Are Big Companies More Innovative Than Startups?

An interesting debate has been going on lately on the pages of the Harvard Business Review blog about the reality of corporate innovation. On one side of the ring you have Maxwell Wessel who argues that big companies are really bad at innovation because “large organizations are simply not designed to engage in the sort of discovery that is required for breakthrough innovation.”

On the other side, you have Scott Anthony who believes that large companies are now better positioned to innovate than ever before and thinks they will lead what he calls the “fourth era of innovation.”

So who’s right? It’s really hard to tell - this is not football where you have referees to make the decision, but more of an academic debate where both sides look for weight of evidence to support their argument. Looking at it from a green point of view, I was wondering which side the evidence in green space will support - the view believing in the ability of big companies to innovate successfully or the opposing one?

The green space is a great place to look at innovation, as it is one of the most important building blocks of sustainability. As Mark Vachon, VP, GE ecomagination, said once: “You don’t need to choose now between the economy and the environment. Innovation is the way you can have both.” Speaking of GE, its ecomagination program is certainly an interesting example for both the capabilities and limits of a big corporation when it comes to green innovation.

As GE reports in its last progress report, the ecomagination portfolio includes more than 140 products and solutions and has generated more than $105 billion in revenue so far. In 2011 alone, GE generated $21 billion in revenues from ecomagination products and services and invested more than $2 billion in research and development as part of its commitment to invest $10 billion in R&D from 2010 to 2015. From GE’s point of view, ecomagination is a great success, and the company keeps emphasizing that the program’s revenue growth equals almost two times the company average.

Ecomagination also provides an example of the elements that help big company to better innovate according to Anthony. There’s a strong support from the C-Suite, including from CEO Jeff Immelt, a holistic innovation approach, utilization of substantial resources to support it, cultivation of innovation culture and engagement with external partners. At the same time, GE is also aware that with all its power, “ideas take time and many hands,” and that while it has the ability to support great ideas, it doesn’t necessarily mean they will be generated inside the company.

This is why GE adopted a crowdsourcing approach, launching in 2010 the GE ecomagination Challenge, “a $200 million challenge utilizing crowdsourcing to create a smarter, cleaner, more efficient electric grid.” The Challenge generated nearly 4,000 ideas and facilitated robust conversations across the open innovation platform between 70,000 entrepreneurs in more than 150 countries. “We launched the Challenge to encourage new thinking and spur innovation at every level of development,” said Beth Comstock, senior vice president and chief marketing officer, GE. “The first step toward modernizing our grid is to uncover ideas and transform them into game-changing technologies and the Challenge has demonstrated that many great ideas exist out there.”

Crowdsourcing had become a popular way for companies to blend what Anthony described in an interview in the Wall Street Journal as the best of both worlds: the power of being big, with the nimbleness of being an entrepreneur. We can see similar examples at Starbucks, Heineken, Unilever and other big companies. Yet, crowdsourcing, although it combines resources and scale with fresh ideas, is not necessarily a ticket to success. It also doesn’t help to overcome some of the structural obstacles in big corporations that stand in the way of innovation, such as pressures to minimize risks and relentless pursuit of incremental profit, as Wessel explains in his HBR article.

Wessel’s arguments are backed up not just by herds of successful green startups, but also by research that analyzed small business innovation in green technologies. Released by the U.S. Small Business Administration, the research shows that ”small innovative firms are 16 times more productive than large innovative firms in terms of patents per employee. Small innovative firms with fewer than 500 employees produced 27 patents per 100 employees, compared with 1.6 patents per 100 employees in large firms with 500 or more employees.” In addition, green patents from small firms are cited 2.5 times as frequently as green patents from large firms.

It won’t be too unreasonable to assume that both startups and big corporations share innovative capabilities. One place to see it is John Elkington’s list of 50 Zeronauts, where you can see a similar number of big companies (Nike, Microsoft, Puma) and startups (Tesla, Better Place, Zerofootprint). Nevertheless, it seems that at least in the green space there’s a tendency towards a more hybrid model, where big corporations collaborate with entrepreneurs and startups, blending resources, scale and access to markets with entrepreneurial thinking under the umbrella of the big company. Companies that follow this path, combining both Anthony’s recommendations and Wessel’s concerns will probably have better a better chance to succeed.

[Image credit: Jan Leenders, Flickr Creative Commons]

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Business School, CUNY SPS and the New School, teaching courses in green business, sustainable design and new product development.