruptive innovation; the case histories here are legendary (Kodak, Blockbuster etc).

SMALL COMPANIES ARE AGILE

There are many reasons why smaller companies can often prove an idea in an agile and fast way – the short chain of command; more committed and driven management; and the drive to succeed before the cash runs out.  But these characteristics can’t generate infrastructure by themselves.

THE MAGIC COMES FROM COLLABORATION

The real opportunities lie in combining the ability of small companies to start new projects that can become radical and meaningful; and the ability to scale that comes from the infrastructure and expertise of large ones.  Those large companies that are able to attract, nurture and launch innovations are the ones to deliver the future.  Small companies able to navigate their way through large companies and inspire them to work together will also benefit tremendously.

It isn’t always straightforward.  If a small company idea is easily copied by a big company that has the distribution power, even if it’s technically inferior, it’s more likely to win.  So the startup needs to seek IP protection as well as originality if it wants to attempt scale up.

And the real winners?  The customers who get to use the products and services that are started by the small companies and scaled by the large ones.

So in answer to the original proposition, I would say that small companies are much better than large ones in conceiving and starting truly novel innovation projects.  They can be more imaginative.  Large companies are much better at getting them to market, particularly when it fits an existing business model, so are much better placed to implement.

Thoughts?

image credit:neurosciencemarketing.com

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Kevin McFarthingKevin McFarthing runs the Innovation Fixer consultancy, helping companies to improve the output and efficiency of their innovation, and to implement Open Innovation. He spent 17 years with Reckitt Benckiser in innovation leadership positions, and also has experience in life sciences.

2 comments

  1. Kevin,

    Nicely balanced view. They simply need each other. It is working on the collaborations, the dividing of benefits, rewards and return and those can be very complicated to resolve. expectations are so radically different, multiple stakeholders complicate these discussions.

    We sadly see conferences caught up in spending most of there energy on defining one or the othrr, looking to change this, whereas the energy should be in finding the protocols, frameworks and negotiating positions and trap resolution to bring the two increasingly together appreciating what each can bring to the table.

  2. Thanks, Paul. This also links well to Ralph Ohr’s articles on ambidextrous management, enabling more options to be evaluated in large companies.

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