Product Innovation means Business Transformation
Digitalisation in industry opens up an almost unlimited number of ways for companies to innovate products. Regardless of which direction they take in product innovation, one hurdle must always be overcome: the Innovation Orchestration Gap.
This refers to the gap between an intention and its implementation – in other words, the challenge of transforming innovative ideas into profitable products and services. Zühlke will show you the challenges of digitalisation in the area of product innovation, how and where the Innovation Orchestration Gap occurs and how you can close it on a lasting basis.
Insight in brief
- Product innovation requires not only technological change but also business transformation with fundamental changes across the entire company.
- Successful digitalisation in industry enables new, customer-centric products and an overall understanding of how digitalised product innovation impacts the business.
- A systematic and step-by-step approach successfully transforms ideas into innovative products and monetises them.
Product Innovation is much more than just an innovative product
A team of ambitious R&D engineers is working on the implementation of an idea for an innovative product. Product management and even Sales, with their market and customer experience, are not being sufficiently involved in the development. On entering the market, there will therefore be a lack of the essential distribution channels and sales know-how, and the monetisation of the innovation will be in danger of failing.
This simplified example from practice illustrates the Innovation Orchestration Gap and makes clear what all Zühlke projects have in common: product innovations not only mean technological changes, they also require more fundamental and usually unimagined changes across many of the company's departments and processes. Because this is exactly where the Innovation Orchestration Gap originates: in the lack of networking of the company's know-how in technology, engineering and processes. The result is that projects are postponed or even cancelled, and companies are unable to develop their ideas into successful innovative products.
Step by step, successfully towards digitalisation in industry
A common mistake that occurs again and again in such projects is miscalculating the extent to which a product innovation needs to be integrated not only into the corporate structure, but also into the process organisation. If this awareness is not present, if the extent is not known, the necessary changes cannot be introduced: the Innovation Orchestration Gap occurs.
Experience shows that a systematic and goal-oriented route to digitalisation can help you avoid this mistake and successfully guide you to profitable product innovations. While the company is on its way to comprehensive digitalisation, orient yourself step-by-step in the three phases of digital business initiatives:
- Exploration: The exploration phase marks the starting point of your digitalisation journey. Many companies have already taken this first step. They have recognised the need to improve the user experience through an enhanced digital value proposition, to strengthen their technology platform, develop innovative services and pursue a clear monetisation strategy. During the exploration phase, a regular evaluation and validation is carried out of the critical hypotheses that form the basis on which an informed decision can be made.
- Maturation: Based on these considerations, innovative products or services should be designed in such a way that they offer real added value. With a stable technical foundation, a clear customer benefit and a well thought-out business perspective, they are the basis for all further services. Companies increase the probability of success by demonstrating the real added value of new services before moving on to the next phase.
- Scale: In this phase, a scalable, digital business model should be ready, which can be expanded by additional customers, products and services. The digital strategy is therefore being successfully implemented. Rapid acceptance of the product innovation by customers and users is the key to the expected return on investment.
Training the muscles of radicality
Historically, the success of industrial companies in the German-speaking parts of Europe has been based on gradual changes to their existing product and service portfolios: improving core technologies, increasing quality and reliability, reducing manufacturing costs or developing new, advanced generations of machines and equipment. This process made these companies market leaders in entire market segments or in the niche in the long tail of their sector. However, strengths that are indispensable for successful digitalisation have fallen by the wayside: the courage and ability to make radical changes throughout the organisation.
In a current innovation study, Zühlke has identified common patterns in the context of digitalisation that hold companies back from radical innovation. Breaking these patterns is a key factor in closing the Innovation Orchestration Gap:
- Innovation vs. Innovation: Even in the exploration phase, it needs to become clear to what extent the implementation of a radical idea also requires a business transformation. It is therefore advisable to set up a diversified team to assess the potential impact on the customer-, business- and technology-aspects and make an informed decision.
- Create to destroy: Radical innovation is always a balancing act. It is more than complicated, it is complex. The risk of failure is high and there is no calculable ROI. The only way to demonstrate potential return on investment and minimise innovation risk is to evaluate and then confirm or disprove critical hypotheses from the customer-, business- and technology-perspectives. If an idea is discarded, companies usually still benefit from the business transformation that has been initiated and from an intangible knowledge asset within the company.
- Driving Innovation: Innovation, in its original sense, is not something that can be planned for in an orderly manner. However, managers can certainly encourage it by creating an innovation-friendly environment. In addition to autonomy, financial independence and a practised culture of failure-tolerance, the most important factors for the success of product innovation and business transformation are talented professionals from different fields and the freedom to put their innovative ideas into action.
Creating perspective for digitalisation and business transformation
Solutions based on networked machines and devices will be the most complex systems that have to be designed, built and maintained in the future. Various data sources, complex data flows, changing algorithms, numerous user interfaces, hardware and software, release cycles, device life cycles and many other factors bring a whole new level of technological complexity for companies.
On the road to successful product innovation, there are many important aspects to consider in order to drive successful initiatives for networking within the company. Elementary questions are how data can be generated reliably, securely and dependably and merged with data from internal and external sources, sometimes in real time, to generate contextually relevant insights for different requirements and stakeholders (customer, service, R&D, ...).
Technological aspects of promoting successful networking in the company
One answer to these questions will be the unification of operational technology (OT) and information technology (IT). In practice, OT, such as machinery, equipment or vehicles, often loses its connection to the company after delivery or installation. On the other hand, companies use IT systems such as CRM, PLM and ERP to support their standardised processes or in product development. Both OT and IT are continuously generating valuable data. If these are brought together cleverly, essential knowledge about entire plants can be produced for different needs. The much-cited digital service is nothing more than a machine that is fed with data as raw material, that refines this data and thus produces usable knowledge.
To reduce the implementation time for such complex systems, the first step is to classify potential and beneficial use cases, then prioritise them and decide on the basic architecture of a digital platform. Again, with a clear roadmap and step-by-step implementation, obstacles to digitalisation can be identified at an early stage and specific solutions can be created without compromising the overall platform. Solutions based on the motto "specified, implemented, done" have had their day. Companies must learn to work with a technology package that is constantly evolving and to implement changes during normal operations. And they must be prepared to implement the necessary changes in their corporate culture and process organisation, because business transformation is essential for successful product innovation.
Companies therefore face a number of challenges en route to the marketability of innovative products and services. Once they have solved these and closed the Innovation Orchestration Gap, they benefit from new, customer-centric products. As well as that, there is also an overall understanding of how digitalised product innovation affects all areas of the business.
In addition to product innovation, we have identified two other key areas of activity in which the Innovation Orchestration Gap occurs. Learn how to close the gap in Production Innovation and Business Innovation in our blog posts.