**4. Challenges of innovating in large, corporate environments**

While large corporate organizations have larger budgets and more resources than their smaller counterparts, the size of the R&D budget has not been closely correlated to breakaway growth [26]. That is because large organizations, and large global organizations even more so, have several challenges inherent in their businesses that make innovation more cumbersome. We can summarize them in six categories as follows, all of which we briefly discuss in the following section: culture, leadership, resources, structure, reward philosophy, and governance.

#### **4.1 Culture**

There are several ways to envision culture as it relates to innovation. First, from a high-level overview, innovation and discovery are approached differently in different cultures around the world. Researchers have indicated that this is because of the impact of national cultures on factors that influence innovation and corporate entrepreneurship. Culture in this sense is a shared system of meaning, or as identified by Hofstede, et al., culture is, 'the collective programming of the mind that distinguishes the member of one group or category of people from others' ([28], p. 6). In Hofstede's previous works, he identified six dimensions of culture that he used to determine the differences between national cultures. Other researchers subsequently indicated the ones they believe are most significant in predicting levels of innovation and entrepreneurism. Four of the six stand out in that regard, and they are as follows: power distance, uncertainty avoidance, individualism vs. collectivism, and masculinity vs. femininity [29]. While defining these and identifying their roles in the development of a culture of innovation is outside the scope of this chapter, it is important to note that these dimensions can indicate important factors that are predictors of an innovation mindset. Most notably, they could have a bearing on an individual's or an organization's level of risk acceptance or risk adversity. It could also influence how individuals see themselves in the context of others, whether those are individuals, organizations, or structures.

Regarding national cultures, corporate entrepreneurs working in large, global organizations also need to consider the impact that national culture might have on innovation in the organization's home-country. Research conducted by the authors of this chapter defined that in large, global, industrial companies, responsibility for core innovations reside more with the local business units, and corporate departments take on more responsibility when organizations are innovating at either adjacent, or especially, at transformational levels of innovation.

Beyond national cultures, organizations have their own culture. Just as with national cultures, they are a shared system of meaning, but here, they are confined to one company or one business unit within a larger organization. These are long-established ways of working, entrenched hierarchies, and perspectives of the organization and of those outside it. Some organizations have a more entrepreneurial culture than others. As Ireland et al. accurately described, '[An] entrepreneurial culture is one in which new ideas and creativity are expected, risk taking is encouraged, failure is tolerated, learning is promoted, product, process and administrative innovations are championed and continuous change is viewed as conveyor of opportunities' ([30], p. 970).

Organizations that have an entrepreneurial culture tend to be driven to action, and particularly quick action, either to exploit an opportunity or meet a competitive threat. They are more risk tolerant. That not only means they are more comfortable in ambiguous situations with uncertain outcomes, but they are also more flexible with their budgets and funding. They can deploy those quickly where needed and retract them from other projects if situations change. Cultures of large, industrial, global organizations tend to be the opposite. They are more risk adverse because most of these companies are public. They must satisfy the needs of their stockholders and the financial markets. This leads them to focus on short-term gains, usually on a quarter-by-quarter basis, where they can recognize quick victories and continue their quarterly growth momentum. If they would instead focus on long-term, more transformational innovation, then their return on investment would not be realized as quickly. Their growth would also be less predictable. Similarly, most large, global corporations focus on their current customers. These are the ones that will help them deliver that predictable growth. So, they ask their customers want they want, and they strive to deliver that value to them. The innovation that arises from this approach is what Christensen called 'sustaining technologies,' as opposed to those that are disruptive. He also underscored this point of chasing short-term gains when he wrote, 'Sustaining projects addressing the needs of the firms' most powerful customers almost always preempted resources from disruptive technologies with small markets and poorly defined customer needs' ([24], p. 43). In addition, those individuals running established global firms are rewarded based on short-term revenue gains and profit targets not long-term vision; therefore, they align resources and strategies accordingly.

Large, global, industrial organizations typically have a culture that is deeply involved in processes and administration. These develop out of a sense of maintaining control over many business units, layers of management and geographically farflung operations. This leads to levels upon levels of decision making and established processes which make flexibility very cumbersome.

## **4.2 Leadership**

Leadership is undoubtedly closely connected to culture. Leaders help establish or perpetuate culture. However, while culture refers to an organization, leadership applies to individuals or a group of individuals. These leaders are responsible for setting the tone for, and even suggesting specific models and methods of, innovation and corporate entrepreneurship. Leaders who are known as entrepreneurial exude passion for innovation, which motivates their staff toward an entrepreneurial spirit.

