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Friday, November 30, 2012

Tom Still: Why many major companies fail to innovate -- and how some succeed

By Tom Still
Somewhere along the evolutionary path from startups to mature businesses, many companies stop innovating.

That's often unavoidable. Discovery and delivery can be incompatible concepts. As Maxwell Wessel wrote recently in the Harvard Business Review, "Big companies are really bad at innovation because they're designed to be bad at innovation… When corporations reach maturity the measure of success is very different – it's profit."

There are exceptions to the rule, of course, especially in big companies that are learning how to strike a balance. Excellence in execution need not mean incompetence in innovation.

A ready example of a major company striving to remain innovative was on display in Madison last week when Jay Singer, a New York-based executive for MasterCard Worldwide, spoke to the Wisconsin Innovation Network. Singer's presentation and his separate meetings with Madison-area startup companies demonstrated how some big companies aspire to walk the line.

Even though you may carry a bank-issued credit card from MasterCard, it's not a financial institution. It's essentially a technology company that provides networking, data storage, software, analytics, security and related services for financial institutions.

Speaking during the "cyber week" shopping crush, Singer illustrated that fact with some mind-numbing figures about the ability of MasterCard's global data network to handle transactions. On Black Friday, the traditional first shopping day after Christmas, MasterCard handled 2,000 U.S. transactions per second. Its global network, which spans 210 countries and territories, can handle more than 140 million transactions per hour with an average response time of 140 milliseconds.

A major part of Singer's job as group head for MasterCard's U.S. commercial products is to keep that network stocked with products and services that companies of all sizes want. That means staying on the cutting edge of technology, so he meets with emerging companies and entrepreneurs routinely to do his own "shopping" for ideas that might plug into that network.

Singer's approach is to look for innovation that is compelling in ways that can range from filling a niche within MasterCard's existing business portfolio to introducing disruptive technology. Sometimes that means bringing technologies inside so that competitors don't gain an upper hand, but it can also mean working with emerging companies and partners – so long as regulatory hurdles don't get in the way.

One example is the company's 2009 acquisition of Orbiscom Ltd., a software provider based in Dublin, Ireland, which is now the home for one of MasterCard's five innovation labs. The company worked with another partner in California recently to produce another financial services platform in less time than it would have taken inside.

"We went from concept to market in six months versus a minimum of two years in-house," Singer said.

What's this mean for entrepreneurs in Wisconsin? While some startup owners are persuaded they will be "The Next Big Thing" by going it alone, the reality for many is that they can prosper by partnering with larger companies. Larger companies have sales and distribution channels that small companies can't hope to create overnight, even if their ideas and technologies are superior.

Large companies such as MasterCard can innovate by making it a part of the internal culture and recognizing that great ideas also come from outside.

"For executives who want to secure growth through innovation, the answer lies in recognizing the limits of their organization and empowering groups to function with very different goals and operational metrics," wrote Wessel for Harvard Business Review.

Fortunately for startups in Wisconsin and elsewhere, they're not often judged by earnings or quarterly reports. They are measured by how well they pinpoint a problem in the marketplace and pair it with a solution. It's that combination that attracts investment dollars from angels and venture capitalists – and which speeds the transformation from discovery to delivery as a profitable company.

Larger companies in Wisconsin and beyond see startups and emerging companies as potential partners, laboratories and acquisition targets, not just threats to be quashed. It's an opportunity for all concerned.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.


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