Digital Change
In our work with companies that span the digital innovation continuum, we’ve found that organizations wanting to raise their digital game often face a variety of functional challenges. These businesses need to answer questions in three areas:
- Strategy. We apply technologies that expand the horizons of the possible in terms of new products, services, and business models.
- Operations and Processes. We apply digital technologies to drive innovation, leveraging new tools, platforms, and processes (such as agile) in order to turn insights into new products and services.
- Organization. We transform ourselves into digitally capable organizations and cultures that can bring digital innovations to market and make them work.
How digital transforms innovation strategy
Digital technologies change innovation strategy by expanding the horizon of the possible in terms of new products, services, business models, and the internal processes that enable the new offerings. This shift both raises the stakes and accelerates the pace of the innovation game.
Business leaders today need to think differently about innovation strategy. They should take into account the following five questions as they rethink—if not revamp—their innovation strategies for the digital age.
What is possible?
Companies can develop and test new products—for example, through digitally enabled simulations, 3D printed prototypes, or minimally viable products released in the actual marketplace—much faster and more cheaply than ever before. Plenty of digital disruptions began with a beta test, among them Airbnb, Spotify, and Zappos.
At the same time, besides adapting to a faster tempo of competition, innovation strategists need to engage on a broader playing field. For example, competitive advantage increasingly is driven less by products and more by the digitally enabled services that surround them.
How do we use Data and Software?
Data (including mobile data) and software are essential to the identification and delivery of many digital innovations. At digital retailer Stitch Fix for example, data-driven algorithms perform hundreds of functions, including matching products to clients, pairing stylists with clients, calculating how happy customers are with the service, and figuring out how much and what kind of inventory the company should buy.
Data and software enable idea generation and exploration.When combined with human intelligence and creativity, natural language processing and network analytics make it possible to gain valuable insights about customer trends and competitor moves from information stored in huge, unstructured databases.
Software adds value to physical products. But software development often occurs in much faster cycles than hardware innovation, creating management challenges for innovation programs. Digital natives have used speed as an advantage, establishing a new product or service (often exclusively online), gaining popularity through digital channels, and then scaling up fast.
Organizing for Digital Innovation
Digital organizations are built on a set of design principles. These organizations are:
- Customer-Centric. They focus all aspects of the business on customer needs and wishes.
- Agile. They adhere to short response and implementation times in both decision making and resource allocation.
- Experimental. Digital organizations’ business models foster experimentation; they are built to try, fail quickly, and improve. When something works, they scale up fast.
- Lean, Simple, and Standard. They aspire to have standardized structures, units, and processes as well as clear roles and responsibilities. Simplicity is a central consideration in decision making.
- Focused on Operational Excellence. Digital organizations champion efficiency, lean techniques, competitive cost structures, and continuous improvement. They maintain a high degree of organizational discipline.
- Empowered and Accountable. They empower managers to take action; they monitor performance and hold managers accountable; and they focus on a small number of simple and clear KPIs.
- Cross-Functional. Their teams purposefully combine all relevant types of expertise, both digital and business-specific. Digital organizations avoid functional silos so that ideas, expertise, and data can be easily shared and acted on.
