The Search For the Fountain of Youth – Innovation and Entrepreneurship in the Enterprise

It’s not the strongest of the species that survive, nor the most intelligent, but the one that is most responsive to change.
Charles Darwin

Companies have a fairly predictable life cycle. They start with an innovation, search for a repeatable business model, build the infrastructure for a company, then grow by efficiently executing the model.

Over time, innovations outside the company (demographic, cultural, new technologies, etc.) outpace an existing company’s business model. The company loses customers, then revenues and profits decline and it eventually gets acquired or goes out of business.  (Looking at the Dow-Jones component companies over time is a graphic example of this.)

Creative Destruction
If you’re an entrepreneur, you spend your time worrying about how to get out of the box on the left and move to the right.  You want to start executing the business model.

Ironically, the best CEO’s in the box on the right are constantly worrying not only how to execute but also how to remain innovative and entrepreneurial.

Innovation and Entrepreneurship in the Enterprise
How large companies can stay innovative and entrepreneurial has been the Holy Grail for authors of business books, business schools, consulting firms, etc.  There’s some great work from lots of authors in this area.  (A short list at the end of this post.)

Over 15 years ago, Clayton Christensen observed that there are two types of innovative strategies for a large company – sustaining and disruptive innovation.  He believed that large companies handle sustaining innovation – evolutionary changes in their markets, products, etc. valued by their existing customers – fairly well.  But most large companies find it hard to deal with disruptive innovation – radical shifts in technology, customers, regulatory changes, etc, that create new markets.

Sustaining Innovation and Entrepreneurship in the Enterprise
If we use our “startup to large company,” diagram, we can see that sustaining innovations occur within a large company’s existing management structures. I’ll offer that the diagram looks something like this.

If you’ve been reading my book on Customer Development and follow my work on Market Type, this type of innovation is best for adding new products to existing markets.

Disruptive Innovation and Entrepreneurship in the Enterprise
Yet most research has shown that disruptive innovation, that is innovations that go after new markets, new customers, new technologies, etc. are best built outside a large company’s existing organization.

This type of organization is best for finding new niches in existing markets or creating entirely new markets.  Why? Disruptive innovation in a large company is attempting to solve two simultaneous unknowns: the customer/market is unknown, and the product feature set is unknown. Just like a startup.

The diagram for managing disruptive innovation in large company looks suspiciously like starting from square one as a startup.

What’s Missing in Innovation and Entrepreneurship in the Enterprise?
After growing past their scrappy startup roots, large companies trying to master disruptive innovation face the ultimate irony; “the Innovator’s DNA” that’s needed has more than likely been purged from the organization. Mastering disruptive innovation in a large company requires:
– different people
– different processes
In fact the people a large firm needs for this kind of innovation looks suspiciously like startup founders and the processes needed look like Customer Development.

Customer and Agile Development (and the Lean Startup) may be the emerging methodologies large companies need to build innovative new products.

More in future posts.

Lessons Learned

Innovation in large company’s come in two forms; sustaining and disruptive

Disruptive innovation in a large company may require processes and individuals that look a lot like those in a startup.

Customer and Agile Development may be the methodologies that large companies need to build innovative new products

Further Reading:
Harvard Business Review Articles
– Meeting the Challenge of Disruptive Change, Clayton Christensen/Michael Overdorf: March/April 2000
– The Quest for Resilience, Gary Hamel/Liisa Valikangas: Sept 2003
– The Ambidextrous Organization, Charles O’Reilly/Michael Tushman: April 2004
– Darwin and the Demon: Innovating Within Established Enterprises, Geoffrey Moore: July/August 2004
– Meeting the Challenge of Corporate Entrepreneurship, David Garvin/Lynne Levesque: Oct 2006
– The Innovators DNA, Jeffrey Dyer, Hal Gregersen, Clayton Christensen: Dec 2009

Books
– Innovators Dilemma & Innovator Solution, Clayton Christensen
– Winning Through Innovation: a Practical Guide to Leading Organizational Change and Renewal, Charles O’Reilly