One of the big problems for a large company is maintaining innovation. It is surprisingly hard to get new innovative ideas on much of anything to emerge into something real.
This is because the larger a firm gets, the more compliance overrules everything else. The focus is on keeping things simple for managers and policy after policy is created to ensure that nothing bad and, unfortunately, nothing new happens.
The problem is worse for companies that practice forced ranking because folks learn that to get ahead it is often more effective to torpedo creative coworkers in order to prevent them from getting that raise or promotion.
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There are ways around this such as setting up a lab, skunk works or buying innovative companies (and often killing them). Dell, which is actually pretty good at buying innovative companies successfully (which in and of itself is rare), showcased another path this week with its Innovation Day for Healthcare.
Let's talk about restoring innovation.
Acquisition is currently the most common way to solve the problem, but without special care the innovation the firm thinks it is buying never emerges because the buying company's internal process kills it.
Now if you stand back this should be obvious. If you are having trouble innovating then buying an innovative company and then driving it to comply with the same policies that are clearly preventing innovation in your firm will just as effectively kill their innovation. Yet the most common practice is to integrate the acquired company, effectively killing off the very thing you paid to get. Every year I watch massive amounts of money basically being spent to create innovation using a practice that virtually always kills it.
The proper way to handle this process was created at IBM not Dell, but Michael Dell, to his credit, saw the value and brought it to Dell. Dell is currently, in my opinion, doing the best job of getting value out of its acquisitions. And it is a relatively simple process: Identify what is of value inside the firm (what you paid to get) and protect it. Layer on resources that enhance the firm and don't ram the successful small firm into the bigger entity. This practice has resulted in a significant return on most every (I'm hedging because I don't know of one that failed) acquisition Dell has made since implementing the practice.
You don't see this much anymore, but this is basically where a firm creates a separate entity and then fills it with out-of-the-box thinkers and removes much of the compliance structure. The closest thing to this in the market I know of (and these efforts tend to be very secret) is EMC's Pivotal software effort.
Rather than reinventing EMC, it spun out much of software into a separate company, which could operate more like a startup. Dell took the whole company private, but we'll get to that in a bit. The idea is to remove the things that prevent innovation and staffed correctly skunk works projects tend to result in some amazing things. Mostly this process is used to create unique weapons, some of the most insanely wonderful fighter aircraft came out of programs like this.
This program, which Dell showcased this week targeted at healthcare, pits a bunch of small companies against each other all chasing the funding for a large-scale trial. In this case, the competition (which seems modeled after a reality show) starts in three cities and then two finalists are selected from each by segment experts including representatives from both Dell and Intel (Intel co-funded).
A seventh company is selected from the pool as a wild card. The presentations are analyzed based on capability and on the impact a large trial might have on their success. The winner gets a funded large trial and, if that is successful, a springboard into being a full-sized and fully capable company in the segment (and the possibility of being further funded and acquired). I should point out there really aren't any losers in the last set because the judges tend to husband them personally into success just not as quickly.
I wasn't at the earlier competition, but I was at the final this week and was there when the winner was announced. The firm AnesthesiaOS (this was a solution for anesthesiologists that I think should be required by law)won the event over firms providing solutions networking pharmacists, connecting home care givers to critical information, a mini IBM Watson (not from IBM), and a solution that better connected patents to their own information.
My personal favorite was Mana Health, which seemed to connect all of the information you'd need (including wearable devices) into a service that could improve your life. Oh and perhaps the most innovative was the Blue Marble Game Company, which used games to improve both your health and the effectiveness of your care-givers.
For a relatively small amount of money (the cost of a trial that would become a showcase for Dell and Intel technology) they got access to a massive amount of innovation that the firms will later benefit from.
Fixing the Problem
At the core of this issue, however, is the fact that innovation is hard to accomplish in big public companies. Dell is addressing part of this by going private because the excess focus on quarterly results is certainly a big part of the problem.
Finding a way for companies to continue to innovate like startups is critical to the long-term survival of most and it would be well worth everyone's time to figure out fixes and perhaps use some of the methods I've identified to offset the problem.
Innovate or die should be a pretty powerful battle cry.
Rob Enderle is president and principal analyst of the Enderle Group. Previously, he was the Senior Research Fellow for Forrester Research and the Giga Information Group. Prior to that he worked for IBM and held positions in Internal Audit, Competitive Analysis, Marketing, Finance, and Security. Currently, Rob writes on emerging technology, security, and Linux for a wide variety of publications and appears on national news TV shows that include CNBC, FOX, Bloomberg and NPR.
Read more about innovation in CIO's Innovation Drilldown.