Digital Economy Dispatch #08127th March 2022

How Not to Innovate

In working with a team from a large consulting company recently, I was shown to their “corporate innovation suite” to help deliver some workshops and review a set of recent projects. After being led through acres of open areas crowded with desks and terminals (but not many people), we eventually arrived at the innovation lab.

After making my way through the bean bags and leather sofas, I thought to myself, “This must be the special area where all the innovators live. I wonder what the rest of the people do?”.

I find it interesting to see how Large Established Organizations (LEOs) form their views on innovation and the ways that they choose to set up corporate structures to support it. As they experience the impact of digital technologies on all aspects of their business, they face the challenge of refreshing current tools and processes, introducing new products and services, and adopting working practices that respond to the evolving demands of clients and partners. How they respond tells you a lot about each organization’s attitude and capacity for change.

Through working with a range of organizations across many sectors, I have found that while each organization sets out with the best intentions, they too often find success in driving digital transformation to be elusive, or impossible to maintain beyond the confines of a small team of hand-picked specialists. In particular, I have seen five digital innovation failure patterns, or “anti-patterns”, that offer important warnings for all organizations trying to achieve sustained innovation success across their digital transformation initiatives. Look out for the warning signs and avoid them at all cost!

Anti-Pattern 1: Performing Innovation Theatre

Many organizations see the importance of driving innovation activities and demonstrating the progress they make to their employees and stakeholders. They make significant investments to set up special spaces to showcase their activities with names such as innovation hubs, innovation spaces, innovation garages, and the like. Packed with the latest digital technologies, they highlight the state-of0the-art solutions being investigated within the organization.

It is important in digital innovation to celebrate progress and promote successful initiatives. But be careful this does not backfire. Targeted digital innovation activities and showcase labs can become separated from the broader experiences across the organization. Pronouncements about agility and innovative project delivery within the organization can ring hollow to those without access to the latest technologies or who are struggling with internal bureaucratic processes. They are seen to have the trappings of a theatre production: Staged activities without substance. Attention must be paid to the broader working practices across the organization. Showcasing innovation projects that benefit a narrow section of the business must be balanced with the daily context of workers in the rest of the organization.

An example I observed recently was of a large insurance company engaged in a substantial digital transformation program designed to revolutionize business practices. Unfortunately, the organization was plagued with leaked employee emails describing its inefficient and uninspiring working practices in core parts of its business, despite the press releases highlighting the investments made in hackathons, innovation challenges, and incubator programs designed to create new product lines.

Anti-Pattern 2: Engaging in Innovation Tourism

Across the world there are inspiring examples of organizations adopting successful approaches to increase the flow of innovative ideas into practice. Reviewing case studies from digital natives such as Meta (Facebook) and Google offers insights into how to drive new business models, adapt to emerging challenges, and introduce a rapid stream of products and services into production. Learning about these digital transformation success stories is important for any organization wanting to succeed in a digital economy.

Consequently, visits and information-sharing with such digitally-enabled organizations are frequently high on the agenda for many senior managers looking for ways to improve. Unfortunately, such trips too often end up as little more than tourist visits. Senior management teams’ expensive travels to California’s Silicon Valley, London’s Tech City, and Tel Aviv’s digital product incubators are intended to inspire and drive change but often end up as a collection of high-level meetings without clear purpose. Lack of preparation and follow-up leads to insufficient attention to gathering insights, poor analysis of how best practices can be applied, and inadequate resourcing for any resulting transformation efforts.

My recent discussions with two different organizations highlighted the difference between innovation tourism and a well-planned investigation of the lessons learnt from innovation leaders. In the first case, the organization sent a team of five high-level managers to visit Silicon Valley giants such as Google and Apple. However, the organization, a 100-year-old clothing retailer, had a culture and organizational structure wildly different from those visited. The excitement from the visits soon petered out when faced with the company’s day-to-day reality.

In the second case, a large food retailer arranged for a team of senior IT managers to visit several innovative start-up companies in Tel Aviv. Before the visit the team discussed the organization’s current challenges and areas where new thinking would be welcomed. The companies they visited were chosen to provoke ideas and inspire discussion around those themes. Following the visits, the organization decided to form partnerships and make investments in two of the companies visited, leading to the transfer of significant new capabilities into its IT team.

