Why do big companies struggle to innovate?

The organizational physics pulling on Boeing and other large organizations

The Boeing Company has had a rough time of it lately with a seemingly endless stream of unflattering news reports, self-inflicted acts of public embarrassment, and a very turbulent year of financial woes.

After two fatal crashes involving the Boeing 737 Max airplane that killed 346 people—which is the worst air disaster since 911— not a week goes by that there is not some new revelation about problems with the plane. 

The 737 Max. Aka The Beav from Seattle, Washington [CC BY (https://creativecommons.org/licenses/by/2.0)]

Added to these news reports are the release of disturbing emails by Boeing employees, tales of mismanagement by executives, and accusations of aviation regulators asleep at the wheel.

After the mishandling of the Max crisis, the Boeing board asked their prior CEO, Dennis Muilenburg, to resign. They brought in a new CEO, Doug Calhoun—a longtime Boeing director—to try to fix things. But some critics fear this move is just more of the same old leadership style and not enough of a jolt to the organizational steering system to get this troubled culture out of their tailspin. 

Boeing’s stock price has taken a tremendous beating in the market. On January 29, 2020, the Boeing Company reported its first annual loss in more than two decades. And the cost of the 737 Max crisis has climbed around $19 billion.

If all this wasn't bad enough, Boeing announced this month that they would post negative airplane orders for the year 2019—which means on top of no new plane purchases, Boeing had 87 order cancellations. 

This sales slump is especially hard for management, the board, and investors to swallow when you consider that Boeing’s most fierce competitor and European rival, Airbus, logged orders for 768 new planes in 2019.

Boeing has now lost its title as the world's biggest plane maker. 

In less than a year, Boeing has seen its brand image battered, its reputation tarnished, it's staff demoralized and its financial performance torpedoed. 

This sad state of affairs is surprising when you consider the incredible history, passion, and perception of leadership and innovation that Boeing—a 103-year-old company—had previously garnered in the public’s mind. 

But many experts predicted this day was coming for Boeing because of it's incredible growth trajectory and the enormous size of the company.

Is big really better?

It’s hard for most of us average citizens to know what’s going on at Boeing truly. And I am certainly not here to add to join the pile-on, especially when a company is down.

I genuinely feel bad for Boeing— particularly their dedicated engineers and factory workers that have worked so hard at their jobs. Unfortunately, many of them will not have jobs now due to the 737 Max shutdown.

But I believe these stories about Boeing offer a valuable lesson for all of us in business to consider regarding the issues of size, growth, and over-expansion. 

Intuitively, we all know that when organizations get big, they become like little mini-governments full of bureaucratic layers and lots of red tape. As these organizations balloon in size, they are required to spend more time setting up policies, procedures, and elaborate management protocols, which can inadvertently take the leadership's eye off the ball of the "main things"—such as engineering, safety, performance, improvement, and innovation. 

Most of us have personally felt this lack of focus on the “main things” in the big companies we have to encounter and endure in our day-to-day lives. We can all think of a brand that we used to love—whether it be a local grocery store chain, preferred airline, favorite hotel, or formerly reliable internet provider— that got too big and bureaucratic for us to deal with any more. 

Not only do customers get frustrated when they can’t get something simple taken care of at big companies. But they can also take it personally that a brand they once loved ends up getting murdered by a few enterprising executives that have a financial stake in pushing the company to get bigger, at all costs. 

I can relate to this kind of frustration of dealing with big companies myself. 

I had a fantastically loyal and committed relationship to DirecTV for almost 15 years. In my opinion, DirecTV had one of the best product presentations and customer service experiences I ever encountered. Although it was a pricey service to subscribe to, it was an indulgence I allowed myself to have because DirecTV made me, the customer, feel like a king and they treated me royally.

But when AT&T bought DirecTV for a staggering $67 billion acquisition in 2015, DirecTV got sucked into the vortex of a giant behemoth. 

Once AT&T took over the steering wheel, they made a slew of policy, features, and customer service changes to DirecTV that aimed to make their business more efficient and profitable, and my personal life more uncomfortable and frustrating. 

Suffice it to say, DirecTV is not the same company or brand I previously gave my love and loyalty to before. Dealing with DirecTV now feels more like trying to call tech support in another country to get my router to reboot, and I question my subscription to their service every day.

But I am not alone in this feeling. 

AT&T's total video subscriber losses for 2019 are around 4 million.

On what universe does it make sense for a company to chase off loyal customers like this?

