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Large company? Watch out! Small companies are taking the lead in digital innovation

Small companies in the lead on digital innovation

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The Dutch digital retailer Bol.com has grown from 300 to 1200 employees within a time span of only 7 years. At the same time, it becomes more and more evident that other Dutch retailers are struggling to operate in a world that is becoming more digital. A well-known example in this regard is V&D.

The increasing presence of digital technologies in products and services

The effect on Dutch retailers is just one clear example for the disruptive impact that digital technologies can have on business. Digital technologies are increasingly embedded in products and services. Nowadays houses, cars and even watches include software-based digital capabilities; companies generally are starting to use business models based on digital platforms. This changes the nature of product and service innovations, since digital technology generates new and complex innovation challenges. An important part of the complexity is the speed with which digital innovations follow up each other. The successful adoption of digital innovations is therefore crucial for the long term succes and competitiveness of companies.

Thus, the one million dollar question that companies ask themselves today is how to organize your company in such a way that you can successfully adopt digital innovations?

Which companies have an advantage when it comes to digital innovation?

In order to assess this question KPMG's Digital Advisory team has performed a survey to find out which kind of companies have an advantage when it comes to the level of digital innovation. The survey to evaluate the level of digital innovation defines five important pillars (user experience, value proposition, improvisation, digital evolution scanning and skills), and has been spread among companies that vary in size and industry. A total of 62 organizations within the Netherlands has responded.

Small size, big impact

Previous research indicate that large companies are more likely to innovate than small companies. Consequently, one might expect that large companies would be more likely to adopt digital innovations than small companies. However, as we are able to observe in the past, large companies struggle with adopting digital innovations in a successful way, which can lead to severe consequences. The company lifespan is  decreasing and small, relatively young companies like WhatsApp or Bol.com seem to have a relative advantage when it comes to digital innovations.

The results, presented in figure 1,indeed indicate that small companies have a relatively higher level of digital innovation when compared to large companies. The statement even holds true across industries.

You may ask yourself, where does this difference come from? The main causes are:

  1. A relatively higher level of digital capabilities and skills of the workforce;
  2. A relatively higher amount of time dedicated to developing new digital ideas and solutions, and;
  3. Smaller companies seem to be more active at scanning the environment for new developments, and seem to possess a greater flexibility at responding to those developments

In contrast, large companies seem to have difficulties at adopting digital innovations due to:

  1. A lack of visionary leadership;
  2. A (relatively) low decision making speed;
  3. A lack of appropriate skills among the workforce.

Figure 1 - KPMG Digital Maturity Framework

Digital maturity relative to full digitalization potential (adjusted by KPMG) *

This is a striking result that shows why companies that start small can experience an enormous growth within a relatively short time span. Large companies will need to find ways to operate like small companies again to foster flexibility and to more effectively adopt digital innovations in order to remain competitive.

To learn more about how companies should organize themselves to be able to keep up with digital innovations and an increasingly digitally enabled world, or if you want to know more about our research, please contact Nicole Rhebergen for any further information.

Nicole Rhebergen
Consultant Digital Advisory
+31 (0)6 27416786

* User Experience = overall experience the customer has when using a product or service.
Value Proposition = the level to which the organization has developed a clear reason why customers benefit from buying their product or using their service.
Digital Evolution Scanning = the degree to which an organization pays attention to its environment to foresee new developments and opportunities for digital innovation.
Skills = the level of skilled employees who are able to cope with the speed of digital innovation since the way the organization is organized has to change when coping with digital innovation.
Improvisation = the degree to which an organization lowers formal control on digital innovation processes and “act as it happens” in order to deal with the complexity of digital innovation.

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