Why Companies Can't Innovate

Why nations fail : the origins of power, prosperity and poverty by Daron Acemoglu and James A Robinson should be required reading for most corporate managers. I could see a sequel applying the same contingency theory of history to corporations - Why companies can't innovate.

Acemoglu and Robinson's book is very readable and makes a very strong case that countries are not poor because of location, resources, or cultural heritage, but rather are poor as a legacy of the political an economic institutions they inherited. If these institutions are designed to extract wealth to enrich a small group of people at the expense of the rest of society, the society will be extremely poor and there is a good probability it will remain poor or become poor without radical change. Societies with inclusive institutions that allow mobility and the rise of new interest groups will innovate and there is a good probability the society will experience sustained economic growth.

Companies have many of the same challenges to innovation - if a company's business model is designed to maximize profits in its existing businesses, there is going to be a lot of institutional resistance to any changes that might threaten those businesses. If a company's business model is designed to include the decisions of as many people as practical, I suspect it is much more likely to innovate and be able to react to a changing environment.

And of course, because the economy is an open system there is always a third option - buy your innovative competitor and make his innovation yours.

Why nations fail : the origins of power, prosperity and poverty