Historically, corporate innovation is not a novel occurrence. What is different now is the push for corporate innovation in the face of rapid disruption brought about by advances in digital technologies. Corporations that have long established themselves as leaders in their respective industries are having to rethink their entire businesses to adapt to the fourth industrial age. As digital technologies go mainstream, the need to pivot is not only a profit-driven requirement but an existential one that companies must adopt to survive.
Digital transformation is at the heart of established corporations that are reshaping themselves as “startup corporations.” Companies like GM, Caterpillar, and Walmart, while traditionally non-tech companies have embraced digital transformation and today utilize digital capabilities similar to those found at companies like Google and Microsoft to continue leading in their respective industries. compete with tech-first companies like Google and Microsoft regarding digital technology capabilities. However, the path to digital transformation is not just about adopting new technologies; it is about reshaping the entirety of the company to become a digital-first enterprise. As such, digital transformation is not the end of the tunnel, but the tunnel itself that leads to growth and innovation. In this article, we explore three key areas leaders, and senior executives need to focus on to infuse digital transformation in their organizations.
In an interview with SVIC, Gregory LaBlanc, Distinguished Teaching Fellow at the Haas School of Business at UC Berkeley pointed out that corporate innovation starts with top management asking strategic questions about the organization. These questions include: “How can we forge ahead as a tech company? What would it mean to be a digital-first company operating in our industry? What would it mean for decision-making if we embraced big data and predictive analytics?” These questions and others enable the corporation to explore the core aspects of digital transformation – ecosystems, platforms, and digital business models. This approach also helps focus leadership and management on how to retrofit the organization as a tech company.
Another strategic area that business leaders must consider is return on investment. The challenge here is that most leaders view digital transformation and resultant innovation through a Wall Street lens of quarterly earnings and shareholder value. However, this approach flies in the face of how Silicon Valley investors approach innovation, which is through a valuation approach. For example, Tesla may not have a strong balance sheet but this has not prevented the company’s valuation from skyrocketing. So, businesses must be ready for this tension between balance sheet investing and valuation investing when it comes to investing in innovation. By looking for a return on innovation tied to the overall impact of the innovation on the organization and not just the balance sheet, organizations can foster strong corporate innovation that enjoys management support, and that helps the company transform gradually.
The organizational view is approaching digital transformation as an organizational challenge and not a technology challenge. When viewing digital transformation as a technology issue, management ends up missing a crucial aspect of innovation: corporate culture. “You may have the brightest and most progressive people, but they will flounder in a culture that stifles innovation,” says Duncan Tait, CEO, SEVP, and head of Americas and EMEIA at Fujitsu. Culture, a byproduct of organizational structures and systems, plays a key role in corporate innovation. For leadership to engender innovation, they must be willing to implement structures that favor collaboration in the context of disruptive innovation and organizational creativity.
However, changing corporate culture is not easy. Therefore, organizations must experiment with alternative organizational structures that impact the organizations most innovative employees/ units. For instance, Wendy’s, the restaurant chain giant, started 90 Degrees Labs, a corporate innovation hub that reports directly to senior management. The lab frequently bypasses other organizational units to collect data directly from employees, customers, and other stakeholders as well as to release innovative experiments to be tested both internally and “in the wild.” By creating a shadow organization within the main organization, Wendy’s can experiment with digital transformation even as the rest of the organization takes time to catch up.
The journey to corporate innovation is often one that blends both a response to external disruptive pressures as well as a need to digitally transform the organization to drive internal innovation. Going back to Wendy’s, the establishment of the innovation lab was in response to disruption happening across the restaurant industry. The focus of the lab, however, is to infuse digital transformation into the organization, something Wendy’s hopes will result in disruptive innovations of its own. As such, an innovation view should focus on getting the right structures in place that result in disruptive innovations.
Building on the strategic and organizational views, business leaders will need to focus their efforts on streamlining processes, resources, and capital to foster innovation. For instance, utilizing tools used in startups like agile methodologies and business model innovation can help the corporation better nurture emerging in-house innovations to create future growth either internally or as new business opportunities. Also, focusing on a return on innovation will help the organization avoid the deadly return on investment trap, which tends to nip innovation in the bud by pressuring teams to generate quick revenue returns, something true innovation often does not do very well.
Rapid disruption is upon most industries. Organizations of all sizes find themselves at a crossroads with a sign that says, “Innovate or Die.” The path to innovation, however, still poses a major challenge to organizations. Nevertheless, by approaching digital transformation through the three views highlighted above, organizations can avoid disruption and instead become the ones disrupting both their businesses and those of competitors. The bottom line remains that digital technologies are reshaping the market landscape. Where businesses end up amid this reshuffle depends on how swiftly and effectively they can digitally transform their businesses to better align with the emergent fourth industrial revolution.