I’ve been thinking a lot lately about success and innovation. Perhaps its because of my lack of success and innovation.
Anyway, I’ve been wondering how the arrow of causality goes with those things. Are companies successful because they are innovative, or are they innovative because they are successful.
This is not exactly a chicken-and-egg question. Google is successful and innovative. It’s pretty obvious that innovation came first. But after a few “game periods,” the situation becomes more murky. Today, Google can take risks and reach further forward into the technology pipeline for ideas than a not-yet successful entrepeneur could. In fact, a whole lot of their innovation seems not to affect their bottom line much, in part because its very hard to grow a new business at the scale of their existing cash cows. This explains (along with impatience and the opportunity to invest in their high-returning existing businesses) Google’s penchant for drowning many projects in the bathtub.
I can think of other companies that had somewhat similar behavior over history. AT&T Bell Labs and IBM TJ Watson come to mind as places that were well funded due to their parent companies enormous success (success, derived at least in part, from monopoly or other market power). And those places innovated. A lot. As in Nobel Prizes, patents galore, etc. But, despite their productive output of those labs, I don’t think they ever contributed very much to the companies’ success. I mean, the transistor! The solar cell! But AT&T didn’t pursue these businesses because they had a huge working business that didn’t have much to do with those. Am I wrong about that assessment? I hope someone more knowledgable will correct me.
Anyway, that brings me back to the titans of today, Google, Facebook, etc. And I’ll continue to wonder out loud:
- are they innovating?
- is the innovation similar to their predecessors?
- are they benefiting from their innovation?
- if not, who does, and why do they do it?
So, this gets back to my postulate, which is that, much more often than not, success drives innovation, and not the reverse. That it ever happens the other way is rare and special.
Perhaps a secondary postulate is that large, successful companies do innovate, but they have weak incentives to act aggressively on those innovations, and so their creative output goes underutilized longer than it might if it had been in the hands of a less successful organization.