When leaders consider how technology has enabled transformation of business models over the past several years, few would disagree that the world has changed dramatically. Retail, entertainment, music and banking have largely moved online. It’s a familiar story: Netflix beat Blockbuster; Amazon beat Borders. More recently, Tesla has transformed the experience of buying, owning and driving a car.
These and many other stories of business innovation have this in common: their business models have technology at their cores. They’re in the software business, and they compete on user experience. They recognize that innovative use of technology is enabling new business models with competition-crushing advantages built right in.
This is why innovation programs have become so critical to sustaining the success of enterprises. Yet, many leaders have not accepted that their organizations need to change at the same pace as the rest of the world. They haven’t examined the explicit and implicit organizational values that could be holding them back from innovation. In addition, they may have yet to embrace and incubate innovation as an essential function of their businesses.
It’s essential that organizations foster innovation to keep moving ahead, implementing meaningful changes to help incubate innovation. We often suggest an innovation portfolio framework, outlined below, to accelerate technology-powered transformation.
Why incubating technology-focused innovation is important
Securing and maintaining competitive advantage now requires organizations to accelerate technology-powered transformation. Whether they use custom-built software or software as a service, organizations’ processes are orchestrated and supported by the software they deploy. The technologies they buy and build to support transformation are vital to their continued success. Businesses must remain ever-ready to innovate as an aspect of their routine operations.
Building the capabilities to refine and innovate new business models is critical. Two stories of innovation and competition illustrate this point:
- Netscape founder Mark Andreesen has famously said: “software is eating the world.” He should know. In 1994, his open-source Netscape Navigator browser transformed the difficult-to-navigate world wide web with a user-friendly point-and-click interface. Soon after, Netscape achieved 80% of the browser market. In 1995, Microsoft launched Internet Explorer, and by bundling it with its winning Windows 95 product, it swiftly eclipsed Navigator as the leading browser. Then in 2016, Google beat Internet Explorer with its Chrome browser, attaining this success on the strength of Google’s superior search technology.
- Consider Domino’s, which redefined itself nearly a decade ago by transforming into a technology company. This iterative transformation started in 2015 when Domino’s redefined ordering pizza delivery via Twitter. Customers could tweet “#EasyOrder” or a pizza slice emoji to @Domino’s, and within 30 minutes, their pizza would be at their door. Behind the scenes, the company linked their customers’ Domino’s and Twitter profiles to enable this innovation. Domino’s knew each customer’s favorite order and their payment method. Does it sound like a lot could go wrong with this service? It did. Even so, Domino’s celebrates the experience as one of their early opportunities to become the technology company they are today. They’ve since added the next iteration, a chatbot, Order with Dom. They made the decision to be innovative, to be tech-first – and to change their culture. It’s paid off for them, because through innovations like this one, they routinely top the list of quick-serve restaurants in the United States.
How to get into the software business
Software development is a creative process. Like art, it begins with a blank canvas and becomes whatever the artist’s mind’s eye wants it to become. Nothing else within a traditional organization operates this way. That’s why startups are generally considered to be both disruptive and innovative. Software should be an organization’s best lever to create business agility. Using software as an innovation lever allows organizations to take a fresh look at existing technical debt and determine how best to develop an innovative strategy to ensure that tech debt does not dominate the transformation strategy. Software development allows an organization to create something new and by this nature, it becomes both innovative and disruptive. This is why Uber is a tech startup and not a taxi service. It’s why Netflix caused the demise of video rental stores. And it’s why we now often say, “every company is a tech company.”
What does it take for an organization to shift from its current business-as-usual mindset and get into the software business? It takes incubating a winning innovation program, and that starts with knowing the customer and shifting the organization’s values. It takes adopting an innovation framework that accelerates the organization’s capacity for transformation.
Knowing the customer. Successful innovation takes presenting new value propositions directly to customers. Businesses can explore the journey their customers want to go on versus the journey they’re taking today. What they learn through such explorations leads to identifying tech-enabled ways to make customers’ lives easier and more convenient. As Jeff Bezos put it, speaking about Amazon’s development of the Kindle: “We’re not competitor obsessed, we’re customer obsessed. We start with what the customer needs and we work backwards.”
Shifting organizational values. Innovation programs spur change – even to an organization’s own values. In particular: “failure is okay” is an essential value in innovative organizations. Without failure, organizations won’t change, because folks who should be fostering and pursuing innovation will be too busy playing it safe. It’s admittedly difficult to begin this shift as it requires a change to organizational culture, values and reward systems. Remember Domino’s? Their Twitter feature failed many times, but the company still counts the experience among its innovation successes, because they learned a lot through delivering and operating a revolutionary new service.
Establishing a framework for innovation
Leaders are starting to understand that innovation is a macro trend. When leaders reach that realization, they’ll want to bring all their authority to bear to incubate a strong and empowered innovation program.
First, they’ll want to consider where the function will reside within the organization, who will own it and how it will be supported. They’ll want to ensure the owner of the innovation program has real power to make decisions and drive change throughout the enterprise. (Many organizations already have what they call an innovation program. It may be funded, and it may be operational, but if it lacks power to effect change, it won’t achieve transformational success. As mentioned above, leaders must be willing to tolerate failure to move forward.)
Once ownership and support are established, innovation leaders will want to take a portfolio approach to explore several innovations in parallel and balance investments across those innovations. The portfolio approach conveys this advantage: if the program is exploring ten or twelve new ideas, having one idea that results in significant transformation is a solid success for the whole innovation program. “It’s okay to fail” means only a few new ideas may flourish. If no innovations grow into significant transformation, it may mean the ideas are too wild or neglectful of customer desires. If all experiments grow into operationalized changes, then the team might be playing it too safely.
Ideally, it’s not just okay to fail. It’s great to fail fast to build momentum, maximize learning and manage risk. Failing fast means thinking big but starting small by pursuing time-boxed innovations. When the time’s expired, teams can review results and then scale up successful experiments. They can learn from failures by completing retrospectives in the agile way: exploring what worked, what didn’t and identifying underlying causes.
Innovation: an essential business function
It’s technology that drives the transformation of business models today. Innovative business models have technology at their cores. Every organization that means to keep ahead of its competition must be in the software business, and that’s why incubating innovation programs has become essential to sustaining success and remaining competitive. Leaders can incubate innovation by acquiring deep knowledge of customers’ needs, adopting “it’s okay to fail” as a core value, and establishing a framework to pursue a portfolio of innovations swiftly. If an enterprise has not been changing at the same pace as the rest of the world, it isn’t too late to embrace and incubate innovation as an essential function of any business.