For companies in the industrial sector, digitalisation throws up a huge range of opportunities to realise innovative products, services and revenue streams. Despite this, many businesses are failing to exploit this potential.<p> Around 70 percent of all innovation projects end in failure. In this post, we present holistic solutions for ensuring the success of your projects.</p>
The biggest obstacle along the road to successful business innovation – and the main reason why innovation projects fail – is the Innovation Orchestration Gap (IOG). This is the gap between the idea and implementation – i.e. the huge challenge involved in transforming innovative ideas into profitable products, services and revenue streams.
For businesses, the Innovation Orchestration Gap has far-reaching consequences. It can significantly delay projects or even sink them completely. It reduces return on investment and causes businesses to waste money and resources on innovation without actually adding value.
In view of the opportunities offered by industrial digitalisation, why do so many businesses get tripped up by this and fail to close the IOG? The answer to this question is something that Zühlke encounters again and again when executing projects with clients – companies are just not thinking holistically enough. The Innovation Orchestration Gap cuts across team and departmental boundaries. It affects digitalisation and innovation projects right across the business – from product development to production, from sales to finance, etc. In solving this problem, businesses therefore need to take a holistic, whole company approach.
Industrial digitalisation is about more than just digital products and services and automating production. Successful innovation is always dependent on successful business transformation. To be able to offer your customers an individual, customer-focused, end-to-end experience in today’s marketplace, you have to think bigger. Lean, digitalised processes, holistic organisational structures, integration of customer needs, and optimised decision-making are frequently underestimated but nonetheless crucial factors in successful industrial innovation.
There are a number of dimensions to successful business innovation. At the process and organisational level, there are a number of key drivers of successful business innovation. In addition to strategy and appropriate processes, these include operationalisation of ideas, innovation project governance, customer focus and ensuring an organisational structure which embodies the required change in mindset. At the technology level, digitalising all business processes can deliver significant benefits.
Define the added value and find a sponsor for your innovation projects
Innovation project governance begins by looking at how the project fits in with corporate and digitalisation strategies. To ensure that it delivers tangible added value, the project needs to make a clear contribution to achieving at least one corporate goal. That might be developing a new revenue stream – through pay per use for example – or digitalising business processes to reduce resource use. For a closer look at new revenue streams and at subscription models such as pay per use, see our virtual Roundtable “Pay per Use” (German).
Once you’ve worked out where the project fits into your corporate strategy, you need to find or nominate a senior manager as project sponsor. This will be someone who will take an active role in progressing and championing the innovation project. The sponsor is able to speak up for the project at board level and has the power to take whatever decisions need to be taken to remove obstacles during project execution.
Why is active involvement at senior management level so important? Because without it, your innovation project is doomed to failure. Business transformation means changing key business processes and organisational structures which affect multiple departments. Such far-reaching changes will inevitably encounter all sorts of resistance. So make sure you have senior management support from the outset.
Innovation projects will usually affect multiple departments, but are generally performed for the benefit of one specific business unit. Once again this requires clear responsibilities and rules from senior management. For example, it’s essential that resources required for successful execution are not assigned to other projects in other business units, as this could have the effect of slowing or even sinking a project.
Meet resistance with transparency and clear communication
A key factor for successful business innovation is identifying and communicating well in advance which organisational unit will be responsible for regular operation and related processes and responsibilities after project completion. Long-term success can only be achieved if there is transparent communication with all project stakeholders. Any transformation will inevitably encounter the kind of resistance described above, indeed such resistance is to an extent understandable.
It is therefore important to engage with doubters and, to achieve acceptance, to ensure that you are transparent about and clearly explain the planned changes and above all the benefits compared with the old way of doing business. Otherwise project execution will be torpedoed by the existing organisation, which generally means the end of the innovation project.
Successful business transformation needs team spirit and interoperability
Another common cause of the Innovation Orchestration Gap – and thus of innovation project failure – is clinging on to the existing organisational structure and consequent failure to properly adapt to the transformed business processes. The key challenge here is demolishing existing silos, whether organisational or technological. Siloisation at the organisational level, between teams or departments, is usually mirrored by siloisation at the technological level, in that data is stored on siloed systems. As long as these silos persist, realising transparency, and especially data transparency, within the business and transforming processes is almost impossible.
Demolishing these silos requires action at both the organisational and technological levels. It means realising interoperability between software systems and defining new rules, responsibilities and organisational structures. It also means creating new roles and capabilities. New products and services, whether digital or physical, need new sales channels and therefore different sales skills. In addition, there’s no point in altering systems unless such changes are accompanied by a programme of reviewing and amending processes to optimise the technological and organisational setup right across the business.
Imagine you’ve developed a new primarily digital product. This is great news for your customers. But are your sales and finance teams equipped to handle sales of your new product? Are your service teams ready to support it? And how will you administer your old and new products in parallel?
Just like successful business innovation, the answer to these questions has a number of dimensions. Firstly, to generate a continuous value stream, create new, digital, connected processes that fit into your existing workflows. Secondly, define new roles and organisational structures to support these processes.
Lots of business are still using software commissioned decades ago. This software may be perfectly good for its original purpose, but it is likely to fall short when it comes to providing up-to-date data or facilitating scalability and connectivity. The reason for this is quite simple – such systems were not designed for today's industrial digitalisation requirements or for sharing data with other systems.
The war on silos starts, however, by connecting processes, teams and software systems. Creating and supporting new digital processes is not the end of the story. Implementation of new processes requires cross-cutting changes in organisational structure, culture, mindset and governance.
Paradoxically, the first step on the path to connecting your systems is psychological rather than technological. It is important to create a shared mindset that puts the needs of the customer at the heart of every business process, enabling customer-centric products at lower cost. That includes empowering all stakeholders – department by department. It is much easier to integrate separate software systems if the people who are responsible for and who manage those systems share your long-term strategic and technological vision.
Successful business innovation requires holistic thinking
Before you can close the Innovation Orchestration Gap and deliver successful business innovation, there are a number of obstacles to be overcome. A key point to consider is that a few minor tweaks here and there is never going to deliver radical innovation. Successful business innovation requires a holistic way of thinking. Tackling individual issues one by one will never deliver true transformation.
Your business is a complex, highly interlinked ecosystem of organisational and technological processes. Every element interlinks with every other element and every piece of the jigsaw can impact on others. A change in one area causes a chain reaction of effects in other areas.
Take a whole business view of business transformation, change your corporate mindset and raise awareness right across the business of how different data sources, systems, processes and teams will interact in the future business. This will enable you to identify which elements of the system as a whole need changing to deliver successful innovation projects.
Taking this wider viewpoint will help you to close the Innovation Orchestration Gap, unlock the full potential of industrial digitalisation, strengthen your market position and enhance your innovation effectiveness. That translates into shorter times to market, a better product/market fit and a significant boost to your cost effectiveness.
Whether your core business is product manufacturing or managing production processes, successful business innovation combined with the creation of an innovation culture can permanently close the Innovation Orchestration Gap and improve the outcomes of your innovation projects.
Stefan Malcherek is Principal Business Consultant at Zühlke Germany in the Hamburg Office since 2019. He has a diploma in business administration and extensive experience in management consulting, agile transition, the development of new business models, the management of interdisciplinary teams, the creation of new teams and start-ups. Before joining Zühlke, Stefan worked for PWC (Consulting) and a Boutique Management Consultancy in the energy and telecommunication industry. After joining E.ON and the E.ON Accelerator he founded his own start-up and led it for three years developing a B2C data driven platform for energy customers.