It’s been said, “insanity is doing the same thing over and over again and expecting different results.” While every organization (and its shareholders) clearly expect different year-over-year results – increased brand awareness, revenue, and performance, many are simply too slow to move, unable to adapt, or just not structured to enable innovation in a truly broad sense.
There’s no question; innovation is difficult. While most brands allocate innovation budgets towards exploring new product lines, many stop there, overlooking the greater opportunity to improve how they operate and how they connect and engage with customers and employees through connected, digital channels. For many organizations, it’s simply not easy to identify the opportunities for innovation to affect real, high-impact, organizational change.
As ‘digital’ continues to migrate from being an IT responsibility, to one shared with the marketing and product teams, many organizations have not yet made the leap to making digital a company-wide concern, from the C-Suite to the front-lines. This kind of broad digital thinking is not typically part of the internal zeitgeist – so knowing where the opportunities for digital innovation exist often requires an outside perspective, or at least, a team willing to ask the questions no one else wants to.
Those organizations that do see the world through a digital lens are typically built from a digital foundation. They’re data-driven, rooted in technology and hyper-connected to their users. More often than not, these are digital-first businesses like Amazon, AirBnB, and Uber. They’re entering the market with a virtual head start, and they’re shaking up business as we know it.
And so, both the challenge and opportunity ahead for digital innovation is exponential for those organizations that aren’t rooted in technology – those that built their business the old-fashioned way, through supply chains, manufacturing, and traditional retail channels. While the pressure mounts for non-digital organizations to make significant changes in how they operate – there really is no other option. The way forward is to infuse digital thinking across all silos of the business, and beyond the purview of the IT, marketing, and product teams.
However, we know it can be tough changing gears when things are already okay. It can be difficult to place bets on the future of an industry you’re embedded within it. In business however, you’re either in a lead position or you’re falling behind; it’s as simple as that. And this threat is a major concern for organizations affected by technology and changing consumer behaviors that are completely out of their control. Nothing is static in a digital world. And rarely do brands have the luxury of time in the pursuit of carving out a lead position.
So how does an organization that’s relied for so long on its core products and services to support growth and profitability begin to take bigger risks by investing in newer, less familiar ways of increasing efficiencies and connecting with its customers?
We’ve written at length about what it means for an organization to make digital a core part of its business strategy. But what does it really take for a brand to embrace digital innovation as a core belief?
It goes without saying, that to embrace innovation, support is needed from across an organization, with clear and present involvement from the leadership group. That said, it’s often unclear what form of support is really needed to allow innovation to manifest. Even as the ‘fail fast’ mantra and ‘agile’ approach of the start-up world has permeated its way into the vocabulary of big business, and an emerging ‘Intrapreneur’ mentality gives those on the inside the ethos to begin to take the risks required to innovate, there’s still a common aversion to truly allowing innovation to manifest. Perhaps its less an aversion and more of a lack of clarity – how does an organization truly enable and support broad digital innovation?
For Thomson Reuters, a global information solutions company with roughly $12.5B in revenue, establishing a culture of innovation required a structured approach to tapping into the collective intelligence of the organization. As covered by the Harvard Business Review:
“Senior leadership took a number of steps. First they agreed to shift funding from small, incremental acquisitions to innovation. In early 2014, they established a “catalyst fund” – a pool of money that internal innovation teams could use for doing rapid proof of concept on new ideas. The fund was announced on the company’s internal website and teams from anywhere in the businesses were invited to submit their suggestions. To access the fund, teams had to complete a simple two-page application about their idea, the potential market, and the value to the customer (what problem was being solved). The teams with the most compelling ideas were given an opportunity to present and defend their idea to the innovation investment committee, which included the CEO, CFO, and a few other senior executives. In the first month, five “winners” were announced and then immediately publicized on the Thomson Reuters internal web site. This triggered a great deal of interest, and a steady flow of applications.”
In developing a culture of innovation, it’s critically important for an organization to consider its top asset – its people. And while the responsibility of defining and testing digital innovation will likely require both internal and external resources, the first step here is enablement. By creating the platform and framework for internal ideation, organizations gain access to an incredibly valuable resource that otherwise remains untapped, in some cases, creating internal frustrations where a simple solution could be implemented.
A secondary asset is an organization’s customer base. And brands like Starbucks have been leveraging their customers through a market research and croudsourcing platform they call My Starbucks Idea, an experiment now in its sixth year, intended to uncover insights to fuel innovation across the organization. This platform gives customers the ability to voice their own thoughts on how Starbucks can improve their product, their service, and guest experience. Since its inception, the platform has provided real value, and over 275 customer ideas have been brought to market, including splash sticks that prevent coffee from escaping the to-go cup lids, the adoption of mobile payments, new drink flavors, and other new products.
