An Echelon Media Company
Tuesday February 27th, 2024

Innovation- Does size really matter?

People assume that little startups are innovative and big firms are slow and bureaucratic. But is this an oversimplification? Can big firms also be creative and innovative?

For a century at least innovative new firms have driven lumbering old companies out of their dominant market positions. With the spread of the internet and smartphones in the last decade, this disruption has accelerated and now reaches every corner of the world.

Large companies now fear that some upstart can undermine or kill their business. At the same time, large firms are figuring out if innovation, both the incremental and disruptive sort, is something they can do as effective or better than startups and small companies.

Unlike startups, big companies have more incentive to invest in new products. Due to their size, large firms can reach more people easily and reap greater rewards from innovation. However, it hasn’t been an easy journey for big companies to become innovative.

Ramesh Shanmuganathan, the Chief Executive of JKIT and the Executive Vice President and CIO at John Keells Holdings (JKH) Sri Lanka’s largest company, is a leading innovation advocate both in the businesses he oversees and elsewhere. In an interview, he discussed how companies, large and small, can transform to become more innovative.

We live in a disruptive time, a pandemic, low economic growth and companies trying to adapt to this. Is innovation relevant at this time?

Yes, the pandemic has upended everything: the way we live, the way we work and the way we play. The disruption we live with is unprecedented and there is no playbook for us to follow. It is about the survival of those who adapt and change and the opportunity does exist for anyone who is looking for that silver lining.

Crisis presents us with very unique opportunities if we are willing to look beyond its immediate challenges. If we are open to it, the Covid19 pandemic is an opportunity to question the basic assumptions on which most businesses are built and run. This will also have a lasting impact on every business in terms of how it creates value and sustainability because, in every area, new entrants are making their mark with better value propositions than the incumbents.

Businesses can no longer operate like they once did. They will have to rethink, reimagine and remodel to stay relevant. Value creation opportunities will be more plentiful for companies with a mindset to co-innovate and co-create.

Are big companies the best catalysts for innovation or are small ones better?

In short, it would be correct to say it depends on the company; it may be worthwhile to probe this a bit deeper so that we understand what makes a company better at it. Innovation is a strategic advantage for any company that wishes to thrive.

However, the more pertinent question would be, who is better at it? There are key attributes that determine whether a business is good at successful innovation.

People & Culture: The culture of the organization and its leadership set the tone for innovation in any organization. The kind of people they attract and retain is key to further this agenda. In most cases, we see that start-ups and small VC funded companies adopt an aggressive approach compared to bigger ones.

Crisis presents us with very unique opportunities if we are willing to look beyond its immediate challenges. If we are open to it, the Covid19 pandemic is an opportunity

Quick to respond: When it comes to innovation, fast and iterative decision making is an advantage. A flatter, decentralized structure that enables fast decision making aids this. Most importantly, time to market is key. These advantages are more easily found in start-ups and small companies than the larger ones.

It’s fair to say that the opportunity exists for both the big and the small to be innovative, but it’s a difficult choice for most since it challenges the status quo and pushes any business that wants to be innovative, out of their comfort zone

Risk appetite: Innovation by any yardstick is inherently risky. This needs an entrepreneurial or intrapreneurial mindset, to begin with. Due to the stigma associated with failure in Sri Lanka, many tend to play it safe by approaching innovation incrementally rather than disruptively.

R&D Investment: A key determinant of innovation is what goes into research & development. Often, larger companies can afford and sustain investments than smaller firms or start-ups.

It’s fair to say that the opportunity exists for both the big and the small to be innovative, but it’s a difficult choice for most since it challenges the status quo and pushes any business that wants to be innovative, out of their comfort zone.

The key determinant will be having the kind of people in your businesses who can drive the innovation agenda.

How can a large company set itself up to become better at incremental innovation? Is incremental innovation more relevant to large companies in Sri Lanka versus disruptive innovation?

Many used to believe that large companies cannot innovate. But today we see on the contrary that larger companies are embracing innovation as something inevitable for growth.

Innovation has two paths – disruptive innovation and incremental innovation. Is one approach better than the other? Is one more impactful than the other? Does size matter?

