The parallel universes of innovation
How do you continuously improve existing products while simultaneously developing new ideas with transformational potential? How can parallel innovation structures go beyond pure efficiency?
Innovation is a tough beast. On this blog, we've written about what it is, whether it is always good or not, and why we need both disruptive and sustainable innovation. But the question still (and maybe always) is: how to do it?
There is a famous quote by Peter Drucker, who wrote back in 1954:
Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. Marketing is the distinguishing, unique function of the business.
So, innovation is one of the only two basic functions of any business, along with marketing. And it's not by accident that big consultancies like Accenture (which owns the majority of SinnerSchrader, a host of NEXT and of this blog) these days are tackling both digital marketing and innovation: they're basically done with all the rest, which are simply costs. The game of efficiency and cost-cutting is over. Now it's all about the product, and this means marketing and innovation. It means new business models.
A different approach
This also reflects a shift on the client side of the table. The big, global corporations have not much left to gain from increasing their efficiency and reducing their costs through the application of digital technology. This plot played out very well over the course of the last few decades. But now, they are outgrown by the digital champions. These are either digital natives, like Amazon and Google, or pioneers of the digital age, like Apple and Microsoft. And the incumbents face challenges by countless pure-digital players, whose marketing and innovation capabilities don't carry legacy from the analogue past.
So there are two areas left for efficiency and cost-cutting, the basic ones: marketing and innovation. But this time, a different approach is required.
The huge bet that's going to reveal its outcome over the next decade is: can the marketing of the big legacy players be made more efficient and thus less costly, freeing up the money needed to invest in innovative (digital) products, to again be competitive with the pure-digital players? And how can innovation save them? How can they build innovative products and the appropriate marketing, while still running their legacy business? How can the Parallelwelten of the legacy systems and the new digital universe not only coexist but be transformed?
This is, in a nutshell, what all this digital transformation is about: marketing and innovation need to be digitally transformed.
Innovation is a systematic practice
Since we are talking about innovation, the question still remains: how can we do it? Later in his career, Drucker wrote another famous article on The Discipline of Innovation, in which he discussed seven possible sources of innovation:
There are, of course, innovations that spring from a flash of genius. Most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities, which are found only in a few situations. Four such areas of opportunity exist within a company or industry: unexpected occurrences, incongruities, process needs, and industry and market changes. Three additional sources of opportunity exist outside a company in its social and intellectual environment: demographic changes, changes in perception, and new knowledge.
Drucker is very clear in his assertion that innovation is a systematic practice. (Consultancies are quite good at systematic practices.) So it's not about fancy sticky notes, or agile teams, or copying the digital champions and their business models. He defines innovation as the effort to create purposeful, focused change in an enterprise’s economic or social potential.
A new model
Let's take a closer look at this definition.
An effort means that innovation requires commitment and investment. It has a creative side, which implies that a certain kind of personality should be involved: entrepreneurs and designers, for example. The purpose needs to be clear – making money or increasing shareholder value is not enough. Something beyond that is needed to guide both the enterprise and the consumers. Focus is also important. Investing randomly, without proper knowledge of users, markets and technology, doesn't make sense. It doesn't get the returns everyone wants and needs.
We are dealing with change. And change isn't always convenient, even when it's about economic or social potential – the dent in the universe, to quote a great innovator of the digital age. Innovation increases a potential, and then marketing tries hard to turn the potential into business results, creating new customers and upselling to existing ones.
In the digital age, innovation requires a relentless focus on the user and his true problems, needs and desires. Marketing must be dynamic and closely aligned with product development. What all this translates into: a new model is called for. It's not there yet.