Clearly it’s difficult to make an impact without the right resources, so properly funding innovation is incredibly important in supporting its success. Even for Thomson Reuters, with over $12.5 Billion in revenues, we assume the “catalyst fund” value was debated before arriving at a figure that seemed appropriate for achieving company objectives.
A study by Forrester found that just 11% of marketers currently set aside specific budgets for innovation initiatives. As Forrester puts it, “Budget is both an indicator of intent and lifeblood for these programs to succeed”. When asked, over 95% of those marketers who invested in innovation feel they are achieving positive ROI from their innovation programs. This clearly proves out a desire to innovate, and a clear sense as to how these activities and investments are moving the business forward. But what’s most interesting is the gap in these numbers. Budget owners, for the most part, believe in the projects they initiate, even when the potential outcome is unclear or difficult to measure.
After first buying into the notion of innovation as a core aspect of advancing the business, funding, while difficult to define, is often derived from a percentage of overall revenue, rather than a percentage of the marketing spend. Depending on the vertical, some organizations are hard pressed to reduce the R&D spend below 15% of total revenue - specifically for technology-led companies in hardware, software, and biotech. It’s simply how these businesses need to operate, as there’s a constant demand for newer, faster, and shinier objects. Just follow the calendar of new product releases from the likes of Apple, Facebook, and Google.
In the gaming space, Electronic Arts spends a reported 32.1% of total revenue on R&D (that’s nearly $1B annually of just over $3.75B in revenue). The gaming industry demands it. Coca-Cola, on the other hand, follows a 70-20-10 model, where 70% of marketing budget spend is the “now”, 20% against the “new” and 10% for the “what’s next”. From an internal resource perspective, Google, at one time, set aside 20% of every employee’s time toward innovation work, though we hear this program may be phasing out. In any case, the key is to connect the innovation thinking, effort, and outcomes to the organization’s broader corporate goals, and make sure you’re properly funded and resourced to ensure some level of success.
Whatever your organization’s number is, it’s important to reiterate, that for innovation to be embraced across an organization, each group should have some access to funds – meaning, each group should be tasked with innovation, from product, to marketing, human resources, and operations, and budgets need to be set realistically to support this broad approach. Organizations need to allow these groups to solve real business problems and take advantage of emerging opportunities in their space, while providing the funds to achieve success.
Defense is not always the best offense. This is certainly true in the rapidly evolving digital space where technologies and changes in customer behavior consistently outpace most organizations’ ability to keep up to speed with market trends.
While it would be futile to predict the optimal time to innovate against your existing products and services, and typically, we would suggest a constant focus on innovation is the best approach, there are a few key drivers to be mindful of when investing in digital innovation.
New Customer Behaviors – Perhaps the most prevalent indicator of the need to change and evolve through innovation is when you clearly see that your customers are trending toward doing business with you in new ways. Keeping in close contact with your customers’ behaviors will indicate a desire to shift how to serve them better. There are a number of methods to track and develop this insight. It’s best to combine technology and data-driven quantitative analytics with a more qualitative human touch (gasp, of all things, by speaking directly to your customers).
An example of this is when a national shampoo brand began to see a decline in the sales of its product over time. All traditional factors remained the same (product quality, pricing, distribution, marketing, etc.). But with the aid of ethnographic customer research, it unearthed an insight into how their predominantly female target audience’s daily life had changed. With more on their plate, and less time, these pressures impacted their need for this daily chore to simply take up less of their time. And so, a migration to products that supported this behavioral change was taking place. Now the brand is looking to innovate and develop “dry shampoo” products in place of traditional wet shampoos, allowing women to spend less time on their hair every morning.
New Channels, Platforms, and Devices – It’s not easy keeping up with the evolving digital space. And even as a brand enters a specific channel, things continually change – new devices, new software, new APIs, and new rules. And often, a digital channel can become obsolete in a heartbeat. This was true for some of the earlier social media platforms, it was true for Blackberry, and it’s slowly but surely becoming true for the traditional print and broadcast channels that have been around for decades if not centuries.
The challenge here is where to place your bets. Which digital channels will provide longevity? Which provide the foundation to build new services, new ways to monetize a brand’s assets, and new ways to improve the customer experience? Brands certainly don’t need to exist on every platform, device, and screen, but overlooking a critical channel can create a gap in the customer experience if the customer is there and the brand isn’t.
