Gary Pisano: Yes. Innovation has been a fundamental part of economic growth in the last couple of centuries. I like to remind people that we’ve been innovating for millennia. It’s something we do as a species that we do better than any other species, presumably. I sometimes hear people saying they’re tired of hearing about innovation, but it’s fundamental to our existence and fundamental to solving the problems that we face. If we don’t innovate, what else do we do?
Knowledge@Wharton: Do you think that more big companies better understand the concept of innovation as they have expanded over time?
Pisano: Large companies today, across the board, in a variety of industries, are thinking about ways that they can invigorate their growth, and they turn to innovation. But the reason I wrote the book — what I found from my research and my teaching and my consulting activities — is that a lot of larger companies struggled to get started. They didn’t know really how to attack the problem, or they would attack it by trying to be just like a startup, which doesn’t work for a larger company.
Knowledge@Wharton: You have examples in the book of companies that have had successes and failures. One of them is Blockbuster, which was doing exceptionally well but did not innovate to meet the needs of the consumers. Can you tell us about that?
Pisano: People forget that, at one point in time, Blockbuster absolutely dominated the video rental business. They put all the mom-and-pop shops out of business. They were a great disruptor of that industry — creating a chain — and could leverage their scale. They were great at leveraging data. But Netflix introduced a new business model. It wasn’t so much about the technology; it was a new business model, and they couldn’t adapt to that. That’s a common story that’s played out time and again.
Netflix is a great counter-example. They transitioned from [a service that mailed] the traditional DVD in the red envelope [for customers to rent] to video on demand. They did this when they were the leader in the traditional business and were already quite large. They were $7 billion to $10 billion in revenue at the time they started to make that transition, and every theory of innovation basically said, “Well, that’s not going to happen. They will get disrupted. They’ll be too wedded to their own business model. They’re too large. They’re too entrenched, etc.”
That’s the kind of pattern that folks have come to expect. But Netflix is a great example of ‘no, it doesn’t have to be that way.’ Through the right kind of strategy and the right innovation processes and the right culture, a large company can make a transition and be a dominant player. It’s not just about startups being able to do that.
Knowledge@Wharton: What is the DNA that large companies need to have in order to innovate?
Pisano: I use the term DNA very specifically — it means something that’s entrenched. But I was also being a bit ironic because the DNA of an organization is an analogy that we often use. It differs fundamentally from the DNA of humans or living species. By and large, our DNA as humans or as any living species is somewhat immutable, despite new advances in genetic modification. Our DNA is what it is, and we’re stuck with it.
People have always thought that once companies have the equivalent of their organizational DNA, which is embedded in their systems and their processes and their culture, that’s it. They’re stuck. There’s inertia. They’ll never be able to change.
Yet the DNA of organizations is mutable. That’s the fundamental difference. The reason companies often fail in their attempts to become innovative again or to keep their innovative capacity is due to three factors. One is strategy. For a larger company with an existing business, you need an explicit strategy around how you allocate resources to the new versus the old.
The second is getting the right systems in place. Very different kinds of innovation and problem-solving processes go on when you’re trying to do something transformative versus routine innovation.
The third element of that DNA is their culture. There’s got to be the right kind of culture. In the book, I go into detail into each one of those elements.
Knowledge@Wharton: For most companies, there are probably patterns that have developed over time that help build out strategy. But with innovation, there’s an expectation of the unknown. How do you build out an innovative strategy then?
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