Hierarchical, traditional structures in most companies are the main reason for the lack of digital innovation. Consequently, more and more companies choose to develop innovations and new digital products outside of existing structures; forming internal start-ups in the process.
Only few digital leaders
There are only a few traditional companies who have already changed from analog to digital business models. Especially retail as well as the banking and insurance industry struggle to digitize their business models and to build up new distribution channels.
Companies struggle because they try to succeed in the digital age with traditional structures. It should be clear by now that it is almost impossible to develop new digital innovations with existing organization and processes. However, a lot of companies are very protective of their good old analog products and services.
This means that a lot of times, hierarchical companies will take a good idea and debate it for so long that by the time they are finished, there’s nothing left of the new idea, and everything stays the same. Meanwhile, a new start-up or agile technology company already developed a solution and fixed the customer’s problem.
One example would be Apple. With Apple Pay, it took over the mobile payment sector before traditional banks had any clue what was happening.
Another example comes from the entertainment industry. Many top executives debated for a long time whether or not creating a streaming service would be worth it. Meanwhile, Netflix and Amazon Prime took over the market.
Collaboration for innovation
In financial services, a lot of companies have consequently realized that it’s better to collaborate with fintecs and insuretecs instead of trying to be faster or more agile than them. The automobile industry also realized that cooperating with start-ups and technology companies can benefit them.
Joint development of digital business models – meaning the combination of industry know-how and agile culture – seems to be the model of the future.
Many companies choose to build digital labs outside of their traditional corporate structure. These digital labs were created with adjectives like new, lean and agile in mind; which is why their culture supports creative, collaborative and fast work.
Again, the automobile industry is one of the first to embrace this model. For example, Audi and the digital agency Valtech founded Valtech Mobility together. Mercedes hired Publicis to create their own digital agency, Emil.
One of the most successful methods for innovative working is open innovation. Companies realized that technology cycles are getting shorter and shorter; and that developing new products and services requires talent and numerous skills not necessary before.
Furthermore, companies realized that they need to look beyond their own staff and products to get new ideas and develop new technologies for their customers.
According to a recent Luenendonk study, 50 percent of interviewed major companies said that they had leveraged open innovation before. Furthermore, 14 percent are planning to establish open innovation in their companies in the future.
Respondents said that they primarily involve customers or lead users in their innovation processes. However, some of them also said that internal departments, like marketing or R&D, as well as suppliers, service providers, and start-ups can be involved.
The strategy seems to be working flawlessly. Open innovation has a very high acceptance rate among users; probably because 94 percent of companies who used it said that it was a success. And because nothing’s sweeter than success, all interviewed companies (100 percent) who leveraged open innovation before would also recommend it to others.
Creating digital labs outside of hierarchical, traditional structures is a significant success factor for digital transformation. More and more companies choose this strategy, especially major firms with more than five billion euros in revenue.
Smaller or mid-sized companies should also try a new approach to innovation because it might just be the most important asset in the digital age.
Companies need to act now. This means that management has to create new structures that benefit digital products and short innovation cycles. For this to happen, executives need to establish a culture where employees are allowed, even encouraged to make mistakes to be able to learn from them.
The actual implementation of all these measures is a challenge. Companies should not underestimate how big of a challenge it can be. All these recommendations require a completely new way of thinking and a new culture.
All of this could take a long time. However, not advancing in digital transformation is not an option, either.