Many companies in Luxembourg (and globally) have digital innovation occurring inside their organisations. But are they always asking themselves the right questions and taking the right approach to success?
According to a study by Strategy& and PwC, A strategic guide to digital innovation, How to transform and scale up models and mindsets , “Companies have been implementing digital innovation through investments in what PwC calls the ‘ Essential Eight ’ Technologies, identified for their potential great impact and commercial viability over the next 5-7 years”. And yet in the same study, the results of 50 CIOs polled across Europe show that barely 10% of companies were managing to grow revenue from digital initiatives to more than 5% of group revenue.
Innovating close to the core of the business means that most of the activity takes place in close proximity and relation to existing products and services, processes and staff. These initiatives then need to be scaled up within those core businesses.
Inside companies, Digital Units (DUs), or assimilated, are often created as the engine for digital innovation. They can come in different models and take different approaches, but generally, the DU is a ring-fenced entity with its own governance, budget, and culture. And they are increasingly common in companies across industries.
So what is the reason for the gap between good intention and success?
Digging further into the survey, it reveals that one of the main reasons for the gap is that companies that have set up DUs are not benefiting from them organisationally and in other ways. The result? While they generate a lot of ideas, only 8% of companies with DUs have successfully scaled their ideas up into a launched product.
Companies that have set up DUs are not benefiting from them organisationally and in other ways.
The reason for this is that effective innovation does not happen by accident. It happens in different scopes and magnitudes and in various forms in terms of unit/tech/team. Embedding digital innovation in a business calls for a thoughtful consideration of many components including strategy, methods, processes and governance, all of them overseen appropriately. It also needs the right connection with other pieces of the change and delivery engine of the organisations.
Which form will your digital innovation take?
In PwC’s 24th Annual Global CEO Survey – Luxembourg Findings , the resulting message from the polled executives was clear – “companies have been allocating significant investment to enhancing their digital infrastructure and streamlining their operations for well over a decade”.
The speed at which COVID-19 accelerated this trend transcended all possible predictions and the challenge today is how to use these digital tools to enhance efficiency and develop new products in a timely manner. All of this is on Luxembourg CEOs’ minds, with 85% of survey respondents planning to increase their long-term investments in digital transformation over the next three years. But how to ensure that this investment in digital innovation generates the expected impact?
In Luxembourg, we see various types of digital innovation models already existing inside companies. Some are centers connected to the Group-wide digital innovation hubs, others are experimental labs hosted in a transversal line of service or dedicated innovation units serving the company to name a few. But to succeed, the DUs need to be rightfully set up in the organisation and be cross-departmental to avoid being siloed. And long before you set up a DU in your company, you have to ask yourself what its purpose will be and how it will connect efficiently to the other parts of the organisation.
Based on work with clients and the results of the Digital Executives Survey – there are four effective DU archetypes: Laboratory (10% of DUs), Competence center (60%), Solution provider (20%) and Company builder (10%) – that can guide the way companies think when looking at digital innovation. Each has its own unique value proposition, governance, capabilities and financial model as well as a different focus in the innovation process from ideation to scale-up. In addition, each archetype calls for a different interaction model with the company’s business units and IT department.
What type of innovation embodies the business goal you want to achieve going forward? Will your innovation be close to your core and require deep integration with your existing business, or will it go beyond the core?
If close to the core: think about a holistic transformation of the main business and IT organisation to avoid scale-up gridlock, rather than setting up a separate unit. Beyond the core: a separate DU is a promising format to push innovation, taking advantage of new technologies and the boost in time-to-market. Finally, to shift successfully towards digital innovation, leaders need to align their innovation strategy with their overall vision.
To shift successfully towards digital innovation, leaders need to align their innovation strategy with their overall vision.
The operating model needs to be designed in a way that enables successful execution of that strategy. And the entire company culture needs to be transformed to enable agile ways of working. If these factors are borne in mind from the early stages of establishing a DU, companies are sure to boost the prospect of their DUs delivering winning solutions.
At the Experience Center and within our Advisory services , we are constantly working to accelerate the innovation process of our clients running with them specific innovation sprints, Hackathon, awareness sessions or reflecting with them on their operating model to name a few.
Why do companies need to innovate?
There are multiple factors driving digital innovation, now a necessity for businesses to survive. Emerging technologies, fintechs are good allies to innovation but what seems to be even more powerful is the convergence and integration of some of these technologies and whatever comes next. Customer-driven transformation, demographic evolution and consumer behaviour change, are also important factors. And all while the pandemic is turbocharging digitalisation.
Perhaps the ultimate question is: How far can – or will – digital innovation go? According to the discussion at the last Gartner Symposium , we are moving into the realm of Anywhere Operations – in fact Anywhere, Everywhere and Beyond.
And according to Gartner, by the end of 2023, 40% of organisations will have applied anywhere operations to deliver optimised and blended virtual and physical customer and employee experiences. So the why is not in doubt. In that same study, they will also need to embrace the “Beyond” leveraging on innovation to push legacy practice aside.
Not only constantly changing but also globalised, the world is interlinked. Factors outside of our own country, and the new normal with its remote working situation, are pushing innovation to the limits. Companies, in Luxembourg and abroad, need to keep on top of global trends.
Let’s take, for instance, the case of the banking industry. PwC’s report “ Banking in Luxembourg: Trends & Figures 2020 ”, revealed that even though banks have already begun to adapt to the new ecosystem and deliver superior client experiences, in order to go further, they must bring constant innovation to the forefront.
More specifically, seven broad innovation categories emerged: Customer experience, Capital markets and lending activities, AI and analytics, Payment solutions, Sustainable finance, Blockchain and crypto-assets and Non-traditional banking services.
If you want to learn more about this do not hesitate to reach out, innovation is an open field.