Why large companies aren’t optimized for innovation

 


Introduction

I’ve had the good fortune of bringing new categories to market in both large corporates and start-ups, and want to use a specific example of a product that I was intimately involved in to make the case that large companies and their inherent agendas aren’t optimized for innovation.

What is Innovation?

Innovation is the process of bringing a product with a new value proposition that resonates with the market. It isn’t enough to just invent something new. There have to be takers for this invention. In other words, Innovation is the process of creating a new product and finding a market for it (product-market fit).

Innovation, therefore, necessitates that value be delivered at the right price for the segment targeted. I like to think of value as the perceived benefit which is a function of quality (performance), feature-set, and brand, and when this is delivered at the right price, magic happens.

Why do large companies fail at innovation?

Beacause they bring to the right market segment the wrong product.

Large companies tend to optimize for the efficient operation of existing set-ups. In other words, they look to create growth in the existing segments that they serve, using their existing core-capabilities and engineering resources, through existing channels in a timeframe that optimizes for the usage of these resources or other similar internal agendas.

Let me explain with an example. At Ricoh, I was part of a team that brought to market the 1st consumer-focused 360-degree camera -> Ricoh Theta.

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The Ricoh Theta

Like with any product, we had to choose what segment to enter with a 360 camera. Was it going to be the consumer segment, the Professional, or the Prosumer (Budget professional)?

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Fig 1: Product-market fit explained by segmenting the Camera space

We chose to enter the consumer market with a $399 camera. The decisions were based on the following reasons

  1. Ricoh (and the acquired Pentax brand) serviced the consumer segment
  2. Year on year decline in sales in the existing segment. A desire for a project to arrest this quickly
  3. Put to use the engineers in the organization on a growth initiative rather than reducing headcount
  4. Optimize for existing capabilities. Creating a professional grade product would require hiring new capabilities (risk) and take more time to market
  5. Time to market needed to be quick. Shareholders and the channel partners needed a quick innovation story to get the spirits up

The end result was the wrong product for the wrong segment. We launched this product in 2015, and in 2020 still, a 360 camera continues to be a novelty that most people (consumers) can do without. Consumers didn’t care for it, at least not at $399, and it didn’t deliver the benefits that the prosumer or professionals desired.

Conclusion

Large companies think “I have an idea for a new product my engineering team can build and my sales team can sell. Let’s do it quickly”

Start-ups on the other hand go “ I have a hypothesis of a set of features desired by an attractive market segment. Let’s find a way to make it happen”

References

[1] https://hbr.org/2012/09/why-big-companies-cant-innovate