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This research paper will consider the issue of innovation within the context of large companies. The paper will focus specifically on the problems encountered by large firms in maintaining innovation in comparison to smaller firms. The paper will seek not only to consider the issues faced by large firms in generating innovations but also what possible solutions are available to the large multi-national scale corporation. The report will end by giving a set of generic recommendations which may be used in the context of any large scale company which is seen as lacking in the ability to innovate.
Adair (2007) indicates that innovation is the life line of a successful company and that it is only through constant innovation of both products and services as well as internal processes that allow a company or entity to continue to be successful. Adair (2007) argues that ultimately when a firm fails to continue to innovate over a prolonged period, this can ultimately lead to the failure of a business which has become out of touch with its customers and suffers from a poor internal value chain.
One may see that the issue of innovation is one which has a distinct degree of relevance for the large company, whilst smaller companies are often associated with innovation from both the perspective of producers and services and internal processes. The concern is that larger organisations can often become too internally facing and lose the ability to innovate as the company in question focuses on previous successes and the propensity to follow tradition where innovation may be the requirement of the market.
Despite numerous examples of where large companies, especially in the heavy industry sector have failed to innovate, this is not a universally applicable principal to all large companies. There are also many examples of large companies which continue to innovate and continue to draw success from innovation as a primary source, Apple for instance may be seen as a case and point organisation which has constantly innovated through developments in the product mix, yet the company is a large multi-national company. 3M on the other hand is another large multi-national company which takes a different approach to innovation focusing on not juts the development of new products but revolutionising its internal processes and structures to allow a more efficient value chain to be created (Porter 2004).
The question for the researcher is, given that there are examples of good innovation practise present in both the SME and large corporate sector, what are the key features that allow some large companies to continue to innovate in the long term when other companies start to stagnate after reaching a certain size.
3.0 Theoretical Perspectives
From a theoretical perspective it is debated as to whether or not a large organisation can remain innovative and entrepreneurial in the long run (Cagan 2007). On the one hand, some argue that true innovation can only take place in a start up environment, suggesting that small and medium enterprises (SMEs) are better placed to generate innovation. This opinion is surmised by Dodge (2007) who states that small firms innovate whilst large firms incrementally improve. Others indicate that the level of innovation within an organisation has more to do with the culture of an organisation and those who manage the enterprise, rather than strictly being related to the size of the organisation in question (Cagan 2007).
One argument made is that innovation essentially represents an exercise in change management, whether this is a change to internal processes or the product mix, change is usually associated with an element of risk. The argument is made by Cagan (2007) is that as an organisation grows in size it essentially becomes a prisoner of the company's previous successes. Thus whilst it may be beneficial for a company to continue to innovate, managers become afraid to make changes, perceiving that previous successes have been generated by adherence to a fixed formula for success. Unfortunately this can often lead to an organisation which becomes devoid of innovation and fails to meet the needs of both internal and external stakeholders.
An interesting perspective raised by Ozcanli (2011) and linked to the concept of risk is that many large organisations simply lack the make up of an innovative organisation from the HR perspective. Ozcanli (2011) argues that those who work for a large organisation are in essence already in many cases exhibiting a risk-averse life strategy by looking for a job with long term stability and stable income streams. Ozcanli argues that if those who worked for large companies where truly entrepreneurial by their very nature, they would be running their own businesses instead of working for a large company. As such, the logical conclusion of the argument is that large companies are thus made up of risk-averse individuals who on the whole are not suited to generating true revolutionary innovations.
Another theoretical consideration to consider is that in many cases where a large organisation fails to innovate, this may not be due to a lack of the will to implement innovations but rather poor experiences of innovation in the past. The literature would seem to indicate a wide number of poor previous experiences of innovation which may lead to poor innovation within a company at a future date.
Berkun (2006) indicates that one of the prime reasons for organisations failing to be innovative is that in the past innovation and change has often been implemented for its own sake, rather than for the true benefit of the company or its customers. Here employees when encouraged to take part in innovations in the future then question the value of the exercise which leads to resistance to change (Burnes 2000) and ultimately the potential failure of a specific innovation and even the stifling future innovation development.
Self interest may also be seen as another key theoretical barrier to entrepreneurship and innovation within an organisation. Whilst innovations in practise should see employees benefit as a stronger company is built upon innovations leading to better processes and new products and services. One consideration is that such increased efficiencies are often associated with negative impacts for employees, most commonly redundancies or a requirement to exert additional levels of effort. Such barriers to innovation are often related to technological innovations which often make organisations more efficient by simply reducing the number of staff required. As such, if an organisation is to maintain an innovative and entrepreneurial culture, then those who are employed by the organisation must truly believe that any innovations which they either suggest or contribute towards will not lead to negative consequences for the individual.
One theoretical perspective which sees the harmonisation between innovation and the large company is to consider what happens when the large company behaves or is structured as a smaller company. Virgin may be the perfect example of such a business in the UK, whilst the Virgin group is an extremely large organisation at the aggregate level, the business is structured as an incubator from which smaller businesses are developed and then floated off as fully fledged businesses at a later stage. Such a corporate structure allows a company such as Virgin to benefit from both the economies of scale associated with a large company (Johnson et al 2007) whilst still maintaining the benefits of entrepreneurship and radical innovation associated with a much smaller enterprise.
A less extreme example of such an approach may be seen in the creation of entrepreneurial zones and incubation units within an organisation. Research and development departments may often be seen as an example of this. Here an organisation may encourage certain departments which are seen as "creativity lead" the opportunity to function in a way which is different or simply would not be acceptable in other more formalised parts of the organisation. The benefits of such an approach are that an organisation is able to benefit from a degree of true innovative and entrepreneurial culture within the organisation, but without having the disruption which may be the result of implementing such a cultural model across the whole business.
