Why Big Companies Stagnate
As someone who runs a 75 person company (Catalant Technologies) that works closely with hundreds of large enterprises, I get a first-row seat to the challenges of operating at scale. Our clients constantly ask us for best practices and case studies on how large companies can replicate the agility and opportunism of lean start-ups. We’ve studied the issue forensically over the course of 2016 and found four core challenges. Taken in combination, we believe they represent some basis for why many large companies fail to prosper and, in many cases, stagnate or go backwards.
We note with regret that a few functions (with whom we’ve had collaborative relationships at more opportunistic enterprises) can singlehandedly kill an innovation culture. At certain companies, we’ve found that groups founded with the best of intentions (protect and defend a company’s assets and capital) can serve as a meaningful, and sometimes all-powerful, impediment to growth.
What follows we present less as an authoritative explanation but more as a series of field observations. An equivalent piece could have been written on the opposite: what distinguishes the large companies who have not only maintained share/profitability/growth rates but actually increased them. We’d bet such a study would have revealed the opposite habits as broadly predictive of sustained growth.
Growth Mentality: 10% Not 10x
Beyond obvious themes (secular penetration of SaaS, consumer preference for LATTE* etc) we’ve found little correlation between the growth rate of our clients and their situational context. Explicitly: we serve many companies operating in similar industries with similar assets and competitive forces but with wildly different growth rates and trajectories. At the successful ones, we’ve tended to observe a bias for big swings, big picture thinking and constant radical innovation. At those in secular decline, we often see incrementalism, a focus on the margin, and a general preference for optimization over innovation.
Proper risk management becomes a “culture of no”, and even well-regarded budgeting procedures can have severe unintended consequences.
Risk Orientation: Omission Not Commission
As discussed above, even the most dynamic organizations can be stymied by a few “gatekeeper” functions empowered to minimize risk and ensure stability. Compliance with laws and protection of sensitive data are wholly defensible. But we’ve found in many larger organizations that a defensive mentality towards the new and potentially scary can quickly overreach its intended target. Proper risk management becomes a “culture of no”, and even well-regarded budgeting procedures can have severe unintended consequences. Summarizing, we’ve often found cultures that value omission (e.g. missed opportunities in the course of risk mitigation) over commission (e.g. explicit mistakes from risk-taking) at our more challenged clients (or unconverted prospects)!.
Structure: Static Not Dynamic
But for scale and the impacts of some technologies, modern corporate structures are little changed over the last century. Nearly all Fortune 1000s maintain rigid hierarchies, crisp reporting lines, rigid job descriptions and substantially fixed pay. We believe that the 20th century organization has outlived its usefulness. Built for an era in which steady stewardship, gradual optimization and consistent small improvements were a winning playbook, the incumbent corporate model does not serve companies operating in increasingly turbulent and competitive markets. Yet, most companies (even the “innovative” ones!), maintain these structures, typically without even a consideration.
We have seen great results from spreading power down to individual decision makers and providing rigorous training on how to balance competing priorities.
Decision-making: Rules Not Principles
Coordinating the actions of tens or hundreds of thousands of employees is difficult. Nearly all of our clients slice through the complexity with strict and unyielding rules, applied consistently across situations, without regard to context. “We don’t do this”, “we aren’t doing that right now”, “it’s against our corporate policy to”…these are painful words that stifle ingenuity and preserve the (potentially sub-optimal) status quo. A proposal for equivalent control but more opportunistic chasing of upside? Principles, rather than rules-based decision-making. We know that leaving room for exceptions can be the slow route to chaos, but (perhaps even at certain tenure bands) we have seen great results from spreading power down to individual decision makers and providing rigorous training on how to balance competing priorities.
We aren’t blind to the challenges of running a global organization, of coordinating several hundred thousand folks around the world, of moving the needle on P&Ls measured in billions. But, we’ve seen firsthand what doesn’t work and believe that many companies are making real progress in slicing through bureaucracy and prioritizing upside over risk avoidance. We’re excited for a future powered by these themes, and, we hope, a future powered by Catalant.
*LATTE = Local, Authentic, Traceable, Trusted, Ethical