Please clarify the following that are in red.
Many big companies innovate by buying up smaller innovative companies. That's often a good idea. But what happens next? In many cases, the big company develops formal procedures and routines for the new product or service that stifle creativity. That might not matter. When the market dries up for that innovation, the big company simply looks for a new company to acquire. But other times, it doesn't work out.
What does "That" refer to in the above? And please explain the second part more easily.
"When the market dries up for that innovation" refers to the fact that these particular innovative goods or services may not continue to be in demand for ever. Perhaps another innovative company has brought out something which does the same job even better and/or cheaper. When no-one buys your product any more, then it is said that "the market has dried up" for your product.
I'm not a teacher of English, but I have spoken it for (almost) all of my life....