I also felt the same way about the American Airlines/USAirways merger. USAirways was one of my favorite airlines to fly. Many concerned citizens, and even select members of Congress, questioned whether this potential merger was indeed in the best interest of the public. American Airlines executives went to great lengths to assure regulators and the public that this was going to give customers better services and more options. 

But not long after American Airlines acquired USAirways in 2014 and became the largest airline in the world, the customer service and passenger experience, in my opinion, dropped to the lowest altitude possible for a consumer brand. 

The question many of us ask is: 

Who really wins in these merger and acquisition strategies?

Not me or the average customer. 

Big doesn’t necessarily mean better for customers, or improvement or innovation. 

Big typically means better for investors, private equity companies, and other entities that have a financial stake in the growth of the business. 

And if we are really honest about this, these stakeholders have a different goal in mind. 

And this seems like part of the problem at Boeing.

When finance takes over engineering

When Boeing acquired McDonnell Douglas in 1997, it was the tenth-largest merger for its time. Not only did they become a giant company —more on that later—but also a vast and diversified conglomerate. And due to the sheer size of the new Boeing Company, the financial and accounting executives soon replaced the engineering and innovation mindset that had formerly helmed the top of the company.

In other words, the "main thing" of product engineering shifted to financial engineering on that day.

In 2003, Henry Stonecipher became the CEO of Boeing. And as he self-admitted to the Chicago Tribune in 2004,

"When people say I changed the culture of Boeing, that was the intent, so it's run like a business rather than a great engineering firm…

It's a great engineering firm, but people invest a company because they want to make money."

And there you have it!

The root cause of why many big companies lose sight of what really is the "main thing."

But Boeing is not alone in this unending quest to get big.

Many other companies out there in the consumer sphere and business world have this same drive to get bigger.

For many companies, getting bigger has become the only way for their businesses to grow, compete, and survive the near commoditization of everything. But this growth does come with some potential risks and concerns, which Boeing is painfully experiencing now. 

Missing the critical launch window

While Boeing’s plane business seems to be in a temporary nosedive, the organization had hoped to shift the focus from the 737 Max towards a more positive story about their new innovative efforts coming out of their aerospace division.

On December 20th, 2019, Boeing launched its much anticipated and long-awaited new passenger spacecraft, the CST-100 Starliner, into space. But not long after the debut of this un-crewed rocket shot into space, it suffered a major setback when the vehicle failed to reach the right orbit.

Boeing had planned to demonstrate Starliner’s ability to get astronauts to and from the International Space Station (ISS).

But when the spacecraft missed a critical launch window, it had to cut the mission short.

The test mission, meant to last a week, lasted only two days before it came back down White Sands, New Mexico. 

The cost of this botched rocket launch will require that Boeing incur a $410 million charge, on top of the 737 Max debt. 

It was yet another bad day for Boeing. A day where they found themselves scrambling to avoid another PR disaster, a series of embarrassing stories, and the potential loss of trust and confidence with the key clients they serve. 

So what was the problem with the Starliner launch? 

Was it related to the highly sophisticated rocket engines, heat shields, or aerodynamic engineering issues?  

Nope. 

It was an internal clock error.

While most of us don’t have a clue about how to launch a rocket into outer space, we can all relate to forgetting to set the clocks to the right time and missing an important lunch date. But in this case, it wasn’t just missing a lunch; it was missing an “orbital insertion burn,” which caused the thrusters on board to fire longer than expected and run out of fuel. 

Oops! 

The clock part, we all get! 

But what we don’t expect to find is this kind of human error happening inside a big organization with something as mission-critical, expensive, and risky as a rocket launch. 

And naturally, this “clock error” makes many people wonder about the safety and security of a 737 Max passenger plane—“Is there a clock on these planes?”—which can hold up to 200 people and hurl across the sky at 538 miles per hour. 

This issue of the clock error also taps into our deep-seated fears about the reliance we’ve placed on technology and automation in general. 

But when you add in the factor of a company getting so big in size that its clock-setting division isn't able to successfully coordinate with what the rocket-launching division is doing, we all get a little apprehensive about getting onboard.

As a society, we have all been getting increasingly concerned about the future safety and security of the products and services—such as self-driving Tesla cars, listening devices like Amazon Echo, in-home security cameras like Nest, and even the general trustworthiness of our electronic voting and election systems.  

How many of these items have clocks? 

And how many of them are dependent on the coordination of big, giant organizational divisions to set these devices to the correct time?

An Invisible Force

But as concerning as the issues are with technology and automation, what if there is some other more profound and stubborn invisible force at play here at big companies? 

An invisible force that not only can bring down the innovation capabilities of an aerospace giant but as well many other companies we know, or perhaps even run ourselves. 

