Can you operationalize innovation? Organizational behavior experts have debated this question for years. While innovation is, to some extent, an unpredictable chemical reaction of people and culture, there are disciplined practices that CIOs and business leaders can deploy to channel thinking in innovative directions.
An outside-in view is a good starting point. Begin by asking, “What is it that customers are looking for that they’re not getting now?” says Trent Tishkowski, a Principal at Ernst & Young LLP (EY US) and Americas Leader of Enterprise Transformation. Asking customers directly for ideas, however, doesn’t usually bear fruit, since most people struggle to envision and articulate entirely different ways of doing things.
That’s where data plays an increasingly important role. By enabling a data-driven approach to customer insights and product development, CIOs can empower product designers to experiment with digital prototypes, manufacturing engineers to optimize production lines and marketers to capture customer insights.
The CIO plays a key role in deploying the infrastructure and tools required to capture, store, manage and extract insights from data across all parts of the business. One area that has perhaps the greatest potential for data-driven innovation lies within the products themselves. IDC predicts that by 2025, there will be nearly 56 billion connected devices worldwide — generating more than 79 zettabytes of data.
“Look at your portfolio: How smart and connected are your products?” says Jerry Gootee, EY Global Advanced Manufacturing Sector Leader. “That data serves as the ‘voice’ of the product to tell you how it’s being used. The data can be used for understanding opportunities that you or your customers don’t even realize are out there, or functionality that isn’t in demand yet.
“If your products are not creating data, your ability to create new services will be challenging,” says Gootee.
In many industries, data is fueling entirely new lines of business as part of broader digital transformation efforts. Venerable industrial firms like Caterpillar are taking advantage of sensors in heavy equipment to detect failures before they happen and sell predictive maintenance services to customers. Building a stream of services revenue can smooth out the peaks and valleys in an otherwise notoriously cyclical business.
“As companies are faced with disruption, they need to think of what they can deliver as a service using a subscription or usage-based model,” says Tishkowski. “That’s a profound transformation. The possibilities for new revenue models are endless.”
Building an innovation culture
A data strategy that encourages and enables new ways of thinking and serving customers provides an important foundation for baking innovation into your business. Success also requires the right structure and process across the organization.
Siloed operational structures, for example, can have a chilling effect on innovation. A great idea may begin with the product design team, based on a customer insight they’ve captured, but as it is handed off to other departments for commercialization, the idea is subject to a series of trade-offs and compromises along the way. “What started as a great idea becomes diluted throughout the process and ultimately doesn’t capture the opportunity,” says Tishkowski. “Commercializing innovation requires constant validation back to the customer.”
The right data can provide that validation, supported by what EY calls vertical innovation, which aligns design, engineering, manufacturing, route-to-market and sales resources behind a concept. If all players can agree that the idea addresses a customer need or opportunity supported by research, then the path to making it a reality — and delivering the promised benefit — is shorter.
Operationalizing innovation requires building a culture that values continuous research, prototyping and testing. Innovative companies make many small bets, quickly discard losers and invest incrementally in ideas that show promise.
A variety of practices and organizational structures are emerging to help leadership teams embed innovation into the culture. For example:
- “Venture studios” are internal organizations within a larger enterprise that are treated like startups. Teams have the latitude to investigate promising ideas with success metrics and rewards that encourage intelligent risk-taking and challenging assumptions.
- “Data sandboxes” encourage innovation by giving people a safe and secure place to experiment with data, test hypotheses and prototype solutions.
In both cases, good ideas that don’t translate into tangible products are regarded as learning experiences, not failures.
Another increasingly common innovation accelerant is to bring customers directly into the development process. This works particularly well in business-to-business scenarios such as construction of a smart office building, where everyone involved —suppliers, contractors, owners and occupants — ultimately benefit from collaborative innovation, says Gootee. “All work together to provide a better experience to the tenants,” he says.
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Disclaimer:The views expressed by the authors are not necessarily those of Ernst & Young LLP or other members of the global EY organization.