I’ve had the good fortune over the last six weeks to reach out and talk to a significant number of my colleagues, friends and some new acquaintances in the innovation space. What I’ve been trying to find out is 1) what is happening in the innovation space currently and 2) what do people think the future opportunities for innovation are? I have a number of ideas and thoughts that I’d like to share – by calling on these conversations and my own opinion and research.
The key question I keep coming back to is: can you juggle three really different needs and initiatives simultaneously? Because I think increasingly an efficient core, an innovative edge and a digital transformation will all be important.
The beginning of the end, or the end of the beginning?
For more years than I can count, people have been calling for the “end” of innovation. As Churchill said in the dark years of World War II, this could be the beginning of the end, or the end of the beginning. Of the people I’ve talked to over the last six weeks, a blend of innovation consultants, analysts and corporate practitioners, most feel that innovation as a concept is reaching maturity. That is, many companies believe that the capability to innovate is becoming a commodity inside businesses. I think most management teams believe they can accomplish incremental innovation in house, and they are happy with that result. So the question becomes – will there be a sustained push for more innovation, and will there be a need for more external assistance? I think there will remain a focus on innovation, but with different agendas and motives. Incremental innovation will become a consistent focus, while transformative and disruptive innovation will be sporadic at best.
A good friend, Drew Boyd, who is no slouch at innovation himself, suggested that innovation moves in cycles. For some firms we may be in a cycle where management teams are seeking to harvest ideas from previous investments in innovation. It could be that many companies are waiting to see the fruits of the investments in innovation over the past few years, hesitant to invest more before seeing some outcomes. Innovation – in this definition meaning creating valuable new products and services to drive organic growth, revenue and new profits – will always be in demand, yet my sense and the sense of others is that innovation for many reasons hasn’t lived up to expectations in many corporations. This failure to meet expectations (we can argue if these expectations were reasonable or the activities fully resourced) plus the emergence of digital transformation lead to the sense that interest in core innovation may wane slightly in the new year.
Shiny Objects ahead
There are, however, a few shiny objects on the horizon and closing fast. The lure of digital transformation, and the excitement over the Internet of Things, machine learning and so forth is tangible. Most companies know that this digital wave is about to crash, and most if they are honest with themselves know they aren’t prepared. This new management phenomenon will pull attention and funding away from innovation and in many cases this may be the right investment. As more and more data is generated, companies stand to lose revenue, share and brand image if they don’t respond with better digital capabilities.
However, management bandwidth is limited, so increased focus on digital transformation can only mean lesser focus on innovation, or pushing innovation into the fabric of the operating model. Since few companies have fully adopted innovation as an operating capability, this means that its likely fewer innovation projects will be started, and when they are started it will help innovation activities receive funding if they focus on smart and connected outcomes.
This points out the opportunity to merge innovation, the creation of new products and services, which seems a bit long in the tooth, with digital transformation, which is emerging but not yet solidified. If we can find ways to create new, smart and connected products and services that leverage innovation skills and digital skills, I think this is a win-win for everyone. I’m a bit concerned that much of the digital transformation focus in placed on specific tools (machine learning as an example) and not enough focus is on solving actual problems (what should machine learning do and what benefit does that create?).
The split between incremental and disruptive innovation
As noted above, most companies believe that they can do incremental innovation – that is, successfully add a new feature to an existing product, and they are probably right. However, this capability basically keeps the lights on – incremental innovation does not create new revenue streams or enhance profit margins. To “move the needle” companies need an occasional transformative or disruptive innovation. And in this recognition lie both opportunities and problems.
There are opportunities to generate transformative ideas within large companies. The staff are familiar with customer needs and emerging opportunities, so generating transformative or disruptive ideas is not difficult. But converting disruptive ideas into new products or services within an existing business is difficult, because existing processes and business models, as well as executives whose businesses would be impacted by a transformative idea will resist creating such a disruptive idea internally. Developing and launching new, transformative ideas that may cannibalize existing products or radically change operating models threaten existing revenue and profits, which make converting disruptive ideas into new products or services difficult.