One principle which has been used in numerous organisations to encourage innovation driven by an entrepreneurial staffing model is to give staff a proportion of time each week or period to work on their own projects which are based around an innovation or new development. Such techniques have been used at large corporations such as 3M who refer to the principal as the 10% principal (Berkun 2006) and Google who implement a similar strategy of allowing employees who have a prospective business improvement idea to spend a proportion of their time working on an individual project. The benefits of such a solution are not limited to those of developing innovative solutions and products in themselves. One argument is that such solutions may be seen as the ultimate form of employee engagement and thus aid not only innovation within an organisation but other HR issues such as increased levels of motivation, productivity and reduced labour turnover and absenteeism.
Other solutions may be seen as related to the cultural aspects of management, many large organisations suffer from problems linked to the hard systems of an organisation (Senior and Fleming 2006) such as, large hierarchical structures which encourage an autocratic a formalised and inflexible management culture. One solution may be to consider changing the entire culture of an organisation, so as to facilitate greater levels employee involvement in the decision making process and thus ultimately leading to a greater level of innovations. This is especially relevant given that grass roots level employees often have a greater level of detailed knowledge of processes and practises within an organisation than those further up the chain of common. Adair (2009) indicates that a consultative style of management can often yield far better results from the decision making perspective than an authoritarian or autocratic approach as a wider range of views and opinions are collated thus giving decision makers more information to draw upon.
However, changing an organisations culture to be one which is by its very nature more entrepreneurial and innovative may not be a simplistic solution. In the first case organisational culture is often linked to hard structures (Handy 1999), as such in order to change a culture it may also be necessary to restructure the physical organisation moving from a tall hierarchical structure to a flatter structure which emphasises greater cooperation and the sharing of knowledge rather than process and formality. Secondly organisational culture is not always an element over which managers and directors necessarily have a great deal of control, whilst senior managers may be able to influence the development of an organisations culture over a prolonged period of time, ultimately an organisations culture belongs to the employees at large and can only be influenced over time, not directly controlled.
Further solutions may be to consider that traditional pay structures do not always facilitate the greatest level of innovation within an organisation as time based pay structures often lead to only the attainment of minimum standards rather than employees pushing the boundaries of innovation. As such, one solution would be to implement alternative structures of pay which are linked in some way to performance. In implementing a performance related pay scheme, which is aimed at driving further innovation, there may be seen as both direct or indirect options available to the company.
The traditional performance related pay structure sees employees receive a reward for additional efforts in the form of either a direct bonus or in gains seen through increases in share value, where a share based incentive is offered. However, in trying to encourage innovation specifically such a performance related pay scheme may be seen as too broad and general. A better solution may be to offer employees a share of the profits or savings which are made by an given innovations, such a scheme would see that the needs of both the organisation and the employee are now directly aligned so as to encourage maximum innovation in a way which will benefit both parties.
An alternative solution may be to look at the specific creation of innovation departments within an organisation. Traditionally, the research and development department is often seen as one of the key innovators within an organisation however, the emphasis can often be product based rather than considering the generation of innovations which are designed to improve the internal efficiencies of an organisation. A possible solution is the creation of taskforces or working groups whose sole purpose is to innovate with a view to making internal improvements within the value chain of the company concerned. Whilst this is one possible solution it does however, have a number of drawbacks. In some respects the creation of such a team may have an adverse affect upon the moral of existing employees who believe the role of the task force may result in their best interests being put at risk, in other words such a task force could be viewed as a team created with the purpose of identifying costs to be saved in the form of human capital. Secondly, the introduction of what is perceived as an external group may result in resentment on the behalf of employees who see the team as a furtherance of top down style management as opposed to the implementation of a consultative approach deigned to draw knowledge up from the base level of the organisation.
Having considered the results of the research, one can reach many conclusions. In the first instance there would appear to be no single rule that suggests that all large corporations lose the ability to innovate. A better conclusion would be that many large companies lose the ability to innovate as they grow lager, however those firms which are most successful such as Apple, 3M and Virgin are companies which maintain an entrepreneurial and innovative sprit.
Barriers to innovation would also seem to be several and numerous however, in many cases poor innovation may often be seen as harnessed to tall and hierarchical physical structures which encourage a culture of inflexible processes and autocratic management styles to become prevalent.
As such, many of the solutions to creating innovation within a large organisation may be seen as attempts to reform both physical structures and cultural attitudes towards innovation and the management of staff. Such solutions range from whole sale attempts to change an organisations culture, to smaller attempts to cerate entrepreneurial zones and areas within a company.
Based upon the research the following generic recommendations are to be made for a large company which may consider itself to be lacking in innovation:
Pay Structures - One recommendation would be to implement a profit/cost savings share scheme based upon rewarding employees with a percentage share of any innovations for which they as an individual contribute to the company.
Time Allowances - It is recommended that employees be given a structured opportunity to allow a certain amount of time to be spent on personal innovation projects such as has been successfully implemented at 3M under the 10% rule and Google under the 20% rule.
Management Culture - One long term recommendation to improve innovation within an organisation is to consider a general change in a company's approach towards management. Here a company should focus not directly upon innovation but upon creating a management culture which fosters consultation and the sharing of learning and experience within the structure of the organisation.
Task Forces - A final recommendation may be to consider the implementation of a task force designed to evaluate elements within the value chain of an organisation. However, in taking such an action car should be taken to ensure that resentment is not created between members of the task force and the employee of the organisation as a whole.