Do you have the right innovative approach to competitively position your organisation?

Today’s business leaders face the challenge of having to deliver predictable outcomes in an unstable business environment.

As the South African business environment becomes more complex and prone to regular micro- and macro-economic influences, so the need for Agile and Lean thinking and experimentation has increased. This could take the form of establishing shorter feedback loops between the organisation and the external environment, by establishing experimentation units within an organisation.

Gartner defines innovation management as a business discipline that aims to drive a repeatable, sustainable innovation process or culture within an organisation1. Innovation management initiatives focus on disruptive or step changes that transform the business in some significant way. Today’s business leaders should therefore be asking how can they introduce and drive innovation, while still servicing the existing lines of business.

Whether the intention is defensive to guard against disruption or offensive and drive innovation for business longevity, there are practical ways to approach innovation in the South African context. This opinion piece looks at wholesale enterprise transformation (full submersion) versus experimentation through innovation units (testing the waters).

Enterprise-wide redesign for innovation

Companies know that innovation is key for growth, with nearly 75% of executives listing it as a top-three priority in a 2014 BCG report2. This approach provides an organisation the opportunity to utilise the entire enterprise value chain as a lasting capability for innovation. The trigger for this approach is typically a business or operating model change, which presents the opportunity to embed innovation in the new model. It’s important to note that this type of transformation is challenging as it requires a shift in values more than structures or processes, requiring the organisation to think of innovation as a system.  Yet treating innovation like a system does allow an organisation to consider:

  • The underlying strategy i.e. which areas to drive innovation in
  • Lean delivery approach e.g. research, product development, life cycle management, product measurement and feedback loops
  • Supporting processes and tools such as incentivising3 people, tools and systems to measure and reward value as opposed to effort

A key reason for this approach being more challenging is the change effort required to start reaping the benefits of the innovation. This also requires upfront buy-in from multiple stakeholder spheres and significant time and budget investment to reap the long-term benefits of a transformed organisation that can consider innovation as an advantage or capability.

Focused experimentation through innovation units

The alternative approach is to create a ring-fenced unit, internal or external to the organisation, to focus on high potential innovations. This is a more conservative and Lean approach, which allows the organisation to experiment with what kinds of innovative change it can absorb. While not as challenging as the aforementioned approach, it raises key questions for consideration:

  • Industrialisation of ideas: How do you integrate the high potential innovations into the rest of the enterprise and existing architectures, in order to achieve scale?
  • Creating an ideas pipeline: How do you incentivise your customers or the rest of the organisation to supply ideas and problems worth solving?
  • Influencing towards the tipping point: How do you prevent the creation of sub-organisations and more silos?
  • Investment thresholds: Do you fund the innovation unit as an ideas cost-centre or a seed funded unit, with the expectation of direct returns from their activities?

External innovation units can take the form of a partnership or acquisition of an existing FinTech or InsureTech provider. A look at engagements between FinTech providers and ‘innovator organisations’ that are taking this approach reveals a diverse field of major players looking to leverage innovative partnerships4:

innovation_fintech_bsgIn South Africa, Johannesburg and Cape Town have become high growth environments for FinTech hubs, with B2B partnerships and acquisitions being the most popular option.

An organisation’s change appetite would determine whether they choose the innovation unit or enterprise-wide innovation option. Reviewing the financial performance over the past three years of the listed innovator organisations shows no clear evidence to suggest these partnerships have had an impact in the short-term – but they are ones to watch – as innovation is a medium- to long-term process of transformation.

Approach principles

Regardless of the perspective your organisation adopts, leaders need to be cognisant of how to organise for speed, ensure they have a pivot strategy and know how to scale.

Organising for speed:

  • Define a clear mandate informed by strategy
  • Have clear expectations of what value looks like, to ensure resources aren’t wasted
  • Resourcing needs to be dedicated, rather than a partial allocation from business as usual.             Focus is key

Having a pivot / ‘exit’ strategy (Failing fast and cheap):

  • Define success criteria, aligned to a revenue stream
  • Have a big bet and smaller bets. Smaller bets will keep your unit from becoming a perpetual cost-centre with limited learning points

 

Having a scaling / ‘entry’ strategy (Plan for industrialising):

  • Decide whether scaling will be within current structures or not – perhaps a separate legal entity if regulation allows
  • Plan for extent of reuse versus proprietary i.e. as it relates to existing tools and technology. Custom develop as little as possible to get the product offering right

The future

BSG has been trusted by numerous clients to partner with them in the journey to creating innovative digital organisations. These insights have shown us how top performers think of innovation as an ecosystem and purposefully plan for how to get good ideas, test them and take them into the mainstream organisation.

Sources:

  1. http://www.gartner.com/it-glossary/innovation-management/
  2. https://www.bcgperspectives.com/content/articles/innovation_growth_rethinking_your_innovation_system/
  3. https://www.researchgate.net/publication/228233202_Rewarding_Value-Creating_Ideas_in_Organizations_The_Power_of_Low-Powered_Incentives
  4. http://ventureburn.com/2016/05/26-fintech-startups-digital-all-stars/

About the author

alfred-mukuduAlfred Mukudu is a senior consultant at BSG who has worked across a variety of health, commercial real estate and financial services clients. Utilising experience gleaned from a decade of assisting companies succeed from both the technical and human sides of software development, he endeavours to build motivated Agile teams and to work with organisations to deliver innovation outcomes.