At the beginning of 2013, Tim Kastelle and I identified four key issues in innovation management for the time to come. From our point of view, all of the issues pinned down at that time have gained significant importance, are being intensively debated and can still be considered cutting-edge for companies to stay ahead in managing innovation. Let’s have a brief look at each of them:
Differentiating and integrative innovation concepts
Innovation can’t be tackled through broad-brush recipes or tools. It comes in various facets and requires integrative concepts and approaches that account for the integration of those different contexts as well as their reciprocal tensions. An increasingly popular case in point is the “Three Horizons” framework, which aims at integrating an organization’s entire innovation spectrum by means of three distinct time and scope categories – all of which feature particular purposes, conditions and requirements. Another example is the recently introduced strategy framework by Martin Reeves, Knut Haanæs, and Janmejaya Sinha from BCG. Here, dedicated strategies and innovation approaches are defined for different business environments, characterized by the factors predictability, malleability and harshness (see figure below). In most cases, companies have to deploy multiple strategies simultaneously in order to serve different environments they operate in. Let’s remind: One size does not fit all.
Reinvention through business model innovation
Accelerating dynamics and pace of disruption in most industries, in particular triggered by the perfusion of new technologies, lead to decreasing life times of existing business models. This requires companies to proactively or reactively innovate their business models in order to remain competitive. In either case, companies are frequently forced to reinvent themselves by changing the way they have been doing business so far. Recent research has confirmed successfully disrupting as well as outperforming companies to be significantly more engaged in business model innovation. However, it has also turned out that creating new or innovating existing business models by (re-)combining internal and external capabilities requires in particular protected spaces – separated from but connected with the core – and CEO sponsorship.
Open and social co-creation
Enabled by the accelerating pace of digitalization, a new model for value creation is taking shape – spreading in almost any industry. Rather than on delivering mass-scaled products or services, the focus is on creating data-based platforms that enable a number of stakeholders, such as customers, partnering companies and third party contributors, to participate in co-creating highly contextualized solutions. Popular examples are: Apple’s App Store, Google Play, GE, Amazon, Alibaba, Kickstarter, AirBnB, 3M or Ebay. The value proposition of those open platform business models is a more customer-centered, even individualized delivery of services and solutions by leveraging access to an entire ecosystem. The platform environment is mostly characterized by a tension between collaboration and competition of the participating companies, often referred to as coopetition. IDC predicts that by 2018 more than 50 percent of large enterprises – and more than 80 percent of firms with advanced digital transformation strategies – will create and/or partner with platforms. Platform business models tend to affect, oftentimes disrupt, multiple industries over time. For one, attached ecosystems are mostly cross-industry. For another, the underlying business model logics or deployed digital algorithms often allow to be transferred from a core industry to an adjacent one. Uber is a current prime example: they are attempting to expand into healthcare and travel.
Even traditional producers of physical products can benefit from platforms by augmenting their products with communities. These communities stimulate social engagement around the product through participation in forums, sharing, collaboration or even user-driven innovation by co-creating new products. Social interactions strengthen emotional attachment and trust on the customer side, resulting in increased brand premium and prevention from being commoditized in increasingly competitive and transparent environments. Cases in point: Lego and Burberry.
The challenge for companies will be to find their positions in those upcoming platform ecosystems. Not every company has the capability and influence to act as an orchestrating platform builder. But even participating in other firms’ ecosystems can be highly attractive, as demonstrated by e.g. several app developers. As can be seen from the figure below, co-creation platforms feature some special characteristics that have a major impact on shaping new market environments:
- Created solutions are integrated and often cross-industry.
- Interactions are complex and unpredictable. Leadership through vision and influence, rather than command and control, is required.
- Network effects occur, inducing strong monopoly tendencies.
- Winner-takes-all dynamics play out.
These will be major rules, most upcoming 21 C businesses will play by. We are headed towards a co-creative platform economy.
Culture of experimentation (and speed)
In the first place, experimentation is about testing assumptions and hypotheses by means of a scientific learning approach. Recently, experimentation in innovation management is particularly facilitated by intensified use of (rapid) prototyping. In particular for industrial products this, in turn, has been stimulated by maturing 3D printing technologies. A culture of experimentation is becoming increasingly important for companies – in manifold directions:
- Disruptive and radical innovation: If a company intends to pursue radical, or even disruptive innovation by introducing a novel technology or business model, this can only be accomplished through initial ideas or visions, followed by continuous, iterative testing for customer adoption. It requires a more deliberated approach, such as the lean startup process, design thinking or a combination thereof. Tip: Tim Kastelle has posted a worthwhile series on how to implement lean startup for innovation initiatives.
- Unpredictable environments: Inherently dynamic and unpredictable industries (such as technology, software, fashion or internet retailing) require experimentation without predefined goals, embedded in the operations, to increase variance. A variety of options enables the company to adapt quickly to changing conditions by selecting the most promising ones and scaling them up. Operating in unpredictable environments relies on an agile organization, following an adaptive, evolutionary and more bottom-up approach, resembling complex adaptive systems, e.g. in biology. A well-suited way to govern this approach is to manage a portfolio of initiatives.
- Incremental innovation: Even in highly mature industries, such as automotive, experimentation gains ever more importance. While stage-gate processes have traditionally been favored in predictable environments, a new generation of product innovation process is taking hold due to increased pressure: lean innovation. It combines an agile front end with a lean back end in order to increase effectiveness (hit rate) and efficiency (cost and resources) as compared to highly linear stage-gate processes.
We can see that experimentation comes in different flavors, depending on the innovation context. However, all of them share the following: experimental approaches are a prerequisite for innovation speed and therefore help address time-efficient development and also organizational adoption of new technologies – two of the most pressing issues companies will be facing in the time ahead. Companies that fail to adapt and implement emerging technologies quickly enough, will be at risk of falling victim to “Digital Darwinism” and becoming obsolete. Conclusion: developing a culture of experimentation is vital for both building new businesses as well as for competing in existing businesses – with distinct characteristics, though.