Digital innovation is at the heart of a business strategy
Innovation gurus have said, time and time again, that the failure to innovate can lead to stagnation, or even failure. Far be it from me to hammer the message home even more (well, maybe just a little bit), but recent history has shown that resisting—or even holding back—innovation leads to lost competitiveness. Kodak is the perfect example of this. The decision to improve film cameras rather than embrace digital technology contributed to the failure of the Kodak brand. Yet, do we really know how innovative practices can impact a business strategy? By extension, the existential issue is this: is innovation at the heart of a business strategy or, on the contrary, is it the business strategy that drives innovation. The following are some thoughts on this issue in an attempt to separate the wheat from the chaff.
Digital transformation: A framework for radical innovation
What to make of the abundance of management literature touting innovation as a remedy for all that ails an organization? First and foremost, all roads to innovation are not equal: incremental innovation, which is very similar to ongoing improvement, cannot provide miracles. The best results are obtained with breakthrough or radical innovation, making it possible to achieve technological and operating excellence. These two focal points are the result of innovation and organizational transformation, but are also crucial in underpinning the two key objectives for a digital business that differs from the rest:
- Improve the client experience, for example using a centralized client file that provides a comprehensive picture for each client’s history and characteristics and that suggests the next steps to take or recommended goods and services;
- Improve the effectiveness and level of commitment of employees and partners. Modern day companies no longer operate in isolation. They must differentiate themselves by pooling their resources and know-how. Finally, the importance of employee commitment has already been established.
Since there is no one-size-fits-all solution for all problems (many IT providers will unfortunately try to argue otherwise), developing a framework that can be tailored to different sectors, products, targets and processes inherent to a business seems to be of fundamental importance. To address this issue, I am proposing a theoretical—but also a very practical—framework based on my experience, dealings with clients and knowledge in the area of innovation management.
Digital transformation framework
Innovation capacity and transformation capability: Two essential elements that go hand in hand
Only 71 of the companies listed on the Fortune 500 in 1955 still exist today. Why? In my view, this is due to two key factors: a company’s innovative capacity and its capability to be transformed while capitalizing on innovation. Transformation capability refers to organizational agility and the courage to invest in practices that foster innovation (the tools, methods and type of organizational climate that provide fertile ground for innovation will be discussed in more detail in an upcoming article). Transformation capability is not a standalone process: to achieve this optimum result, oversight in the form of various governance mechanisms that transcend company silos is required. The goal has more to do with broader innovation management as compared to sporadic or occasional innovation. Once again, I am opposed to incremental innovation, which is often necessary albeit clearly inadequate.
Innovation capacity refers to an organization’s ability to put in place all the necessary elements that are conducive to innovation, namely market intelligence, openness to clients, time-tomarket, and development of the proposed goods and services at optimal prices. Today, all companies are able to acquire equivalent means and infrastructures (technology, know-how, services), for about the same price, which includes patents. In other words, there are no more excuses. Combining innovation capacity and putting in place these resources provides the real added value in a digital business strategy—one that will allow the company to set itself apart and become a leader in its field. Just like the method of establishing the business strategy, which must be both innovative and customized, the method of innovation and the objective being sought must be innovative in their own right to guarantee the success of any differentiation strategy.
However, there is no magic formula. To provide results, the strategies used must be interconnected and carried out on a simultaneous and ongoing basis—somewhat like having a business operate during renovations. It is also important to remember that innovation in itself is no guarantee for a company’s success. Although it may be necessary—even crucial—for a company’s survival (always remember Kodak), it is also important to use this lever to transform business practices as well as the business strategy. For optimal results, innovation and strategy must go hand in glove.
Aligning strategy and innovativeness: The first step towards excellence
According to a Harvard Business School study, 75% of companies examined have a tendency to make ongoing improvements in the same way, with few real benefits, rather than examining new products, services or markets. This failure to innovate stems mainly from the lack of an ongoing innovation process, an obsession with daily operations management to the detriment of the business models of tomorrow, a limited understanding of stated and unstated client needs and, finally, a lack of collaboration both within the organization and with external partners. The emergence of new business models, which is encouraged, is a testament to this crucial alignment between the company’s strategy and innovativeness: the sharing of assets (car, tools, accommodations, etc.), the sharing of production capacity, the return of barter transactions, the sharing of insurance and finance risks, community fund-raising… there are many ways to use innovation in order to transform an organization’s business strategy.
The following are some tips to plan and put in place the business models of tomorrow
- Involve all business lines in the strategic planning process;
- Incorporate innovation to stimulate strategic planning;
- Gather and analyze the appropriate data, e.g., by way of benchmarking, to provide the necessary information for strategic planning;
- Put in place a value management framework to measure the benefits of the new strategy;
- Never under-estimate the necessary balance that must be achieved between the transformation strategy and operations management.
What if the greatest risk is not just missing out on digital transformation and not having the courage to invest in innovation and modernization? What if the pitfall were failing to harmonize innovation and management practices? Today’s strategy requires another strategy, just like innovation requires new innovative approaches. In upcoming articles, I will discuss in more detail how to put in place innovative business strategies as well as governance mechanisms making it possible to support these strategies and how to mitigate some of the related risks.