Acquiring Innovation

With the current state of the economy, companies have already begun laying people off, particularly those in the middle management and even senior management ranks, often in order to make room at the bottom for new people.  The reason being, is that in a corporate structure, when there suddenly aren’t enough people in the middle and at the top to take care of things, there is a massive shift of priority and responsibility across the board.

Everybody has to start doing what is called “managing up,” which means taking care of things for which they were previously considered too low rank, and “hunkering down,” which means taking care of things for which they were previously considered too high rank.  This is why they hire all these new people at entry-level. Because all of a sudden, there is a lot higher volume of work that trickles down, pooling around the ankles of the people in these low ranks.

Surprisingly, this actually works out well for a flailing company. Reason being is because it’s most cost-effective to just hire on more a slew of entry-level people than it is to keep middle managers and senior managers (who both cost a lot more than people straight out of college). Particularly because these so-called “entry-level” people are almost always over-qualified and under-utilized in terms of capability and brainpower. However, they were previously limited by systems of hierarchy and prestige within the organization, which prevented them from being able to do something worthwhile right away. (Finance is a particularly good example of an industry where this happens ALL THE TIME.)

This is also why, unlike the trend of IPOs after the dotcom bust, the trend of corporations acquiring startups may slow down significantly, but will not stop completely. Because of the figurative and literal “tightening of the belt” across the board, all of the smart, creative people in these companies, who previously had the intellectual bandwidth to innovate and create within the constraints of corporate life, will no longer have that luxury or freedom.

These “intrapreneurs” will suddenly be laden with an excess of both menial work (because the people who previously took care of the work that nobody else wanted to do have now been expunged) and challenging work (because the higher-ups in the organization, who regardless of their relative productivity or level of output, had bloated salaries and thus were deemed too expensive to keep on board, a decision process which is sometimes referred to as “skimming off the fat at the top”).

All of this means that whatever slow-moving semblance of innovation had been happening in these companies before, has since come to a grinding halt and perhaps has even been thrown into reverse.  However, the need for innovation and the need to maintain competitive advantage and the need to get ahead and STAY ahead in business doesn’t ever cease, or even lessen.

On the other hand, startups can always pick up on solving problems where companies have left off, choosing an issue they see exists in the real world and then attacking it with all of the swiftness and agility that corporations can’t even begin to hope to have.

Thus, corporations will be forced to keep evaluating opportunities where they can do the next best thing for their business: acquire innovation.  And the most efficient and effective means of which is acquiring startups.

November 22nd, 2008

 

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