Is M&A the new R&D?

A while ago I wrote a piece for Fast Company called An Evolutionary Approach to Innovation. The central idea was that Darwinism teaches us quite a bit about innovation. In particular, random mutations and adaptations caused by a particular local context or by rapidly changing conditions can spread to become the norm through a process of natural selection. Innovations are generally mutations created when one or more old idea is cross-fertilised by another.

The same is true with trends. New trends emerge when someone starts to think or behave differently – or starts to create or customize something because existing offers do not fit with their needs or circumstances. If conditions are right a trend will become widely accepted, eventually moving from the fringe to the mass-market and from early adopters and trendsetters to laggards. Trends that occur at an intersection of other trends may also turn into mega-trends, which are the key disrupters and drivers of innovation and change across all industries.

Creative leaps also tend to emerge when someone with a differing perspective tries something new – either through bravery or sheer naivety. If that person is young or comes from another place (i.e. a different discipline or perhaps a different country) things sometime start to happen. Put two or move differing people together and the sparks can really fly.

But why is this so? In my experience it’s because older people have usually invested too much under the current system and therefore have too much to lose if a new idea displaces an older one. Equally, people that don’t move around or come from the same department or discipline sometimes fail to see what is hidden under their own noses, whereas people from ‘somewhere else’ often see it.

For these reasons game changing ideas and radical innovations tend to come, not from well-funded industry incumbents (i.e. large organizations), but from lone inventors or a couple of individuals in a cramped garage. In other words, too much experience, too much familiarity or too much money can kill innovation faster than phrases like “I like it but” and “We tried that once”.

Perhaps this explains why, for instance, 25% of Silicon Valley start-ups are created by either Indian or Chinese entrepreneurs. They see things differently. Another example of outsider thinking and mutation is Virgin Atlantic Airways. Richard Branson managed to shake up the airline industry precisely because he did not have an airline industry background. So when other airlines were worrying about legroom, routes and punctuality, Branson was cross-fertilising his experience from the entertainment industry and worrying about why flying wasn’t more fun.

Not all new ideas and innovations make it of course. It’s a case of survival of the fittest (or luckiest). Eventually, however, the sheer number of new ideas that are hatched means that a few emerge and make it into the mainstream where they do battle with deeply set vested interests. Then it’s usually youth and energy versus experience and money. Organizations are like this too in a sense. They start of hungry, agile and curious and end up bloated, lazy and stiff.

So my question is this. If external events and adaptation are the driving forces of innovation, is it possible to develop an innovation culture and process that seeks out change and mutation? Moreover, if evolution is the result of genetic accidents is it possible to replicate such accidents through experimentation? An imminent threat of extinction would certainly explain why it often takes a crisis to spur a lazy and bureaucratic organization to adapt and embrace change.

My answer is that generally speaking it’s not. This may be a heretical statement, especially coming from someone that makes a living advising companies how to create innovation systems, but I think it’s true. Some large companies are excellent at innovation. It’s their reason for being and is imprinted in their DNA.

However, for most large organizations innovation is an inconvenience. Organizational cultures develop a kind of corporate immune system that subconsciously suppresses or rejects any new idea that could threaten the existing business. Quite right too.The primary aim of established organizations is to extract revenue and profit from legacy businesses and not to do anything that would upset the apple cart.

This primarily means executing flawlessly in the present and requires tight control and strict hierarchies. Small companies, in contrast, have less to lose and are not encumbered by their history. Their mental models about ‘what works’ are less fixed and they are more open to picking up weak signals about change.

So here’s my idea. If you are the kind of organization that’s does innovation well great. Equally, if you’re half-way decent at innovation keep with the programme and perhaps play around with some of these thoughts about using trends as a framework for innovation and scenario planning. If you’re lucky you may give birth to a strange mutation. If this happens recognise it as a gift and run with it as far as it goes.

If, however, you are the type of organization that’s not very good at innovation then give up. That’s right. Throw in the towel and get into hunting instead of agriculture. In other words stop trying to grow your own through research & development and go out hunting with mergers and acquisitions instead. Seek out small innovative companies and buy them.

Big organizations, even ones that are really bad at innovation, are very good at scaling up an idea and dealing with everything from intellectual property and sales to marketing and finance. This is handy because these things are precisely what start-ups and small companies are often very bad at.

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