Innovation Isn't Tied to Size, but to Operating Rules - Nilofer Merchant - Harvard Business Review

Posted on by Brandon Klein

You can find plenty of people who disregard bigger enterprises, stating they are not the future. Plenty of people — including here on Harvard's blog — espouse the theory that big companies can't innovate.

This argument is both old and wrong. Joseph Schumpeter, the noted economist, said — in 1909 — that small companies were more inventive than large ones. But then, in 1942, Schumpeter reversed himself and argued that big companies had more ability and incentive to invest in new products. Today, there's a similar bias; people assume that small companies are creative and big firms are slow and bureaucratic. A look at any performance measure shows that innovation can come from either size, and that both arguments are oversimplifications.

The key for every firm — regardless of size — is to figure out how to consistently create value in a demanding, ever-changing market. That is hard no matter what size you are, no matter what industry you're in.

If we're to actually get better at innovation, we need to understand the operating conditions that lead to it and move past the bigotry and biases. To do so, let's look at two distinguished firms side by side to see how innovation is entirely independent of size and more a function of different operating rules.

IBM and HP are two amazing companies with long and meaningful histories. Both CEOs are notable in what they have done, and are doing to lead their companies and both companies rank highly on the Fortune 500 List. HP is #10 on the 2012 list, and IBM is number 19.