The innovation imperative
In an era of unprecedented rates of change and new sources of growth, business leaders have seen traditional models struggle to defend against newer, more nimble competitors with substitute products. This is best seen in the Financial Services industry, where incumbents are experiencing disruptive innovations that redefine the way financial services are delivered.
In a recent report, the World Economic Forum analysed many of these game changing developments the industry. It identified that the greatest innovation & disruption in financial services will occur at the intersection of the biggest points of customer friction and the largest profit pools. In other words, disruptors find financial incentive where there is customer demand and willingness to pay, and this phenomenon is rapidly impacting traditional business models. To survive, business leaders in traditional businesses are increasingly turning to innovation as a growth driver and value creator to fuel sustainable profits – the innovation imperative.
Common misconceptions impede businesses in delivering disruptive innovations
There are a number of common challenges in the innovation race that cause organisations to struggle in their efforts to create sustainable competitive advantage. Rushing to innovate without a well-planned and structured approach turns long term aspirations to create new value into short-lived fads, directionless brainstorming, and ineffective innovation functions. All too often, over-excited firms divert excessive attention and resources to clichéd ideas, over-promising and under-delivering on initiatives. Even more damaging is the momentum lost by organisations that neglect opportunities to innovate outside the core, who may enhance their existing business, yet fall victim to a new competitor disrupting their market.
Through our years of working with innovative clients and leading research organisations, we have analysed the opportunities and pitfalls in driving innovation. We have observed that two of the most harmful and prevalent mistakes across most industries include:
- Narrow focus on product innovation
- Innovation relying solely on a creative culture
Work by Doblin, a leader in global innovation and part of Deloitte Consulting, offers solutions to these two problems. The focal question behind Doblin’s extensive research into over 3,000 innovation organisations is “How do we get innovation to succeed instead of fail?”
1. Narrow focus on product innovation
A narrow focus on product innovation neglects the full range of other innovation opportunities identified by Doblin. The remedy is to shift this focus, to enable development of bolder innovations that are harder to copy and easier to implement. Easier said than done, however Doblin’s 10 Types of innovation provide a guide to achieving this.
Rigorous, cross-industry research revealed ten different types of innovation, across the following three categories:
Figure 1: Doblin’s Ten Types of Innovation
Doblin discovered that all great innovations comprise some combination of these ten types.
Innovation is generally thought of in terms of new or improved products and services. However, product innovation is commonplace and often easy to copy. Doblin has found that to develop breakthrough innovations and outperform their competition, innovators must leverage multiple types of innovation.
Starbucks is one of many examples of multi-type innovation success. Coffee, as a product, is difficult to differentiate when targeting a mass market. At the heart of Starbucks’ growth was a multifaceted approach to innovation, including innovations across:
Configuration – improving the business’ profit model through scaling its way to cost leadership; building the network through rapidly franchising; streamlining the process through franchise-wide standardisation efficiencies and logistics and building a human resource structure that delivers exceptional customer service through hiring part-time educated and professional employees
Offering – a promise to make coffee the first sustainably sourced agricultural product; through launching a complementary product system, including an exclusive subscription delivery of Reserve Coffee, providing customers access to premium, small-lot coffee roasts
Experience – Mobile Order and Pay self-service; Brand extension to a number of coffee and tea based businesses; Customer engagement and experience through creating a ‘third place’ environment, where customers can sit at ease in a nice chair, with internet access and comfortable surroundings
2. Innovation relying solely on a creative culture
Many organisations believe that a creative culture, emerging from sexy, mysterious innovation hubs, corporate creativity fairs and even basketball courts will magically bring innovations to market. Innovation is a discipline; often ill-designed and poorly planned hubs can diminish a company’s ability to pull the critical levers that result in innovation competence. Eagerness to begin the creative process of brainstorming new ideas is understandable, but lack of creativity is rarely the cause of innovation failure. Businesses must therefore devote ample effort to building the capabilities of an innovation discipline.
Figure 2: Doblin’s 12 Levers of a Breakthrough Innovation Capability
Beneath these building blocks are 12 associated capability levers that an organisation can emphasise or adjust to ensure they can continuously identify, develop, and deliver new value to customers. Effective use of these levers enables organisations to innovate at will.
Short-sighted innovation efforts are causing organisations to waste capital and forgo transformative opportunities. These opportunities exist across an array of Types of innovation, and can be triggered through pulling multiple Levers. However, narrowly focusing on product developments and creative culture has led to severe underinvestment in a range of other areas and capabilities. Treating innovation as an essential management discipline therefore requires a more comprehensive and structured approach, which will enable businesses to more reliably and repeatedly drive disruptive innovation.
 The World Economic Forum – The Future of Financial Services, Final Report, June 2015