Big companies grow more slowly than successful startups. Yet they have far more capital, people and technology than their younger rivals. Some big companies have overcome the dysfunction that results from their superior resource endowments and adapted the traits that spur startups’ faster growth.
IBM, on the other hand, needs to get its startup-ness back. Big Blue is a $105 billion company, but its revenues are shrinking at a 3 percent rate while demand for its products and services—as measured by corporate IT budgets—are rising at 4.1 percent.
The reasons why IBM is shrinking in a growing market are complex. One is that IBM focuses on maintaining bragging rights to its 20-year streak as the world’s leading corporate producer of patents— which IBM spokesman Mike Fay said generate $1 billion in annual licensing fees—rather than turning those ideas into products that gain market share.
And that’s due to IBM’s lost talent like Shmuel Kliger. He earned a Ph.D. in computer science from Israel’s Weizmann Institute and was employed at IBM’s T.J. Watson Research Center when his IBM boss, Shaula Alexander-Yemini, persuaded Kliger to bolt and start a company.
My interview with Kriger revealed that he was fed up with IBM’s bureaucracy.
“I did not have the patience to do all the maneuvering up and down all the layers of IBM’s management needed to turn a patent into a new product that IBM would sell,” he said.
How can companies like IBM enjoy market-beating revenue growth? They should consider three approaches:
Exploit and Explore
This approach is used by “ambidextrous” organizations—a term coined by Harvard Business School’s Michael Tushman—in which the company’s core “exploit” business and its new “explore” business both report to the CEO. Their bonuses depend on the other’s success, where the manager of the “exploit” business only gets a bonus if the “explore” business also succeeds.
An example is Ciba-Geigy’s crop protection division—a part of Novartis since 1996 when it merged with Sandoz. Ciba-Geigy’s managers in Basel, Switzerland, were able to exploit its chemical plant protection business—its products include plant pesticides—by cutting costs, while simultaneously exploring in its North Carolina research and development lab, thus yielding a bioengineered plant that was insect-resistant.
Cleverly, both outcomes helped to realize Ciba-Geigy’s “aspiration” of keeping plants healthy—whether through chemicals or biotechnology.
Thanks to this clearly understandable “overarching aspiration,” the head of its agribusiness, Wolfgang Samo, was able to engage people in both activities in a way that they could easily understand and use as the basis for action.
Firefighting by design
Procter & Gamble sends the top executives of foundering product lines to a P&G-run design consultant. Design thinking starts by observing customers performing activities and ends with a new product that meets their needs.
An example is P&G’s Olay brand, whose team believed the product needed new packaging because consumers had so many skin care choices. By using the design methodology, the Olay group reframed the solution and ultimately introduced Olay for You—a website that helped consumers choose the specific product that fit their needs before arriving at the retail shelf.
Culture of Frugal Experimentation
Scott Cook, founder and chairman of the executive committee of the personal finance software provider Intuit, created mechanisms and a methodology to make innovation part of everyone’s job. Intuit created an “idea collaboration portal.” It allows employees to come up with new ideas, post them, receive feedback from colleagues, revise the ideas and obtain staffing—all without intervention from managers.
In this way, Intuit developed a debit card for people without bank accounts. A finance employee—not a “product person”—noticed that people who need tax-refund checks the most are often those who don’t even have bank accounts. She came up with the idea of giving those people debit cards and having Intuit accept the tax refunds in its accounts to transfer the funds to the debit card. She expected 100 takers but got 1,000. And the surprise was that half of the customers who wanted the debit card already had bank accounts.
A big company trying to grow faster than its upstart rivals should pick one of these three approaches.