Scale and Integration aren't the Same Thing

Steve Lohr’s New York Times piece this weekend claims the pendulum on innovation is swinging back from small startups to big companies like IBM and Microsoft.  I don’t buy it.  Steve is mistaking the conversation about innovation for the innovation itself.

Yes, for the past fifteen years or so, we’ve romanticized the little guy and the venture-backed startup. The truth is that there was always plenty of innovation from big corporate research labs and process-oriented operating companies.  Have you noticed what Proctor & Gamble has done in the marketing space?  Or what has come out of Google — no small company — in the past three years?  And some kinds of innovation, whether Intel’s semicondutor engineering or cutting-edge life sciences research, has inherently high fixed costs that tilt the playing field to the big guys.  None of that is new.  But you may have missed it if you were too enthralled with the latest me-too web gizmo from two guys in a garage.

In reality, no kind of firm has a monopoly on innovation.  Big companies are likely to have bigger impacts when they implement them, because… well… they’re bigger.  And there are more small companies coming up with innovations, because… well… there are more small companies.

So what is it that supposedly shifts the climate towards the larger innovators?  Integration, says Lohr:

[Innovations] must plug into a larger network of change shaped by economics, regulation and policy. Progress, experts say, will depend on people in a wide range of disciplines, and collaboration across the public and private sectors.

He’s absolutely, positively, indubitably correct here.  And it’s a big deal. We live in a world of fundamental interconnetedness.  Isolated innnovations and breakthroughs aren’t going to be a big deal, relative to the ones that span many domains.

However — and this is the important point — integration has no inherent connection to size.  Startups can tackle interdisciplinary challenges, as 23AndMe, BetterPlace, and countless others demonstrate.  And the business world is littered with examples of companies that have scale but are poorly integrated, from Sony to to AOL Time Warner.  Even the big companies who’ve seen the need early-on to bring together “people in a wide range of disciplines” aren’t necessarily the ones producing the biggest innovations.  Microsoft’s extraordinary research operation hasn’t yet translated into an over-abundance of business breakthroughs, for example. If anything, it’s harder for a large, established company to talk to itself, than for a new player to bake integration into its DNA.  (That sentence may itself win an award for integration, of mixed metaphors and cliches, but you get my drift.)

The real shift will be from innovators who are good at isolated improvements to those who hone the skill of integration as a core competency.  That means focusing — deeply, disruptively — on learning and talent, as John Hagel, Chris Meyer and others have emphasized.  It means privileging values and ideals, which are inherently integrative, over the industrial atomization the dominated the 20th century, as Umair Haque has been thundering for some time.  It means heeding Nicholas Carr‘s adminition that information processing is becoming a utility.  And it means finding creative ways to make big companies small and small companies big, as JP Rangaswami and his band of rebels are doing at BT. (You see, there’s a reason these were all speakers at Supernova the past two years!)

So perhaps it’s time to get over our fascination with innovation, and start studying integration.  Because coming up with new ideas is actually the easy part.

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