Throughout the last several Transformation Forums hosted by VCI, the discussion leaders representing research institutions, oil and gas and mining companies have talked about the evolution of technology transformation. There are many angles to this, and what I find most relevant strategically is the framing of Innovation within the minds of the executive.
Some companies start clearly with a production improvement/cost cutting technology innovation, whilst others are looking for new and novel ways to run their business. Then there are those executives who believe their current business model is redundant, and endeavor to reframe their company and perhaps even their industry. This simple 3X3 maps “Innovation Methodology” with “Strategic Intent.”
Most CEO’s set out on this journey because they have a car smash unfolding in slow motion by way of a persistent failure to contain costs or improve margins through commercial efforts. There are also those who observe their peer CEO’s gaining results from digital innovation efforts and yet others who see a vision of a future digital world of exponential opportunity and growth, predominantly because they interpret what happens in other industries.
The first principle for this journey is to be clear about the strategic intent of transformation. Is it to fundamentally improve the production system to get more consistent quality and volumes, or is it to create a new digital organization that operates very different from its analog history? The third option is the vision to reframe the industry and the company’s role in it. By clearly stating the intent of the effort, players both inside and external to the company are empowered to zone in and seek innovative solutions. If not, you may end up with a slapdash of trinkets but no tree to hang them on.
This framing decision has to do with economics, with capability, and industry threats. Looking at extreme examples to make the case: It’s probably not the best strategy for a taxi company to zoom in on product innovation with Uber threatening its very existence. Neither would it be the best strategy for the local nuclear power plant to seek new and novel solutions to change its business model. From an economics point of view, the cab company has already lost more than half its enterprise value because of the devaluation of medallion prices. It probably has very little capability within the organization to embark on large scale innovation as most employees are casual/contact workers with relatively low education. So, it has to reconsider its business model and seek a new permit from the city as it works to reposition itself. The nuclear plant is economically tied down like fabled Gulliver in government regulations and subsidies and owns a massive non-convertible asset. Its primary innovation strategy should be to deliver energy at the lowest cost possible whilst adhering to all the safety regulations.
The strategic questions for any enterprise then includes an economics forecast of the products, an assessment of internal competencies and capabilities and how might one describe industry dynamics five to ten years out. Answering these will indicate what the strategic objective should be.
For lack of a better description, the Innovation methodology refers to what is in-scope for your team and what is out of scope. Many quasi-follower strategies do not include technology venture funds, R&D or the adoption of unproven technologies. These companies fall firmly in the first category. That is, they seek existing technology solutions to improve existing business processes.
The second category, new and novel solutions, has a much broader scope and includes in its projects the rethinking of business and production methods. Think of changing energy supply from coal fired plants to your own photo voltaic power generation; think of a self-service accounts payable system, or a platform-based hiring system with no physical recruitment interviews. Here we are looking for new solutions to improve performance of the existing business.
The third category is redefining the business model. This means the Innovation team will spend their creative juices looking for convergent technologies that enable the business model to be redefined. For example, the convergence of data and Machine Learning allows industrial players to get very specific about predicting equipment uptime as well as planning and scheduling repairs and replacements. Communications technology (5G) now allows for real time supervision of not only their assets, but also other asset owners’ plants. The penultimate development here is to redefine the commercial ecosystem around your innovation or technology, like when all your peers use your vendor platform to purchase good and services. Here we are looking for new solutions to address new business flows.
Think carefully about where you want to end up with your Innovation activities. By balancing intent and methodology against industry trends, your company’s competencies and cost profile, you will in all likelihood maximize the return on your Innovation efforts. The clarity will also instill understanding and trust from employees as well as external interests.