Tuesday, June 09, 2009

Does size matter? redux

Just couple of weeks back, I commented on a New York Times article that seemed to follow the usual journalistic practice of setting up a strawman and knocking it down. In this instance, the article claimed that there existed a belief that only small corporations could innovate, but in fact, larger corporations were really better geared to do so because of their deeper pockets. Now comes a piece by Prof. Jim Heskett of Harvard Business School (Do innovation and entrepreneurship have to be incompatible with organization size) addressing the same issue. His summary of the discussions that followed are quite instructive and worth reproducing in fulll:

Many reasons were put forth to explain why there is a perceived relationship between size and stalls due to general lack of innovation. Jeff Herman suggested that it can be attributed to a diminished ability of managers to "'personally' drive innovation and competitive advantage." Gerald Nanninga placed the blame on "infestation" (parasites that successful organizations attract) and "cannibalization" (fear of damaging existing businesses). Phil Clark pointed to the "boundaries" that form when organizations grow that present the "potential for clashes and struggle." Bob Brown attributed it to "risk aversion combined with lack of vision, drive, and prescience for the market in … second generation (managers)." Leighton Carroll cited "very strong finance and legal teams" as sources of risk aversion.

But other respondents concluded that it doesn't have to happen, and proposed antidotes to the phenomenon, starting with David Levine's "list" of "a strong force at the top … to drive a central vision and … give resources and energy to priority areas for innovation." Amy Sauers added findings that suggest that large firms succeed that "attempted to 'get small' (through the vehicle of) 'lean, mean, heavyweight teams.'" Another ingredient suggested by Eric Ries is that of a "built-to-learn culture (centered) around rapid iteration and customer insight." One way to address the challenge, according to Jeffrey Vetter, is to "separate out forward thinking groups from the day to day business." Dave Schnedler suggested hiring the best creative engineers, giving them "tremendous latitude," and insuring "no negative consequences" associated with failure of innovative ideas.

The right kind of leadership—capable of building trust, the willingness to take risk, and establishing a culture tolerant of failure—was cited often as the most important ingredient in supporting innovation and entrepreneurship in organizations of any size. If that's the case, one has to conclude from the comments that there is a shortage of such talent. Can someone lead both a large, established organization and encourage intrapreneurial effort inside it? Or are the requirements so different that it is too much to expect one person to be able to do, as Forrest Christian suggested? Referring to the same problem, Jim Johnson invoked my colleague Michael Tushman's work on "ambidexterity" among leaders, concluding that "Most leaders are just right-handed." Richard Eckel pointed out that "Business schools … teach 'mature' organization skills, primarily because entrepreneurial and creative organizational skills are not teachable." Do you agree? If that's true, we may have to look elsewhere for the kind of leadership we seek. Perhaps it will come from a "younger culture" that is now infusing organizations with "teaming and a desire to be more cohesive (which will) actually foster more effective innovation," as Paul Davis suggested. What do you think?


Badalpura said...

In spite of organizations being large or small the leader who is leading it & the internal interdependency of the teams influence/decide the culture of the organization.

Both are complementary for the culture, the leader & the team.

Culture is the atmosphere inside the organization.

When you name an organization, you can relate the culture, the leader & the teams.

· Apple, Google…

· GM, Ford, Chrysler….

· GE, HUL, Tatas…

· Reliance, UB Group, Virgin Group….

· Infosys, Wipro…

· Big Bazar, Wal-Mart ...

Now I have clubbed some organization, because I feel the similarity among their culture…

If you go thru the above list you may easily say which group is more inclined towards innovation & creativity & which groups are not…

Some organizations are born out of need of innovation & their existence is based on innovation.

The others have taken place to resolve some problem or to provide some product or service. They may be doing a lot of process innovation, which is not visible in form of product so not visible to the outside world.

I want to say innovation not only depends on how it is taught but also depends upon your business need, your leader & the culture of your organization.

Murli said...

Nice post and nteresting points, Manish. The leader no doubt has a signficant influence on the organizational culture, particularly if he or she is a charismatic one. Leaders without charisma may not be as influential. It also matters when the leader joined the organization. Leaders who also happen to be the organization's founders tend to have, ceteris paribus, a greater impact than those who join a more mature organization whose culture is already well-established. It is possible for a leader who joins a mature organization to damage or destroy an organization's culture -- I saw this happen at HP, for instance, during the reign of Carly Fiorina. Other leaders can transform a mature organization but such transformation carries the risk of much pain. This happened at IBM during the later 1980s and the 1990s under the reign of Lou Gerstner, former head of RJR Nabisco -- a non-technology company. IBM was in serious trouble and it needed someone who was willing to take charge, make difficult decisions and force a cultural change. Gerstner succeeded where Carly Fiorina failed.

In your grouping of organizations, I note that you chose groups of organizations in the same or similar industries. But even within a single industry there are differences. And it is also possible to find similarity of culture among organizations in completely different industries. No doubt the structure of a particular industry sector can, to some degree, constrain the extent to which innovation occurs there. But there are numerous instances of outsiders with a different culture coming into an industry and completely turning it upside down. For instance, the pace of change in the cellphone industry was quiet glacial until Apple came in with the iPhone. One outsider entered the industry and transformed it. The same is the case with iTunes.

Some industries demand innovation. But some corporations innovate whether or not the industry sector as such is innovative. There are, therefore, both kinds of forces: a demand from the environment to innovate as well as a push from within the organization to innovate, whether or not there is an explicit demand for it.

I totally agree that innovation is not just restricted to products and services but also to processes, policies, systems, organization structures, and so on, which may be quite invisible from the outside.