While the Austrian American economist Joseph Schumpeter is best known for his 1942 paper describing his theory of “creative destruction,” the process of disrupting existing industries through business innovation or technological change, few people know about another prediction he made: He believed that innovation would gradually become an embedded process within large corporations. In many ways, Schumpeter predicted the internal innovation hubs of corporate giants like Amazon and SAP. With incumbents making innovation part of their established routines, he theorized, they would gradually squeeze out the traditional entrepreneur.
I have a ton of respect for Schumpeter, and am generally a big fan of his work. But I disagree with this somewhat. And the reason is that the advantages big companies have when it comes to innovation, are often largely offset by other aspects of being a big company. So yes, you have money, smart people, plenty of high end hardware or cloud resources, data, etc. Great... guess what you also have?
A stifling bureaucracy, 23 redundant layers of management approval, 12 competing teams each trying to stab the other in the back, arbitrary layoffs / shuffling of people between teams, executives playing favorites on choosing what projects to fund, nepotism, etc., etc. etc.
Example: I work for a Really Big Company (but not FAANG), and I routinely see us take - literally - weeks or months to make a decision that a startup could make in a day, because the founder could just say "do it" and that's the end of the story. Yes, yes, it's an anecdote, but this is hardly an unknown phenomenon. And I've seen this first-hand in plenty of other companies as well.
I would argue that startups can still disrupt things, but that they key to doing it is to focus on their natural advantage: speed.
See also: It's Not the Big That Eat the Small...It's the Fast That Eat the Slow: How to Use Speed as a Competitive Tool in Business.
Her theory is that financial capital - startups and venture capital - dominates during the Installation phase, because knowledge of the new techniques of production is limited to a few visionary individuals and they're forced to take risks that few established companies or management structures are comfortable with. And then production capital (reinvested earnings of existing corporations, assigned toward R&D headcount) dominates during the Deployment phase, as management becomes both aware of and comfortable with the new technologies and they can readily find employees to do the work. The boundary between phases is marked by a financial crisis and oftentimes war, as the inflated expectations of the new technology (necessary to incite people to take risks) cannot be matched by its actual usage within the economy. A financial crisis then usually spurs regulation which is needed for broader adoption (and keeps out competition, entrenching production capital), while a war disseminates knowledge of the new techniques throughout the victorious power(s).
One thing the book doesn't get into is that technological revolutions are often fractal: for example, the technology of "software" enables more specific technologies of "the Internet" or "mobile apps", which themselves spawn whole industries and companies within those industries. And that implies that you might be in "frenzy" for the general technology of software (which I suspect we are; we haven't had our war yet), but the specific technology of "the WWW" had its financial crisis in 2001 and long since entered maturity. There are other technologies within software (eg. cryptocurrencies) that I'd argue are still within "irruption", and there are technologies within cryptocurrencies (eg. ICOs) that just had their financial crisis and are moving from "frenzy" to "synergy".
Interesting. I was not familiar with her work previously. Thanks for pointing that out. More stuff to read!
Oh yeah, I'm sure there are exceptions. And looking at the from the outside, AWS do impress with how quickly the get new stuff out.
But I've seen this kind of thing in multiple large companies first-hand, and the phenomenon has been observed and documented plenty over the years. So I feel pretty confident that it's still the case that many, if not most, Big Megacorp types lack the kind of agility that startups typically have.
If you want to steal it, install an ad blocker.
You can also buy the magazine in paper form, but you'd probably get upset because there's ads in there too.