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February 17, 2015
Will your digital innovation strategy leave you in the cold?

Businesses around the world are establishing new digital innovation teams in an effort to keep pace with digital developments in their sectors. They recognize that their existing core business, and even their existing digital teams, have become burdened with heavy bureaucracy and are not delivering the innovation required to succeed in their markets. These new digital innovation teams are staffed with gifted technologists, designers, and media pros; lured by the promise of a creative workplace and limited red tape. Many of these efforts, however, are at risk of failure due to poor alignment with the very core business they are meant to improve. The best solution depends on an organization’s digital ambition (see Figures 1 and 2 below), as this blog will seek to demonstrate.

Imagine it’s a wintry, windy night and you’ve just driven home from work. You pull into the garage, safe from the weather’s blast—and then you have to venture back into the biting cold again to get into the house. Why? Because your garage was added on long after your house was built.

That’s pretty much how many businesses are configuring their digital innovation teams today (see Figure 1 below)—as add-ons separate from the main business activities. But it’s far from optimal. The people staffing the new Experimental “innovation lab” may represent strong digital talent but they risk failure by toiling in isolation, only collaborating rarely with core business’ product management, IT or sales and marketing teams.

Executives looking to supercharge their digital activities regularly default to this experimental approach—they lure talent from leading digital companies with large salaries, perks and office furniture taken from a Silicon Valley playbook, and the promise of limited day-to-day administrative grind, all of which are normally far beyond the rewards available to employees in the core business. They are right to appreciate the competition for digital talent; however the best digital talent is also motivated by working for an organization that allows them to deliver creative, impactful solutions at scale. This is where the biggest disconnect lies--the innovation lab is unable to effect actual change in the main business. Its great ideas often languish in the mother ship because the parent organization continues to employ the same traditional incentives and processes, as well as maintaining the traditional go-to-market and operational channels for any innovation produced by the lab.

In a worst case scenario, a standalone innovation lab may actually prove toxic to the business. Isolation from the core business could result in limited relevance to core markets, not so subtly undermining home-grown digital marketing initiatives or crowd-sourced product development programs, or through resentment from a core business more inclined to undercut the new team than to bring good innovation to market. It’s not too melodramatic to say that a company in this scenario is almost certainly destined to stay a ‘digital follower’.

Other traditionally-minded companies employ a Digital Marketing model, staffed by a combination of in-house digital marketing and digital agency (channel, customer, UX) capabilities). These organizations focus on the traditional digital domains of multi-channel customer experience; and are less focused on the product and business model considerations and competitive pressures digital leaders contend with.

Alternative Approaches to Digital Innovation and Transformation

Forward-looking companies anticipate the problems with these standalone models and carefully design and calibrate a “translation” function between the innovation lab and the core business. The more sophisticated have coherent digital transformation strategies, with clearly communicated objectives, shared incentives, declared roles and responsibilities, and governance of all of the processes needed to ensure productive interactions between the digital specialists and the core business teams. The outputs of the digital labs are incorporated quickly into the activities of the existing business. Let’s label these companies the “Transformers” because they stand a much better chance of realizing their visions of a digital future.

An alternative take on the Transformer are companies adopting a Domain Alignment approach, looking for ways to aggregate all their digital professionals into one operationally distinct sub-business. In this scenario, the team is significantly larger than the innovation lab of the digital followers—in some cases thousands of people across digital marketing, IT operations, and digital product development, compared to dozens in an innovation lab.

However, this can be a risk, not least because it implies that a digital business can be built by pooling existing in-house staff who may, or may not, have the skills or outlook needed to innovate and realize the desired digital strategy. It is also a tricky approach because it may eclipse and possibly cannibalize the existing business, pulling away key professionals, funding and ideas before they can be harnessed in the service of the new digital business. In addition, the size of the structure and administrative burden may make it difficult to attract digital talent, as they find themselves embedded in more day-to-day requirements and admin.

Digital Business is the Goal

There is an alternative category of digital organization design: a much more aligned Integrated Digital Business structure where digital skills and processes and talent are deliberately embedded in areas as varied as business strategy and new product development. To revisit the garage analogy from the opening of this post, this would be the equivalent of a house with a heated garage designed as part of the building from the get-go. Only a tiny proportion of companies fall into this category and most are digitally native companies that have had the opportunity to design their business and organizational models from scratch; it is still largely an aspiration for even the most far-sighted of traditional industry giants.

Yet one only needs to look around the San Francisco Bay Area at the number of companies from outside establishing innovation labs and consolidating their digital teams, to observe the importance companies are placing on this effort. As more executives understand how digital is a linchpin of overall business strategy, and as their thinking expands beyond traditional digital marketing and cost efficiency efforts to address business model evolution, the digital customer, the Industrial Internet of Things, and the inevitable future waves of digital evolution—proper consideration as to how they organize for digital innovation will become more urgent and, critically, more impactful on overall business performance. Furthermore, this blog considers only the in-house digital innovation function. As the Accenture Technology Vision 2015 demonstrates, more companies are now extending their innovation to collaboration with partners across wider digital ecosystem and value chains that constitute what we can call the ‘We Economy.’ Further complexity across ideation, incubation, launch and acceleration is to be expected.

At the start it may not matter how a company begins its digital innovation effort, so long as it understands the opportunities and risks of its selected model. But if there is no plan to move toward greater integration of digital efforts and resources, then the long-term weather forecast starts to look increasingly chilly.

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Innovation Strategy
Figure 1: Digital Innovation Organization Models: Different organizational approaches to digital innovation lie on a spectrum of Digital Followers to Digital Transformers to Digital Businesses. While an evolution across models proceeding from left to right represents a possible strategy, it is arguably preferable for an organization to leapfrog certain stages as part of a well-defined digital business strategy.

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Figure 2 small
Figure 2: Comparison of Digital Innovation Organization Models

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