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There’s more. DHL plans to go global with RFID tracking for the millions of packages it handles each year. The payoff in customer service: later posting times and earlier deliveries. The US Department of Defense has gotten into RFID technology—on a huge scale: All matériel sent to the Persian Gulf for the Iraq conflict was tagged for fast, easy tracking. For one unit, the time required to take inventory of incoming equipment shrank from two or three days to 22 minutes.
Ironically, however, even technologies like RFID, no longer really count as innovation—at least, not as they are normally used. They are coming to be considered a cost of doing business, not sources of competitive advantage.
Of course, these technologies are important and well worth the investment—but competitive advantage may well be found only by discovering new, innovative ways to use or leverage them. The answer to the question, “What else could this let us do?” can be applications that are reasonable in cost because the basic technology installation and learning is in place. Moreover, technologies like RFID typically converge with other technologies, such as sensors, remote cameras and wireless capabilities, to create a new layer of infrastructure that can enable the next big breakthrough.
High-performance companies understand that it is the innovative application of new information technology that will produce the most significant advances in their business practices. Even more important, IT can produce the breakout new product, service or business model. The light bulb, after all, was not developed through continuous improvement of the candle. It was a dramatically better solution to the need for light, made possible through technology advances.
According to Gartner, “CEOs and CIOs are discovering that, in a difficult economy, early adoption of emerging technologies can give their companies a competitive edge.”¹ Accenture believes that high-performance businesses see technology innovation as a way to take the lead, rather than be a “me too” follower. These companies are quick to adopt new technologies, and to drive their adoption throughout their business system, so that they capture the competitive advantage.
Look at Amazon.com. Originally an e-commerce bookseller, Amazon.com is boldly transforming itself from a retailer into a technology company by offering the technical prowess behind its sophisticated website and search capabilities to other merchants, which sell their products via Amazon.com. What’s more, it is making its underlying web services, such as its product database and online shopping cart, available to independent programmers who are creating dozens of new applications that small merchants can use to sell on the Amazon.com site or elsewhere.
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The economics are compelling: Some analysts estimate that within a few years, more than half the products sold on Amazon.com could be those of other retailers. Amazon.com incurs no distribution or handling costs from this business, and takes a commission of about 15 percent. The outlook, according to analysts, is for healthy increases in sales and operating margins; indeed, in January 2004, the company announced its first full-year profit, for 2003. Down the road, Amazon.com envisions itself as the dominant platform—a retail parallel to Microsoft Windows—by which anyone could buy or sell essentially anything.
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Innovation by Design
The most successful companies do not leave innovation to chance. “Many [CEOs and CIOs] are looking to set up a formal procedure that would smooth the way for the introduction and implementation of these [emerging] technologies,” Gartner analysts confirm. “Of course, technology eventually will find its way into the workplace, with or without planning—but companies that fall back on a reactive, ‘as needed’ approach in their adoption of new technologies run the risk of making costly, personality-driven choices, rather than tactical decisions that align with their larger corporate strategy and goals.”²
How does a company create a successful innovation program? There is no single solution or formula, but success does require mastery of at least three key components of the innovation process.
1. Forge a Lab–business Partnership
Much as we would like to think otherwise, great new products and services don’t simply roll out of R&D labs, through marketing departments and into the hands of eager customers. A successful innovation program calls for two-way communication and a “meeting of the minds” between groups with different perspectives. Why?
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Managers and key employees on the business and marketing side may have their heads down, focused on meeting sales targets and other performance goals. As a result, they might be blindsided by technological change and the ensuing competitive upheaval. The organization’s leaders, managers and marketers need greater awareness of what is happening on the technological frontiers so that they can develop a vision of the future, anticipate change and prepare to use new technology creatively.
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Scientists and engineers often need a reality check to be sure their projects are in tune with what the market can and will accept. The successful product may not always be the superior technical solution, which is why the Concorde isn’t flying. The folks in the white lab coats need a better understanding of exactly how a new product can be turned into market advantage.
Opening up and maintaining communications between these two groups is the key to ensuring that R&D initiatives are based on a solid understanding of corporate needs and goals and market realities, and that leaders on the business side understand the possibilities of emerging technologies and are prepared to support and embrace them.
