Prof. Anshu Sharma
The Digital Learning Curve
Digital disruption is upon us, believe it or not. Even the so-called traditional industries such as retail, automotive, real estate, travel & transport, mining and banking are being disrupted through the power of digital.
Digital led new businesses have already seized a 17% share of revenue, leaving only 83% to the incumbents, and have shaved 30% off incumbent revenue growth and 25% off growth in earnings before interest and taxes (EBIT) 1. Since the year 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired or ceased to exist. As a result, incumbent companies of today are staring at a choice: Disrupt or be disrupted.
According to a McKinsey research, while 90% of companies indicated that they are engaged in some form of digitization, only 16% said their companies have responded with a bold strategy and at scale. Only 5% of respondents perceive their product as fundamentally digital, and only 6% reported that all their major business processes are highly digitized.
There is still a long way to go for companies up the digital learning curve. This also means that if you have not yet started engaging with digital, or your initiatives have not yet yielded the desired results, you are not alone. Thus, leaders in most industries still have a window for putting a bold digital strategy in place. However, this window may not remain open for much too long.
Digital led innovation is the way to go
Digital led innovation is clearly the answer to pre-empt and ride the wave of digital disruption. As per Tech Pro’s survey on innovation 92% leaders recognize the importance of innovation to the success of their company.
As a result, companies across industry sectors are leveraging technology led innovation to create exponential value across the business value chain:
· Business Models: New ways to generate and capture value, e.g. Michelin Fleet Solutions
· Supply Chain: New models for sourcing, product development & manufacturing, e.g. P&G
· Products & Services: Superior functionality at low cost, e.g. Toyota, Uber, Amazon
· Platforms: Integrated offerings, e.g. Google, Amazon Web Services
· Channels: New ways of reaching and delivering value to customers, e.g. Netflix
· Customer Experience: Value creation by delivering a unique customer experience: pre, during and post-sale, e.g. Disney Theme Park, Starbucks Coffee
As an outcome of these, an estimated 35% of companies’ revenues worldwide are now digitized. 1
Building a Balanced Portfolio
To set the ball rolling, companies need to target building a balanced portfolio of ideas which can populate the innovation funnel.
“The electric light did not come from the continuous improvement of candles”
~ Oren Harari
Breakthrough innovations are hard to find. One of the most commonly quoted example, Uber, cannot be created every now and then. Innovation is about building a balanced portfolio of initiatives comprising of: Incremental Innovations (e.g. Kaizen), Differentiating Innovations (e.g. Gillette), and Breakthrough Innovations (e.g. iPod). A healthy and continuous innovation funnel will ensure that the organization is geared for a continuous cycle of growth through digital led innovation.
Shaping an innovative organization
Building a balanced portfolio of innovation requires an organization wide push. Innovation is not a piece-meal approach, but requires fundamental changes to the organization building blocks. The very cross-functional nature of innovation implies that ideas cannot be generated in departmental silos, but a cross-functional interdisciplinary approach is mandated.
Companies must strive to deeply ingrain a mind-set of innovation into their work culture. Companies need to focus on the following building blocks to give shape to a truly innovative organization:
Innovation should be a key ingredient of an organization’s strategic agenda. Clear goals and desired business outcomes from innovation need to be defined. Policies need to be framed in a way that they support the innovation agenda.
E.g. Google is motivating its employees to dedicate 20% of their productive time to thinking about new ideas and innovation.
2. Organization Design & Processes
Organization structures and processes should be designed to promote cross-functional collaboration and problem solving, without the overbearing hindrance of red-tapism and hierarchy. Platforms should be created for brainstorming and ideation sessions. Budgets and authority should be created for prototyping and proof of concepts.
E.g. Bangalore Airport in partnership with Accenture are setting up a dedicated innovation lab at the airport for the development and testing of new ideas to enhance customer experience.
Innovation must be an agenda driven from the top. The leadership team needs to lead by examples, encourage employees and make all the right noises to promote and foster a culture of innovation within the organization. Even a minor misplaced signal from the top might derail the entire innovation agenda.
Innovation needs an environment which promotes creative thinking, brainstorming and experimentation. Innovators need to be given an environment which promotes out of the box thinking and which takes them out of the rut of their daily routine. Conducive physical spaces supported with innovation management tools can go a long way in promoting collaboration, problem solving and creativity.
E.g. Google Cafes, Crowdsourcing platforms such as Crowdcity & IdeaScale. Total and Tata Consultancy Services (TCS) have signed a partnership agreement to create a digital innovation center in India.
5. Capabilities & People
Innovation is both a science and an art. While on one hand it requires deep domain knowledge and execution skills, on the other hand it cannot yield exponential results without a pinch of creativity and imagination. Relevant skill-sets need to be acquired or developed in order to ensure the innovation strategy yields desired results.
6. Incentives & Rewards
Innovative thoughts, actions and reasonable risk-taking needs to be appropriately reinforced through various reward & recognition mechanisms. This can act as a powerful tool to promote innovation thinking amongst the workforce.
E.g. M&M shares the returns from commercialized innovations with the employees who came up with the idea in the first place.
Digital disruption is upon us. It is not just the technology companies, but even the ‘traditional’ industries which are on the verge of digital disruption. Thus, innovation is no more a choice for organizations of today to survive. In order to thrive, companies need to develop a work culture centered on innovation. Building an innovative organization requires an organization-wide change and cannot be operated in silos. It is high time companies integrate innovation to their strategic agenda. Laggards will find it hard to survive and are bound to be disrupted either by a new entrant, or a digital incumbent.
“It is not the strongest of the species that survives, nor the most intelligent that survives; it is the one that is the most adaptable to change.”
– Charles Darwin