Innovation has become one of the most overused words in the corporate-speak lexicon. In fact, many of us have stopped understanding what it really means. Being in the IT industry or trade, you probably receive promotional content from enterprise tech companies with exciting headlines such as “Achieve Business Innovation Now!” It might seem that marketers are grasping for new adjectives to modify the world innovation to make it more impactful, but business innovation has an important meaning that many executives, product engineers, and IT folks don’t pay enough attention to in their work.
Business innovation is adding new unique abilities to a company’s business practices to deliver competitively differentiating value to customers. What follows are three obvious axioms for achieving business innovation that people often fail to remember.
Axiom #1: Business innovation requires something new & unique
Innovation is frequently misused as a synonym for business value: "Innovate your business processes by basing them on industry best practices.” What’s innovative about doing the same thing that leading companies in your industry are already doing? There’s significant business value that can be achieved by optimizing business operations to run as good as the best in your company’s peer group, but that’s hardly being unique. These business optimization projects involve your company adopting the business practices employed by highest scoring companies in benchmarks.
Now perhaps you have an idea of a different approach that can achieve significantly better results than peer group companies in that benchmark. Perhaps this novel idea can achieve these results with a significant cost or time factor advantage as well. This new practice is more aptly considered an innovation if deployed. But is shooting for innovation always the better approach?
Here is where it makes sense to introduce another frequently misused set of terms: “core” and “edge” processes. In SAPinese, its common to hear about “core business processes” – those common processes that are supported by your enterprise applications - and “edge processes” – unique processes within your company that require custom applications to support. This is, completely opposite to how management consultants use these terms. “Core” to a management consultant refers to your company’s “core competencies” –uniquely differentiating business operations that are the source of y.... “Edge” refers to everything else – commodity business operations that do not differentiate your business. In this case, you innovate your core competencies and optimize your edge processes.
Let’s consider an example from cloud computing: migrating your ERP system into a private or public cloud. Many consider cloud computing to be an innovative new technology trend. I’d argue that for many applications, leveraging cloud computing is rapidly becoming a best practice. In the case of moving a productive ERP system to the cloud, a company would hope to increase efficiency of administration as well as reduce the time to deploy changes.
A number of companies are working closely with SAP through organizations such as the ASUG Cloud & Virtualization Influence Council, the DSAG Virtualization Workgroup, and the Virtualization and Cloud Global Technology Advisory Board to create best practices for managing SAP Business Suite in the cloud. In these cases, a lot of creativity and invention is going on. Each of these companies could gain an advantage by better managing their ERP system in the cloud, but they are freely sharing their experiences with each other. Why? Because administration of ERP is not a differentiating core competency, so optimization is and should be their goal.
Axiom #2: Business innovation happens in the business
Start talking about innovation and it doesn’t take long for people to focus on technical improvements and product engineering. Perhaps you remember this viral video poking fun at fans of the Apple iPhone4 who were missing the technical superiority of the HTC Evo.
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I think the video also exemplifies product level thinking vs. business level thinking. As is widely discussed, the business innovations behind Apple’s success are the key to their domination. For instance, Apple is now the 5th largest purveyor of digital content in addition to being an incredibly successful computer and device company.
A classic paper I refer to often when I need to describe different kinds of business innovation is The 12 Differenet Ways for Companies to Innovate by Professor Mohanbir Sawhney et al., published in the MIT Sloan Management Review. Product-specific innovation is only one of the 12 ways a company can innovate. The remaining 11 are different variations that also address customers, points of sale, and business processes. These dimensions include:
- Offerings ( What) – innovative new products or services
- Platform – building blocks to create derivative offerings
- Solutions - integrated and customized offerings
- Customers (Who) – serve unmet customer needs & new customer segments
- Customer experience – Redesign interactions with customers at all touch points
- Value Capture – New business models and revenue streams
- Processes (How) – efficiency and effectiveness of core business processes
- Organization - change form, function, scope of firm
- Supply Chain – new ideas for sourcing and fulfillment
- Presence (Where) – new channels and points of sale or usage
- Networking – create intelligent, integrated, network aware offerings
- Brand – extend company brand to new markets and categories
The Innovation Radar graphs a company's competitive advantage resulting from the 12 dimensions in which business innovations can occur.
Axiom #3: Business innovation needs the business to be in charge
If you hold to the first two axioms: Innovation is something new to build core competencies within the practices of the business, then it should be obvious that business managers should be in charge of such an initiative. What often happens, however, is that people get focused on features of a technical solution and the business leaves IT to the task of running the initiative. Alternatively, the business never really organizes itself to be able to convert invention into innovation, and creative ideas are stifled by corporate politics. In other words, this is a corporate governance issue.
Like any key business initiative, a clear goal needs to be articulated: “We must enhance or develop a core competency to do X.” Relevant measures linked to the goal must be mapped. While I would caution about being overly militant about measurements, thresholds are definitely appropriate: “…it must deliver at least x% more value to customers and be x% better than our competitors” (customer value and better needing to be specifically defined).
Organization and change management are other factors that must be proactively dealt with by management to realize business innovation. For example, if the core competency we are innovating is process-related, it probably makes sense to appoint a general manager with direct end-to-end jurisdiction over the entire process and organize participants in the process into a single organization. In the case of change management, you have to consider what it takes to enhance or deploy the new competency in your company. Is a cultural change required, or just new training? Are people losing their existing roles, and is their risk of territoriality? You must be prepared to mitigate the effects of organizational antibodies.
How should the business be managing innovation? This is a subject of many management books and business school research centers. A few that come to mind: Blue Ocean Strategy, and the Kellogg School of Management Center for Research in Technology & Innovation. These kinds of services might seem like a heavy engagement. I would argue that if you are truly trying to do anything more than iterate innovation in an existing core competency, then your company will need serious management investment.
What to do if the axioms of business innovation are forgotten?
If Axiom #1 is not met, it could simply be a case of loose usage of wording. If your team can agree that optimization is the goal, not innovation, this clears up confusion for those times when innovation really is desired and needed. When management correctly understands when optimization is important and when innovation is key, the correct people and tactics can be assigned to initiatives to achieve these results.
When Axiom #2 is not met, it’s an indication that the benefits and ROI of product investment will be limited. If this is a case of a business initiative that’s been solely handed over to IT or a consulting firm, you are headed towards management being dissatisfied with the results. This is also an opportunity for entrepreneurial employees and teams to make a business case to spawn adjacent innovation initiatives that augment the other initiative. For example, an adaptive supply chain initiative could be combined with a platform initiative to achieve a just-in-time, configure-to-order line of business that provides competitively differentiating customized products for customers.
When Axiom #3 is not met, I’m afraid the results are fatal. If management is fails to proactively address governance for an innovation project, I would argue that it’s not fully committed to developing a core competency. In such a case, changing a project into an optimization initiative might be a better option, or simply jump ship to a better managed project.
Finally, remember that not every project should be innovative. Often, its sufficient just to be as good as the best guys are when these areas are not your company's competitive focus.
How to make innovation and optimization initiatives more successful?
If you have identified an initiative as a potential optimization, one good resource is to engage SAP's Value Management service. This team will help you hone in on a potential forecast of business value that can be achieved, and help you learn how to track and ensure this value is received. Packaged software and cloud services like SAP's OnDemand line and SuccessFactors work very well here.
Leading a true innovation project is much more difficult - one reasons the topic of innovation should not be taken lightly. I will leave it to the many management books and business school consulting services to instruct how to effectively lead truly innovative business transformations.
How does your company drive innovation? Please share with the SCN Community in the comments below.
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