Wednesday, January 23, 2019

The interplay between digital transformation and innovation

I've found that concepts like digital transformation are like eating honey.  The stuff just kind of sticks to you long after you think the experience is over.  As a person who has spent more than 15 years focused on corporate innovation, I find the rapid emergence of digital transformation interesting, and sometimes a bit troubling, as you may recall from a previous post.

Today, however, I find myself returning to two themes - digital transformation and innovation - because I'm 1) starting to teach a course on these two concepts for SKEMA USA and 2) our Innovate Carolina conference April 5th in Charlotte is also focused on these two concepts.  These are two of the most important initiatives facing management today, and I have to believe one of just a handful of opportunities will emerge:
  • These two initiatives will compete for time, attention and resources, and digital transformation will win
  • These two initiatives will find ways to cooperate, as one improves efficiency and the other focuses on growth
  • These two initiatives become more sequential, as innovation builds on what digital transformation delivers
The honest truth is probably situational - that each one of these is true to some extent in any company.  Let's hope the truth lies more with bullets two and three than with bullet one.


This, frankly, continues to be the outcome I think is most likely, and would be the most unfortunate outcome.  Management time and attention is often limited, so the latest philosophy gets the most attention.  Digital Transformation could be more tangible to executives, because hardware is being implemented and new data sources and new services will be created.  Digital Transformation can be much more tangible and seem less risky than innovation, and Digital Transformation feels like a "must do" while innovation often feels like a nice to have.  I'm going to suggest that at least 50% of companies will end up with a much larger focus on Digital Transformation than on innovation.


Probably the best outcome, as Digital Transformation, for all its promise, is more likely to improve efficiency, cut costs and increase speed in the next few years, and all that investment will take time to validate and demonstrate results.  Most new technologies gain traction first by cutting costs or improving efficiency, and I think Digital Transformation will do the same.  What we need to do is harvest expected savings and benefits from Digital Transformation and invest expected or anticipating savings into innovation that drives disruptive growth.  Using Digital Transformation to focus on efficiency while innovation focuses on horizon 2 and 3 growth makes tremendous sense - but may require companies to follow a bifurcated strategy that is difficult to accomplish.  Probably 15-20% of companies will have the fortitude and bandwidth to attempt this alternative.

 Sequential Implementation

There's always been a tendency to wait for innovation.  Next quarter will be better, or the next challenge will be more appropriate for innovation.  Now, with digital transformation on the horizon, companies may argue that innovation should wait until digital transformation is fully implemented.  I can't say that that's a terrible argument, except that digital transformation will 1) always be a journey and 2) will take 3-5 years to get the basics in place.  Doing these sequentially does make sense, because there will be a lot of leverage from new insights and greater efficiencies, but waiting that long will mean missing a number of market windows and allowing new entrants free access to your markets.

It's a both/and world

Digital Transformation and innovation aren't mutually exclusive, and both promise significant benefits.  Innovation can drive greater efficiencies or more growth and differentiation, and as Digital Transformation grows in capability it will drive even greater efficiencies. That is why digital transformation should focus on efficiency and automation gains, while innovation should focus on horizon 2 and 3 disruptive innovation.  It's not an either/or decision.  The best decision is "both/and", ensuring that each concept has a clear focus and scope.


Over the next few years we'll see far more commentary about digital transformation, because as far as management philosophies go, it's the new kid on the block, and a bright, shiny object as well.  We innovators will have to work to keep enough focus on innovation and its potential for growth to keep innovation top of mind, otherwise we'll fall into the "competition" trap (bullet one) or less worse but still not so great the "sequential" trap (bullet three).  Digital Transformation and innovation aren't enemies but they may end up occupying the same space in executive's minds, so we need to help create clarity about the value propositions and the differences.

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posted by Jeffrey Phillips at 6:24 AM


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