Thursday, March 24, 2016

Three Horizon of IT Innovation Strategy

In practice, IT innovation is business innovation, and innovation strategy is an integral component of business strategy.

Digital is the age of innovation, with technological advances, businesses large or small have pressure to become more innovative in order to out-beat competition at today’s hyper-competitive business dynamic. And the most popular “digital-flavored” IT is to leverage information to gain business insight and run IT as an innovation engine. But how to connect the dots between innovation and strategy, and how to manage a balanced IT innovation portfolio to improve business efficiency, profitability and long-term business competency?  

The three-horizon of innovation strategy: There are three kinds of innovation here: incremental -evolutionary ( something in between) – radical or breakthrough. The gap between incremental and radical is huge both in terms of outcomes if successful and on how to approach it. How to manage a balanced innovation portfolio depends on the nature and size of the business. Large companies are much better at incremental innovation than at radical innovation, the big companies have lots of potentials and also the better chances the evolutionary innovations success as well whereas the startups lead on bringing out more radical innovation because most of the radical innovations need a lot of time to launch into the market. Hence, large companies prefer to make only incremental innovations on their current technologies. Therefore, most of the organizational culture in large companies are not inclined to radical innovation. They are used to exploit an established and accepted technology and are very afraid of changing. The realities of corporate life don't allow companies to spend all their resources on radical innovation, because of the high percentage of risks to fail. It's generally believed that companies should have a balanced portfolio of innovation projects composed of ~70% of "incremental" innovations, ~20% of "adjacent" and ~10% of "radical/breakthrough." Obviously, the precise ratio is dependent on the age or size of the company.

Taking proactive approach: It’s important to align IT innovation, ultimately the business innovation with desired corporate strategic outcomes, by implementing excellent IT financial, demand, and asset management processes. Some set up the IT strategy steering committee which is part of the larger governance structure. By having a competent board-level IT strategy committee which prioritizes projects (including innovation) in alignment with corporate strategy and then measures that the IT portfolio is being optimally maintained through effective innovation management programs. Currently accepted corporate management practice most often begins innovation projects by prioritizing the many possible areas of improvements in the customer or stakeholders’ experience, and then focusing on only those "most important" areas which the design team estimates will have the greatest ROI.

Customer-centric innovation: Innovation should come in the common area of technical competence, customer needs, and profitability. Always train to take a step back, put yourself in the customers’ shoes and think as they would like to have. When understanding customer needs; then you can look at the company’s technical capabilities. You might produce the most sophisticated products in the market, but no one needs and buys it, that will waste talent and resource of business. It will be easier to develop an innovative product in order to satisfy a need or shortcoming; rather than manipulating the whole environment and market so that you can define what the customer should need. That being said, the value enhancement for the user is important to evaluate innovation. It’s about knowing that this enhancement might be a matter of perception, and increasing value might be reached by alternative ways. More specifically, you can evaluate innovation by three ways: (1) Need-driven innovation, when you discover the need of customers and have the ready set of business capabilities to fill those needs. (b) In terms of company history, when you evaluate how the company produced or implemented new solutions that were totally different to its “business as usual,” (b) in terms of market evolution, that is a truly breakthrough solution, a radical or disruptive innovation in the market. When a company "think differently," and implement new ways to solve problems, and then you have innovation.

Build a risk tolerance culture with a set of well-defined principles: Certainly innovation that brings out great products/solutions or spots a niche should be rewarded. Failure should not be an offense and actually, if there are not a few failures, then you are not trying hard enough. The job of innovation management is to help when a failure happens to turn it around as a team. However, in many organizations, creativity, curiosity, trust and strong relationship with consumers, that should be leading any company's decision, come to the bottom of priorities ladder. Here is the set of principles o build the culture of innovation:
(1) Put the Purpose, People and Consumers' Experience at the center of everything you do. Communicate and share the higher purpose. People must believe in the company’s vision and mission.
(2) Recreate the start-up stage. at least in some departments such as IT, Innovation and ideas-generation need to be seen as not simply the preserve of the few (in R&D or marketing).
(3) A focus on what are customers wanted and what the marketplace was moving towards...
(4) Build a strong culture with strong values (transparency, long-term relationships). Put the right people in the right seat for the right purpose/goal. Create the right environment where SHARING is a must.
(5) Employees need to be given 'permission' and encourage to be innovative. Failure should be regarded as a learning experience rather than offense. Build the culture of continuous learning and encourage breakthrough thinking.
(6) Shareholders and C-suite executives need to agree that the next round of financial statements is not just for the short-term purpose.
(7) Performance management and remuneration policy and process need to reflect the desire for the organization to be innovative.

In practice, IT innovation is business innovation, and innovation strategy is an integral component of business strategy. For cracking serendipity code of innovation, the key to success of innovation effort is to have the right people in place to manage the process, using experience, insight and judgment to rigorously make the needed decisions, be customer centric, take proactive approach, cultivate the culture of innovation and well integrate innovation management into business management


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