Why Big Organizations Struggle to Innovate From the Inside

In the late 20th century, several large retailers saw the rise of discount chains as both a threat and an opportunity. Some, like Kmart’s parent company, Kresge, created an entirely separate division—complete with its own leadership, goals, and budget—to launch discount stores like Kmart. It was allowed to develop new pricing, staffing, and supplier relationships that would have clashed with the company’s mainline processes.

Meanwhile, other entrenched giants tried to simply bolt discount stores onto their existing businesses, using shared staff, technology, and accounting. These divisions were held to the parent company's standards and strategies, and attempts to change quickly ran into internal resistance or were smothered by the weight of legacy systems. Over time, the freer, more independent divisions—unbound by the old rules—found it far easier to iterate, delight new customers, and gain market share.

Organizational theory and management research point to this as a classic case of resource allocation and cultural conflict. When the units pursuing radical innovation are forced to play by the old playbook, they rarely survive. By intentionally structuring for separation, organizations create space for adaptability and risk-taking—both essential for surviving disruptive industry shifts.

Examine your own team's projects for any that reach into unfamiliar territory or serve 'offbeat' customers. If you spot one, consider giving that project a shielded, independent structure, with its own rules and rewards aligned to its actual prospects. Don’t judge its progress by the same numbers you use for the main group, but by its unique breakthrough goals. Let them own decisions end-to-end, and see how bottlenecks and frustration transform into creative action and real progress. Try this on a trial project and watch what changes.