Scale still matters: How big companies can compete in the 21st century

It's a myth that only start-ups are capable of game-changing innovation, says author Scott Snyder.

by Scott Snyder
Last Updated: 10 May 2019

The story of disruption in the digital era is almost mythical: Silicon Valley whizz kids and new startups sweep in with agility and bold ideas, attacking the established pecking order, and leave the larger more established companies on the back foot.

That dynamic is starting to change. Scale can once again be a powerful asset. Established companies such as Cisco, General Motors and Mastercard are using their incumbent advantages to not only survive in the market place but also thrive in the new era of digital disruption.

In every industry customer loyalty is there for the taking. But for the management teams of larger companies to win out in the battle for future customers and talent, they need to stop focusing on the threat posed by digital disruptors and start recognizing the unique advantages of their scale and position.

These unique advantages include self-funding innovation. While start-up CEOs typically spend a third of their time raising capital, companies like Schwab and Vanguard have taken cash flows from their legacy mutual fund business to fund their robo-advice platform to compete with upstarts like Betterment and Wealthfront. When you throw in the power of brand reach in entering new markets and experience of navigating the regulatory and standards environment, scale suddenly becomes a real advantage.

We have identified six ways that management of established companies can start to use these institutional advantages to address new customer needs and build for the future, turning the tables and capitalising on digital disruption.

1. Know where you're going

The first is to understand and deliver what your step-change outcomes are. Doing a little bit better than yesterday is not going to be good enough. Companies need to identify opportunities to leverage their incumbent advantage and deliver 10x improvements in their customer experiences and operating models to stay ahead of disruption.

2. Incremental + blue sky

Management teams need to pursue "Big I" and "little i" innovation simultaneously: They must engage their employees to continually innovate ("little i"), to play the current game better and build a culture of innovation, while also providing protection for breakthrough ("Big I") to reinvent themselves in the future.

3. Use data

Another pool to tap into is data: large, established companies have vast new revenue streams and profit pools, and have a wealth of data because of their longevity as actual companies. These companies need to make this resource integral to their business, like Netflix has done in producing successful shows by leveraging viewing data.  Burberry in the UK is now using AI to better predict the next item a customer may want to increase sales conversions.

4. Build networks

Companies also need to accelerate by using their innovation networks. Put sourcing innovation on equal footing with everything else your business aims to do - less than a third of large companies we spoke to for our book Goliath’s Revenge embrace this and the payoff from orchestrating an ecosystem of innovators can be a huge multiplier for enterprises.

5. People first 

Look internally - talent is more important than technology, despite the fact we are living in an AI-driven era. Like in sport, having the right number of the right people with the right skills at the right time is likely to be one of the most important reasons why your company will succeed. This goes beyond the digital or ‘3D" roles of design, development, data science, and extend into emerging roles that drive new ways of working like product incubation managers, behavioral scientists, and AI specialists.

6. Broaden your horizons

Reframe your purpose: open up the range of growth options your company is willing to consider. Raise your sights from your current industry position to allow you to chase opportunities that are the natural consequence of disruption and help you attract the next generation of innovator as employees.

Scale is a tremendous asset for established companies, but only if it’s used to both play the current game better and change the game in the future.

It’s one thing to be gifted legacy assets.  It’s another to unlock the value of these assets to win in the new digital era.  Companies must commit to transforming their leadership, organisation, and culture to create a long-term advantage from their legacy assets. By moving away from mimicking disruptors, these larger companies will be able to reclaim their rightful places at the top of the business hierarchy.

Scott Snyder is a Partner for Digital and Innovation at Heidrick & Struggles and co-author of Goliath’s Revenge (available on Amazon).

Image credit: Magda Ehlers/Pexels

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