25 November, 2022

What I Learned Building Successful New Businesses Within Large Companies

Companies face a constant threat of being disrupted by new market entrants. The rapid pace of technological progress only serves to increase the urgency of the threat of disruption. To stay ahead, companies need to foster innovation and build new businesses that leverage the latest technologies to meet customer needs better and at lower cost. However, innovating and building new businesses is far more difficult within large companies than in startup companies. It is this inability for large companies to innovate and build new businesses that amplifies the threat of disruption.

For large companies to succeed in innovation and new business building there are a number of critical steps that I have learned need to be taken. These include:

Establish new ventures in independently resourced business units
Measure the financial performance of new businesses as a standalone initiative and avoid burdening new initiatives with overhead allocations from legacy businesses
Grant new businesses the autonomy to choose technologies that align with the latest innovations, free of the limitations of group technology policies
Provide funding of an agreed level and duration independent of quarterly and annual budget processes
Make the leaders of new initiatives peers of the leaders of established business units in senior level governance committees
Create new business incubators that provide the agility to respond rapidly to new opportunities
Partner with startups, universities and other enablers of innovation

The benefits of following these steps include:

Delivers value from new technologies to clients before competitors
Provides investors with a vision of long term success
Minimises the risk of being disrupted by nimbler new market entrants
Attracts the best and brightest talent
Provides new business initiatives with the necessary runway to be able to succeed
Fosters a culture of innovation that sets high standards for the whole enterprise

In the following sections we will cover some of the most common challenges and how those challenges might be overcome.

Bureaucracy and Red Tape

One of the most significant challenges faced by large companies when implementing innovation is undoubtedly bureaucracy and its close cousin, red tape. In organizations where multiple layers of hierarchy exist, decision-making processes tend to be convoluted and time-consuming.

The sheer size and complexity of a large company's structure often necessitate numerous approval stages for any new initiative or business proposition. This results in a labyrinthine decision-making process rife with potential barriers for innovation to overcome. All too frequently, these hurdles prove insurmountable, effectively stifling promising ideas before they have the opportunity to take root and flourish.

Moreover, the pace at which decisions are made within such structures often lags behind the rapid tempo of today's dynamic business landscape. In a world where nimble startups can quickly capture market share with innovative offerings, large corporations must find ways to streamline their decision-making processes and foster an environment conducive to rapid innovation.

One potential solution lies in the creation of independently resourced business units dedicated solely to housing and nurturing internal ventures. These entities can operate with a degree of autonomy unattainable within the confines of traditional departmental structures, enabling them to sidestep much of the bureaucracy and red tape that typically encumber innovation. By granting these units the freedom to make decisions swiftly and independently, large companies may well find themselves better positioned to compete effectively in an increasingly innovation-driven marketplace.

Risk Aversion & The Fear of Failure

One of the most significant challenges that large corporations face when implementing innovation is their inherent risk aversion and fear of failure.

Traditionally, these organizations have relied on tried-and-tested methods to achieve success. However, this approach can hinder their ability to explore new opportunities and take bold steps towards innovation. The reason being that innovative ideas often come with a level of uncertainty that many large companies are not willing to entertain.

In particular, successful career trajectories for the best and brightest people rely on achieving success as an organisation has traditionally defined it. The greatest successes tend to come from roles within the most successful business units.

Roles in innovative new businesses are typically viewed as too high a career risk for the most ambitious employees. Many fear that if a new venture fails their career paths will be adversely affected and therefore opt for what they perceive as safer roles.

Companies that want to successfully avoid being disrupted need to reward the team members that have supported new business initiatives with high visibility promotions within the group irrespective of whether the venture succeeds or fails, provided the team members have performed well.

Cultural Resistance to Change

One of the biggest challenges in implementing innovation within large companies is cultural resistance to change. Established organizations often have deeply ingrained processes, systems, and ways of working that can be difficult to alter. As a result, employees may perceive new ideas and approaches as threats to their job security or work routines, leading to resistance and pushback.