This information exchange becomes especially important as an organization grows beyond a compact site where watercooler meetings and other informal contacts are adequate means of communication. The best organizations, as they mature, create forums that bring together their technology and business sides. Often, they also include outside thinkers in business and technology to broaden the horizons of everyone in the organization.
The ideal is to bring together individuals who have deep industry expertise, technical competence and an awareness of emerging information technology—and to allow them to imagine, think and plan together. A global chemicals company did just that when it turned to a partner’s industry experts for help in improving asset utilization, then worked with the partner’s scientists to come up with ideas on how the concept could be implemented. The company adopted the recommendations, funded a pilot program and helped sell the results to one of its business units.
2. Look in the Right Direction
The best companies continuously scan their own organizations and industries, looking for obstacles or opportunities. What are the problems that, if solved, would have the greatest impact on the bottom line? What strategic area of the business offers the most potential for breakthrough performance.
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High-performance businesses are also on the lookout for promising emerging technologies. They have a formal method for tracking these technologies as they appear and approach the point of business value, and for ranking their potential impact on the company’s bottom line.
This scanning for new technologies is not without focus. Some areas of technology hold more promise than others and merit the longest and most intense look. Accenture, for example, believes that the most exciting opportunities today spring from the convergence of numerous technologies that gather new forms of information—RFID tags, sensors, miniature cameras and microphones, GPS, biometric devices—that enable “smart” objects to not just report passively on their status but to actively intervene on their own behalf or in pursuit of some busi-ness goal. When these technologies are combined with wireless capabilities, the Internet and massive computing power, it becomes possible to use this data to provide context-rich services.
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The trucking industry provides a good example. Each year, the industry chalks up more than $10 billion in losses from truck and cargo theft; the security risks associated with transporting hazardous materials compound the problem. Accenture Technology Labs has developed a Transport Security Services prototype that ensures security door-to-door.
RFID tags and sensors make the products and whatever they’re shipped in intelligent and interactive. Computers placed in the trucks, GPS installations and biometric identification systems verify fingerprints and irises. As a result, the truck, its contents and all personnel who come into contact with the vehicle can be tracked and verified. By building on this system, it becomes possible to route each truck in the most fuel-efficient way, and to ensure that chemicals or other dangerous cargo are not accidentally mixed or mishandled.
This convergence of technologies holds real promise for delivering business value. Some of these technologies are already reaching critical mass today, yet their market application in nearly every industry is still almost completely unexplored.
3. Go to Market Smart
When the best innovators find a promising idea and prepare to take it to market, they do so carefully, in stages, and always with an eye on both technical feasibility and business reality.
Researchers rigorously test promising ideas to validate the technology, determining whether it has been tried before, testing for flaws, and usually building pilots or prototypes. All the while, though, they stay in touch with leaders on the business side, keeping them abreast of progress and listening to their concerns and suggestions. That’s because a successful innovation will be far out—but not too far out. To be successful, it needs to pass a twofold test.
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It must offer something exciting enough to compel people to buy. That means it has to represent enough of a step forward in cost, functionality or even something as intangible as image so that people will undergo the temporary inconvenience of change. Benefits must be significant, visible and understandable. It’s hard to imagine building excitement around a new portable CD player, for example, but Apple Computer’s iPod is quite a different story.
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At the same time, the innovation should not create its own obstacles or disincentives. As much as possible, it should fit in with existing infrastructure, skills, values and work practices. Electric cars aren’t a market force, because no one knows where to plug them in, but hybrids are selling, because they use gasoline—and much less of it.
Once the technology has been tested for feasibility, researchers and business managers work together to build a business case that answers a number of hard questions.
Does the technology offer significant new ways of doing business? Build on existing infrastructure to capture substantial new value? Create a new technology platform that enables future applications? Is the technology within reach for the company—stretching the organization’s capabilities but not forcing it outside of its envelope of possibility? Can the company develop and implement the technology alone, or will it need partners? How fast will the opportunity develop? Are there ways to open the door to acceptance, such as through try-before-you-commit programs or other incentives?