Increasingly this means that most companies are likely to hone their incremental innovation skills, which in reality are an extension of familiar activities combining lean, agile and Six Sigma, and I believe will partner with startups and external firms to create interesting or disruptive new ideas. I expect to see even more accelerators, incubators, corporate venturing programs and other mostly external laboratories for transformative and disruptive work.
One to create, another to scale
The idea that external or near external accelerators and incubators will create and validate new, transformative ideas isn’t necessarily new. Some companies are working in this manner already. I just think increasingly we’ll see more risk shifted to external organizations to create and validate ideas, and at the right time larger corporations will then acquire the solution and scale. After all, isn’t that what larger corporations do best, launch ideas into a viable marketplace and scale the good ideas?
I remain hopeful and skeptical. Hopeful because the underlying story seems to make sense, but skeptical that larger companies can successfully identify good ideas in the ecosystem, acquire them in a relatively timely fashion and then scale ideas that weren’t developed in house and may conflict with existing operations or brands. Technology-driven companies do this kind of work finding emerging technologies in the open market, and it can take months or years to validate and acquire a technology that is just a component to a larger product or solution. Imagine trying to determine the value of a partially tested solution and acquiring it and scaling it.
The story works but the successes so far leave room for growth.
Transformation, of everything
Jim Carroll, one of the leading speakers on the future, has determined that his new focus should be on transformation. Note that I am dropping the leading “digital” from that description, because of course we are going to be transforming businesses and operations with digital technologies. Digital transformation almost goes without saying. We’ve been doing that since the first ERP implementations 30 years ago.
What we should be talking about is simply transforming our businesses, from large, static, slow-moving, monolithic and unresponsive to agile, insightful, creative and responsive organizations. This transformation is enabled by digital technology, but also requires rethinking how people are deployed and managed, where the focus of the business lies and how the business interacts with and relates to customers. More decision making needs to be pushed further down the org chart, and the org chart itself needs to evolve. We need faster decisions, made closer to the customer, and far more agility, speed and innovation to compete. Larger, older companies built on older models have further to go than newer, more digital and agile companies, but even newer companies must transform.
And I wonder if transform is the right word, because it implies a one time change, from this to that. However, given the pace of change and the number of new entrants and the increasing power of digital and the internet, how businesses work will continue to change. So transformation may not be a one time activity but a constant evolution.
You’ll need three hands
Many people talk about ambidextrous companies – those that can maintain an efficient, effective core while simultaneously innovating to create new products and services. The real test will be whether or not these ambidextrous companies can do both well while simultaneously transforming to meet new market conditions and customer expectations.
What we are ultimately talking about is not just product innovation, and where it occurs (incremental innovation inside, disruptive innovation outside) but also service and business model innovation, with the focus turned inward. How might we innovate and transform our businesses to make them more agile, more nimble, to operate more quickly and decisively? Can we maintain existing operations AND constantly evolve? If so, how? This question invites innovation back into the company, but with a different flavor and focus. Now, speed, agility and business model innovation become paramount, and innovation capabilities and tools will be turned not only to the creation of new products for consumers, but to create new operating models, new organizational structures and new revenue models. If you outsource all of your best innovation thinking, can you then turn the innovation skills to evolve your business when it needs to transform?
Digital transformation is a component of transformation, in the same way that ERP, CRM and the internet made today’s businesses more efficient and profitable. New expectations will leave slow, monolithic companies in the dust, however, and merely tinkering with digital transformation without changing services, customer expectations and business models will create a company that is ever more efficient at doing things that fewer and fewer customers want.
The expectations just went up. Customers expect high quality products and services delivered at low prices, which means efficiency. However, they also want interesting new products and services that address formerly unmet or unserved needs. This means innovation. But just as important is the ability to connect these devices and services to other data streams to create more meaning, more experience and more information. This is the power of digital.
These concepts are tightly linked, and your company increasingly must be good at doing all three, simultaneously if you are to compete effectively in the future.