Anti-Pattern 3: Holding Innovation Inquisitions

The innovators’ dilemma explored by Clay Christensen neatly summarizes how organizations frequently continue pursuing the activities that made them successful long beyond the point where they are useful. Metrics and mechanisms across organizations tend to become focused on current ways of working, disadvantaging change. To overcome this, encouraging innovation in a mature organization requires changes to management practices to introduce incentive models to reward those willing to try new ideas. When appropriately applied, individuals and teams are challenged to take risks by investigating new ways of working outside of the norm.

Too frequently however, objectives encouraged in one part of the organization are thwarted by the competing goals of another part. For example, consider a situation in which high-level managers encourage innovation by explicitly requiring employees to document their involvement with new ideas as part of their annual review cycle. To be successful, operational measures and weekly project reviews must also be aligned with these goals. Otherwise, those who invest their time trying out new ideas, many of which will fail, will see each review as a form of inquisition. Others may view their activities as disruptive, placing pressure on them to revert to conventional ways of working.

The ultimate example of this syndrome is when organizations seek to encourage new thinking with slogans such as “fail fast, fail early!”. The intent is to give people permission to try out ideas in a safe environment and focus on maximizing the learning from these experiences. Yet, in practice, individuals looking to advance their careers find they are criticized and disadvantaged when they have such activities as part of their record.

Anti-Pattern 4: Creating an Innovation Ghetto

Adopting changes within an existing organizational environment can be complex. The structures, processes, and mechanisms in place often seem to fight against change in favour of maintaining the status quo. To reduce the likelihood of new ideas being suffocated by the prevailing culture, many organizations set up separate units where new ideas can be piloted. This provides the space necessary for such innovation groups to thrive without the pressure to conform to the organizational culture.

While such separation can encourage divergent thinking, it can also isolate those teams from the commercial and cultural reality of the organization. Without care, the organization can find itself torn apart by opposing views clouding strategic decision-making. Antagonism may grow to the point that the innovation space is almost completely disconnected form the rest of the organization.

In a recent digital transformation initiative I examined, the organization had set up a “digital innovation lab” to investigate new online service delivery approaches to augment the bricks-and-mortar retail activities that formed the heart of its business. The new unit was set up in a fashionable part of London with an expensive design concept, a team of highly paid data scientists and software engineers, and a high-profile marketing campaign celebrating its launch. Far from this new initiative’s intended objective of inspiring the organization however, the reality was that the innovation team was seen as too far removed from the day-to-day realities of the business and ostracized by the rest of the company.

Anti-Pattern 5: Facing Innovation Fatigue

Digital technology is not only driving fast-paced change across many sectors in the digital economy, but also influencing innovation practices and encouraging experimentation in how organizations define, evolve, and support new products and services. As a consequence, organizations must constantly review innovation practices to decide which are appropriate for their environment and monitor those in use to ensure they are providing the desired outcomes.

Unfortunately, for some organizations this results in a plethora of innovation activities being undertaken at any one time. While one part of the organization may be encouraging open innovation practices to obtain input from stakeholder communities, others may be investing in hackathons, trialing new ideas via crowdsourcing, and creating separate disruptive business units. Such a range of activities can offer the organization broad lessons to help define its forward-looking strategy. However, it may also result in a cacophony of uncoordinated initiatives confusing employees, partners, and customers alike.

Large technology-based organizations are particularly prone to such excesses of innovation activities. Far from driving the organization forward, this diversity can create stress and inefficiencies. In recent discussions with a multi-national software and services organization, they observed that they were testing so many new ideas they would joke that at any point in time they “had more pilots than British Airways” and no way to realistically assess the contribution made by each of them.

Digital Economy Tidbits

How BigTech Lost the Ant-Trust Battle with Europe. Link.

Undoubtedly, one of the most important on-going debates in digital technology involved the EU attitude to BigTech companies and their role in digital transformation across Europe. So far, BigTech is losing. Here is a good discussion about why.

Brussels is set to finalise stringent new legislation targeting Silicon Valley giants, whose desperate lobbying has fallen on deaf ears

How Saudi Arabia’s AI-powered NEOM megacity will actually be built. Link.

Sometimes it is good to think big. Really big. And think about what would happen if you could completely redesign a city from scratch. What shape would it be? How would people get around? What services are needed? Perhaps NEOM will give us a chance to answer some of these questions.

Assuming everything goes to plan, traffic won’t be a problem at The Line, NEOM’s planned 170km-long city, which was announced in January. The design is intended as a global blueprint for others to follow in the generations to come—as far as 150 years in the future, according to Abdullah Alswaha, Saudi Arabia’s technology minister.