Big and venerable companies around the world are increasingly confronting a vexing problem: They’re too big and venerable.
The ironic truth: To get even bigger, they have to learn to act small. Executives increasingly believe that new ideas and innovations that can generate growth are most likely to emerge in organizations like small start-ups. So the mandate for large companies is to find ways to replicate the culture and practices of smaller companies inside their walls.
The $52-billion-a-year health insurer Aetna, for example, has doubled its stock price in the last two years even as its CEO Mark Bertolini has emphasized breaking the company down into smaller units. “We’re 163 years old,” said Bertolini at last year’s Techonomy conference in Arizona, discussing the impact of tech on his business. “Is that a plus or minus?” a moderator asked him. “That’s a minus,” he replied. “Some say we have actuaries who’ve been around 163 years. So it’s difficult moving the model. You have to create separate organizations inside the company that are driving these technologies.” He described how Aetna has located several new businesses remotely from the corporate offices, and given them distinct compensation systems, management processes, and abilities to raise capital. Bertolini was blunt about what he hopes such groups will contribute to the legacy health insurer. He said he wants them to “disrupt the core.”
To create a more fertile environment for innovation, big companies face the challenge of rethinking corporate culture in several ways. David Kidder, whose start-up Bionic is explicitly devoted to helping big companies build cultures and processes for innovation, says they typically need to alter how they hire and reward talent, how they identify problems to solve and build new offerings, and even the physical environments where employees work. Bionic’s clients include GE, Boeing, energy producer Exelon, and Tyco International. “Big companies have an incredible bias around what they already make,” says Kidder. “They’re addicted to being right. Their challenge is that entrepreneurs are really good at asking unbiased questions that lead to solutions to customer problems.”
A renovated culture for innovation almost always involves bringing in new employees. “Many companies have eradicated, fired, or demotivated the entrepreneurs in the organization who are by nature builders and had the willingness to take risks,” continues Kidder. PepsiCo is one major company focusing hard on getting the right people for innovation, according to President Zein Abdalla. “You’ve got to get much more of a culture of ‘best idea wins’,” he says. “But the people who know how to run some of these processes are new and different thinkers than what we’ve traditionally had in the company.”
Similarly, Allstate CEO Tom Wilson two months ago hired Howard Hayes to the new position of chief innovation officer. He had spent a number of years at a digital mapping company and most recently led big data initiatives for a big industrial products-maker. He’s building a team both to help existing groups at Allstate develop innovative ideas and to come up separately with “disruptive” ones. “One key principle,” says Hayes, “is to blend in outside-the-industry talent. We want at least one outsider for each Allstate person we put onto the team.” Allstate just launched a usage-based car insurance app called Drivewise, which collects data from a driver’s cell phone about the car’s travels, but Hayes notes the company needs more people who can build such products.
The physical location and environment where ideas percolate also matters, these experts emphasize. Says PepsiCo’s Abdalla: “We set up a new design center but didn’t plunk it down in our corporate office where the people would start to look and sound like me. Instead, we put it in the middle of Manhattan and let them build a very different kind of space than we’ve traditionally had at Pepsi.” Kidder’s Bionic operates its own space near Manhattan’s Columbus Circle with furniture and office designs purpose-built by Steelcase, where teams from client companies come for stints of various lengths. “If you get these people out of the office for four days and give them new lenses, they just start simply thinking and acting digital,” says Kidder.
“The key to creating a culture of innovation is to have lots of people who can build backwards from customer pain and translate that into economic exchange,” Kidder adds. Among the other tools Bionic introduces into big companies are financing models that operate more like seed funding for start-ups. “Companies are afraid to fail because it’s usually super-expensive,” he says. “We want to make failure cheap, bringing in an internal venture capital model.” It’s not impossible to create responsive, risk-tolerant cultures where innovation thrives. The big are getting better at acting small.
Original article published in Thomson Reuters Exchange Magazine.