Digital Transformation and Innovation: Two Sides of the Same Coin
Many top business schools, including Harvard and Insead, are offering bundled “Digital Transformation & Innovation” programs to teach both students and senior executives how to be successful in the digital economy. And they’re right. Paradoxically, organizations are treating digital transformation and innovation as two virtually separate disciplines? Oftentimes, we see organizations designing digital road maps to deliver digital improvement in customer experience and/or operations, and separately defining an innovation strategy as though the two are independent. In today’s digital world, they’re not, they are two sides of the same coin.
Digital technology has opened a myriad innovation opportunity in all aspect of business. Digital transformation without innovation ends up, at best, as an optimization exercise. Of course this has some value, but will never lead to the kind of customer or efficiency gains that can be achieved with true digital transformation. Slapping a digital technology layer on top of existing processes – a kind of digital twist on the good old re-engineering – leads to the “lipstick on a pig” syndrome. Conversely, working solely on incremental product and services innovation or opening a lab in California to scout future disruptions is useful, but will never transform your organization an iota. Today the rhetoric is heavily focused on digital disruption and the need for business model innovation. Those, by definition, are both innovative and transformative, but they are also the exceptions. Research points to business model innovation being no more than 5%-10% of the overall digital effort.[i] Reconnecting digital transformation and innovation has become a new imperative in this digital transition.
So what needs to change?
To gain full value of the digital transition, senior leaders need to address their digital transformation as a reinvention exercise and instill the discipline of innovation in every part of their transformation program, and every stream of their road map. From customer experience to operations, to employee experience and new business creation. What does it take? First having the right resources devoted to the transformation efforts on each and every stream. Building an effective blend of creative, business/functional and technology skills to design the new, rather than increment the old is paramount. Second, having the right methods, be they design thinking or agile development ingrained into the transformation. Third, having the right process to move swiftly between ideation, conceptualisation and prototyping which (hopefully) most organizations are now tuned to deliver. Lastly having a rigorous testing protocol. All too often, testing is more art than science, yet having proper control groups and carrying out randomized experiments is the best way to get to the right decision and decrease the overall risk of transformation.
There is still too much talk about building a culture of innovation. Isolated innovation programs don’t work. You change culture by changing the way people work. Digital transformation is the ideal environment to do just that. But, of course, it needs the right leadership to happen.
In this digital economy, rather than continuing the quest for the elusive lasting competitive advantage, corporations would be wiser building and blending both digital transformation and innovation capabilities to ensure we don’t just optimize the past but truly build future prosperity.
[i] “Leading Digital: Turning Technology into Business Transformation”, G. Westerman, D. Bonnet & A. Mcafee, Harvard Business Review Press, 2014.