Digital innovation: ask your team to “destroy” the business model
How do you drive digital innovation in traditional industry?
That the industry needs to drive digital innovation is clear. The question is how? A thought exercise can help to address the right issues – to “destroy” your own business model.
What can entrepreneurs, shareholders and managers do to drive digital innovation in traditional industry? I am often asked this question. Reason enough to summarise the essential ideas in an article. And to give one or two answers that go beyond personal conversations. But first things first…
I appreciate the opportunity to talk to representatives from traditional industrial sectors – including entrepreneurs, shareholders, board members and managers. The people I talk to come from the mechanical engineering, electrical engineering, construction and plastics industries. Their companies – sometimes small, sometimes large – employ between 100 and 10,000 people.
To dispel a typical prejudice right away: small and medium-sized enterprises are by no means ignoring the digital transformation. It is clear to all the interviewees that there is no way around it.
What concerns each and every one of them: Where do you start with digital innovation in a company that has grown over decades? Which business cases are actually relevant for your own company? And how do you implement the first success components quickly and in an ROI-oriented way?
Looking outwards is important…
Digital innovation can be driven in many different ways. Basically, this can be done from the outside and/or from within.
Typical for “from the outside” is that companies make use of external consultants. And larger companies like to hire entire teams of consultants for this purpose. I would like to discuss in detail whether this is a good way in one of my next articles.
Another possibility: industrial companies cooperate with and/or participate in strategically relevant start-ups. Or even set up their own corporate venture companies. If we take a sideways glance at the big players of the digital age, this also seems to be an effective means of innovation. At least the more than 200 acquisitions by Google, Microsoft and Cisco “feel” like best practice.
… but not always right at the beginning
For medium-sized industry, however, I consider a start-up investment in the initial phase to make sense in very few cases. Especially when companies are at the beginning of their digital innovation process. The experience with start-up investments is often limited. The associated challenges are great. Be it the acquisition itself. Or the subsequent “post-merger process”. In short: the (actual) innovation goals often fall victim to this occasion.
I have more than once experienced the hurdles that arise when two completely different corporate cultures meet. What works excellently on the strategy paper often looks quite different in day-to-day operations.
What remains are the disappointed expectations of all stakeholders. And the lack of success of a promising business model. The sad conclusion: the once innovative company is integrated into the parent company. And thus disappears into oblivion as a “failed attempt”.
However, there are also companies that have successfully taken this step, such as the steel trader Klöckner & Co. According to its own information, digital platforms are the decisive revenue driver in Q1 2021. Compared to the same quarter of the previous year, the company’s digital revenue increased by ten percentage points to over 45 per cent (Q1 2020: 35 per cent).
Technology is value-adding…
Let’s change perspective: Why not drive digital innovation directly “from within”? From within the company itself. With the valuable assets that are already there.
Sounds cost-efficient, but we as shareholders and management should not get too euphoric. Although this path is closely linked to our organisations, it is not necessarily easier to follow.
First of all, an important prerequisite must be met: Companies need a technology base that makes digital innovation processes possible in the first place. It should be a little more than the good old Excel list and the tried and tested intranet.
It’s about real collaboration
In other words, an online platform that connects ALL employees of an organisation: from the headquarters, the foreign branches and on the road. It’s about a smooth exchange of information and quick feedback. New ideas and concepts must be able to flow between all participants – regardless of time and place. And without creating another data silo. Everything in one system. IT security included.
… if the corporate culture fits
Once that’s in place, it gets exciting. Because the success and failure of such an initiative are very close together. So what does it come down to?
The technology? Lean, automated processes? Certainly important in combination. But neither alone will be enough. Even if I notice in my individual discussions that this corresponds to the “ideal image” of one or the other industry executive:
Beautiful (new) digital world – not only simple, but also pleasantly convenient
It won’t be quite so simple after all. Companies in general – and we shareholders, entrepreneurs and managers in particular – are in demand. First and foremost, it is up to us to create the right framework conditions for digital innovation.
To do this, we must first be absolutely open to completely new approaches. We ourselves must recognise the benefits, drive them forward with vision and invest the corresponding resources. In short, we must set a credible example. Lip service doesn’t stand a chance.
Revolutionary in thinking, evolutionary in implementation
One of our major tasks is to further develop our own corporate culture. But at speed, because the market is not waiting for us. And neither do our employees, by the way. Five years ago, a study by MIT and Deloitte got to the heart of the matter: every third manager wants to leave the company if the demands of digitalisation are not met.
So if we want to retain employees and attract the best talent in this decade, freedom is important. We have to offer them this. Create opportunities for creativity, empower instead of control. “Allow them to play through the impossible.
This motivates (almost) everyone to think about something completely new. To question the familiar, even to turn it upside down. To consciously and constructively “destroy” the tried and tested. And finally, to share these ideas and concepts with others in the company.
We can start all this with a small team. And specifically develop it into an organisational unit of its own: A so-called “pilot department” with its own business goals, simplified processes and high agility – which can later be rolled out as a successful model within the entire organisation.
Is it all wishful thinking or reality?
Sure, it all sounds logical. That’s exactly why I’m always surprised how many initiatives in the industry fall short of their potential or are not even started.
Sometimes they say: “We’ve already tried that and it didn’t work”. Another time: “We have too many employees who are blocking this step. That’s why we’d rather not do it.”
Is that really the starting point?
If you delve deeper into the company and talk to employees, the picture becomes clearer: most of them find it “demoralising” that there is a lot of talk about great digital visions, but that these are then nipped in the bud.
New ideas are unerringly shot down. The tolerance for mistakes is zero. The result is low motivation and declining productivity. Innovation impulses from within the ranks unfortunately remain the rare exception.
A Summary of the Key Points
1) Speed is the trump card
One thing is certain: companies are moving in markets that are changing at breathtaking speed. There is no end in sight (if ever). The challenge of working for a company in this environment is just as great as managing it. This is something we as shareholders and company management should always keep in mind.
2) Motivation as the key to success
Digital innovation, indeed innovation as such, is difficult to develop without motivation. And to motivate employees, we need more than just the usual management parameters such as budgets, target agreements, bonuses and the latest, much sought-after smartphone as an incentive.
3) Attitude and environment are the foundation
An environment of appreciation and the possibility to develop own ideas is absolutely necessary. And last but not least: We should also understand failure within the innovation process as part of a bigger picture.
4) Mindset shapes change
Admittedly, this mindset is not so easy for many of us to live by. But it is the only way companies have the chance to develop great digital innovations for their markets from within.
To revisit the opening question: How do you drive digital innovation in traditional industry? I stick to the core of my answer and add one important aspect to it: trust your team and ask them to “disrupt” the business model.
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