Not unlike the government, large school districts, and airlines, once a company becomes "too big to manage," the central office starts to develop layers upon layers of policies and procedures that can take on a centrifugal force of their own. 

Instead of managing the innovation programs, big companies can end up burning off substantial amounts of energy and resources just trying to oversee the spider web of divisions and navigate the bureaucracy of their own making. 

We have all experienced this complex web of bureaucracy to some degree in our regular interactions with the government, DMV, internet providers, airlines, and other large organizations. 

To be fair, though, slowing things down or making things more complicated is not really the intention of any one of the hardworking executives at Boeing or anywhere else for that matter. 

It is instead more of a byproduct of size and a matter of the organizational physics that becomes a natural part of the inherent dynamics at big entities. 

Because of the immense size and complexity of some entities, the gravitational pull of their organizational mass can act as a force to keep good ideas down, impede improvement measures, and hinder innovation efforts from being able to get off the ground, much less reach their required orbits.

To fully grasp the meaning of the term “organizational physics,” it’s worth doing a quick refresher on some of the core concepts of physics that we all might remember from high school.  Nobody likes going back to school, but I promise these concepts will help you with understanding your own organization's thinking and that of companies you work with regularly.

What goes up must come down

If I walk down the street and happen to trip on something, I fall down, not up. Everybody knows that. 

And no matter how hard I throw a baseball into the air, it eventually falls back down to the ground. 

Even if I got Nolan Ryan—the former Hall of Fame professional baseball player and one of the world’s fastest pitchers— to throw one of his 101 miles per hour speedball pitches, the ball will still come back down to the ground. 

But this is not the case in outer space. 

If Nolan Ryan were to throw one of his 110 miles per hour baseballs on the moon, it would reach a staggering speed of 3,635 miles per hour. 

Why does that happen?

Because there is less gravity on the moon than earth. 

The invisible force of gravity

Although we take it for granted, there is an invisible force on earth called gravity that pulls all objects towards the center of the earth. 

And the gravity on earth acts as a counterforce to the strength, speed, and velocity of Nolan Ryan’s pitches, preventing his ball from going faster than 101 miles per hour. 

The same invisible force also has an impact on Nolan Ryan’s weight. 

On earth, Nolan Ryan weighed about 194 pounds (during his prime baseball years), but on the moon, Ryan would only weigh 34 pounds. 

How can that be? 

Well, the moon has one-sixth of the gravity force that earth does, which means you weigh six times less on the moon. 

By why does the moon have less gravity? 

Because the moon has significantly less mass than earth, and mass is what determines the force of gravity. 

How mass affects gravity

Sir Issac Newton’s Law of Universal Gravitational states that: 

“All objects that have mass are attracted to each other.” 

And all objects have a mutual attraction and pull each other. 

However, Newton’s principles went on to say that: 

“The greater the object’s mass, the greater its gravitational force.”

Because the earth’s mass is so large, no matter how hard Nolan Ryan throws a baseball—which has a much smaller mass—the ball will come back to the ground. 

So how hard would Nolan Ryan have to throw a baseball to prevent it from coming back to earth?

About 25,000 miles per hour, or 7 miles per second. 

This kind of directional speed is what is called Escape Velocity, and it is the speed at which rockets have to travel to escape earth’s gravity completely. 

Boeing’s Starliner Problem

So is this escape velocity what Boeing was trying to achieve with their Starliner spacecraft? 

Not exactly. 

Boing wasn’t trying to shoot their Starliner spacecraft to the moon or any other planet for that matter. They were instead trying to reach orbital velocity—which is around 17,000 miles per hour, or 4.9 miles per second. 

At this velocity, an object can stay in perfect balance above the earth while maintaining a constant orbit around the planet. This balance is what satellites do every day. 

The problem Boeing had with the Starliner wasn’t a failure to launch. The launch was a success. 

Instead, the problem with the Starliner was its inability to hit the right velocity needed to maintain orbit. 

The way NASA and Boeing described it is they had a specific window of time to reach this orbit before they burned out their fuel. 

The Starliner missed this orbit in part due to the clock error, but as well to problems that related to the failure of the thrusters used to raise the spacecraft’s orbit. 

All of these events led to the Starliner missing critical points along their planned journey, which pushed them into a “failure window.” 

The Failure Window of Innovation

I find this term “failure window” fascinating because this is what often happens to so many well-established company’s when they try to launch new innovation programs. 

Not unlike the Starliner, many older, more established companies can achieve a successful product or prototype launch.

