Such barriers to change in large organizations are real, important, and legitimate. Finally, new companies do not face the psychological pain and the economic costs of laying off employees, shutting down plants and even communities, and displacing supplier relationships built with years of mutual commitment and effort. Organized groups like labor unions, consumer advocates, and government bureaucracies rarely monitor and resist a small company’s moves as they might a big company’s. It does not have to change an internal culture that has successfully supported doing things another way or that has developed intellectual depth and belief in the technologies that led to past successes. Even if its innovation is successful, a big company may face costs that newcomers do not bear, like converting existing operations and customer bases to the new solution.īy contrast, a new enterprise does not risk losing an existing investment base or cannibalizing customer franchises built at great expense. This risk may be socially or managerially intolerable, jeopardizing the many other products, projects, jobs, and communities the company supports. On the other hand, a big company that wishes to move a concept from invention to the marketplace must absorb all potential failure costs itself. The 90 % to 99 % that fail are distributed widely throughout society and receive little notice. The sheer number of attempts-most by small-scale entrepreneurs-means that some ventures will survive. For every new solution that succeeds, tens to hundreds fail. A company never knows whether a particular technical result can be achieved and whether it will succeed in the marketplace. First, innovation occurs in a probabilistic setting.
There are, of course, many reasons why small companies appear to produce a disproportionate number of innovations. Effective management of innovation seems much the same, regardless of national boundaries or scale of operations. More striking than the cultural differences among these companies are the similarities between innovative small and large organizations and among innovative organizations in different countries. The research sample includes both well-documented small ventures and large U.S., Japanese, and European companies and programs selected for their innovation records. This article proposes some answers to these questions based on the initial results of an ongoing 2½ year worldwide study. How do they do it? Can lessons from these companies and their smaller counterparts help other companies become more innovative? But is this commonplace necessarily true? Some large enterprises are highly innovative. Management observers frequently claim that small organizations are more innovative than large ones.
They pay close attention to their user’ needs and desires, avoid detailed early technical or marketing plans, and allow entrepreneurial teams to pursue competing alternatives within a clearly conceived framework of goals and limits. These big companies, like many successful small entrepreneurs, accept the essential chaos of development. Drawing on a multiyear research project and many case studies, the author analyzes the managerial practices of successful large companies and outlines some common patterns in their approach to technological innovation. Large companies that understand the innovative process have an impressive record of developing new technologies and products. The author of this article, a leading management scholar, takes a different view. The innovations that do arise here, according to these observers, come primarily from entrepreneurs and small businesses. Critics of corporate America point out that many new products and services originate overseas-especially in Japan-and blame our large bureaucratic organizations for stifling innovation. World technological leadership, some say, is passing from the United States to our international rivals in Europe and the Far East.
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