How to Make a Big Company Innovative

By Dave Logan | March 22, 2011

One of the dumber statements around came to me this week in an email from a major tech company. The employer wanted to know whether I thought a former student could “work like an entrepreneur within a large company.”

A lot of the tech giants, like Google and Microsoft, are trying to get back to the innovation that they once had by trying to shed layers and hire more entrepreneurial people.  It won’t work.

Big companies are capable of things small companies can’t do, and the reverse is also true.  As companies age, like trees, they add layers of decisions, history, policies, procedures, and rules.  Invariably, functions form, they turn to divisions, and eventually into a matrix structure.  My USC colleague Larry Greiner wrote thedefinitive article on this progression.

There are things managers can do to make the organization more nimble, but one thing that doesn’t work is to declare that we’re going to be entrepreneurial.  Might as well declare that the sun should come out a midnight.

However, there is a step that managers can take to get back some of that entrepreneurial mojo.  It’s to create a separate unit, a skunk works.  If you follow all of the steps below, it works well.

1. Form the separate unit in a different geographical region-ideally, far away from the company headquarters.
2. Although the unit will be part of the same company, it needs to look and feel completely different.  Specifically, the company rules, procedures, hierarchy, values, and norms shouldn’t apply in this innovative group.  It needs its own fingerprint and leadership style.
3. The unit should be run by an “orchestrator,” a person with R&D credibility who can create a culture based on shared values, and “triadic relationships.”  Think Robert Oppenheimer in the Manhattan Project.
4. The unit needs to be connected to the mothership by a “sponsor,” a high-ranking executive at the company headquarters who can talk intelligently about the innovative efforts underway, and the value they have to the company.

There are ways of kick starting the skunk works to get it to more innovative faster.  Here are some:

1. Create an enemy.  The more the group can feel they are in a race with another group, and that they’re starting off behind, the better.  Bill Gates did this in his famous “Internet Tidal Wave memo” of 1995, arguing that “a new competitor ‘born’ on the Internet” was putting Gates’ company in serious danger.
2. Don’t give them every resource.  Innovation results from need and scarcity.
3. Encourage “garage tours,” which are informal events when members of the skunk works reveal their efforts, including their failures.  Steven Johnson has correctly noted that many good ideas come from “spare parts.”  The more people are aware of the resources that they can use, the more innovative they will be.

Ever been told to act like an entrepreneur within a company smothering its employees in red tape?  How did that work out?

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