The smarter way to business innovation?
By
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 will
disappear. 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.
Sustaining innovation
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.
Efficiency innovation
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.
Disruptive innovation
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.
Smart outsourcing
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.
ENDS
David Griffiths & Mark Hobson, Black Pepper Software
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