Remember the time — like, a year or two ago — when moving to the cloud, developing a mobile strategy, and analysing big data represented the cutting edge of business technology? Well, even as many companies are still waiting to see the results of these transformations, a new wave of technologies — artificial intelligence, the Internet of Things, and augmented reality, to name a few — is already shaping the present and future of business.
Given the pace of technological change, trying to keep up by simply reacting is futile. Yet most companies don’t approach innovation strategically and fail to think about how technology will affect their long-term future. In fact, it is clear the processes and departments that focus on innovating may need to be revamped. The key to successful innovation is to enlist the right mix of employees, customers, and technology partners from the start. Then, leaders must be sure that their company owns the innovation process, develops technology strategies that sync up with its overall business strategy, and consider how new developments will affect users’ experiences.
In our annual PwC Digital IQ survey, we found just 33 percent of companies had a team dedicated to exploring emerging technology; that’s down substantially from 52 percent 10 years ago. The data suggests that companies are outsourcing innovation: Nearly 60 percent of respondents said they actively engage with external sources to gather new ideas for applying emerging technologies.
Of course, having open innovation models and obtaining more external input are valuable. But innovation needs to be a core competency, and core competencies shouldn’t be outsourced.
Why? Companies that outsource innovation today risk becoming dependent on external sources at a time when technology can be the biggest differentiator for success. They typically place a higher priority on revenue growth and increased profitability than on creating better customer and employee experiences. They consider investments on the latter a tax to stay in business and maintain relevance rather than developing innovation as a way of working and a cultural norm. It’s a defensive rather than an offensive posture.
By contrast, for those companies that prioritize fostering creativity in-house, the money always follows. Indeed, the top financial performers in our Digital IQ survey rated higher than their peers on most measures of innovation, and 75 percent of those top performers said their innovation processes include identifying and commercializing digital products.
But simply throwing money at innovation is not, in and of itself, a winning strategy. Too many companies make blind bets on technology without thinking of the business implications. It’s a waste of both time and budget if a company develops a new cloud-based customer relations management system that fails to contribute to its vital business goals. The Digital IQ survey found that only 40 percent of companies proactively explore new innovations with specific business needs in mind.
At the same time, companies must always keep in mind how their innovation will affect the human experience, be it that of the external end user or the employee. Getting the experience right for customers and employees helps transform a great strategy and technology into an engine that changes and improves the way we live and work. And yet, our survey found that just 10 percent of respondents ranked creating better customer experiences as their top priority, down sharply from 25 percent just one year ago.
Board members and the C-suite are putting pressure on their organizations to drive technology adoption, which is a vast improvement from years ago. But taking technology shortcuts and chalking up a quick win without a business plan in mind never pays off beyond the short term. Too often companies chase the latest technology fad without understanding how it will impact their business over the coming decade.
One way to ensure a greater harmonization of technology strategy with business goals and the human experience is to create physical spaces to incubate, prototype, and test innovations. Visa, the credit card and payments giant, has set up eight Visa Innovation Centers around the world. They are designed as collaborative, co-creation facilities where the company and its clients can see how emerging technologies will work in the real world.
Nesta, the U.K.-based innovation foundation, similarly sets up workshops with employees, end users, and other stakeholders to consider innovative approaches. “When you’re trying to design and implement a new way of working, you really need a feedback loop,” says Eddie Copeland, Nesta’s director of government innovation. “And that feedback needs to come from all the people involved and not just what senior management thinks is the right thing to do. This helps foster a culture of innovation.”
Among the companies that took part in our Innovation Benchmark survey, roughly two-thirds echoed the sentiment that bringing in employees with fresh thinking and establishing an innovative culture were the most important factors for successful R&D — much more so than increasing the budget for innovation or establishing a clear business model for it.
The organizational mind-set to prioritize innovation capabilities has to go far beyond evaluating what to buy or where to invest. Companies must determine how to organize internal and external resources to find the emerging technologies that can help the business achieve its goals. This approach should include establishing a formal listening framework, learning the true impact of bleeding-edge technologies, sharing results from pilots, and quickly scaling initiatives throughout the enterprise. And it will require dismantling walls within a company. At PwC, we have our own process, called BXT, that’s designed to break down silos and bring together business, experience, and technology to facilitate a holistic transformation for digital growth.
Creating a culture of innovation requires strong C-suite leadership. Gone are the days when most businesses looked to technology to help them simply keep pace with market demands. Instead, more companies are looking to technology to help them create markets for future products and services that don’t yet exist — and to meet customers’ unknown future needs.
Tom Puthiyamadam is a principal with PwC US, based in New York.