But where they typically encounter problems is that they often run out fuel, or they lack the additional late-stage thrusters needed to hit the right orbit. 

And when an innovation effort fails to get beyond the reach of an organization’s pull, the new venture and innovation initiative eventually comes crashing back to the ground. 

Microsoft reached this same type of “failure window” with the Zune music player. 

Kodak hit it with the digital camera. 

Whole Foods hit it with the 365 stores. 

Harley Davidson hit with the Buell motorcycle brands. 

Starbuck hit it with its tea stores, Teavana. 

Walmart hit it with its smaller stores, Walmart Express. 

Google hit it with Google Glass.

Boeing has hit it with the 737 Max and their new aerospace spacecraft, Starliner. 

And countless other well-run and established companies hit it when they try to get ideas off the ground and into an orbital trajectory that is sustainable. 

All of these ventures were not only good ideas but essential strategies for the future viability of these companies' ability to compete with the other options in the market. 

And all of these ventures also had successful launches that garnered lots of public attention and interest.  

But none of these ventures could seem to get beyond the reach of the gravitational pull of their organizational mass before they hit their failure window. 

Why do small companies do innovation better

You are probably noticing a theme here that big, established companies with all the best resources, talent, and funding have great difficulty creating new breakthrough innovations that can stay in orbit.

Surprisingly, some of the most significant innovations of our time came from small startup companies—like Apple, Netflix, and Facebook—which started in garages, apartments, and dorm rooms with almost no resources.

Why is it that small companies can innovate better than big companies? 

Because small companies don’t have as much organizational mass, and therefore not as much gravitation pull on new ideas, improvement programs, and innovation efforts. 

In other words, they are free to explore "the great beyond" without getting pulled back down to the ground by internal policymakers and organizational traditionalists. 

When a small company throws an idea out there, there is not as much of a historical organizational force trying to hold it back.

New and possibly outlandish ideas in small companies—such as Netflix's idea to stream movie rentals, which seemed ludicrous at the time— have the potential to go fast and far because there is not much of a counterforce or resistance to pull it back to the ground. 

But when a big company—like Blockbuster— tries to launch a new idea out there, there is an incredible invisible force within its organization that works to pull all new ideas back to its universe and back to the traditional way of thinking.  

So while Blockbuster continued to harvest an old idea with diminishing returns, Netflix explored radical new frontiers of the market universe. But when Netflix finally hit the right orbit—which was constantly being adjusted by founder-level involvement and thrusters— it cracked opened up an entirely new set of possibilities for in-home entertainment with exponential returns. 

Exploring these new frontiers are the lifeblood of a company's future ability to compete, but so many of the big companies struggle to launch innovation rockets off the ground. 

The gravitational pull of organizational mass

I make my living developing innovation rockets for companies and launching expensive crewed vessels into new and unchartered territories. 

My team and I take great responsibility in making sure these new and expensive initiatives successfully arrive at their intended destination.

But inevitably we always have to fight "The Resistance" on the ground. 

Our success rate for launching new ideas and exploring new business model opportunities is pretty impressive.

I credit this success rate to the fact that we have done this type of exploration mission a thousand times. Over the years, we have learned how to design and build the right kinds of innovation vehicles that can hit their intended orbits.

However, companies often hire my team and me to study and evaluate why their innovation efforts missed their required orbits, or perhaps never even got off the launch pad. We typically find that the gravitational pull of their organizational mass is too strong for ideas to get beyond the reach of the company's intitutional grip.

For these larger entities, it doesn’t matter if they get Nolan Ryan or a big consulting firm to pitch these new ideas and launch these programs into the air. The organizational pull of the old way of thinking and doing things is often too strong. 

But there is a way for big companies to get beyond their gravitational force field. 

Not unlike Newton’s law, I have developed my internal theories and principles about innovation that I call:

Kevin’s Law of Organizational Mass and Gravitation Pull. 

• All organizational divisions of a company are attracted to what each other team is doing and they have a mutual pull on each other.
• The organizational divisions with more age, history, managers, resource allocations, policies, and procedures have a much greater mass than newer divisions, and therefore more gravitational pull. 
• Organizational divisions with greater mass exert a stronger counterforce on newer divisions with less mass. They, therefore, have more force and power in the overall direction of the company's strategy, agenda, resources, and fuel allocation. 
• No matter how brilliant, groundbreaking, or revolutionary a new idea or innovation program might appear on the drawing boards or launchpad, the organizational divisions with greater mass will have a greater gravitational pull on new ideas. And they will intentionally or unintentionally exert an invisible force to bring these new ideas back to the center of their way of thinking. It's not personal. It's just organizational physics. 
• For a new idea to break free of the gravitational pull of the larger organizational mass, the new division must have enough speed, velocity, resources, fuel, late-stage thrusters, and senior-level leadership backing to successfully reach its intended orbit. If any of these factors are missing or low on supply, the innovation rocket has a low likelihood of escaping the organizational pull and hitting the right orbit. 
• The ideal distance for a new division to achieve its correct orbit is slightly beyond the pull of the organization’s largest divisional mass, but not so far out that the new division leaves the universe of the company entirely. 

