According to Gartner, one out of four companies will lose its current market position because of its digital incompetence.[1] The MIT confirms this trend and prophesises that 40% of today’s Fortune 500 companies on the S&P 500 will disappear by 2025.[2] We can already see this trend in history. Established companies such as Kodak (USA), Quelle (Germany) and Nokia (Finland) suffered crises or complete breakdown. Most companies recognise the importance of digitalisation today. Although the radicalism of the digital business transformation will not have the same intensity and depth in each sector,[3] the modernisation of business models to meet the requirements of the digital world is high on the agenda of most companies.[4] But how do you find a business model that will make your company digital on the one hand, but will also make money on the other? More than ever, the statement of Abraham Lincoln holds true:
‘The best way to predict your future is to create it.’[5]
In order to cope with this situation, an increasing number of companies are putting innovation management at the heart of their organisation.
By using innovation management, we distinguish between two phases: ‘Where to play’ and ‘How to win’.[6]
Businesses follow trends in the market, while at the same time advanced technologies are being scouted. The business checks which technologies support the new trends, or whether existing technologies are already well-suited. Then the business can decide which trend/technology combinations it will pursue.
Business portfolio management extracts, in addition to the financial aspects, the core elements of existing strategies, and then supports the prioritisation of the innovations and their scope. The decision to identify the right playing field is not an easy one. Innovation is needed in both the optimisation of the core business as well as in the identification of new business.
It is especially hard when these two changes to the business model are to be implemented within one organisation:
new business models based upon new technologies usually neither bring sufficient immediate revenues nor belong to the core business of the company.[7]
Different approaches are available to solve this conflict. In a company with a high level of maturity, it makes sense to establish an innovation management team or strengthen an existing one. If this is not feasible, the following table indicates alternative approaches.[8],[9]
It is essential to integrate employees, partners and customers in the generation of ideas and set up an innovation roadmap. Then change the perspective and consider ideas from the customer’s viewpoint.
Methodologies such as BMC, customer insight, ideation, visual thinking, storytelling, scenario-building or prototyping help to do this.[10] Support change by establishing innovation objectives in the company and/or by rewarding new ideas.
Validate new ideas iteratively so as to avoid building solutions that customers do not want. First it is important to find the right speed of innovation,[11] and second you need to be in close dialogue with the user. Visualisation and prototyping help to trigger immediate feedback from the business or from the customer. Another instrument used to validate ideas is the minimum viable product (MVP) technique, whereby a new product is developed with sufficient features to satisfy early adopters, and the final, complete set of features is only developed after considering user feedback.
The innovative power of an enterprise is closely linked to its culture.
Innovation inherently increases risk, and the organisation needs to embrace risk in the sense that people are rewarded for taking well-managed risks.
Innovation is not only about having great ideas, but having the determination, stamina and dedication to venture into the unknown. ‘Against all odds’, as the proverb says. Such responsible risk-taking must be rewarded, even if it leads to failure. The organisation can then learn from failure and take the next attempts at innovation. Without risk-taking, there is no true innovation, and such risk-taking must enter the cultural fabric of the organisation.
But, besides an assessment of market feedback and the promotion of internal risk-taking, do not forget to make visible your success in the implementation of innovation. By measuring strategic success indicators [12] it is possible to assess progress along your path. For example, you can measure the innovative capability of the enterprise with the following KPIs, which you can govern through the digital matrix:
- Development of an innovation strategy: for example, share of turnover spent on innovation, share of turnover spent on the development of new markets, relative increase in market share.
- Generation of ideas: for example, average innovative suggestions per employee, project profitability.
- Evaluation and selection of ideas: for example, the innovation adoption rate, i.e., successfully realised innovation proposals in relation to adopted innovative proposals.
In summary, you need to launch appropriate activities to embark on the journey to a new digital world and tear down remaining obstacles. It will cause pain, because current leaders could feel threatened and hence resist joining you along the way.
But, as highlighted at the beginning, you have no choice but to continually innovate if you do not want your company to lose its market position.
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[1] Hodge, L. T.: ‘Gartner digital Workplace Summit: Trends and Transformation in the Workplace’, Polycom, 2015.
[2] Ioannou, L.: ‘A decade to mass extinction event in S&P 500’, CNBC, 2014.
[3] Bradley, J., Loucks, J., Macaulay, J., Noronha, A., Wade, M.: ‘Digital Vortex – How Digital Disruption is Redefining Industries’, Global Center For Digital Business Transformation, 2015.
[4] Capgemini: ‘IT-Trends 2016’, Capgemini, 2016.
[5] Brown, P. B.: ‘The Best Way to Predict the Future’, Inc., 2014.
[6] Durst, M.: ‘End2End Innovation – Vom Umfeldscanning zur Roadmap’, itonics, 2015.
[7] Frönhoff, B.: ‘Wie große Konzerne ihre jungen Ideen schützen’, Das Handelsblatt Online, p. 3, 2007.
[8] BMW: ‘BMW Startup Garage’, BMW, 2015.
[9] WELT: ‘Daimler schluckt die App MyTaxi komplett’, Die Welt Online, 2014.
[10] Tarabichi, H.: ‘Design Techniques for Business Model’, Slideshare, 2014.
[11] Briggs, B., Foutty, J., Hodgetts, C.: ‘Tech Trends 2016 – Innovating in the digital era – Right-speed IT’, Deloitte University Press, pp. 5-9, 2016.
[12] Kunau, O., Möbus, S. A., Petsching, M., Schniering, N.: ‘Kennzahlen im Controlling von Service-Innovationen’. in: Gleich, N. R., Schimank, C.: ‘Innovations-Controlling – Der Controlling-Berater’, Vol. 13, Haufe-Lexware, pp. 87-106, 2011.
