Co-Written by Edward Wilson-Smythe and David Kincaid
Digital innovation is now a ubiquitous part of corporate strategy. From simplistic approaches to social, mobile, analytics and cloud which first propagated in 2012, digital innovation now extends to disruptive technologies that are prevalent in the majority of business functions most large enterprises.
This evolution over the last seven years has seen not only a proliferation in the technologies that can be applied to transform business, but also an exponential growth in the impact of these innovations in driving deep and fundamental changes to business operations and business models. Digital innovation is now a top enterprise priority, with an ever-growing critical mass of executives believing that digital innovation is key not just to competitive advantage, but also to survival.
When applied strategically and purposefully, digital innovation has direct and sustained impact on both growing revenues and reducing costs of enterprises. These impacts are not limited to technological benefits, but extend to creation of better or new business models, increased customer engagement, innovative commercial models, and greater efficiency of core operations.
Over a three-year period from 2015 to 2018, the top 10 per cent of companies in terms of successfully developing and executing digital business strategies have seen margins grow by 215 per cent compared to the median through a combination of sustained revenue growth and systematic cost reduction, as shown in the chart below. These impacts are a function of purposeful identification of opportunities and systematic execution of initiatives that impact top-lineline growth and operations improvement.
Critically, the same data also show that innovation is a key driver of competitive advantage, with the top 10 per cent of companies far outperforming the bottom 25 per cent in terms of cost reduction across all business functions. Therein lies the challenge of digital innovation. While the top performing digitally-enabled companies, those that are born digital or have adopted digital early and effectively, have benefitted disproportionately from digital innovation, the majority of companies have struggled to adopt digital innovation and are increasingly falling behind the competition.
The days of digital innovation being equated with shiny new toys or risky experiments are over; the challenge now is to ensure that the promise of sustained competitive advantage is consistently kept.
From hype to despair
When we look beyond the exceptional results and strategic advantage that accrue to the enterprises best able to leverage digital innovation, the reality is that digital innovation has largely failed to deliver on its promise or realize its potential. The key driver of this disconnect between potential and performance is the inability of enterprises to look beyond digital technologies to the business applications of digital innovation.
Very few digital initiatives focus on new business capabilities, and over 70 per cent of initiatives are essentially a modernization of legacy technologies with little or no integration of the business capabilities of emerging technologies. As a result, the vast majority of digital innovation efforts end in limited or no business impact, aborted efforts and outright failure, and expensive investment cycles no different than the previous generations of technologies.
The tyranny of talking heads
While it is tempting to lay the blame at the feet of corporate leadership, this disconnect is more a reflection of emerging technologies posing a bewildering array of choices, presented by thought leaders and visionaries who do not relate to tangible business imperatives. A typical view into emerging technologies, shown in the figure below, may make for great academic content, but is of limited value to enterprises.
What drives this disconnect even further is that the so-called experts in the field, the key influencers who set the digital agenda, focus almost exclusively on technology when discussing digital innovation. The figure below depicts the key terms discussed by the top 100 digital influencers in 2018, which shockingly have no consideration of business applications of digital innovation. While disappointing, this is not surprising as 90 per cent of the top 50 influencers are involved in research, services, sales, startups, events or media focused on technology, and only two are executives in enterprise clients.
Confusion by design?
Even when companies look past the self-serving hype and try and focus on business impact, they are confronted with the almost infinite number of permutations and dependencies made possible by the large and growing number of technologies and complex and interrelated business value chains.
Perhaps nowhere is the confluence of confusion, hype and simplistic responses to complex business needs more apparent than in the feeding frenzy around blockchain. Self-declared experts opine on blockchain despite a reductive and simplistic view anchored in legacy mindsets, software ranging from the profound to the trivial are marketed as blockchain panacea based on crowdsourced public opinion and technology salesmen are breathlessly anointing blockchain as a solution that revolutionizes every industry. The reality is that blockchain may have a critical foundational role in business transactions that require distributed trust, but does not disrupt the vast majority of business value chains and performs unfavourably compared to cheaper readily-available solutions that already meet business needs for what blockchain purports to do. Even the venerable McKinsey has clarified the perspective of blockchain boosters published three years ago, anchoring blockchain in a more realistic and business-aligned framework, a sentiment echoed by the Great and Powerful Woz himself.
It is almost as if the “experts” want digital to be difficult, so business leaders have to rely on technologists to define enterprise needs and priorities. The sooner the conversation pivots to what the business needs vs. what technology solutions in search of problem, the sooner enterprises will be better served.