Nov 05, 2012

Size Doesn’t Matter

Readers looking for a cage match may not make the HBR Blog their first destination, but sometimes fisticuffs occur in unlikely places.

The issue at hand is bigness and innovation. In late September, Maxwell Wessell, a member of the Forum for Growth and Innovation, authored a post asserting the following: “Big companies are really bad at innovation because they’re designed to be bad at innovation.” Last week, Nilofer Merchant, formerly the CEO of Rubicon, responded harshly with a post calling such notions “both old and wrong.”

“Innovations are not a function of size or even industry-specific strategies, but an embodiment of a set of ideas,” Merchant declared. “If an organization knows what principles of innovation work, then innovation follows—regardless of size.”

We hate to take the side of an attacker, but we can nevertheless say that Peter Drucker would have backed Merchant, not Wessell. “The all but universal belief that large businesses do not and cannot innovate is not even a half-truth; rather, it is a misunderstanding,” Drucker wrote in Innovation and Entrepreneurship. “In discussions of entrepreneurship one hears a great deal about the ‘bureaucracy’ of big organizations and of their ‘conservatism.’ . . . And yet the record shows unambiguously that among existing enterprises, whether business or public-sector institutions, the small ones are least entrepreneurial and least innovative.”

This wasn’t just coincidence, in Drucker’s view. Small companies are so focused on keeping the ship afloat that they don’t often have the luxury of stepping back and trying out something new and risky. Big companies, by contrast, have more leeway.

“It is not size that is an impediment to entrepreneurship and innovation; it is the existing operation itself,” Drucker noted. “And it is easier for a big or at least a fair-sized company to surmount this obstacle than it is for a small one.”

How? As we’ve discussed, the key is to organize any entrepreneurial activity “separately from the old and existing,” while giving oversight of this innovative work to somebody in the company with sufficient “authority and prestige.”

What do you think characterizes the relationship between size and innovation?

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