Why Small Companies are more Innovative?

In my article Agile Innovation, I had mentioned how companies can increase their innovation capabilities, but this is easier said than done. Large companies cannot change their organizational structure to implement agile innovation. Big companies use acquisitions as path to innovation. This is very well explained by Steve Blank in his article titled: Why big companies cannot Innovate. In the article, he rightly observes that "It's not surprising that younger entrepreneurial firms are considered more innovative."

As an innovation coach, I have always looked at innovative organizations and observed that there are few things small and entrepreneurial firms do right - which makes them innovative. Essentially, startups have an ecosystem which encourages collaboration and innovation. In my previous article: Agile Innovation, I had mentioned that the first step is to create an Agile ecosystem for innovation. But then how do companies create an innovative ecosystem? Or what are the characteristics of an innovative ecosystem?

This article will highlight six aspects which create an ecosystem that fosters Innovation.

1. No organizational Silos
2. Value Diversity
3. Challenge existing Assumptions
4. Everyone will contribute
5. Identify, Nourish and exploit valuable resources
6. Hammer the message home

If one were to walk into any of the startups anywhere in the world - be it in Silicon Valley or Israel or Bangalore, you will see these six aspects.

No organizational Silos

Startups are often have flat organizations and do not have organizational silos. The lack of organizational structure creates a perfect ground for people to collaborate and innovate. Flat organizations also helps in eliminating beauracracy. With little organization hierarchy, ideas are measured on the inherent value. This eliminates organizational politics and faster innovation.

Value Skilled People & Diversity

Startups value skilled people. In places like silicon valley - there is wide diversity as people come from different parts of the world. So when you look at most startups, you will find people from different backgrounds, ethnic cultures and skill sets. This diversity creates a fertile ground for new ideas and challenging current assumptions. Diversity also provides different view points to the same problem and avoids group think.

Challenge existing Assumptions

Startups are often founded on the notion of an opportunity - which in many ways challenges the current status-quo. Challenging the currently held belief or assumptions will require new thinking and ideas. Successful innovation emerge with the older assumptions are proven wrong and new opportunities are identified. Founders of startups are also have rebel streak in them, and they tend to attract similar people so that they all can effectively challenge the current status-quo.

Everyone will contribute

In Smaller organizations everyone knows everyone else. So there is no room for slackers or freeloaders. The transparency in the organization, the collective work environment and a common message will make everyone contribute towards innovation and all contributors will be rewarded.

Identify, Nourish and utilize creative talent  

Small organizations often value of talent more than larger organizations. As individual's skills are easily known in a smaller organization, the leadership or founders are able to identify, nourish and utilize the creative talent of its people. As the individual's skills are better recognized, people are more motivated to do more and be more creative.

Hammer the message home

Founders at a startup are easily accessible and are constantly talking about the innovation objectives, the market plans and how their small company can win. Here all employees are constantly reminded on the importance of innovation and have targets to meet. The spirit of innovation is everywhere and employees become truly innovative.

In large companies, employees are mainly working on their main operations task & innovation becomes a part of annual leadership speech. Employees in large organization are often told to be innovative and work on innovation projects in addition to their regular day jobs. And just does not work.

Closing Thoughts

Smaller organizations are inherently more creative and innovative than larger organizations. This implies that large companies must reorganize into smaller innovation groups and that can help speed up innovation - particularly in Agile Innovation. Alternatively, big companies can buy innovation by acquiring the small, innovative startups and then provide the benefits of large organization scale and reach. Companies such as Cisco, EMC, Apple, Microsoft, IBM etc. have created special groups that are skilled in identifying and acquiring small and innovative companies.