Innovation is one of the most vital elements of business, yet it is arguably the most difficult to perfect. Research by Bain found two thirds of organisations highlighted innovation as a priority, yet less than 25 per cent felt their company was an effective innovator.
If you aren’t innovating, your core business willdisappear. Take Blackberry for example; in 2007 it was one of the biggest players in the smartphone market. Its QWERTY keyboard and ability to monitor emails in real-time made it indispensable for the professional demographic.
However, it didn’t take long for the competition to catch up as Blackberry failed to continue disrupting the market and it was soon the smartphone laggard playing catch up.
To avoid a similar fate, businesses must understand the three approaches to innovation which, when combined effectively with smart outsourcing, create the blueprint for business.
The first approach considered by many is sustaining innovation, which improves products or services for the same demographic to maintain or increase a business’ share of the market. After the success of market adoption, we have seen companies that almost sit back on their laurels and treat success as a cash cow. It may seem like an obvious statement, but without continuing to sustain the innovation, keeping up with customer demand and market developments, the innovation quickly becomes a laggard and no longer profitable.
The smartphone market is a perfect example. There are more mobile devices in the world than people and with smartphones now used for a plethora of activities, product development is central to staying ahead of the competition. Improvements, such as increased functionality and user experience, result in continual product success. However, if updates are minimal businesses risk disruption. After all, Blackberry proves consumers won’t replace their phones with exactly the same product.
As well as sustaining innovation, companies use technology teams to increase efficiencies, whether it’s back office processes or increasing business intelligence. The goal in this area is to free precious capital for the business – providing additional confidence for shareholders or simply adding to the war chest. Much as it is good practice to streamline processes or services, companies must invest excess capital effectively, as focusing exclusively on efficiency increases the risk of disruption by competitors.
Dell is an interesting example of one company that seemed to fall into the efficiency honey-trap. The manufacturer took the market by storm with a range of laptops; by selling directly to consumers, profit margins were vast. Dell focused its efforts on efficiency innovation. It took the decision to outsource production to China and although this freed up capital, it failed to invest in exploring new markets or develop innovative new products, which would have cemented its position as an industry Goliath. Instead, it failed to predict the movement towards tablets by both the consumer and professional markets. Although it now produces mobile devices, it is a classic case of too little too late.
Efficiency innovation is a pivotal cog in the business machine but if freed capital is not reinvested, the competition will take advantage. To stay ahead of the curve, companies must reinvest excess capital into disrupting the market.
Investing capital in disruptive innovation is the cornerstone of development for every company. However, it is often perceived as a risk, organisations are incredibly cautious as they risk failure. No one knows how successful the Apple Watch will be for example, but 20 years ago nobody predicted Apple would break Microsoft’s monopoly on the computing market, yet today it is one of the world’s most recognisable brands.
Disruptive innovation enables businesses to target new markets. The manufacturing industry is witnessing this with the advent of 3D printing threatening to alter the retail landscape forever. Design specialist Black Country Atelier has announced a move into the consumer market, enabling customers to design their own loom-band jewellery and print the items in a high street retail store.
When successful, such innovation is highly lucrative. By researching and identifying a new market the disruptive business will immediately become the market leader, leaving competitors in its wake. If companies don’t disrupt the market their competitors will, so investing wisely is critical. Of course, the relevance of an innovation approach will depend on the situation, so it is vital businesses understand which approach is most beneficial.
There are obvious benefits to all types of innovation; a combination of all three could be the holy grail – if of course there are the right skills and expertise to oversee each type of project and ensure demonstrable return on investment. In reality, very few companies can orchestrate all three and leaving it to the IT department is untenable.
We are now seeing strategic outsourcing being used to its optimum. Outsourcing certain elements of the business is not only pivotal, but enables the business to focus on the areas that add to its success. There are three methods at their disposal:
- In-house – Businesses focusing on sustaining innovation should maintain control of this due to the vast knowledge base required to amend and improve the intricacies of products and services. Outsourcing this may result in reduced quality and major time delays. In a software context, the likelihood of glitches appearing in a product increases if sustaining innovation is removed from the original production team.
- Offshoring – Any businesses which consider efficiency innovation as central to their growth plans should offshore business critical proficiencies, such as developing accountancy tools or CRM systems. This complements efficiency innovation perfectly and vastly reduces cost. Investing these savings among several elements of an organisation, including disruptive innovation, will ensure the business doesn’t focus solely on cutting costs.
- Onshoring – Although disruptive innovation is manageable in-house, contracting this to a third party is often the most beneficial approach. A development partner that is removed from the core business can think outside the box, which results in the most innovative ideas. Keeping this in-house has the benefit of specialist knowledge, but the constant communication and collaboration at the heart of agile development will ensure this is not an issue when outsourced.
David Griffiths & Mark Hobson, Black Pepper Software