To tackle this issue head-on, it's essential for the senior executives of large companies to demonstrate their commitment and ownership of new initiatives. Employees across the whole enterprise need to see senior executives making new ventures a high priority by the actions that their leaders take.

Lack of Resources

One of the major challenges that large companies face when implementing innovation is the issue of limited resources. These organizations often prioritize meeting short-term financial targets, leaving little room for investing in new technologies or hiring the necessary talent to drive innovation forward. As a result, innovations struggle to take off and reach their full potential, stifled by insufficient funding and support.

To overcome this hurdle, innovative new businesses within large corporations need to be established with financial autonomy. This means having dedicated revenue streams, cost management, headcount allocation, technology resources, and P&L (Profit & Loss) lines. The cost structure of the new business should not be weighed down by overhead cost allocations from legacy businesses. New businesses should be funded to an agreed level and duration that is independent of any quarterly or annual budgeting processes.

Silos and Turf Wars

In large corporations, individual departments or business units often function in isolation from one another, pursuing their own goals and objectives. This siloed mentality can create significant barriers to innovation. When departments are insular and uncooperative, they may fail to share valuable information, resources, and insights that could drive groundbreaking ideas and solutions.

To break down these silos and foster a more collaborative environment, it's crucial to integrate the leadership of new business initiatives into existing management governance structures and committees. By having the leaders of innovative projects work alongside the heads of established business lines, organizations can create a more level playing field. This approach encourages open communication, information sharing, and mutual respect among different departments, ultimately paving the way for successful innovation.

Lack of Agility

One of the most significant challenges that large companies face when implementing innovation is their lack of agility. Due to their sheer size and complexity, these organizations can be slow to respond to changing market conditions and emerging trends. This sluggishness can put them at a disadvantage compared to smaller, more nimble competitors who are able to quickly adapt and innovate.

To address this issue, it is essential for large companies to establish internal new business incubators that have a range of capabilities to enable new ventures to be spun up quickly. The incubator should be able to support multiple new ventures at different stages of development. This structure provides agility whilst also preventing unnecessary duplication of effort.

Lack of Clear Vision

The first major hurdle for implementing innovation within large organizations is the absence of a clear vision. As Harvard Business Review explains, "Without a clear and compelling vision for innovation, it becomes extremely difficult to align efforts and resources around a common goal." The result? Confusion, lack of focus, and ultimately hindered progress.

This issue can be particularly pronounced in large corporations with complex structures and diverse business units. When individual departments or divisions pursue their own agendas without considering the company's wider ambitions, the overall innovation strategy risks becoming fragmented and disjointed. A clear vision, on the other hand, provides a unifying purpose that guides decision-making and resource allocation at every level of the organization.

To overcome this challenge, large companies should consider forming strategic partnerships with startups or external partners who bring fresh perspectives and cutting-edge technologies. By collaborating with these innovators, established organizations can gain access to new ideas and capabilities that help them achieve their vision for innovation. Additionally, investing in emerging technologies aligned with the company's vision can serve as a catalyst for change, signaling the organization's commitment to innovation and fostering a culture of curiosity and experimentation.

Conclusion

The threat of disruption is a real and present danger to large companies. It is the very nature of large companies that often stands in the way of them harnessing innovation. New business opportunities face so many challenges that the odds of success are stacked against them in large organisations. However, it doesn't have to be that way. There are ways to overcome the challenges and to set up new business opportunities for success for the benefit of the company and its customers, employees and investors.

Next Steps

Having pursued a career building successful, technology enabled new businesses in large companies I have had to develop of set of skills that empowered me to implement the required steps and overcome the challenges that you consistently encounter in large companies. I build businesses, both as independent startups and as new initiatives within large global companies. If you are looking to build a business and require leadership then please contact me via the About section of this website.