#### *Corporate Entrepreneurship: Innovation in Global, Corporate Environments DOI: http://dx.doi.org/10.5772/intechopen.111805*

Those who are less entrepreneurial are more entrenched in the process and administration of programs and policies. In fact, they might owe their jobs and careers to those very processes. Research conducted by the authors of this chapter uncovered that in many large, corporate organizations, leadership brings with it a set of practices and tools with which those leaders feel most comfortable using. They roll out procedures, train staff, and establish these tools within the organization, but then frequently, they leave the organization or transfer to another business unit, position, or location. At that time, a subsequent innovation leader replaces that individual and brings his or her own set of processes tools and procedures. This was also evident in research conducted by Wellspring, of which it said, 'Many large companies experience a fits-and-starts pattern of innovation investment. A similar tendency is to shuffle the innovation leadership. Usually this happens when a company loses patience with the current innovation team or its structure, often before they've had enough runway to demonstrate potential.' ([26], p. 15). In a Wellspring study, researchers discovered that only 6% of corporate executives felt that this lack of leadership coordination was impeding innovation; however, one third of subordinates felt that it was an innovation impediment.

### **4.3 Resources**

One important duty for which top leaders in an organization are responsible is aligning resources. Here, we may think mostly about financial resources and budgeting, but it also includes capital equipment and human resources. Most large companies have organizational and strategic business unit strategies, and those strategies should steer the direction of resources. However, in these large organizations, the competition for resources can be intense. Perhaps a few projects will be funded, and many others may not. Research findings indicate that even in large corporate organizations with large R&D budgets, most people involved in innovation indicated the lack of funding as one of the biggest obstacles to their success [26].

While startups usually focus on a small number of products or services, large, established firms usually need to manage many product portfolios that can be global in scope. These could all have mid-level managers in charge of various products overlayed by country or region managers responsible for revenue, growth, and profit in their geographic areas. This then translates into an innovation pipeline where these managers seek iterative changes in their products to meet their unique customers' needs. That leads to a long list of corporate-wide innovation requests, which are all in competition with one another for funding.

The authors of this chapter discovered in their research that large, global organizations generally allow control of R&D for incremental innovation to local business units and country or regional groups. This makes sense when a company wants to focus on developing core innovation that will develop incremental improvements for current customers. As organizations move their focus of innovation into the area that is 'outside the core', which includes adjacent and transformational innovation, corporate-level innovation teams become more involved. That is most notably so in transformational innovation.

Another substantial input to resources is talent acquisition and retention, or the management of human resources. Many scholars believe that to be a talented innovator, a person requires a specific set of qualities, traits, and training. This might be especially true for organizations looking to attract those individuals who can help them develop transformational innovation. They believe it takes, what Phillips said

was, 'Identifying and recruiting energetic, creative people who will take the time to conduct research, investigate options and explore emerging opportunities, and who aren't afraid of working in ambiguous context or outside of the company's core competencies' ([31], p. 8).

While prevailing thought might not consider an entrepreneur as a good fit for innovation teams in large companies, research indicates the story is more complex. In recent decades, those interested in innovation have become less likely to start their own companies. More of these individuals have joined the ranks of large organizations, growing to about 58% by 2019 compared to 50% at the beginning of the 21st century [32]. Interestingly, this research discovered that when innovators move into large, corporate organizations from start-up companies, they are less productive, producing between 6% and 11% fewer patents [32]. While cause and effect was not directly established, it could be reasoned that it was the administrative processes, procedures, and complexities of large organizations that led to a reduced level of productivity.

### **4.4 Structure**

Much has been researched and written about the optimum structure for productive innovation and for the various stages of it, core, adjacent, and transformational. Research has also confirmed that large, corporate organizations are nearly always involved in multiple innovation activities simultaneously. Depending on the level of innovation and who holds the budget, there could be a mix and matrix of different models and structures. In opposition to this, most scholars believe that a flat organization, meaning one with fewer layers of reporting, managing, and directing, is best. This is probably why start-ups and entrepreneurial organizations are credited with being faster and more effective in innovation productivity. These are smaller and flatter organizations. Most scholars also believe that a coordinated innovation effort or the management of an innovation portfolio is essential. 'Innovation budgets are apportioned to an expanding array of innovation teams or groups that don't have strong motivations to collaborate. Indeed, 42% of companies reported that they regularly fund innovation projects on a tactical case-by-case basis' ([26], p.8). These researchers also discovered that what they identified as 'high-growth companies' prioritized the structure of innovation and mandated a central R&D department that was responsible for managing the innovation portfolio across business units, stages of development, and levels of innovation. The individuals in these centralized departments also act as innovation influencers. They are the ones that carry the message about the importance of innovation throughout the company. They also research, develop, iterate upon, and train employees on various methods and models of innovation.

