Why it’s dicey to de-prioritize digital innovation

Digital technologies present an immense opportunity for organizations to grow their revenues through innovative customer experiences and business models. However, the same opportunities are also available to competitors and digital disruption is now one of the biggest competitive threats that organizations should be prepared for.

A recent study by MIT Sloan Management Review (SMR) determined that while 87% of surveyed executives said that digital technologies will disrupt their industry, only 44% said that their company is adequately preparing for it. A possible explanation for this staggering gap could be that many organizations are severely underestimating the potential threats of digital disruption.

Another explanation could be that CIOs tasked with driving digital across their organization are constantly dealing with a huge dilemma: How should they balance between the innovation activities required for digital vs the operational activities essential to keep the lights on? CIOs have historically been tasked with “keeping the lights on” and ensuring that the IT systems are operational. Their focus has primarily been managing system availability, deploying/upgrading infrastructure, and ensuring data/application security.

For CIOs already swamped with massive technical debt, limited resources and a backlog of projects that need to be delivered, this is by no means a minor challenge. Driving innovation requires a fast pace and tremendous energy and CIOs tend to face enormous obstacles to getting started on this journey.  CIOs faced with budgetary/resource constraints may decide to put innovation on the back burner and focus their attention on more pressing operational issues.

CIOs are uniquely positioned to deliver new value to the business. CIOs have visibility across technology trends as well as deep connections with business. Digital innovations include new business models, new products and services, improved customer experiences and efficient operations enabled by the scale and cost-efficiency of digital technologies such as Cloud computing, big data, machine learning, internet of things (IOT), mobility, 3D Printing and blockchain.

However, pushing the digital innovation flywheel should be viewed as a team sport involving the entire C-Suite and your customers and NOT as a solo sport played by the CIO. In order to ensure that the digital innovation flywheel gains the necessary momentum and the balance between operational activities vs innovation, I recommend organizations establish a strong digital foundation and a Digital Innovation Center of Excellence (DICE).

Digital foundation

Digital innovation requires a strong foundation to ensure long term success. Preparing your organization for innovation and modernizing your IT are the essential components of a digital foundation:

Organizational readiness

Ensuring continuous digital innovation will require significant change in organizational processes. To overcome challenges with resource conflicts between “operational” and “innovation” initiatives, I recommend organizations start by recruiting key digital talent across multiple roles and skill sets where gaps exist in your organization.

Digital talent must not only include developers with skill sets in digital technologies such as cloud computing, big data, machine learning but also individuals with skills in experience design and human-centered innovation. Also, the c-Suite must ensure that leaders across the organization are in-tune with key innovation principles. Leaders must proactively promote the innovation vision and help remove any obstacles that teams face while working on their innovation initiatives. Empower your teams by providing the necessary training in areas such as design-thinking, agile, devops, cloud and product management as well as “innovation time-off” similar to Google’s “20% time.”

Break down silos and re-align your organization into self-managed product teams directly aligned with your business strategy and innovation initiatives. Clearly define ownership for various innovation activities and launch incentives for achievement of key milestones. Employee engagement must be driven to new levels to ensure staff members are excited about the journey and are active contributors. Encourage active participation by organizing “Hackathons.”

Finally, establish a system for idea generation and idea collection preferably in the form of innovation workshops that follow a design thinking process and social tools to collect ideas from employees and customers.

IT modernization

Most organizations find it challenging to maintain their legacy systems that often power their mission critical business processes. Organizations that have not yet adopted agile and dev ops models will find it very challenging to keep up with the pace of innovation that’s required to become a digital leader. A critical transformation that will propel the digital innovation flywheel involves leveraging modern cloud computing solutions. Cloud computing is a key enabler for Innovation. Many organizations that have started on the cloud transformation journey are trying to replicate their on-premise infrastructure by migrating applications through a “lift-and-shift” model to the cloud.

However, such a model will only serve to eliminate a few pain points relative to availability, and cost but will fail to deliver a foundation for innovations such as predictive intelligence or personalization that can be unleashed by modernizing applications using cloud-native solutions such as serverless (Function-as-a-Service – FaaS) or machine learning, data visualization and the Internet of Things (IoT).

Cloud computing also serves as the backbone for modernization strategies such as containers, microservices, APIs and low-code application development that provide maximum flexibility to IT leaders looking to adapt to rapidly changing business requirements.

IT leaders should focus on developing a modernization strategy that’s not just focused on re-factoring applications for cloud but re-inventing applications to deliver new capabilities that will power innovative customer experiences that were previously not feasible. Organizations that truly want to drive innovation in their organization should be open to “experiment” and adopt a “fail-fast” model.

With the appropriate levels of cloud automation, IT teams can rapidly spin out cloud-native applications at a fraction of the cost enabling business to “fail-fast” and try out new ideas and iterate rapidly based on customer feedback.

Digital operating model

The Digital Innovation Center of Excellence (DICE) serves as a key catalyst for value generation and will be responsible for aligning innovation initiatives with the broad business strategy outlined by the business leaders. The charter for DICE should primarily be the development of an innovation roadmap including identification of lower risk and quick-win innovations that will help the innovation flywheel gain momentum. In addition, DICE should ensure a consistent approach for fostering innovation including the development of KPIs for measuring innovation success and establishing a digital mindset across the organization. DICE should comprise the C-Suite and key business unit leaders with additional participation from subject matter experts as needed.

The establishment of a centralized DICE however is not intended to replace the de-centralized ideation that must continue to be initiated within each business unit. The individual business units should continue to lead ideation by facilitating design-thinking based Innovation workshops involving the front-line staff and customers where feasible. In addition, organizations may also choose to establish an “Innovation Lab” that will focus on rapid prototyping to validate disruptive business models and research viability of complex technologies.

Such a hybrid model for digital innovation has several advantages over a pure centralized/de-centralized model for innovation:

• Decisions can be owned by key executive members who are part of the DICE enabling rapid innovation and time to market.
• Prioritization of key innovation initiatives vs operational tasks can be discussed within the DICE resulting in efficient resource management
• Ideation outcomes across all business units can be reviewed centrally and voted on by the DICE panel and the winning ideas can be converted into projects.
• Funding decisions can be streamlined and allocated directly to the projects identified through the ideation process.
• Execution of projects can continue to be owned by the business units closest to the customer needs while avoiding duplication

When the organization gains sufficient digital momentum and maturity, some of the DICE activities can be folded back into the individual business units, while retaining the DICE for innovation best practices governance long-term.

In summary, CIOs must spearhead the creation of an innovation culture and develop the key capabilities required to ensure their organization doesn’t slip into digital Darwinism.