New Competitive – Set There’s certainly no subtlety to the idea of “adapt or die” as a means to illustrate the importance of staying ahead of the competitive curve. And this concept is even more salient as new entrants continue to disrupt existing marketplaces. Many of today’s new competitors are digital-first, using technology to re-shape the landscape of business. Very few industries are immune to these quickly adapting, and in many cases, game-changing competitive offerings.
A culture of innovation can’t be successful if it only keeps its eyes on the internal workings of its own business and its own vertical. The old guard needs to keep watch of both existing competitors and the upstarts that are approaching the same services from a completely new perspective. This perspective should help shape an organization’s desire to innovate to stay ahead by creating new products and services that go head to head with the upstarts, or in some cases, take a stake in the groups that are rethinking the space – in short, if you can’t beat ‘em, join ‘em.
To support this approach, a number of Fortune 500 brands have begun to create incubators and venture funds, designed to invest in scrappy start-ups that would otherwise pose a threat to the brand’s core business. Unilever for instance has formed Unilever Ventures, which invests in “early stage companies which could become strategically relevant to Unilever and can benefit from access to Unilever’s assets and capabilities.” Verizon has created Verizon Ventures, which claims to combine “smart capital with access to Verizon’s vast ecosystem and strategic roadmap, to deliver entrepreneurs smart money and targeted resources.”
This is an interesting approach, and provides these organizations with a view into the innovative start-up community as well as a seat at the table and often, a stake in the business.
Culture tends to lead the list of factors that prohibit the full embrace of innovation. There’s risk involved in doing something different, as outcomes and costs are not easily defined. Odd as it may seem, there’s also a psychological blow that might occur should innovation unearth the distinct possibility that the way the organization had historically operated might actually have be completely wrong. That kind of misjudgment can be hard to own in the C-Suite.
However, for organizations that put the responsibility on the shoulders of marketing, this group is being asked to accomplish more with less, year over year, and that’s simply not a winning strategy. One way to instill and leverage the benefits of innovation and digital strategy is to outsource it, looking to your digital agency partner to create an arms-length innovation lab to brainstorm and ideate "what's next" opportunities. Once strong contenders are identified, prototype the solution and conduct pilot market tests, measuring results and scaling those that gain traction. The results of these pilot programs can be used to demonstrate the need for ongoing funding and support. But more importantly, can spur new products, new services, or general efficiencies that improve business metrics that may have been previously overlooked.
By leveraging your digital agency partner, you not only gain the resources needed to get ideas into market quickly, you also gain access to a group that’s entrenched in digital, working across verticals, with a range of clients that all have unique, yet similar business challenges and opportunities.
This external view is also far more aligned with how the consumer sees your business – less in relation to competitor brands and more in relation to comparative brands, meaning; if you want to truly innovate, you really need to look outside of your category towards those brands that have affinity with your customer base.
So, it’s clear there are a number of ways for digital innovation to exist within an organization. And while some of these approaches may require a longer view, or a more substantial commitment, getting started with digital innovation doesn’t have to be complicated.
A few high-level considerations to get you started:
Define Clear Objectives - What is the organization looking to achieve by enabling a culture of innovation? New products and services? Greater efficiency? All of the above? Defining goals helps set the agenda for what problems and opportunities to solve for.
Map the Process - How are internal teams expected to spin up innovation projects? By providing “freedom within a framework”, teams have a clear sense of how to approach problem solving that may not be a core part of their job. This helps with ideation, presenting, reviewing, approving, and enabling.
Set Appropriate Budgets - Ensure success by giving teams the necessary resources to make a real impact. Budgets should be set to allow internal resource time, research, and outside digital agency support.
Create the Right Team Dynamic - Define what can realistically be achieved internally and what needs support from your digital agency partner. While internal teams have a certain institutional knowledge, outside teams often approach the business through a much different lens.
Prototypes Go a Long Way - Ideas supported by tangible prototypes, even at very low fidelity, provide stakeholders with far more value. They visualize the solution in an interactive or narrative way, providing far more clarity and often gaining broad support where typical business cases simply do not.
Test and Learn - Innovation is a moving target, and ideation often requires an iterative approach that puts the solution in users’ hands quickly, and allows for measured, ongoing optimization and improvement. If your organization is doing something truly innovative, you’ll know simply by the fact that it’s difficult to know that you’ve gotten it right.
Looking for help establishing a digital innovation approach? Or, considering a digital product, platform, or service as a new line of business? Reach out, we can help.