Charles O'Reilly

By Charles O'Reilly

Big companies can be likened to large container ships: heavy, cumbersome and, while they can move fast in a straight line, incredibly difficult to shift course. They have big overheads, many locations and hundreds of systems to align their thousands of employees. It is unsurprising, therefore, that these companies struggle to change quickly, if at all, in response to the latest trends in their sector.

Nevertheless, every big company strives to shift or risks obsolescence. Organisations need to stay ahead of disruptive threats and avoid problems that lead to decline. Startups, on the other hand, are typically the driving force behind disruption and often have structures in place to encourage innovation from employees and implement change quickly.

“Managers must develop a corporate culture in which calculated failure is accepted.”

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Innovation — whether by incumbents, challenger companies or individuals — has been a fundamental part of growth throughout recent decades, even centuries. Large companies in all industries are looking for ways to invigorate growth, but how can this be done?

The importance of ambidexterity

There are two ways to think about innovation in a big company: the bottom-up approach, which tends to mirror traditional entrepreneurialism insofar as change comes from within, and the top-down approach, whereby senior leaders make the organisation more receptive to innovation and encourage those with ideas to come forward.

Bottom-up

The bottom-up approach is very similar to what many would see as entrepreneurialism, but coming from within an organisation. Here the individual is responsible for driving change and innovation in what is often known colloquially as ‘intrapreneurialism’.

By allowing individuals to feel like they can affect the course of the company employees are empowered to share and initiate innovations in the company and drive the mini-enterprise from within a larger framework. This also serves to instil  the belief that they are building a business bigger than them and so these ‘innovators’ help to drive companies forward.

Top-down

The second strategy, the top-down approach, is more of a corporate culture approach in which senior leaders design an organisation to be receptive to innovation. Creating a culture that encourages innovation helps the organisation stay ahead of potential threats. This approach encourages employees to come forward with ideas. To do so managers must develop a corporate culture in which calculated failure is accepted. This helps individuals to explore their own passions and ideas to innovate.

Companies can implement ways of encouraging idea sharing and innovation. By designing shared spaces, fostering flash teams, holding prize competitions and building work-related games organisations can help motivate employees and promote innovation.

Combination of the two

Ultimately, however, the organisations that are most successful at generating and responding to disruptive innovation are those that employ a combination of the two approaches. While two very different perspectives on how to spark change, you have to use both in order to disrupt on an organisational level. Senior leaders must become ‘ambidextrous’, so they can effectively promote exploitative efforts while also managing exploratory ones.

These approaches may seem incompatible. Exploratory ventures often rely on a trial and error approach and require many iterations to get right. Conversely, an exploitative method seeks to streamline approaches, focusing on efficiency and short-term incremental improvements. It is up to the management to identify which exploratory ventures have a higher chance of success and promote them while maintaining the implementation of exploitative ventures.

“Innovators should be elevated within the organisation”

For each approach the skill set required of employees is very different and often individuals are good at one and not the other. To solve this large companies need to facilitate both perspectives and align the company to create the space necessary for both leadership styles to flourish. Innovators should be elevated within the organisation to ensure that they can help lead the company in a new direction, keeping it ahead of the curve and more agile to insure against obsolesce.

In today’s world, where small companies change quickly, it is important that big companies are equipped to do the same. The consequences of not innovating — or failing to act on or respond to innovation — can be disastrous, as they risk drifting into irrelevance (just look at Blockbuster, Kodak and Compaq). Not embracing change and innovation by relying on the status quo puts a company at risk of being left behind. Bringing the top-down and bottom-up perspectives together can be tough, and at times paradoxical, but by aligning the two management can ensure innovation is discovered and brought to fruition.

 

Charles A. O’Reilly III is professor of management at Stanford Graduate School of Business