Independence Is Key To Innovation

The last twenty years has seen a huge consolidation of companies across almost all sectors, something which is inherent in the capitalist system within which we all operate as larger companies had the efficiencies of scale with which they could and did either dominate their competition and either take them over or squeeze them out of the field. I have written previously about how the internet has made economies of scale in the media obsolete, but that is far from the only sector where the theory of bigger is better is running into trouble.

Larger companies are notoriously difficult to manoeuvre, slow at pushing out new and sector-defining products, and slow to allow their best and brightest to rise through their bloated ranks. What a company may benefit from the squeeze they can put on their suppliers and competitors with their scale is often negated by the inefficiencies of that scale. Larger companies with larger sprawling userbases and in trying to please them all, they make boring and inspirationless products. They replace vision with focus groups.

Of course there are exceptions to this rule, when companies are led with a iron fist by a person that holds that vision, or where vision was heralded as the focus of the company as with Apple under Steve job, or where a company understands that real innovation is often bottom up, where companies like Google let their engineers spend 20% of their work-time on their own projects. But these are exceptions to the rule. For every Apple, there are many more HPs and Dells where focus and specialism have been watered down until they are non-existent, and their profits rely on multi-million pound contracts with other bloated companies or those most wasteful of money, governmental organisations. For every Google there are many more Microsofts and Yahoos, where they found a successful and profit generating machine, and then refused to look outside at how the world was changing, only noticing too late and then continually playing catch-up whilst their employees look to make the jump to their competitor.

Whilst high-tech companies such as Intel and AMD may have sat pretty on their dominance of the x86 architecture for decades, pushing speed and comparative performance – they were not looking outside of their own infrastructure and influence to the now huge market for connected devices, where the tiny ARM now holds a massive sway by licensing its architecture to keeps its focus on innovation. This is a sign of things to come. Whilst business owners have previously looked to control the supply chain, that is exactly where innovation is lost. If each part of that chain is independent, then it is continually having to innovate to keep its position as the supplier, with those above it in the chain continually seeing the benefits of that competition.

Outside of the technology sector the same thing is happening. The recent results from the beer industry in the UK are showing a major decline in sales of lager from the major manufacturers whilst microbreweries are at an all-time high of 850. People are getting bored with the same big businesses pushing the same uninventive products for decades whilst a small number of people get rich. The products have become stale, and the companies so bloated that they thought the good times would never end as they continued to get bigger, squeeze up margins, and generate better profits. After a certain point, bigger is worse. It is worse for consumers as the products are boring, and it is worse for employees on the ground who see ever-decreasing chances of promotion whilst those at the top award themselves bigger and bigger pay packages for their wonderful handling of the business by avoiding change.

We would have seen this again in the financial sector, had governments not stepped in to save the banks as they were “too big to fail”. 2008 should have seen a major restructuring of our financial systems, where smaller more agile players could have gained a hold in the marketplace as the bloated banks struggled to re-align themselves after decades of poor management and bloated executive pay that remains utterly removed from performance. There is much talk of breaking up the banks into smaller players to stop such a collapse happening again, but this would have happened all by itself if the banks weren’t bailed out by tax-payer money. Obviously the move to bail out the banks was a difficult one, and if they had not done so then savers may well have lost much of their money – but for institutions that basically have a license to print money by lending out many times more than they keep in reserve – for them to falter the way they did shows the utter incompetence of size.

We need smaller businesses, with owners of vision, giving their employees the space and freedoms to innovate – not huge corporations with the money to lobby to maintain their stranglehold on power and the influence infect our wider economy with stagnation, and slow our progress. States are supposed to be there to regulate and limit the power of companies over the populace, not prop them up under the banner of saving the economy they have spent decades decimating to line their own pockets. If you want the right to govern, then it is time to show some teeth.

Share This