Big business needs to be nimble and stay on its toes

This article was first published on 8 Nov 2010 in the print and online edition of The National

It is often said small organisations are more innovative. Yet to bring about significant change, large organisations must also innovate.

The trouble, as the US President Barack Obama found out last week at the American mid-term elections, is if you try to innovate on a large scale people feel threatened.

One of the issues that irked Republicans and brought out their vote was the president's healthcare reform bill. The bill was passed by Congress in March but all Republicans had voted against it. The bill was based on three principles: reducing the cost of health care; providing greater access; and improving the quality.

Cost, access, quality - three variables that sit comfortably in any innovator's mind. But the voters who went to the polls last week weren't having it. They refused to accept the idea of "big government" telling them what to do, despite healthcare provision being such a "big problem" in the US.

Any chief executive of a large organisation who tries to infuse innovation faces the same dilemma. Large organisations struggle with innovation because they are structured for efficiency. To be efficient, large organisations make every task repeatable and predictable.

But innovation is the opposite mindset of efficiency because it is non-routine and unpredictable. That is why, when innovation takes place within a large organisation, people feel threatened, and the more vociferous among them fight back.

However, organisations that don't innovate will disappear. The executives at Google understand this and are known to encourage staff to spend 20 per cent of their working hours on "pet" projects. The expectation is that this will lead to innovative ideas.

And let's face it, organisations generate lots of ideas. It's the implementation at which they struggle. Thomas Edison, the founder of General Electric, famously said: "Innovation is 1 per cent inspiration and 99 per cent perspiration." In his view, implementation of the idea was the major effort.

Some organisations create a separate executive team to execute; one not hampered by any bureaucracy. This "skunk-works" approach was pioneered by Lockheed Martin for their advanced development programmes.

In 1997 HTC, a little-known Taiwanese firm, made personal digital assistants (PDAs) for other companies through a "white label" business model. It produced the popular iPAQ for Compaq, which commissioned HTC as an original design manufacturer (ODM), in charge of engineering and design.

The iPAQ was the first colour-screen PDA that ran on the Microsoft Windows' CE platform and was an immediate hit with business professionals, with sales orders reaching 200,000 units a month, almost seven times HTC's expectations.

In 2002, HTC made the XDA for the European mobile operator O2. It was one of the first Windows-based smartphones.

HTC was operating in two distinct segments. It was an ODM for the likes of Compaq, where it did not get involved in sales, marketing, or inventory management. And it was operating as a designer of mobile phones for operators such as T-Mobile, Orange and Vodafone.

Both of these business models functioned well, and by 2006 HTC shipped more than 70 per cent of the world's Windows Mobile smartphones.

But HTC recognised the landscape was changing. Apple, RIM, Palm, Nokia and Google were now defining the shape of the market, and every major vendor had launched an applications store or related services that stuck with customers. HTC did not have an end-customer facing brand; no one knew who they were.

Its executives took the courageous decision to brand and sell handsets under its own name. This was a high-risk strategy because it would need to directly take on inventory, marketing and support, and warranty risks. Plus, there was the fear among HTC executives that mobile operators and device brands would now see them as a competitor. HTC's share price halved as investors expressed anxiety with the new business model.

Rather than entering the market with a "me-too" offering, HTC began engineering a next-generation phone that would set it apart from the rest of the field. It worked on an innovative touch-screen interface.

Little did they know that Apple was about to unveil the iPhone, all ready to go with its own touch-screen technology. Rather than panicking, HTC finished its own HTC Touch product and shipped it three weeks before the iPhone hit the market.

Immediately, it became known as the "other iPhone" and more than 3 million Touch phones were sold worldwide in 11 months, about half of iPhone sales in the same period. Suddenly, people were talking about Apple and HTC in the same breath. It was a major coup for HTC, a company that previously had no brand position with end customers. No amount of advertising could have bought that position.

The executives at HTC took a "bet my company" approach to innovation and it worked. Critically, they defined the problem space, conceived the idea and implemented it.

Some big socio-economic problems require big-government intervention. Last week, many voted against healthcare reform. They saw it as a threat.

The Obama administration, like any organisation facing entrenched positions, has two options: capitulate, or as Edison would have recommended, keep perspiring until the job is done.