A lot of questions come to our mind, but fundamentally it is best viewed through the lens of its potential to create a sustainable value and impact.

Let us look at the two. On one hand, we have disruptive innovation which leverages new technology and/or a business model to disrupt an existing market, product or service.

On the other hand, we have incremental innovation which delivers gradual and continuous improvements to existing markets, products or services.

Disruptive innovation is not sustainable without being coupled with incremental innovation since it only creates a point of inflection needing to be sustained. A lot of startups and small companies do not get this right and in the process struggle to build a sustainable business.

Your concept or a Minimum Viable Product (MVP) can be disruptive, but your iterations thereon mostly would be incremental unless you pivot it again to another disruptive idea. So, both disruptive and incremental and go hand in glove in sustaining an innovation agenda.

Most large companies look to open innovation to cross-pollinate disruptive innovation with incremental innovation. When a company wants to leverage new tech or introduce a new business model, open innovation can suit the purpose.

Disruptive innovation and incremental innovation, in today’s context, is a must for any organization, immaterial of size. But one needs to strike a balance between the two and leverage the best of them in the context of their industry, business and organizational context.

What are the challenges that need to be overcome to establish an innovation culture in a company?

Today, every business has been driven to a point of compulsion to change how they operate, interact and do business with their customers.

Most businesses that start with good intentions on this journey or those who have struggled to gain traction may wonder what it is they are doing wrong? It’s simply that most are missing the key aspect of such transformative initiatives and that is the organization’s culture. Addressing an organisation’s culture is a precursor.

One must address an organization’s culture as part of any transformation journey. An organization’s culture is conditioned by many aspects. It’s defined to be a system of shared assumptions, values, and beliefs, which govern how people behave in organizations and is behind many failed business transformation initiatives.

Transformation needs the buy-in and support from all team members and thus it must start permeating through an organization’s cultural maze. It needs to condition the culture to energize, rally and sustain the long-term interests of the organization.

I would reckon that there are four closely related attributes of business culture that have a strong impact on enterprise tempo, collaboration, direction and business value in any transformation.

How we make decisions: the general leadership style in a business unit, department or enterprise, and its effect on the speed of the organization’s response to incoming signals.

How we engage: the methods groups use to collaborate internally and externally to deliver on their goals.

How we measure: organizational performance metrices and their effect on the focus and direction of a group’s efforts.

How we work: the working style of a group, including how innovations are developed and how problems are solved, which affect the group’s perception of the business value it creates.

Culture is a key determinant of any successful transformation, let alone innovation. It’s easy to change business models, technologies, infrastructure, processes, platforms, etc., but without changing the people factor by addressing the organization’s culture, any lasting change will remain a pipe dream.

How does leadership matter for this?

Leadership is the singular thing that conditions them all. Leadership needs to understand the business’s current cultural context and map the right transformation strategy and action plan to shape the culture before any other transformation journey is undertaken. In doing so, one needs to bear in mind that no two organisations are alike neither are their cultures, hence merely copying what worked for someone else may not be the right answer.

Most executives underestimate the importance of culture and tend to think technology is what matters. By this underappreciation of culture, they are risking the success of the transformative journey.

We must appreciate that people are usually risk averse and will not take on a challenge unless they are confident of the outcome and have adequate comfort that the organizational context is suitable for them to take that leap of faith.

The only means by which one could facilitate this is by setting right the cultural context that gives them the trust, environment and the motivation to get out of their comfort zone, take the risk, broaden their horizon, get involved, cooperate and work towards the end goal.

They will do this if they believe that everyone is aligned and not because someone told them to do so.

Prepping up an organization for successful adoption of any transformation journey, including innovation, requires everyone in the organization, from leadership to the front-liners, to be prepared to work openly and transparently.

That means a readiness to make course corrections as required and learning from each other. It’s hard for an organization to undergo such a transformation if the culture is one built around hierarchies and powerful individuals unless the cultural transformation is adequately addressed as a precursor.

The ability to innovate is a factor of the people’s attitude, aptitude, appetite for a changing culture built on shared learning, experiences, rewards, etc and leadership is the lighthouse in that journey of transformation.