06 August 2009

Spontaneous Misorganization Stifles Innovation at Large Companies

New ideas rarely emerge from bureaucracies. Large companies are generally bureaucratic, therefore new ideas rarely emerge from large companies. This is because people suck.

Pictured: People. Sucking.

A person doesn't suck (usually), but people do. The more persons are involved in something the more likely it is to suck. Observers often say that culture is the reason small companies are better at innovation than large companies; like Bruce Nussbaum, Marty Cagan, and Jeffrey Baumgartner. (respectively)
[large companies] don’t understand the critical cultural and social science components of [innovation].

...there is much that the typical large company could do to improve the ability of their employees to innovate.

The culprit behind this discrepancy is the decision making structure in each kind of company.
It's not culture, at least that's not the first cause, it's the number of people. That's not to say it's the number of people technically grouped together. What is important is the number of people who have power over the outcome. As a general rule, people all want something different. It is impossible for everyone in a group to have the power to get what they want, but it is possible for everyone in a group to have the power to stop the process and ensure no one else gets anything. We have a built-in feeling of what is fair or not and we act on it by refusing to accept deals in which we get something, but the something is less than we feel is fair. Give enough people power over the outcome and nothing will ever get done.

Small companies tend to have few people in them. They're "streamlined." That's a nice way of saying they have fired, or simply never hired, people they didn't need. Large companies tend to have a lot of people. They're "bloated." That's an acceptably crude way of saying there are too many people involved in what's going on. large companies provide a reliable flow of income, so they attract the people who can't hack it anywhere else. That's fine as long as they do their well-defined job and nothing else.

You can have some power when the guy above you either loses all of it or gets more.

A lot of people becomes "bloat" when those people start getting the power to make decisions affecting their own job. Since their job is all they can handle, they are not going to make decisions which result in changes to their job. This is not to say that hiring more people is bad, only that distributing power over one decision is bad, and more people hanging around makes it more likely power will end up distributed.

Large companies can innovate just fine, and do, when they realize that throwing more people at a problem actually makes it worse. As groups grow larger, and more secure in their position, they become much more likely to spontaneously mis-organize themselves.

For example, as a company grows it tends to take on larger and more complicated projects, which necissarily involve more people with specific expertise than before. That's as it should be, the mistake is giving all those people power over the project. The appropriate way to organize it is to give one person power over the project, and make sure they get good advice from all the experts. This takes deliberate structuring because anyone who feels crucial to a project's success will feel it is unfair that they have no official power over it. This makes it much more likely one of them will demand, and get, some measure of power. That makes it more likely the others will demand, and get, the same.

Then they will use their power to stop the project when it doesn't meet their standards, which it inevitably won't, as I'll explain in the next post.

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