For those of you based in the UK or generally interested in content from the BBC, you may have had a chance to watch the most recent episode from W1A, the hilarious new series about the ‘fictitious’ workings of the corporation. The part of the show from this week which stands out was when Will, the gormless, inarticulate ex-intern, comes up with a fresh, innovative idea for a new programme….which leaves his unrequited love interest at a loss for words. It’s a classic illustration of a phenomenon which we’ve probably all seen at first hand; the moment in a meeting when the least likely person comes up with the most innovative solution to the problem you’re trying to solve.
Also this week was the new edition of Peter Day’s regular programme World of Business, focused on innovation. In it, he spends time with Ben Kaufman, founder of Quirky, an invention company that provides the support, product development, design, marketing and sales platform for independent inventors with an extraordinary flow of new ideas which they have access to (4000 per week)!
Finally, an interview in the FT with Brent Saunders, CEO of Activis, about his and the pharmaceuticals sector’s extraordinary history in M&A. The comment below says a lot for what’s going on in terms of innovation in the sector.
“Actavis spends a much smaller proportion of its revenues on discovering new drugs compared with other big pharma groups, preferring instead to use its cash to buy or license medicines that are already clinically proven. Mr. Saunders ripostes that some of the most serious diseases, such as cancer, already have “hundreds of academic centres” and “thousands of venture capital-backed” companies doing discovery work.”
A number of years ago, I worked on an initiative with a large insurance company in Asia, focused on finding businesses who were regularly successful with change and innovation. As part of the process, I interviewed various senior figures from the technology sector…one of them was particularly interesting when discussing the failure to retain entrepreneurs from businesses that they’d bought. Their retention rates were diabolical, less than 50% within 6 months of the deal completing. The company had finally reached the conclusion that, rather than trying to integrate them, they’d house these individuals in a completely different building, solely with the purpose and task of networking with other ‘like minded’ individuals.
All of these examples point to a number of interesting conclusions:
- The skill set for innovation is one which may not naturally fit within a corporate environment. It’s been well documented that a key dimension to disruptive innovation is the willingness to learn through error. Making mistakes within large corporates is rarely career enhancing and taking personal risks generally is a low percentage game. Accommodating innovators is not easy…they are challenging, disruptive people who don’t necessarily fit into a collegiate / collaborative environment.
- Corporate structures within large businesses are an active block against innovation. The barriers to change are broad…inertia in the middle and an increasingly disengaged employee base. Additionally, a C suite which has a short to medium term timeframe of impact. CEO’s average tenure is now 4 years….initiatives which are truly disruptive may well span two CEOs on that basis. Cynically, why invest in an idea where I may not be the immediate beneficiary?!
- As per my blog last week, the cost of capital is currently less than the cost of innovation. It is cheaper and the outcome is more certain if you buy the innovation than if you try to develop it yourself.
As with all business cycles, the latter is going to change at some stage. Whether large corporates can respond to that is an interesting question and one which may have a bearing on success or failure.