Then comes the crucial decision: Do you move forward? Abandon the initiative? Or shelve it for a future time when more favorable conditions, such as a threshold of technical maturity or critical mass, have been reached? If the decision is a green light, high-performance companies already have momentum because the collaborative relationship between the technology and business sides has already begun to instill a vision and excitement throughout the organization.
Innovation in Action
How is this general model applied in actual companies? One example is BP. Company researchers actively scan the horizon for ideas, spending time at centers of innovation, which include new technology startups as well as established players like Microsoft Corporation. In addition, BP invites 50 top business leaders each year to two-day events focused on an area of emerging technology or process innovation that has the potential for high impact. These forums (called Blue Chalk events) include guest speakers from other businesses that are using the technology, as well as brainstorming sessions and breakout discussions with world-class experts and academics.
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BP staff members then take promising ideas back to their business function for development. Senior management provides visible support throughout the development process, encouraging business units to find and initiate pilot projects.
Many innovation-focused organizations, even those with extensive R&D programs, look outside their own walls for assistance, especially in the early stages of searching for promising technologies and developing a vision based on working models.
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IDEO, for example, is a California-based design and development firm that became famous in 1999 when a team of its designers appeared on the US news program Nightline, where they accepted and eventually met a challenge to completely rethink and redesign the standard grocery shopping cart—in just four days. This firm helps clients envision innovative possibilities by first seeing their current product or service through the eyes of users—“Innovation begins with an eye,” IDEO maintains—and then following through with brainstorming sessions and iterative quick prototype development.
Executives from The Irish Revenue Commissioners attended a workshop where they saw a knowledge-integration prototype that could be applied to their task of fairly and efficiently collecting taxes. The prototype would enable users to probe multiple data repositories and incorporate Internet searches, then display the results as a single, holistic web that could reveal unanticipated relationships between pieces of information. The auditors’ research would be better and faster, and would provide a deeper understanding of special interest cases. After a successful pilot, the solution is now being rolled out for more general use.
Accenture’s vision of the future, which we call Reality Online, is based on our own tracking, over the years, of a range of technologies that will enable organizations to generate new classes of information, enhance access to that information and use it more effectively for business advantage.
Investing in Innovation
High-performance businesses invest in technology innovation with a focus on long-term success as well as on short-term cost efficiencies. And because the innovation process is closely tied to business needs, investments have strong management support.
How much actual funding the best companies commit to technology innovation is difficult to know. Studies offer a range of numbers, which are determined primarily by how a company defines innovation and technology. As a general guideline, though, Accenture believes that top-performing innovative organizations routinely reinvest about 40 percent of their discretionary IT funds into upgrading existing technologies as well as into building new systems and technology capabilities. The best companies are also creative about investing jointly with partners and vendors, assuming it is a winning arrangement for all parties.
The amounts invested are less important than the perspective these companies take on investing. While they may manage some aspects of their overall IT investment with an eye to cost control, they manage IT innovations with an eye to creating real business value. They recognize they are not investing in technology innovation per se but in business innovation.
These companies also adopt the portfolio perspective of a venture capital firm. They do not place unduly high expectations on any particular technology idea or initiative, because they recognize that they are managing a pipeline of ideas. The pipeline is, in fact, a funnel, with a large number of ideas entering one end and an ever decreasing number passing through the successive stages of development.
The best leaders recognize that if even a handful of ideas reach payback—and if even one leads to a business breakthrough—the investment will be worthwhile. Some even take a portfolio approach to ROI expectations, setting a target that would be unreasonable to expect in the short term from any one idea, given the hit-or-miss nature of innovations, but that is feasible as a benchmark for a pool of ideas.
And they invest steadily, year after year. Maintaining a consistent level of funding for technology innovation is far more important than the actual amount, and it’s more constructive than having wild swings between well-funded years and lean years.
Consistent financial support is critical to attracting and retaining the best research talent, which otherwise would look for more secure employment elsewhere. Consistency ensures that ideas keep flowing through the pipeline, and that they can be developed quickly once conditions support their business value.
¹ Gartner, Inc., “Strategic Technology Planning: Picking the Winners,” J. Fenn, A. Linden, S. Fairchok, 9 July 2003.
² Ibid.
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