How to best strengthen your competitive position through digital innovation as your competitors are likely reducing their innovation efforts?
As the ancient Chinese saying goes: “When the wind of change blows, some people build walls while others build windmills.”
Not knowing whether the World will find its way back to normal, or develop an entirely new normal, do you see COVID-19 as an opportunity to protect your core, or for growth?
In a recent survey McKinsey & Co. (Jun, 2020) asked executives around the World and found that “Nearly three out of four executives agree that the changes brought about by COVID-19 will be a big opportunity for growth, …”.
However, only one in five expressed strong confidence when asked “ … if they have the expertise, resources, and commitment to carry out new growth opportunities successfully in the next 12 months.”
While it’s a natural response to cut innovation in the time of crisis to focus on the core, which the survey also confirms, it’s worth recognising the opportunity it creates for you to go against this natural tide in your industry or market.
As I see it the crisis following from COVID-19 creates an interesting strategic opportunity to get ahead by leveraging the power of digital while the competition focuses on their core.
Discovering signals from the future
Part of business strategy is about shaping the future to our advantage. Among other things, this means spending some time trying to understand what the future might bring and how the environment we rely on will change so that we can respond accordingly.
While we won’t find certainty when looking towards the future, we are often able to discover early signals of upcoming circumstances, which we can exploit to our strategic advantage, especially as competitors are busy doubling down on their core.
COVID-19 sure seems to create more uncertainty about what the future holds, but I will argue that it is still well-worth remembering that changes in the consumer behaviour can often be anticipated because they tend to be signalled by trends often negligible at first. It’s also worth noting that technologies evolve in predictable cyclical patterns, which makes it possible to shift focus from a discontinuin
g- to promising emerging technology.
Knowing your constraints in digital innovation
Granted, it’s easy to talk about seizing opportunities, but at the end of the day, it’s walking the talk that matters.
But before diving into a discussion about concrete actions, I highly recommend first defining your constraints, because it’s important that your actions take these into account to increase the likelihood of success.
I’d love to have been able to just provide you with a cheat sheet with top three constraints, but this won’t help you, but having spent 10+ years in the intersection of innovation, strategy and digital across industries has taught me that each situation is very unique. This means that listing general constraints won’t help you, because it will leave out valuable contextual details that you’ll need when designing effective strategy.
I’ll instead share the one method that I’ve found over the years to be the most simple, cost-effective and powerful — simply asking and listening to your knowledgeable colleagues. Ideally also your customers.
It’s in fact as simple as asking them the question “What are our biggest innovation constraints?”, but let’s just dip into the details of my preferred method, especially during times of lockdown.
Getting to the answers within in the time of crisis
First step is to arrange a series of informal calls with relevant people in the know. Optimise for diversity in any possible way, because the answers will paint a more realistic picture, especially as both innovation and digital crosses over both formal and informal boundaries. The minimum number of participants is ten people, more is, of course, better but takes more time and in my experience, you’ll quickly start to see repetitions when exceeding 10 respondents if you’ve been diverse in your selection.
Book them in for 50min using Zoom, Google Meet, etc. and let them know about your intent (what and why), e.g. “I want to explore what limits our company’s degree of innovation because I want to improve it.” and tell them that preparation won’t be necessary.
When the meeting starts, kick-off with some informal chat to warm you both up. It’s always good to ask about how they are and listen carefully. When you feel the timing is right, remind them of your intent and explain the methodology (this description) and make it clear that they’re speaking anonymously even though it’s not important who the feedback comes from. What matters in your approach is crowdsourcing your way to the most prevalent restraints in your business and that people in the “trenches” know best.
I’d encourage you to record each “interview” electronically, because while it’s paramount that you pay all your attention to listening and probing with clarifying questions, you will also want to capture the details so that they can be written later, either with manual or automatic transcription. I prefer the manual way because it forces me into every detail, but I know it’s very time-consuming. You’ll need peoples’ acceptance upfront. Try your best to conduct each interview in the same way and avoid biasing your respondents by asking leading questions.
That’s it really, although I want you to beware that this methodology comes with a caveat because organisational politics can easily get in your way. This is the main reason why my clients have decided to use me, or a colleague, to paint a picture as a neutral outsider. If you have the budget to involve experienced consultants, I recommend it, but I’m of course biased because I love to help organisations succeed.
Just for the fun of it and despite my disclaimer, these are the top three general innovation constraints I’ve run into most often across my clients:
- Insufficient capability and/or resourcing
- Unsupportive culture
- Lack of strategic clarity
When taking the changes from COVID-19 into consideration, I think you’ll hear that a lot of respondents feel a detrimental loss in creativity when asked about innovation constraints, because of the new ways of working and that virtual collaboration just isn’t the same. This is likely a critical root cause to overcome, because of its importance in innovation, but also a source of competitive advantage, as it’s very likely to be the same for your competitors.
A little story from inside Amazon
A little anecdote to illustrate unsupportive culture. Years ago, I got the opportunity to interview a very experienced senior executive by the name of David Tennenhouse at Amazon as part of the empirical research for my master thesis on innovation management. Meeting up at a diner close to Palo Alto in Silicon Valley, I asked him what he saw as the major obstacles to innovation at Amazon and without hesitation, he said “When senior managers are tasked by top management to deliver growth in the next year, maybe even quarter, they’re not going to put bets on innovation projects which might give them growth in 3-5 years. It’s simply too slow and uncertain.”
He continued by saying; “I’ve learnt the importance of just how critical it is to create a culture that supports more than a few irrational risk-takers who are willing to risk their bonus and career progression, maybe even general career, to create real innovation within their company. While instrumental, failure just isn’t a popular career path within large organisations.”
