What big companies fail

Why are big companies running out of ideas?

• Fürth, 1951: Gustav Schickedanz feels threatened. The trained businessman has just rebuilt the Quelle mail order company; 1.5 million customers regularly place their orders there. But the competitors Otto and Neckermann are on Schickedanz's heels, and he decides to have a new, more efficient dispatch system built. Six years later, he opened the most modern parcel factory in the world: for the first time, shipping data was processed electronically.

The company can now send more than 100,000 parcels per day and is becoming the largest mail-order company in Europe. The group led a quiet life for decades. Even when an American start-up called Amazon began selling books, CDs and videos over the Internet in 1994, there was no further concern in Fürth. Since Quelle mainly has older customers and sells other products, the competition seems far away.

This story is typical for Dietmar Harhoff. For more than 20 years he has been researching the innovation behavior of companies. "Large companies are very good at developing their existing products and processes with small improvements," says the director at the Max Planck Institute for Innovation and Competition. “But they have a hard time with radical innovations.” While corporations fine-tuned details, they often lose sight of fundamentally new developments.

This is also the case with Quelle. When the board finally recognized the threat from the Internet, it was too late: Amazon now also sells furniture and electrical appliances. And because the American company sells its goods through middlemen and thus saves storage costs, the offers are significantly cheaper than those of the former German model dealer. His belated attempts to sell his products online also fail. The mail-order company is still ailing for a few years until it is closed in 2009.

The Quelle case is a prime example of the life cycle theory, according to which every company goes through certain phases. It all starts with a good idea and people who believe in it. During this time, the founders brood over their business model for nights on end; Instructions are given by acclamation. If it turns out that the concept works, there is one thing above all: to get as big as possible as quickly as possible. Processes are now defined and rules agreed. After years of growth, the company often ends up as an inflexible demonstration of bureaucracy in which there are regulations even for making coffee. Not a good breeding ground for innovations.

Creative destruction

But why is it so difficult for many established companies to rethink? Nikolaus Franke, head of the Institute for Entrepreneurship and Innovation at the Vienna University of Economics, has an explanation: "Radical inventions always mean destruction," he says. While a start-up can only gain from this, an existing company runs the risk of harming itself. Therefore, it is mostly young companies that put the established top dogs in distress.

For example, the American company Salesforce. With the company founded in 1999, companies were able to rent their software over the Internet for the first time, instead of having to buy it at a high price. Today Salesforce is a group with more than 13,000 employees and the leading provider of cloud computing solutions - ahead of SAP, Oracle and IBM. In this case, however, the founder was not a beginner either, but the former Oracle manager Marc Benioff.

Not so with Holidaycheck: The idea for the hotel review portal came to a Swiss student while planning a vacation. He promoted his concept, but the established tour operators refused - and missed out on good business. The rating portal, which is now owned by Tomorrow Focus Media GmbH, is now the market leader in German-speaking countries and, according to its own information, has around five million users. Even bigger success stories can be told via the streaming service Netflix or the accommodation portal Airbnb.

Many corporations have now recognized the risk of being surprised by such developments and have founded their own research and innovation departments: This is where ideas are hatched and decisions are made as to which projects are to be implemented. But can radical innovation be planned? Harhoff is skeptical. “Even the attempt at planning aims to control the risk. As a result, riskier projects are often excluded from the outset. ”However, it was precisely these that often led to fundamental innovations.

Chance also plays a role: the Swiss engineer Georges de Mestral, for example, was walking his dog in 1941 when a burdock got caught in its fur. To understand why it stuck so well, Mestral examined it under the microscope - and invented the Velcro fastener. Today his company Velcro Industries is the world market leader and employs more than 3000 people.

Instead of more planning, some companies therefore rely on more freedom. The approach of the 3M company has become known: every employee is released for 15 percent of their working hours to advance their own projects (see brand eins 06/2011). The group has thus been able to increase the sales of its products that are less than five years old. It is currently 34 percent; in three years it should be 40.

Other companies are trying rejuvenation treatments. The software giant SAP, like Google, BMW and Deutsche Bank, uses the design thinking method. The employees work together in small, mixed teams - you can also come to the office in a hooded sweatshirt. This should create a kind of start-up mentality despite the corporate bureaucracy. “Always be open to new questions, do not categorically exclude anything from the start,” is the resolution of the SAP innovation manager Marcus Krug.

But teamwork and freedom of thought alone are often not enough. "Many market segments that are emerging from new, revolutionary technologies are simply too small in the beginning for large companies to focus on," admits Krug. True to the motto “If you cannot defeat your enemy, team up with him”, many corporations therefore operate incubators in which they work together with young companies. Both sides benefit from this: the founders can get money and expertise more easily, the corporations keep track of new developments and save themselves expensive takeovers later.

The Hamburg Otto Group is also trying to ensure its survival in this way. Because unlike the Quelle-Versand, the Hanseatic people recognized the danger posed by Internet trade at an early stage. The company opened its first online shop back in 1995; Since 2008, the group has been investing with its subsidiary eVenture Capital Partners in young companies that have good ideas for online trading. So far, the strategy seems to be working: The Otto Group now generates 61 percent of its twelve billion euros in sales online. ---