The Fall issue of Strategy + Business has an excellent article by Costas Markides and Paul Geroski titled, Colonizers and Consolidators: The Two Cultures of Corporate Strategy (registration required). It’s about the fundamental differences between small, nimble, entrepreneurial and innovative firms versus larger, more bureaucratic, process-based and established firms. It touches on the dichotomy of creating ideas and scaling them up to profitability.
Our research, which examined the early evolution of several new markets, provided a number of clues about how markets are created, how they evolve, and what their structural features and characteristics are in their early formative years. In industry after industry, we saw the same pattern unfold: Upon the creation of a new market, there’s a mad entry rush by scores, sometimes hundreds, of players to colonize it. At some stage in the evolution of the market, a “dominant design” emerges, which standardizes the core product or service being produced, gives it its lasting identity, and defines the identity of the market it serves. Upon the emergence of this dominant design, a shakeout and consolidation takes place in the market: The overwhelming majority of early movers that choose the wrong design go out of business; a few prescient (or lucky) ones that bet on the winning design survive, and a handful of these grow to market dominance. …
The fact that firms that create new product and service markets are rarely the ones that scale them into mass markets carries serious implications for the modern corporation. Our research points to a simple reason for this phenomenon: The skills, mind-sets, and competencies needed for discovery and invention not only are different from those needed for commercialization; they conflict with the needed characteristics. This means that firms good at invention are unlikely to be good at commercialization, and vice versa.
Some firms are natural colonizers, able to explore new technologies quickly and effectively and to make the creative leap from a technological novelty to a product or service that meets customer needs. What these firms are good at is creating new market niches. Other firms are natural consolidators. They are able to organize a market, turning a clever idea into something that reliably and regularly meets the promise, can attract consumers, and can be manufactured and distributed efficiently to a mass market.
Very few firms are good at both sets of activities.