Can big companies produce real innovation?

The games industry has gone through a series of major transitions and changes over the past couple of decades - changes to the platforms people play on, the way they pay for and interact with games and even to the audiences that are actually playing. Each of those has brought along a series of challenges which the industry has had to surmount or circumvent; none of them, arguably, is a perfectly solved problem. Meanwhile, though, there have also been a handful of challenges running in the background - consistent issues that are even more fundamental to the nature of the games business, less exciting and sexy than the latest great transition but no less in need of clever solutions. Education and skills is one example; tax regimes and the industry's relationship with governments is another.

Perhaps chief among those issues, though, is one which ties in to a common problem across a wide variety of industries, creative and otherwise. It's the problem of innovation; specifically, the question of how to make innovation work in the context of a large corporation. The conventional wisdom of modern capitalism is that innovation bubbles up from small start-ups; unencumbered by the institutional, structural and cultural constraints that large, established companies operate within, they're free to create new things and execute original ideas. As firms grow bigger, they lose that nimbleness and flexibility. Projects become wrapped up in internal politics, in the stifling requirements of handling shareholder relationships, and all too often, in the innovator's dilemma - the unwillingness to pursue fresh innovation for fear that it'll disrupt one of your proven cash cows.

As a result, we see a structure in which innovation happens at small start-ups, which large companies tap into through acquisitions. We see this in the games industry too, in the form of big publishers acquiring innovative and successful developers. Such acquisitions usually come with golden handcuffs for the key talent, requiring them to work for their firm's new owners for a certain amount of time - after which they're free to go off and create something new, small and innovative again (with a few million quid in their back pocket, to boot). This creates a cycle, and a class of serial innovators who repeatedly build up new, successful small companies to sell to larger, innovation-starved firms.

"The reality is that a start-up inside a company isn't the same as a start-up in the wild. It doesn't have the same constraints or the same possibilities available to it"

For many large companies, this isn't an entirely satisfactory situation. Surely, they reason, there must be some way for a company to scale up without losing the capacity to innovate? Yet for the most part, the situation holds; big companies can create great products, but they are generally iterative and derivative, only very rarely being major, disruptive breaks from what was offered before. There are just too many barriers a game or a product needs to get through; too much politics to navigate, too many layers of management stumped by new ideas or worried about how something hard to explain will play to investors who only want to hear descriptions like "it's like GTA, but with elements of Call of Duty", or "it's like an iPhone, but with a better camera".

The desire to find some way to bottle the start-up lightning and deploy it within existing corporations runs deep, though, and it's resulted in a number of popular initiatives over the years. Perhaps the most famous of recent years is the buzz around Eric Ries' book The Lean Start-Up, a guide to effective business practices for start-up companies which extolled a launch-early, iterate-fast approach. Though it had some impact in the start-up world, The Lean Start-Up seemed to find its most receptive audience among executives at large corporations keen to find some way to create "internal start-ups" - silos within their companies which would function like incubators, replicating the conditions which allowed start-ups in the wild to innovate and iterate rapidly.

For the most part, those efforts didn't work. The reality is that a start-up inside a company isn't the same as a start-up in the wild. It doesn't have the same constraints or the same possibilities available to it; its staff remain employees of a large corporation and thus cannot expect the same rewards, or be exposed to the same decision-making environment, as staff at a start-up. Even something as basic as success or failure can't be measured in the same way, and in place of experienced venture capitalists (often the final-stage Pokémon evolution of the serial innovators described above) as investors and advisors, an internal start-up finds itself being steered and judged by executives who have often spent a lifetime working within precisely the corporate structure they now claim to wish to subvert. It's hardly surprising that this doesn't work very often, either within games or in any other sector.

We haven't talked about Hearthstone yet, even though it's right up there in the opening lines. Let's talk about Hearthstone.

Hearthstone is Blizzard's card battling game, available across a variety of platforms. It's a spin-off from the Warcraft franchise, and last year it made somewhere in the region of $350 million (according to estimates from SuperData). This week it topped 70 million unique users, and though the company doesn't release concurrent user figures, it claims to have set a new record for those following the release of its latest expansion pack in April. It also remains one of the most popular games in the world for streaming. It's a hell of a success story, and it's also, in essence, a counterpoint to the notion that big companies can't do small, innovative things. Hearthstone was prototyped and built by a small team within Blizzard, and ever since its launch it has embraced a distinctly start-up approach - iterating quickly and doing its experimentation in public through features like the "Barroom Brawl", a sandbox that allows developers to test new mechanics and ideas that might make their way into the main game if they work well.

