measure the simple obvious metrics such as CAGR and EPS. What we need is some innovation metric that gets reported and measured and rewards companies for investing in and funding new initiatives for the long term, even if it impacts some of the short-term metrics. I have no doubt that if we refocused some of the genius quants on Wall St. from inventing dangerous derivatives, they could do this to the benefit of all.
Like taxes and other macroeconomic policies, maybe large companies have to live with the vagaries of the public markets over which they have little control. But the same cannot be said for the second factor, internal behavior.
This is an area that I believe large companies have done a very poor job and should be held accountable to a higher standard. Over the years I have heard many reasons why startups generate far more new technology ideas than established companies. Many of them are just not true and border on the absurd, while others are core to the problem. Let’s take a look at a few of them.
Reason 1: The best and brightest will always strive to move to a new company to create and build new things than within a large established company. Not true if the large company’s management takes the time to give individual freedom to innovate. Only time will tell if Google and some of the newer technology companies who have pioneered this approach will thrive in the very long term.
Reason 2: Large companies are best at executing with businesses at scale and don’t know how to incubate new ideas. This is true, but there are structural ways to do this without impacting the core business.
Reason 3: The measurement and incentive systems of the core business can hold you back. How can you reward an engineer with a package that competes with the potential of becoming a Google or Facebook millionaire (or billionaire)? Well, clearly you can’t with some of the outliers, but in most cases companies can structure internal incentives such as restricted or phantom stock as well as numerous other financial (cash bonuses) and non-financial (rewards and acknowledgement) incentives. Other steps large companies can take is to recruit and retain executives who have a demonstrated track record in managing innovation in smaller companies and team them with executives at the large company to create an “intrapreneurial” culture.
Finally, large companies must be astute to even the smallest details of style and behavior if they truly want to create this new culture. For example, remove from the language anything that focuses on “can’t”—“we can’t do that” or “we can’t measure it that way” or “we can’t change our HR policy and hire somebody at that level or cost” or “that’s the way we do it here.” Just as there are CFOs and internal audit departments who measure, slice, and analyze everything, there need to be Chief Innovation Officers, with audits and measurements of key innovation metrics both for internal as well as external reporting. Certainly, acquisitions will continue to be important for the strategic growth objectives of larger companies. But rather than rely too heavily on acquisitions for growth, HP and others can create an “intrapreneurial” culture that will create a new wave of “in-house” startups as well.