What is digitalization? There are numerous definitions of digitalization, whoever you ask there is either a question mark “I don´t know” or something like process improvement, automation by IT-solutions, “order” from management. But WHY try to make everything digital? As a technician I know that the analogue signals are infinite in details and the digital is a simplification and a compromise to the exact value. My conclusion is that Digitalization is dull and not the core business. Yes, it might make you more effective and it might speed up your processes, but it will also make you too another company with average performance. It will be a failure as a differential strategy because you leave your comparative advantage just to be like you competitors. I prefer to seek the values to my customers not a hype word with a vague definition. I will do that via innovations and, by the way, digitalization might be one tool to realize that innovation.
What is Digitalization?
Digitalization has got numerous of definitions but there is too often a lack of insight what you are talking about in your digitalization strategy. It is not uncommon that the Board of directors define a Digitalization strategy without defining what the word refers to.
When I talk to CEOs, CTOs, members of the boards and ask them what is digitalization you mention in your strategies? The response is in most of the cases a surprised face and a honest answer like “I don´t know, but I believe that we are seeking performance, growth and profit”. The next question is what actions are you going to do to implement the digitalization strategy? The answer is either like “Hey that´s what I’m asking you to help me with” or “We are looking to find a way to use IT to automate the processes”. My conclusion is that digitalization is an excellent tool to excel processes into higher performance et cetera. But digitalization is not a relevant strategy, it is “just” a tool to make use of IT to create as is business value. To many managers has fallen into the hype of digitalization without understanding what it is. Digitalization does NOT stand for itself, it must be put into a context.
Innovation as a strategy
I admit there is numerous definition of Innovation and as in digitalization you need to know “what do you mean”. My definition adapted from the Czech-Austrian economist Joseph Schumpeter is “Innovation is the creative destruction where the entrepreneur combines existing elements in new ways to create value”. The strategy is how to achieve your objectives and innovation is an excellent strategy how to succeed in both short and long-term perspective. Innovation requires creativity but also a lot of structural thinking not to be a funny experimental workshop but to be put into real business value. There are numerous of innovators that have huge amount of ideas but no structure to transform them into business value and the innovation work cost time and resources too no use of the business owners.
To achieve business value there must be structured innovation. Magnus Penker, CEO of Innovation360 group AB has some excellent thought and have developed a model of an innovation system. The systematisation makes innovation both tangible and successful. Below are the Inno360 framework* that structure how to manage innovation.
The framework gives a structure to the strategy and a toolbox how to implement the strategy.
Innovation versus digitalization
Innovation and digitalization is seen together where innovation is the business value solution and the digitalization is the techniques that implements how to improve for example an automated process flow. But innovation is a lot broader than IT-technique related improvements innovation should occur all over the business from what do we do (business value), who do we do it too (customer insight), how do we do it (processes), where do we do it (channel).
Nevertheless, IT is a huge possibility to innovate and therefore digitalization is of course, with a relevant definition, very important to manage. But let the digitalisation out of the strategies, it is an important, but just a tool to implement some of the solutions to solve ideas in within an innovation strategy.
How to do it
The steps how to define an Innovation strategy, to implement an Innovation strategy or to follow up the innovation strategy is as follows.
Define an innovation strategy
A strategy should be built upon a strategic intent, core values, a vision of where the business is heading, and a clear mission focusing on what’s important and clear objectives to strive for. You need to understand the environment of the business and the internal strength and weaknesses. To define a strategy that is achievable and good you need to understand your innovation capabilities.
What horizons do you have in your strategies. There is never one horizon when you work with innovations. One innovation might be brilliant but the market is not ready yet or another innovation need to be complemented with the correct technique. You need to have a three-horizon strategy (McKinsey quarterly 2009). First you need to manage the daily operations maybe one year perspective, called H1 horizon and mainly incremental innovation. You need to handle the three to five years perspective, called H2 horizon with partly radical innovations. Last you need to handle long term innovation, called H3 horizon with very radical innovations.
This is done by comparing your business with the top-class innovation business in the world in an innosurvey™ analysis*.
Implement an innovation strategy
Based on the gap in the relevant areas of your innovation strategy you need to establish an innovation system. The innovation system is structured with governance, task force, process and tools to structure innovation to be handled with efficiency and with benefit realisation in focus.
Contact Hire Quality Strategy how to build an innovation system in your environment.
Follow up an innovation strategy
It is easy to define key performance indicators like number of ideas or savings achieved via innovations. But if you really would like to understand the progress of your strategy you should first measure you increased innovation capability as key performance indicator. If this indicator has got a positive trend you will excel the business.
CEO of Hire Quality Strategy
*Inno360 framework, Innosurvey are trademarks of our partner Innovation360 group AB in Stockholm