Can Scale Limit Innovation?
<p>It's a well established fact that big companies, especially those dominant in their categories, have a hard time innovating. Is there a way to overcome the status quo on behalf of sustainability?</p>
At what size is your company too big to innovate?
It's an interesting question, especially because as of this year, my company, Method, hits the 10-year-old mark. To many Method employees (especially those who were here during the startup days, with our office furniture made from milk crates and rental cars as hotel rooms), it feels like we've become a company "of a certain age." But compared with the established giants of the cleaning products industry, 10 years old is decidedly adolescent.
It is this adolescence, though, that shapes our appetite for change and our ability to innovate. Small companies have an inherent bias to try to change the game, where large ones have the opposite -- a bias to maintain the status quo in which they grew.
The relevance of this to sustainability professionals is that real solutions to social and environmental problems will require radical, disruptive change -- exactly the type of strategy that serves the Davids in a world of CPG goliaths. The incremental, risk-managed evolutions typical of many large companies will seldom make effective responses to the massive problems like global warming or biodiversity loss.
Scale, it seems, is a roadblock to innovation for sustainability.
Misters Procter and Gamble started making soap in 1837. The Lever Brothers started their business in 1885. And SC Johnson started his floor cleaning company in 1886. During the days of the horse-drawn carriage and newly emerging steam engine technology, these were assuredly very entrepreneurial and innovative businesses, eagerly looking to change their categories, products, and industries. Over more than a century, though, attitudes towards to opportunity and risk forcibly change.
Large, global companies, with considerable resources and established user bases, have scale as an advantage in their efforts at sustainability. But they have one major disadvantage: a bias in favor of the status quo.
Companies with dominant, well-recognized and consistently profitable products have a strong disincentive to change. Major product innovations carry an inherent risk to these established successes, and as such, the companies that make them face a bias discouraging tampering with their format, consumer proposition, or product composition.
The risks of alienating existing consumers with unfamiliar product forms, of disrupting cost-efficient supply chains, or of introducing unknown suppliers or technologies, present strong disincentives to radically shifting production.
The problem is that true sustainability in production and consumption requires radical shifts from the status quo. The shifts to low-carbon materials and processes, to socially equitable production methods and supplier bases, and to product designs that functionally integrate material environmental constraints all require radical change.
If our industry, and many others, is to achieve sustainability, many novel technologies, products, and approaches will be needed. With an inherent bias against radical innovation and a preference for risk-managed, incremental change, I question how effectively large companies can develop or embrace these technologies and products.
The incentive for a challenger brand is much the opposite. When a company's market penetration and awareness levels are tiny, the bias is almost purely in favor of attracting attention with a novel and better product.
From here, the path to success lies not in preserving existing products but in inventing new ones -- and in these new products lies the opportunity to build, from the ground up, products that behave materially differently in social and environmental terms.
While smaller companies don't have scale, reach or leverage to rely on, they can instead depend on their own advantages. These include faster speed to market, flexibility and adaptability in supply chains, lower absolute costs in failed products, ability to experiment with new, small-scale suppliers, a more direct and intimate connection with users' needs, and less internal protocol to trip up or dilute product concepts.
At method, we actively seek out these advantages. Our focus is on using materials and practices that embody social or environmental benefit, making them intrinsic elements of high quality cleaning products. We know that to win in our markets, we need to rely on engaging, disruptive product innovation which if successful will ultimately shift the status quo of our categories to a much more sustainable place.
Photo CC-licensed by Tony Webster.