How big companies can innovate

The Boeing Company wasn’t always a big, giant conglomerate. There was a time when they were a much smaller company with a completely different management style. And they were admired, revered, and envied for their incredible ability to do seemingly impossible feats. 

For most of its life, Boeing was an engineering first company that built the most innovative flying machines the world had ever seen. But somewhere along the way, they got big and became less of an engineering-focused company and more of a numbers-driven, financial holding company.

While the problems with this approach of getting big didn't appear immediately, they eventually came out over time. 

As Clive Irving, the author of Jumbo: The Making of the Boeing 747, put it:

“…a passion for planes was replaced with a passion for affordability.” 

However, not all big companies are defeated by the gravitational pull of their organizational mass. Apple is a massive company, but they have overcome their organizational mass by putting their creative design team at the top of their corporate values, structure, and thinking. This design team has considerable freedom to explore new territories and to imagine new possibilities. And most importantly, they don’t have to answer to a strict set of policies, nor do they have to go through layers of red tape to experiment and model out future possibilities. 

The design team at Apple was given a mission and mandate—from Steve Jobs himself— to keep pushing the envelope.

But, in all fairness, some worry that because of Apple's tremendous success, it too will get too big to innovate.

Both the founder, Steve Jobs, and the Chief Design Officer, Jonathan Ives, are no longer at Apple to push, drive and demand innovation. And rarely do companies know or admit when they have become too big to innovate.

The type of organizational gravity that kills innovation is an invisible force that just takes hold without companies realizing it.

It often starts with a small memo about timesheets, the rules for kitchen clean up or working on weekends or something seemingly mundane, but then, before you know it, you have a giant hairball of policies and procedures orbiting your creative lab.

It's worth remembering, that at one point in time Sear's, Kodak, Polaroid, Xerox, Blockbuster and Digital Equipment Corporation were all leading-edge innovators too. But eventually, they became victims of their own organizational mass and weren't able to innovate or evolve their business models to meet a new and different kind of future.

Only time will tell for how Apple manages it's age, size, history and innovation capabilities.

However, there is tremendous value in looking at how other big, successful companies dealt with their growth and enormous size—such as Apple's one-time archenemy and fierce rival, Microsoft.

Despite Microsoft’s incredible early success, the company reached a point where they couldn’t seem to get any new innovative ideas or new business market opportunities off the ground. They missed the smartphone revolution entirely, which was not only theirs to lose but an incredible market opportunity to let others seize. Microsoft also missed out on the music/TV/movie markets. And several other market opportunities where Apple (and others) outmaneuvered them with much fewer resources.

Joi Ito from Inbamura, Japan [CC BY (https://creativecommons.org/licenses/by/2.0)]

Microsoft's inability to successfully launch any new and exciting innovation growth rockets made many experts wonder if they too might not someday experience the same fate that Digital Equipment Corporation did many decades ago of fading away.

But the leaders at Microsoft were very aware of this pattern of what happens to big companies, and they took drastic measures to steer their fate into a different direction. In other words, they didn't let the gravitational pull of their organizational mass determine their fate or future.

When Microsoft brought in their new CEO, Satya Nadella, he not only led the charge to get the company to explore far-out places, he also stayed intimately involved in supporting, endorsing, defending and championing the missions himself.

This type of senior-level leadership involvement and support from the top of the company is what it often takes to overcome The Resistance of an older, more established organization. 

One of the key areas where Microsoft has been shining is the "cloud-dominated future defined by the digitization of people, places and things,” as Nadella so eloquently put it. The old Microsoft would have had a hard time pulling away from their traditional business focus, but Nadella is determined to take their talent and expertise to new and different places.

Escape the gravitational pull

The key to escaping the gravitational pull of your organizational mass is to first develop a sharp awareness of how this resistance can intentionally or unintentionally kill good ideas in your company. 

Secondly, you have to put enough fuel, resources, leadership, and additional late-stage thrusters behind your innovation programs to ensure they hit their intended orbit. 

Anything less will miss the mark.