“Why don’t big profitable companies (and government agencies) innovate?”
This was Clayton Christensen’s thesis, the most preeminent management academic of a generation, and still it’s been largely ignored or misinterpreted in favor of the cottage industry of fighting the obvious truths within it.
They do not exist to innovate; they exist to defend a business model from innovation. Innovation is termed “disruptive” in that it reduces margins, and expands access to markets that the organization has no advantage in. Innovation reduces profits and increases competition.
In the case of a government agency, their business model is monopolistic inefficiency: more budget to perform the same services. Internal departments in big companies operate similarly. The constant call for “innovation” is just another tactic to increase budget. Innovation in reality decreases budget, and the causality works best in the other direction, but curiously nobody is fighting for less. Why?
This is not just an internal phenomenon of departments versus budget planners or agencies versus congress. It’s also the relationship between the business or agency and the market it serves. The strategy of a monopolistic business model is to expand the captive market and extract higher margins for the same service. If they innovate, they do so only in defense, to prevent anybody else from establishing a profitable business from an innovative business model.
A good contemporary example of this is Google versus the LLMs. Google was founded to serve the market of people that love information. They found a business model in advertising, and used their profits in every imaginable way to expand the captive market of internet users, and the amount of browsing and searching they do. The problem with this is that their information-seeking users actually hate browsing, which is the activity that generates profits. Google also hired the majority of graduating AI researchers for two decades straight, who invented the solution to this problem, and published a version of it just strong enough so that nobody could create a profitable business from it. It should be obvious that still nobody else has even remotely the resources that they do to train an LLM. It’s perhaps likely that they do have a vastly superior LLM, it will be used only in service of their existing business model. The capital required for somebody else to train a model that could minimally compete with that business model was unprecedented by orders of magnitude. If Google were smart, they’d have calculated that amount versus the long-term profitability of a potential competitor, and release product updates and open source strategically to ensure that competing with them will never be profitable. And that’s probably exactly what they did. Yet somebody was willing to take that enormous loss, and now they’re at war. Now Google’s competitive LLM offerings are slightly inferior, and this appears as incompetence, but it’s actually excellent strategy to reduce competitor margins without advancing the state-of-the-art to affect the margins of their main business model. You should have no doubt that Google could easily produce a vastly superior LLM, and will continue to handicap themselves until such time as their advantage disappears. At that point, they will be forced to focus on higher margins at the top of the value chain of their business model, having lost the bottom, but also enjoy an expansion of that market from competition among low-margin or loss-leading innovators.
In Clayton’s thesis, it was steel mill technology. He explained why the big coal-fired mill businesses lost the market to electric mini-mills and eventually exited the steel mill business. He found that it was not due to incompetence, but profit-maximizing strategy. Every technology business model has a lifetime.
So don’t expect innovation from organizations that strategically demand the opposite. Tangentially, there is an interesting experiment going on at X where Elon has recreated half the conditions for innovation by cutting 90% of staff, but retained the user base and business model of the old business.