7 minute read 24 May 2018
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How businesses can go from innovation to industrialization

7 minute read 24 May 2018
Related topics Digital Innovation Disruption

Too many innovation projects have little impact on business. How can the gap between innovation and industrialization be bridged?

Around five years ago, large companies rushed to set up digital innovation labs in tech clusters around the world. These would typically have all the hallmarks of a tech start-up: bean bags and pool tables, “big ideas” and minimum viable products (MVPs), eco-systems and meet-ups.

It’s what some refer to as the theatre of innovation, as highlighted in a recent EY report.

Many companies did little more than experiment (often in highly controlled laboratory conditions), essentially operating on the periphery of the core business. When innovations were brought back from the digital lab to the business, progress often stalled.

Company meeting on bean bags

Business leaders pushed back on new offerings they feared might cannibalize existing blockbuster products. Corporate IT struggled to integrate standalone MVPs into their complex legacy environments. And CFOs and corporate counsels flagged huge potential risks relating to cyber breaches, data privacy and regulatory compliance.

It was often easier to press the pause button on a digital innovation than to try and scale it.

The questions are different now

Over the last five years or so, I’ve discerned a shift in the types of questions clients ask me about digital transformation, especially from those outside the sectors that have been living and breathing digital disruption for the last decade (including telecommunications, media, consumer technology and retail).

Sectors, such as health care, life sciences, insurance and automotive, that have yet to see such a radical rewriting of the value chain are now sensing that change is coming much faster than expected.

They want to know “How?” and “What?” instead of just the “Why?”

I believe the “Why?” is reasonably clear. Boards across almost every sector accept that the fourth industrial revolution will rewrite the value chain of their industries, creating both opportunities and threats.

Simply digitalizing the front end of yesterday’s business is not an effective response and guarantees little more than a high burn rate of resource. Today’s questions around “How” and “What” are more about pace and execution:

  • How do we move faster?
  • How do we cope with the co-existence of two business models?
  • How do we stop doing digital and start being digital?
  • Should we buy, build or joint-venture to accelerate our digital transformation?
  • How do we stop killing digital innovation and start industrializing successes?

Simply digitalizing the front end of yesterday’s business is not an effective response and guarantees little more than a high burn rate of resource.

The balance between separation and integration is critical

A truly effective digital transformation program impacts almost every aspect of the organization, from the business model to the end-to-end operating model. With such a huge challenge facing them, many organizations are tempted to start from scratch.

For example, in the early days of digital re-invention, many telecoms companies responded by setting up new mobile virtual network operators (MVNOs) and digital-first challenger brands.

In some cases, this can be a highly effective response to try and move as fast as the market is changing, without being constrained by legacy issues. However, it does little to accelerate the transformation of the existing company.

So, how does a large corporate that’s undergoing a digital transformation make the leap from stand-alone digital innovation to industrialized scale? 

Innovation can’t simply be outsourced to one part of the business; rather, we need to build a culture of innovation across the entire business.

For this to work, the balance between separation and integration is critical. A digital lab needs to enjoy a certain degree of separation in order to have the freedom to experiment; but experimentation without industrialization achieves nothing.

Today, great ideas for the future digital re-invention of the company can come from anywhere — from a lab in a tech cluster to a front-line customer-facing employee. Innovation can’t simply be outsourced to one part of the business; rather, we need to build a culture of innovation across the entire business.

Exploring digital from every angle

Similarly, it’s no longer worth building MVPs in complete isolation from the realities of integration and industrialization.

Increasingly, I see lawyers and corporate IT teams getting involved earlier in a design sprint, shifting the conversation from, “We’ve built this MVP, can you approve it from a legal/IT perspective?” to “We’re starting a new design sprint, how can you help us identify and navigate the legal and technology risks that we might come up against?”

The former typically leads to rejection; the latter to earlier, better conversations.

As we move into an increasingly connected world — in which a combination of the internet of things, artificial intelligence and robotics will drive smart automation across the whole enterprise — the challenge for most large companies will not be around experimentation. It will be focused on transitioning from successful experimentation to industrialization and scale.

The central battleground of a digital transformation program is focused around how to drive re-invention and infusion of digital across the whole enterprise. It’s what EY refers to as looking at digital from every angle.

From the back end, through the muck-in-the-middle, to the front end — all parts of a business need to be involved in the transformation process. That’s been clear for some time among the “post-disrupted” industries.

What’s encouraging today is that it’s also emerging as a key theme in the “pre-disrupted” industries.

Five ways companies can bridge the innovation-industrialization gap:

  1. Play the long game and focus on outcomes: Digital innovation projects that take too long to prove their profit potential can get scrapped long before they’ve had time to blossom. Leaders need to de-couple innovation evaluation from the annual budgeting cycle and adopt a mentality more like that of agile project management. Rather than focus on arbitrary metrics, based on set targets, timeframes, and projections of profits, businesses instead need to change their focus to understandable outcomes.
  2. Balance innovation and risk: It can be difficult for organizations with long-running business models to implement a transformational digital innovation strategy. But this duality mindset is necessary for long-term survival in a disruptive world. If you want to be good at innovation, be realistic about how much risk you can stomach, and how that relates to existing product lines – and then proceed in a way that recognizes this framework. Organizations that confidently embrace disruption will be able to innovate more aggressively to gain a competitive market advantage.
  3. Integrate all parts of the business and connect innovation teams back to the business: Digital transformation can’t happen in a vacuum. All parts of business leadership play a role in the disruptive innovation agenda, from the board, to the C-suite, to a range of corporate management positions. A recent EY survey finds that among the most disruptive companies (a category the survey termed “butterfly companies”), 94% reported there was frequent board discussion of disruption issues and, 78% reported the CEO owned the corporate disruption agenda – this figure dropped to 47% among caterpillar companies. Most important, innovation teams must not operate on the periphery of the core business. Connectivity across the business is key to scaling products and services, and realizing their true potential.
  4. Innovate from the outside-in: There are three key groups of stakeholders that organizations should particularly focus on if they want to effectively innovate from the outside-in: customers, employees and partners.
    • What do your customers really want and need?
    • What is your employee’s experience?
    • Can partners help shape your strategy?
    By gaining an in-depth understanding of the ongoing experience all three groups encounter with your business, you can better shape your digital investment plans to meet their expectations.
  5. Choose the most appropriate mechanism to drive scale: you don’t need to build and own everything yourself. Many successful tech companies leverage micro-services and APIs to assemble solutions. Several successful digital products have been formed through acquisition or join venture. Recent EY research found that 90% of survey respondents are elevating spend in Digital and 74% are looking outside their company for growth through acquisition, collaboration or joint venture. But, companies do not seem optimized to execute on this approach effectively. Only 46% of executives say their M&A due diligence processes are not "highly effective" for digital acquisitions and only 24% of companies are highly confident about their ability to retain talent following an acquisition.

Summary

To bridge the innovation-industrialization gap, organizations need to be connected, manage risk and innovate from the outside in. 

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Related topics Digital Innovation Disruption