Digital Economy Dispatch #07727th February 2022

Digital Innovation Reconsidered

Imagine that you are walking down the aisle of your local supermarket looking to fill the shopping cart with your weekly groceries. As you make your way past the packed shelves, the prices that you see for each item changes. What is displayed is calculated dynamically based on a variety of factors including your typical buying habits, what is already in your cart, the stock on hand in the warehouse, the discount offers being promoted by suppliers, the “sell by” dates of current displayed items, and perhaps several other concerns. This personalized pricing happens for others too, so that the person walking 3 paces behind you may well be charged differently for the same items you selected.

Is this possible? Is it legal? Is it right? Is it what you want?

These are the kinds of scenarios being envisaged by innovators and futurists as they think about the future of retail, banking, education, entertainment, and other activities we carry out every day. Increasing digital transformation of these sectors has allowed them to consider many such possibilities. They push the boundaries about what is possible and what is not. By working through these kinds of exercises, innovators can consider how clients behave in different situations, what kinds of experiences they value, and where additional investments can increase profitability for companies looking to move forward.

I was considering this recently following meetings with the head of data science for a large supermarket chain. He was describing their practices for prioritizing innovation activities and using the personalized shopping example to motivate the discussions that took place as we considered the challenges and opportunities opening up due to digital technology. In the end, he summarized their approach very succinctly:

Back to Basics

Before looking forwards, perhaps it would be useful to step back and consider the challenges we face in innovation and the role it plays in organizational strategy. Beyond the “mad inventor” image of innovation, it is important to emphasize that innovation typically requires a well-structured, disciplined approach. Many authors have provided insights into the innovation process and explored the elements of innovation critical to success. For instance, one of the most influential scholars in management theory, Peter Drucker, highlighted that innovation is not an isolated activity, but part of a broader collaborative value creation process. He defined innovation as:

Several aspects of Drucker’s definition are worth highlighting. First, the goal of innovation is purposeful change with an economic or societal impact. It is the outcome of innovation that guides and dictates the parameters essential to its success. Second, it is not just the resulting product or service that is important to innovation, but the approach taken. Innovation is as much about process as it is about ideas. Significantly, Drucker sees the process of innovation as a set of activities providing the basis for a systematic approach that organizations can take to be successful. Third, the actor in innovation, an entrepreneur, aims to make a financial or societal difference through his or her actions. Hence, the characteristics, experiences and personality of the entrepreneur play a key role in innovation.

Defined some years ago, Drucker’s perspective on innovation frames the role of innovation in relation to wealth creation through a coordinated, well managed process. In the digital era, this remains an essential perspective. However, I would also argue that it can be augmented with additional concerns when we view “wealth creation” in broader terms and only one of the ways to define the value and impact generated by innovation. We live in a world where our approach to innovation is redefined based on values that are rapidly being reset in light of environmental concerns, emergence of several dominant BigTech companies, China’s role as a digital superpower, the changing world demographic profile, and the on-going response to a global pandemic.

Redefining Digital Innovation

As a key concept that has received increasing attention in recent years, innovation in a digitally disrupted world is often narrowly defined in terms of technological invention or digitization of features in existing systems. However, with the wider implications of digital adoption in mind in our disrupted world, a much broader perspective is required. The technical capabilities (or affordances) brought by digital solutions are important. But only when considered in context of how they change our understanding of the tasks we carry out and the relationships among all the stakeholders involved.

To explore these issues, I have found in my conversations that it is particularly useful to view innovation approaches by going back to a well-used model of innovation that highlights the importance of ensuring an alignment of three critical components:

• Feasibility. Often the starting point for innovators is with a new technology breakthrough offering a fresh approach to solve a problem for a client. The excitement is to experiment with digital solutions to replace existing manual and analog approaches with digital alternatives. R&D labs and innovation accelerators are now filled with technology specialists testing out a range of products and prototypes. They move them through the technology readiness levels, from idea to scaled working solution. At any one time, dozens of different technology-focused projects will be in flight.

• Desirability. Successful innovation solves a problem that matters to a customer. Whether these are internal or external customers, any innovation must address a problem that someone cares about, and provide a solution deployed in a way that the customer can readily consume. In using digital solutions, we can frequently get more insight into the challenges our customers face using data previously unavailable, inaccessible, and uncoordinated. But knowing more does not mean that we understand how individuals and communities behave, the way they think, how they are influenced, and what kinds of new services they value. Much greater attention is required to dig below the surface. This leads not only to efforts to know more about customers through increased customer analytics, but also is seeing innovators turning to the areas such as anthropology for more rigorous approaches to learn about human behavior.

• Viability. Much of the excitement surrounding new digital technologies is only justified if it can be exploited within a sustainable financial model appropriate to the operating context and constraints of the organization involved. Whether this is a startup, an existing company, or some other institution, a viable business model is essential. Digital technology advances have opening up new business model alternatives, in particular allowing new ways to consolidate supply and demand for goods and services via platform-based approaches. Even so, for a solution to be successful, even a digital one, a myriad of issues must be considered including cost of production, strategic fit, impact on market and ecosystem, environmental impact, and maintainability.

From Here to Infinity…and Beyond

Like me, I’m sure your inbox is filled with endless announcements of digital technology breakthroughs using blockchain, AI, IoT, and even more esoteric approaches. With the increasing sophistication of digital technology, it is easy to be seduced by their possibilities without adequately considering their role and effect.

In a digital world, it is essential that innovation is not simply viewed as an isolated event focused on a “lightbulb moment” from a lone technologist. It involves the whole process across opportunity identification, idea creation, solution realization, prototyping, production, marketing and sales. Furthermore, in a digital economy delivering impact through innovation requires the capacity to quickly adapt to changing conditions, and to the complex context faced by organizations and institutions as they evolve to adopt digital ways of working. Digital innovation must be reconsidered.

Beyond a functional view of innovation, the impact, mindset, and culture of innovation plays a significant role. Such broader perspectives on innovation must be taken up by all organizations, industry bodies, and government agencies. From this perspective, digital innovation is a societal, not a technological, concern that arises from the intersection of invention and insight, aimed at the creation of social and economic value. Its significance is critical for all of us.

Digital Economy Tidbits

Curiosity Not Coding Skills: 6 skills leaders need in the digital age. Link.

We know that digital transformation is much more about the people than it is about technology. Very interesting new research from Linda Hill and colleagues from Harvard Business School on the 6 Skills Leaders need in the Digital Age.

The 6 skills and traits are:1. Be a catalyst, not a planner2. Trust and let go3. Be an explorer4. Be courageous5. Be present6. Live values with conviction

Artist Blows up Lamborghini Huracan To Sell Videos of Shrapnel as NFTs. Link.

Blow up things in the real world and make digital records that you sell as tokens in the virtual world. I think I’m beginning to lose the thread…..