Digital Innovation In An Analogue World
Digital. Innovation. Strategy. Three buzzwords that are so broad and catch-all on their own, put together they are pretty much meaningless. Nevertheless, your boss, your shareholders and every business publication out there is telling you that you should have one. Because ‘change’. Because ‘agile’. Because ‘impact’. Oh dear.
Well then what is it? Whether analogue or digital, the term innovation tends to be used in two distinct domains.
1) What you take to market. Your products, services, brands, etc.
2) How your get your things to market. Operations, sales, marketing, R&D, HR, etc.
From that point of view, digital innovation is no different to analogue. There is a plethora of solutions out there for you to adopt and improve whatever you bring to market and how you run your business.
The pitfalls are no different either. The main one is simply forgetting why you would digitize a particular area of your portfolio or business: what is this innovation supposed to achieve once implemented? Shooting every part of your business up into the cloud is meaningless without a purpose for doing it. And here too, the centuries of analogue innovation experience from the first three industrial revolutions help provide clarity.
In my book “Second Thoughts From A Grumpy Innovator” I explore the three business objectives that define the purpose of successful innovation, and should underlie any innovation strategy.
1. Incremental: this is your ‘new news’ process. Small tweaks to satisfy new questions from existing users/clients and piss off competition. To succeed, you implement a cross-functional effort you tightly control, at work within set category rules and operational frameworks.
2. Stretch: find new occasions and formats to draw in an audience just beyond your current reach. Great if you’re starting to lose on price in your current market and things are commoditizing. To succeed, one requires understanding new category consumers and business rules, creation of minor new capability and overall ‘stretch’ innovation is your best bet for growing your market when you’re still calling the shots.
3. Game Changers: The sexy end of the spectrum, where you create a lasting legacy, get your face on magazine covers and re-invent the industry. But success is very difficult to achieve given so many rules are re-written that you’re effectively building new category infrastructure along with the products and services that run on it. You’d probably better steer clear of such disruption unless your back is against the wall, your current product or service is completely commoditized, or the market is going extinct.
These three purposes should drive your digital innovation strategy just the same. In the old world of analogue product and service innovation, the rule of thumb was to split resources roughly 70:20:10. In the digital world, this is no different. Unless you’re late — which you probably are — then skew accordingly.
Having experienced digital innovation programs close-up in the past few years, I can provide a few further topics upon which the old analogue and new digital innovation realities are different.
1) Digital innovation is driven top-down rather than bottom-up. Where product portfolio management and process improvement fall within responsibility and remit of middle management, the huge investment required to ‘go digital’ isn’t. As a consequence, much of the scoping for digital innovation happens higher up in the business, with bold ambitions and disconnected from operating reality, after which middle management is tasked to deliver the ROI. Given this then implies running before one can walk, with a broad blanket solution instead of the tapestry required on ground level, the running is prone to stumbling.
2) The fallacy of scalability. Digital technology is by definition scalable; but the physical products that usually form the staple source of revenues much less so. Nor is the demand instantly scalable. You cannot double your manufacturing by adding an extra server rack. Nor can you double your customer base with the flick of a switch.
3) The human side can be forgotten in the frenzy and I do not mean this in a protective cuddly way. When implementing a dramatic digital transformation of how the organization works, then it’s just as much a business transformation. People will need to (re-)learn how their part of the process operates, which requires time & attention in order to succeed.
4) Digital world is still immature. It might be huge in revenues; it’s barely been around for 25 years or so. Which means it’s still turbulent, full of frauds and continuously changing in reference. For example, when you develop the first app in your category, your customers will likely measure you by their digital experience in completely different categories.
5) Unfair heroics. The publicly celebrated Heroes the digital world would be complete failures in most other industries. Most apps on your phone are not making money. Most start-ups heralded in the media and your LinkedIn feed are running on burn rates that you cannot afford. Your digital innovation strategy should be commercially rooted in your market, not the Silicon Valley fantasy.
I’ll stop there, as it’s not fair to the potential of digital innovation to call out the pitfalls. The best advice I can give to create meaningful and commercially successful outcomes is to keep an eye on the purpose driving it in your business. Ask not how you can make today’s analogue reality a digital one. Ask instead: what could I do digitally what I could never do analogue? For certain, purpose will emerge naturally.