The Myths of Corporate Innovation-Part 1

Innovation Disruption
cl myths x myth

This article was previously published in FastCompany, and is reprinted with permission.

Recently, I was standing in line at a tennis clinic waiting my turn to perfect my backhand. The man ahead of me boldly introduced himself as “Chuck.” “I’m in venture capital,” he declared. “What do you do?” A hearty laugh followed my reply that I helped corporations lead radical innovation. “Well, there’s not much of that around” he guffawed, running onto the court to land a perfect shot down the line.

Chuck was a firm adherent to the myth that only startups can be disruptors. There is good evidence on his side. Entrepreneurs have led most of the big shifts in our markets over the past 25 years—Amazon, Airbnb, Google, Tesla. There is a long list of these startup disruptors. At the same time, once-great companies either went bankrupt (e.g., Kodak, Polaroid), while others stood back, watched, and then scrambled to catch up (e.g., Ford, VW Audi, BMW, Toyota). Chuck was right in that many corporations struggle with radical innovation and startups often win. The myth is that startups always win—they don’t.

Disruptive corporate innovation is often hiding in plain sight and accepted with a “well, of course, they did that.” In 2012, Microsoft posted its first-ever quarterly loss as a company, as it wrote off assets acquired as it tried to catch up with Google. Fears that Microsoft would be eclipsed by software-as-a-service players like Google, Salesforce, and Workday grew as it clung doggedly to its enterprise install base. Instead, Microsoft reinvented enterprise email with its Office 365 online service, deliberately disrupting its own installed base of exchange servers to create a new suite of productivity offerings.

The same is true for less heralded firms like online information provider LexisNexis. Twenty years ago, LexisNexis ran a legal and news information service for lawyers and corporations; it was a steady single-digit revenue growth company with high margins. Then, starting in 2001, it created a multibillion-dollar sister company, LexisNexis Risk Solutions. A manager won backing from his senior team to create a big data company, providing analytics and information solutions to insurance companies, government agencies, healthcare providers, and others. Today, the new business is larger than the old.

At the center of these stories is often a corporate explorer. At Microsoft, it was Qi Lu, and at LexisNexis, Jim Peck. These leaders play a similar role to the entrepreneur. They have a passionate commitment to solving a customer problem and the ability to mobilize support to do it. In my book, with Professor Michael Tushman and Professor Charles O’Reilly, we detail many more examples of managers who successfully built new businesses in existing companies.For instance, Kevin Carlin at Analog Devices built a data services company for manufacturers from inside a semiconductor company. Then there’s Balaji Bondili at Deloitte, Yoky Matsuoka at Panasonic, Vuyo Mpako at Old Mutual in South Africa—the list goes on and on.

Corporate explorers are not wannabe entrepreneurs; they are managers who choose to innovate from within a corporation, even though they may have external funders interested in their innovations. Yoky Matsuoka is a serial entrepreneur, former member of the Nest founding team, and has worked at Google X and Apple. She has no lack of potential VC backers. They recognize that corporate explorers have a head start on entrepreneurs. They start with a breadth of assets well beyond that of most startups. They have customers, financial resources, manufacturing, customer services, technical expertise, and so on. Knowing how to make these advantages count is what sets apart the successful corporate explorer from the rest.

We can agree then that Chuck is wrong. Corporations can lead to radical innovation. They may not attract the same attention as fast-growing startups—”big companies do well again” is just not a catchy headline compared to the new unicorn listing on the NASDAQ—but that doesn’t change the reality that it’s happening all around us.
Myth No. 1 is busted. What’s interesting, however, is that there is seemingly no end to the myths of corporate innovation. Here is what’s next on my list:

  • Corporations only innovate because they hire entrepreneurs to help them and set up startup-style accelerators and innovation labs.
  • All you need is the CEO’s support to sanction an innovation project, and the rest is easy.
  • The more ideas and possibilities we generate, the more likely it is that we will have one that turns into a scaled venture.
  • You need to change culture before you can be an innovator, rather than seeing innovation projects as one of the ways companies can reinvent themselves.

These are big issues, big myths. They matter because when enough people believe these myths are true, it starts to become a reality. It’s what executive coaches call a “self-limiting belief.” You think you can’t do something, so you stop trying. What makes these myths especially important to challenge is that they have limited empirical foundations. In a seemingly post-truth world, that may not bother everyone but it certainly does me because it means lost opportunity.

In the coming months, I am going to dive into each one of these myths, presenting my evidence for why they are flawed and describing the implications that can help make corporate explorers more successful. I look forward to your feedback and hearing about some of your favorite corporate innovative myths and what we can do to bust them.