"Blizzard has developed something within its internal culture that a lot of other firms in the industry lack; a capacity to coolly, rationally judge its own work on a purely creative and qualitative level"

Given Hearthstone's commercial success and the relatively small team and infrastructure behind it (relative, that is, to a behemoth like World of Warcraft), it's probably Blizzard's most profitable game. The question is, can other publishers and developers learn from what Blizzard did here? There's a tendency with Blizzard success stories to simply attribute them to some intangible, indefinable "Blizzard Magic", some sparkling pixie dust which is sprinkled liberally on all of their games but which can only be mined from the secret goblin tunnels under the company's Irvine campus. In reality, though, Blizzard is simply a very creative and phenomenally well-managed company - one which has, in many respects, placed the solving of the whole question of how to innovate within a large company environment at the very heart of how it structures and defines itself.

One of the most famous things that people in the industry know about Blizzard is that the company is ruthless in its willingness to take an axe to projects that don't live up to its standards. StarCraft: Ghost never saw the light of day after years in development; Titan, the planned MMO follow-up to World of Warcraft, was similarly ditched (with a core part of its team going on to rapidly develop the enormously successful Overwatch as their "rebound project"). What that means is that Blizzard has developed something within its internal culture that a lot of other firms in the industry lack; a capacity to coolly, rationally judge its own work on a purely creative and qualitative level, and to make very tough decisions without being overly swayed by internal politics, sunk-cost fallacies or other such calculations.

It's instructive to listen to comments from people who worked on cancelled projects at Blizzard, even at a high level; while it was no doubt an emotional and difficult experience for them, their comments in hindsight usually express genuine agreement with the decision. There appears to be a culture that allows the company to judge projects without extending that judgment to the individuals who worked on them; I don't doubt that this is an imperfect system and that there's still plenty of friction around these decisions, but by and large, it seems to work.

"There is no magic pixie dust involved in the success of games like Hearthstone (or Overwatch, for that matter). This is a model that can be replicated elsewhere... it's not dissimilar to the structure of a company like Supercell"

That creates an environment in which a start-up style approach can actually thrive. Small, creative teams can work on innovative games, rapidly prototyping and being effectively judged for their quality along the way. After only a couple of cycles of internal culling and restarting, surviving projects can be pushed out to the market as a kind of "minimum viable product"; not a thinly disguised prototype, but the minimum required to be a viable Blizzard game. Polished, fun and interesting, but designed as a springboard from which the team can go on to iterate and innovate in a way that's informed by feedback from a real audience, rather than as an expensively developed, monolithic product.

Not every company can accomplish this; it's not just Blizzard's exacting standards of quality that permit it, there are also important factors like the company's opaqueness to investors (which allows it to make products for the market rather than making products for shareholders) and its ability to bootstrap new games with IP from existing franchises (the Nintendo model, in essence) to consider. There is, however, no magic pixie dust involved in the success of games like Hearthstone (or Overwatch, for that matter). This is a model that can be replicated elsewhere, given the right approach and the right people in decision-making roles. In fact, it's a model that does exist elsewhere; it's not dissimilar to the structure of a company like Supercell, for example, which helps to explain why Supercell is one of the only mobile developers that's been able to "bottle its lightning" and consistently develop hit titles. It's also close, though slightly different in structure, to the way Nintendo has shifted towards working in recent years, which has resulted in titles like Splatoon.

Big companies can be creative; they can be innovative, daring, clever and even disruptive. Hearthstone shows this at work within Blizzard, and it's also present in a select but distinguished line-up of other game companies that have made it a priority to nurture innovation and to create a culture where good taste and creative excellence are celebrated above all else. For many companies, this would be a radical shift - requiring a change in priorities, in structure and even in staffing - but in the long run, such a shift might end up a lot cheaper than having to pull out your wallet every couple of years to buy the next innovative start-up that came up with an idea your own firm couldn't conceive of.