Being granted an ‘Innovation Fast-Pass’
Finally, time for solutionising. Not without disclaimers though, because as I mentioned before, we have to know the details of the constraints before we can solve them effectively. That said, I believe that some general principles from a concrete example will give you a good idea about effective ways to respond.
About six years ago I worked with a marketing director in an established Danish energy company operating nationally only. While she was above average capable in digital and flanked by their even more adept online director, they had failed at several attempts over two years to convince their Board of Directors (BOD) to make certain digital bets to capture new growth.
I was engaged in one of their unrelated mobile app projects at the time but got asked to help because of my background in innovation and experience in strategy and digital.
After running a series of internal, as well as external interviews, it quickly became apparent that the company was struggling to innovate mainly, because of a lack in customer focus, IT legacy (like most) and wait for it… – lack of strategic clarity, especially when it came to digital.
Yes, you guessed it. Apart from my client, the marketing director, the BOD was all men above 50 with a limited understanding of digital. However, they were already successfully invested in online channels so not totally oblivious as I’ve experienced elsewhere. Financial resources were available, but the culture favoured calculated risk and that’s where I came in.
After a few back and forth with the BOD, we finally managed to identify a key driver: customers perceived the company as trustworthy, but very old-fashioned particularly among the younger generations that they would increasingly rely on. This finding came as a total surprise to the BOD and as I’m sure you can guess, it upset them a fair bit.
Wanting to change the undesirable facts this became our burning platform for change and a key political driver for digital innovation. This is what we in the industry refer to as a ‘Innovation Fast-Pass’, because not only did our situation enable us to “skip-the-line” of other strategic investments, it also helped us create a more supportive culture.
We then went deep on strategic preparation by doubling down on understanding future consumer trends. After some thorough research and analysis, we came to the conclusion that convenience through digital solutions was already a noticeable preference among a growing number of consumers and that it was an effective driver of customer loyalty. We, therefore, choose this as our main strategic driver which means that it would guide and give direction to all other technology choices. This gave us critical strategic clarity, because it made our intention clear, i.e. how digital innovation was going to help the business achieve new growth.
Zeroing in on the digital innovation problem
The business already knew that while their car fuel sales allowed very little profit margin, it provided very stable revenue and profit. More importantly, it had also been proven as an effective way to attract and acquire new customers, because the business had the most comprehensive network of fuel stations throughout Denmark. As fuel prices vary very little, this superior coverage meant that there was a very high likelihood that any driver in Denmark would visit their stations at some point without the need for any particular marketing effort.
This made our innovation problem very clear: How to increase loyalty through digital convenience for any (new and repeat) customer buying fuel at one of our stations?
Based on our innovation problem we ran a series of creativity-focused workshops, which involved everything from digital design focused on user experience, customer journey mapping, prototyping and user testing over architecture mapping and technology feasibility studies to business strategy, financial modelling and go-to-market strategy.
In hindsight, I would recommend kick-starting the process with a Google-inspired 5-Day Design Sprint, because I now know from experience how it can create solid momentum far more cost-effectively. It won’t of course cover the same ground, but it’ll accelerate solution discovery to an extent that it makes sense to let it lead and then extending the process with specific disciplinary extensions afterwards.
In the end, it became apparent that the best way to unify the physical and digital customer experience would be through a mobile app. We then decided to rebuild their outdated existing mobile app that needed replacement anyway. This included a lot of back-end infrastructure work, as well as “kissing technology frogs” to find the right third-party software solutions.
Optimising for digital convenience we ended up creating a novel service solution that works seamlessly across the physical and digital customer experience. In essence, it made the fuelling and payment process more convenient when compared to the traditional ways, both at their own but also at competing fuel stations.
Since then, the strategic principle of digital convenience has been expanded to also include business vehicles, car wash, fleet management and national car parking, all focused on leveraging digital to create a competitive convenience factor that drives customer loyalty.
In about eight weeks we had successfully created an ‘Innovation Fast-Pass’ and developed a combined task force to rapidly create, test, iterate, validate and launch a new idea. I’d be honest, it took longer than expected to prove its business case, about six months, but because we had already proven the concept during development, the BOD were patient and eventually the solution started to prove increase in loyalty among existing customers.
More slowly but to our very pleasant surprise, the uptake among young consumers segments eventually also started to grow. Marketing survey confirmed that the company’s reputation had started to shift, particularly among young consumers.
I know it sounds too good to be true when I tell you that it took global competitors like Shell over five years to create a similar convenient experience, which to this day still does not include the convenience factors of car wash, car parking, etc. I know part of their struggles is caused by a very challenging IT-infrastructure across the globe.
How do I know? Because Shell contacted us out of the blue some months after launch to potentially engage us to help them and I’ve been following their progress since.
So in this case the creation of windmills to seize an opportunity for new growth ended up also acting as walls to protect a small national player from its global competitors.
Let’s be clear — we are experiencing a crisis and will be for some time. This makes it an opportune moment to define what success looks like when you’ve achieved it.
The future belongs to those who dare to create it.
- Most leaders expect COVID-19 to create a big opportunity for growth, but only the least of them feel equipped to face the challenge.
- When innovation efforts are cut during times of crisis it creates a unique strategic opportunity for those with the courage to go against the tide.
- Even though the future can’t be predicted, key signals can be identified to give valuable insights about the future.
- When looking for answers look in the most obvious place – among your colleagues and customers.
- Interviewing is simple if you pay attention to detail.
- Barriers of innovation can often be overcome if an effective ‘Innovation Fast-Pass’ can be established.
- Zeroing in on an innovation problem is paramount because it gives rise to focus that should never be underestimated.