The War Between Disruptive and Incremental Innovation




Post written by Ron Amodeo


When it comes to innovation, large companies are great at getting better. But can they ever become different?


The story of the watermelon is the story of any large, successful company. From small beginnings in tropical Africa more than four thousand years ago, the watermelon became a core member of the fruit industry by traveling a well-recognized path: continuous improvement. First it found a large market (Egypt) to dominate. Then it spread its manufacturing to India, China, and Spain. By 1600, it owned Europe. By 1700, it was global, reaching even the remotest beaches in the Southern Pacific.

Then the watermelon started improving. Disease-resistant and wilt-resistant varieties were cultivated. Seeds were eliminated. Different sizes emerged. Yellow, orange, and fleshy white versions were developed. Time to harvest was shortened. Cool climate models were engineered. Specialty breeds appeared, with some of the harder-to-get ones from Japan fetching over $6000 per fruit. (No kidding.)

The watermelon kept getting better. Now we have a cubed version, grown in glass boxes -- easy to pack and ship, efficient to cut and serve. One day, no doubt, the entire fruit will be snack-sized, totally edible, infused with protein and ripened by a quick touch at the right spot. For anyone to say that the watermelon hasn't seen its share of innovation would be wrong. But for all its change, it's still a watermelon. It's hard to be different.

This is the problem large companies face: they keep improving through innovation, but producing a peach when they're genetically a watermelon just doesn't seem possible. And without the ability to produce something different, history seems to show that one day the company will disappear, disrupted by others who are smaller and younger, nimbler, on the fringe of the industry, barely qualifying as competitors, with nothing to lose.

Innovation seems very predictable this way. Start off being different. Grow. Get better. Keep getting better. Falter and die when something different comes along. Is it impossible for large companies to reverse their innovation direction and move from better to different?

In 2011, The Economismoderated a debate on the following: Was Japan's "incremental" innovation superior to America's "disruptive" innovation? Japan had Toyota, the world's greatest car company, built over decades using "a thousand systematic adjustments," and known for its stable, progressive influence on the Japanese economy. America had Google, the world's greatest Internet search company, a global force for breathtaking new ideas, and a builder of ecosystems, where thousands of entrepreneurs could set up shop to change the way we live.

While the debate was thought provoking, what really caught my eye was Google -- a large company -- being chosen to represent "disruptive" innovation. Sure, Google had been disruptive in its formative days. And large companies are not unknown for riding their "lunatic fringe" into a new world. But rarely is the lunatic itself a company the size and age of Google. Rarely can a company with more than 50,000 employees be both wildly successful operationally and wildly innovative culturally, approaching a third decade.

By now Google should have become Toyota -- careful, orderly, steadfast, six sigma'd, lean, hierarchical, re-engineered, and smoking with efficiency. Google should be the watermelon. But Google has sidestepped that fate thus far, if one believes the debaters in The Economist. More precisely, Google has broken some fundamental laws around organizational growth and aging designed to minimize the ability of a large company to keep innovating things that are different.

One law is psychological. As new employees develop a young company, they build mental models of how everything works -- the products, the services, the customers, and the industry -- and how everything works together. Without knowing it, over time, employees harden these mental models into values, especially when they become leaders charged with teaching newcomers how to improve on their success. Doing things differently, well, that was for the start-up phase. Resources are just too scarce anymore. Now it's about sustaining the win. Keep the machine humming. Keep getting better.

A second growth/aging law is structural. In the 1990s, the British anthropologist Robin Dunbar compared primate brain size with average primate social group size. He discovered that we primates seem to have a cognitive limit to the number of social relationships we can maintain -- somewhere around 150. As organizations grow beyond 150 people, employees begin to demand hierarchy to better understand where they fit in the company and how they relate to their peers. They give their trust to management structures and centralized control rather than people they do not know personally. They narrow their obligations to things more easily measured. Focus on getting better.

A third growth/aging law is mathematical. That is, as an organization grows, the number of people looking outward (insiders working with outsiders) begins to get dwarfed by the number of people looking inward (insiders working with insiders). This is known as the square-cube law. First described by Galileo in 1638, the square-cube law shows that as any shape grows, it surface area grows much slower than its volume. Like mice, small companies have a fairly equal ratio between surface area and internal volume, which allows them to make fast decisions built on trust and opportunity. Large companies are like elephants, however, and have much more volume than surface area, meaning lots of people are more concerned with process and control. In other words, focus on getting better.

One final growth/aging law is social. As companies find success and grow, they hire staff that succumbs to the fever of why/how that success happened (the framework). They attach their identity and career to it, and become emotionally committed to its success. The philosopher Thomas Kuhn (1962) saw something very similar in the history of science. He called the framework a paradigm. He saw science as a series of paradigm shifts, episodic revolutions between old scientists committed to protecting old ideas tied to their identity and career, and new scientists championing better ideas and the fame and fortune that came with them. Like these scientists, staff from large organizations can be equally cool to disruptive ideas that challenge their paradigm and importance in the hierarchy. Disruptions should be shut down or spun out. Focus on what works. Keep getting better.

I'm not in a position to know if Google has truly (and paradoxically) avoided the growth/aging laws described above (it does seem to be an intentional strategic goal). But these laws do seem to be hard to violate. They predict that successful companies will transform "different" ideas into "better and better" ideas. They also minimize the threat that new ideas will ever disrupt current ones, setting up the peril of eventual organizational extinction. But can this be reversed? Can a large company allow something completely different to flourish without killing it?

Dinosaur feathers may suggest the answer. Dinosaurs spent millions of years dominating their markets, diversifying their capabilities, and improving their value proposition. They kept getting better for 200 million years. One small development was feathers. Some propose that feathers emerged for warmth, as the earth cooled. Others say that feathers evolved for showy displays, to gain mates or protect territory. Undisputed, though, is that the earliest feathers were not meant for flying. That came much later. Feathers saved the dinosaur when a major disruption came along (the Yucatan Peninsula asteroid). We call them birds today. But birds are not better dinosaurs. They are different.

As organizations grow and age, they develop internal capabilities that are unique strengths unto themselves. These capabilities are so differentiated that they carry the potential to take the organization down wholly unexpected roads. In certain situations, they offer the only route to future survival. IBM's services division is one such example, the feather that saved a company when a 60-year-old manufacturing business unexpectedly collapsed. Last week, Amazon disclosed that its ten-year old division "Amazon Web Services" -- an internal capability that offered excess capacity to the external market -- is now a growing $5 billion dollar company. Even the watermelon has feathers that might save it one day, with properties that seem to prevent cancer, diabetes, heart disease, impotence and macular degeneration.

Large companies are well designed to keep getting better. But hidden within continuous improvement are genuine feathers with flight potential. Better doesn't have to clash with different. Something different might already be there.




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