By definition, Digital Transformation means using digital technologies to do business differently and to create new digitally enabled products. That can only happen if the organization is willing to try new things, including many that won’t pan out. Room for experimentation should be part of your digital strategy and digital platform.
Sounds great in theory, but how do you make experiments happen?
To innovate, you must experiment. The catch: Where do you find the time and where do you find the budget for all these experiments?
“I don’t think you will find them,” laughs Martin Mocker, one of the co-authors of Designed for Digital from MIT Press. That’s a little like hoping to find money to pay the rent hidden in your couch cushions. If you want to make room for experimentation, you will have to budget and staff and plan for it. “You’ve got to make a decision to actually do that,” adds Mocker, a professor of information systems at ESB Business School in Germany and a research affiliate of the MIT Sloan School of Management.
Innovations aimed at improving an organization’s operational excellence are a little easier to work into the budget and justify with traditional ROI calculations, he says. However, creating possibilities for truly disruptive and transformative Innovation requires taking more risk.
“Having separate budgets is probably more helpful,” Mocker notes. “You need to be able to say, ‘I can afford that amount of money, and I’m not expecting to get that money back.” This is investing for a payoff in the long run, not within the budget year.
Once you have budget, where do you spend it? Be careful how you organize and structure for experimentation, experts say. Making Innovation the exclusive responsibility of an innovation labs team can be a mistake if the message people get is that they are not empowered to innovate unless they are on that team.
“It becomes the ivory tower, becomes divisive, becomes an isolated thing,” says Charles Araujo, an independent analyst and founder of The Institute for Digital Transformation. Besides discouraging innovation from elsewhere, a disconnected innovation team can be ineffective at bringing products to market.
One of the most famous examples is Kodak, where an innovation lab invented the digital camera but did so in isolation from the product teams that remained devoted to its analog product: photographic film. As a result, Kodak lagged others in bringing digital cameras to market, with big consequences.
An example of a better model is the U.S. Digital Service, which champions digital transformation within the federal government. “They come in as partners, enabling the folks on the ground. They work with all these agencies to prop them up and let them be the heroes while providing tools and resources to ensure they can be successful,” Araujo says.
Before it was acquired by AT&T, DirectTV had a similar model: Its innovation team was the instigator of new ideas but had a formal process for connecting innovations with the operating units that could benefit from them. The relationship would begin as a partnership, Araujo says, “but ownership would shift more and more to the operating unit so that when a project was green-lighted, they owned it.”
Making a similar point, Mocker points to his interview with Mattias Ulbrich, CIO of Porsche and CEO of its Porsche Digital business unit. “One of the things he said very explicitly when I talked with him is, ‘What I absolutely need to avoid is the idea that Porsche Digital is the only way innovation happens.’” Instead, Porsche Digital provides funding and resources, but innovation should be able to come from anywhere.
