I’ve commented about this topic on LinkedIn a few times, most recently in response to one of my connections posting this article about why the big established companies can’t innovate. The author, Bill Fischer, called out a number of spot-on roadblocks. His points included some I’ve made in the past, like the destructive focus on short-term results at the expense of long-term health, and the many problems with corporate “silos.”

I disagree with his main point, though. I think the big companies can innovate. And they do innovate.

But the problem is they can’t win at it, at least not anymore.

In my experience at General Mills, we had superb folks in R&D and Marketing who came up with an endless stream of new ideas. Many of those new ideas could well have been “the next big thing.” Few of them ever saw the light of day, and the ones that did were usually of the “flash in the pan” variety. Even if they made a big splash, they came and went without really affecting the company’s trajectory.

That used to be fine. The “bigs” could rake in enormous profits from their established brands, and then have that once-in-a-generation giant hit (think Cinnamon Toast Crunch in the cereal world, for example) to drive growth.

That doesn’t work anymore. First, the established brands are almost all declining, so the “bigs” would now need a steady stream of hits to offset the losses. And the bigger problem is why they’re declining: because they’re under constant attack from tiny entrepreneurs and private label producers, and their brands are seen as old and tired by up-and-coming consumers.

This article about a very different part of the business world, automobiles, and specifically about the troubles at Tesla, contained the following nugget of wisdom:

Almost every industry is currently experiencing an explosion of SKUs. Just over a decade ago, the typical order for shoes was 100,000. Today it’s about 1,000. CPGs in particular are grappling with having to produce ever more variations of their products as we move towards a small batch world.

“…as we move towards a small batch world.” Trouble is, for many businesses, that world is right here, right now. And it’s eating them alive.

I was working in the yogurt business when Greek yogurt took off. Everyone looks at Chobani today and thinks they were THE problem (for the established brands, that is). But they weren’t at first – they became THE problem over time because of their spectacular business management, quality, sales and marketing savvy, and (most important) execution. But they were only PART of the problem early on. There were Greek Gods and Fage too. And near-Greek like Siggi’s. And non-Greek but also part of the battle, like Noosa and Liberté. They all helped carve a whole new landscape on a shelf that used to be half Yoplait, half Dannon, and then the rest. And that was nearly a decade ago. It’s gotten far, far more fragmented since.

One problem for the bigs is their required scale. Though declining, their flagship brands still rake in enormous profits. So for a new product to be attractive to them, it has to be seen as suitable for immediate national launch in all their outlets, and promising enough to be noticeably accretive to their bottom line. So there are all kinds of hurdles for new product development (NPD), and if an idea fails to meet any of the hurdles at any stage, it’s killed. As a result, very few new ideas make it to launch; and this being a very imperfect world we inhabit, most of those that do launch wind up having little to no impact.

Meanwhile there are hundreds and thousands of entrepreneurs out there launching new things constantly, often starting at a vanishingly small size and taking years to grow. Then when a “black swan” like Greek yogurt comes along, the bigs suffer yet another loss of market share.

I don’t pretend to know the answer. The bigs have tried buying their way to growth, and in almost every case they wind up slowly killing their new acquisitions through well-intended but destructive product or marketing changes, or just through the sclerosis their bureaucracy brings to what was a vibrant, resilient business. Lately they’ve also been funding “incubators,” separate innovation arms that are ostensibly freed of that stifling bureaucracy and the financial hurdles that internal NPD faces. But they’re staffed with a lot of the same folks who used to live in their own NPD world, which doesn’t lend itself to breakthrough performance. I’ve never seen any indication of any of them having a significant impact. Anyone?

And it’s that last point about people that’s most critical of all. I call it the Kodak effect. Companies that get big do so by getting really, really good at doing a particular thing extremely well, and their entire culture, their hiring, their training, their processes, their decision-making, who gets ahead and who doesn’t – they’re all driven by that thing they do really well. And when that thing starts to go south, it is impossible to right the ship, no matter how clear the threat or how dire the situation – or even how clear the “new thing” is, like digital photography. Hell, Kodak even invented the thing that killed them!

Why don’t the big brands win at innovation anymore? Because they can’t.