### **4.5 Reward philosophy**

Reward philosophy refers to the mechanisms, policies, and procedures used to incentivize innovators. This is a key differentiating element between startups and entrepreneurial firms and their larger colleagues. Entrepreneurs are familiar with being compensated according to their own performance and that of their teams. They are more comfortable with compensation being aligned to the proportion of their own contribution.

Those in established, large corporate organizations are more familiar with compensation based on job grades and levels. Large organizations have a dizzying array of pay grades and levels. Most also have merit-based incentives; however, the formulas

#### *Corporate Entrepreneurship: Innovation in Global, Corporate Environments DOI: http://dx.doi.org/10.5772/intechopen.111805*

and algorithms developed to mete out bonuses makes it difficult for most staff members to understand how their contributions either impacted the bonus structure or how their performance was assessed by it.

The reward philosophy adopted by most large, corporate organizations also reinforces short-term goals and objectives over long-term ones as well as core innovation over those that are 'outside the core'. These are what Christen called 'sustaining technologies,' and they do just that. They sustain the organization based on its current customers and the needs of those customers. As indicated earlier, these established organizations are required to meet the quarterly expectations of investors and financial analysts. This plays into their risk aversion with long-term and sustaining growth opportunities. They want to rely on the best possible outcome, which generally means generating innovations for their current customers or the core level of innovation. Likewise, managers and staff are incentivized based on the company's annual performance, another short-term measurement. This perpetuates the intense focus on those core innovations that satisfy current customers. Christensen realized this and cautioned against it over 25 years ago when saying, 'In established firms, expected rewards, in their turn, drive the allocation of resources toward sustaining innovations and away from disruptive ones. This pattern of resource allocation accounts for established firms' consistent leadership in the former and their dismal performance in the latter' ([24], p. 32).

#### **4.6 Governance**

When thinking about innovation, governance refers to all the processes, oversight and activities of innovation discovery and development. This includes those involved in the processes, both internal to an organization and external, as well as the tools and models used. It also includes the things that are produced by this activity, whether those are products, services, ideas, discoveries, business models, or inventions. Governance is closely tied to structure, but while structure is how innovation is organized, governance is how it is carried out. In smaller, flatter organizations and start-ups, this governance is clear. Entrepreneurs are close to the inputs and outputs of innovation. They know those who are involved in the process, and they are laser focused on completing a limited number of objectives, whether that is providing proof of concept or launching a product or service. In a large, corporate organization, governance becomes more process and procedure driven, which makes it more complex. In addition, within organizations that lack a coordinating innovation department, there could be many approaches and layers of governance.

A widely recognized part of governance is measurement. No doubt, measurement is important because we cannot improve upon things if we have difficulty measuring them. However, fixation on the measurement instead of the value created by an innovation can be misplaced. Companies tend to use metrics such as return on investment (ROI) or breakeven analysis to determine the potential success of various opportunities. They also measure how innovation projects are progressing against their objectives, with many applying techniques like stage-gate processes. These are project management tools that divide an innovation project into planning phases with their own respective goals, timelines, and owners. When utilized over many projects, stage-gate processes become an ad hoc innovation portfolio management tool. That is to say that organizations allow the stage-gate process to drive their management of the various innovation projects in development. Stage-gate tools can be effective, when managed appropriately; however, they can also be a passive approach to innovation portfolio management. Scholars also indicate this process is probably best attributed

to core or adjacent innovations but not transformational ones [14]. In fact, it is difficult to measure something that does not yet exist, and yet, this is where Christensen says disruptive technologies comes from. Revert to our example of Amazon Web Services. Developers were not aware how many potential customers would be interested in a cloud-based service or how interested they would be. The same was true of ChatGBT. OpenAI publicized ChatGBT to obtain data or get a measurement. Both of those examples ended in overwhelming success, but Christenson notes that there is value in failure too. Quick failure is particularly valuable, if it leads to learning and iterative improvement or a change in focus. However, to make those changes, a more active portfolio management approach should be used.
