Wednesday, August 07, 2019

Digital transformation marks the demise of product innovation

There comes a time when every phenomenon reaches its zenith, before a long fall or a sudden collapse.  We like to refer to this point in the cycle as the "tipping point" - the point at which we can remain in stasis or the structures will collapse.  We are warned that we are close to the tipping point for global warming, for example, where more carbon dioxide in the atmosphere may result in weather and climate changes that create catastrophic change in the weather, sea levels and other factors.

I'm going to stipulate that the business cycle and innovation are at a tipping point.  For close to 20 years (dating approximately from when Jobs returned to Apple) we've been living in the product innovation era.  That era I believe is rapidly drawing to a close, and shortly will collapse, because of other factors such as digital transformation.  When the transition occurs, those companies still focusing on discrete product innovation will be left in a difficult place, because the skills they are building and the focus on product innovation will be less important than emerging abilities in digital transformation and in agile, nimble business models.  They will have succeeded in preparing to fight the previous war, as my military friends like to say.

Several converging forces

There are several reasons why we'll see at least a slow decline in product innovation, if not a collapse.  First is corporate, especially executive cynicism.  Innovation hasn't delivered on its promises in many cases.  There are many reasons why, most notably the inability to accept risks and learn from exploration, as well as the fact that most businesses are too locked into their operating models, business models and markets to do more than incremental innovation.

The second reason is that we are reaching the point of feature saturation.  Most companies don't innovate entirely new products.  For the most part they add additional features and capabilities to existing products.  When cars compete on the number of cup holders and TV remotes require a PhD to determine how to use them, we've reached feature saturation.  There's really not much further we can go with many of the existing products.

The third reason for forecasting a rapid demise in product innovation is the emergence of digital transformation.  As data becomes more important and frankly more valuable and scalable than tangible products, companies will shift to digital products or products that produce data.  What they haven't yet realized is the digital transformation will require shifts to their business models and revenue streams.  Digital transformation will require that companies become a lot more agile and nimble, able to adjust their business models and revenue streams as customer demand shifts.

There's a silver lining in that cloud

If this all sounds a bit dire or ominous, take heart.  There is a silver lining for those companies that recognize where we are on the life cycle of the product innovation era, and what's about to unfold.  Digital Transformation holds within it the demise of physical product innovation but contains within it the new opportunities for business model agility and innovation.  Big businesses will simply have to think differently about what their operating structures and models must be.  No longer will they be able to tinker on the edges with new products.  Innovation will move to the very core of the business, to consider what all the new data means, and how to take advantage of the data streams and insights.

Digital transformation can open up an entirely new way of thinking about innovation, but that innovation will focus on what has traditionally been the most resistant to innovation and change - the existing structures and business models.  Companies that realize this and become more flexible, nimble and agile will use digital transformation to innovate how they operate.  Other firms will do some digital transformation but attempt to retain their old business models, and will collapse due to the conflicting goals of old models and new data.

The future is here, just not widely distributed

If this all sounds futuristic, you aren't looking close enough.  Some of what I'm writing about is already here, just not widely distributed.  Airbnb and Uber are examples of what a more nimble, asset-less company might look like.  Time will tell if they are the avatars or just the next iteration on a journey toward a new type of company.  Companies that understand how to use the data that digital transformation creates and create business models, revenue models and operating models based on the data and needs of customers will succeed, and they'll operate in a different fashion, with different structures and different models than companies do today.

It's both a challenge and an opportunity, blending digital transformation and new innovation models.  Are you ready for some real change in big corporations?  Or, will they slowly wither and die as newer, more nimble players demonstrate the ability to use data effectively?

Digital Transformation will also transform Product Innovation, by the way

There is one really ironic twist to all of this.  Just as we are 'ending' an era of product innovation, digital transformation will revive product innovation, mostly by adding new sensors and IoT capabilities to existing products.  If the data is valuable (and it is) companies will want to gather and harvest the data in any way they can, so more products will become smart and connected.  That's one way the product innovation era will be extended, mostly to the benefit of digital transformation and data.

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posted by Jeffrey Phillips at 6:04 AM


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