PRODUCT DEVELOPMENT

Why Big Companies Cant

Innovate
by Maxwell Wessel
SEPTEMBER 27, 2012

Big companies are really bad at innovation because theyre designed to be bad at innovation.

Take a story plucked from the pages of Gerbers history. In 1974, the companys growth potential
was waning. In order to grow protability and ght margin pressure, Gerber executives turned
towards a market they hadnt successfully penetrated for decades: adult food.

Luckily for a company adept in sourcing and processing vegetables and fruits, tens of millions of
busy Americans were spending more time at work and fewer hours in front of the stove. Gerbers
team knew if they could develop a quick, healthy meal for adults, they had an avenue into
meaningful growth.

When Gerber launched its product targeted towards this opportunity, it opped disastrously. Its
no surprise: Instead of developing a novel line of food suited to the needs of busy Americans with
distinct branding and its own distribution strategy, Gerber slapped a new label excitingly
named Gerber Singles on existing pureed products and shipped them out for placement in a
dierent aisle.

Needless to say, working Americans werent busting down the doors at Safeway to pick up the
latest, greatest avor of Gerber Singles carrots. In three months, the product was pulled from all
grocers and returned to the company.

For those who would admonish Gerber for their approach to transformational innovation, it
might be wise to consider that the company did exactly what it was designed to do: create
operational eciency. This deeply-rooted tendency goes all the way back to a corporations
typical life cycle. In its infancy, its designed to bring innovation to the market. A start-ups
success is not gauged by earnings or quarterly reports; its measured by how well it identies a
problem in the market and matches it to a solution. If venture capitalists think entrepreneurs
have identied a big problem with an interesting solution, theyll fund the start-up. If those
entrepreneurs match and improve this solution, theyll see growth in revenues and, ultimately,
protability.

But thats not what life is like within a mature organization. When corporations reach maturity,
the measure of success is very dierent: its prot.

Once a business gures out how to solve its customers problems, organizational structures and
processes emerge to guide the company towards ecient operation. Seasoned managers steer
their employees from pursuing the art of discovery and towards engaging in the science of
delivery. Employees are taught to seek eciencies, leverage existing assets and distribution
channels, and listen to (and appease) their best customers.

Such practices and policies ensure that executives can deliver meaningful earnings to the street
and placate shareholders. But they also minimize the types and scale of innovation that can be
pursued successfully within an organization. No company ever created a transformational
growth product by asking: How can we do what were already doing, a tiny bit better and a tiny
bit cheaper?

Its only natural that Gerber executives created a product for adults that looked and felt just like
its product for children. The product design allowed them to use their existing processes for
sourcing and distributing food as well as empowered them to use excess manufacturing capacity.
It was product development in an operationally-ecient fashion.

This was their biggest barrier, not a lack of vision. Companies like Gerber dont struggle to
identify the next great idea. It may seem like a foolish endeavor at rst, but Gerber for adults
wasnt destined for failure. The idea had merit, and the trends the executive team noticed were
real. Just look at any smoothie section in your local grocery store. Naked, Odwalla and Innocent
sell hundreds of millions of dollars of product addressing the same problem that Gerber
identied with a very similar solution.
But Gerber faced the internal pressure of its organization, the need to operate eciently, to
deliver billion-dollar growth businesses every year, to satisfy existing customers and to do all
this without threatening existing net income levels. The problem wasnt the idea; the problem
emerged from the relentless pursuit of incremental prot within mature organizations. Its a
pursuit that drives us towards incremental wins by leveraging underutilized assets. And you
know whats wrong with this pursuit? Nothing. Thats the paradox.

At the end of the day, corporations exist to make money. So pursuing prot isnt a problem at all.
The issue arises when corporate leaders fail to acknowledge the limits of the organizations
theyve put in place. They hear about the advantage of disruptive innovation or step-out
innovation and decide that their organization should do some of that. But their organizations
are designed to do something else very well. Namely, what they are already doing.

For executives who want to secure growth through innovation, the answer lies in recognizing the
limits of their organization and empowering groups to function with very dierent goals and
operational metrics. To allow teams the freedom to create Odwalla Smoothies as opposed to
forcing them through a mold that outputs Gerber Singles.

For those executives who arent willing to engage admit to their organizations are built to be bad
at transformational growth, the other option might as well be to give up. It worked for GameStop:
the company accepted their impermanence and simply returned prots to investors in the form
of dividends, achieving remarkable success in the process.

This is the rst post in a three-part series. Also read parts two and three.

Maxwell Wessel is the general manager of SAP.io, a business unit pursuing disruptive growth at software giant
SAP.

This article is about PRODUCT DEVELOPMENT

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Related Topics: INNOVATION

Comments
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1 COMMENTS

Ren de Ruijter 2 years ago

Hi Maxwell,

Thank you for this article. You state that the answer for big organisation lies in "empowering groups to function
with very different goals and operational metrics." Does this mean you are in favour of the 'isolated' innovation
department one so often encounters? (with employees working merely on new ideas) Or do you think these
groups should include employees that normally/also work on the efciency-driven pursuit of growth? (in other
words: the other departments) I'd love to hear your thoughts on this.

Best regards,
Ren

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