At a glance
In a fast-moving, digitally driven business environment, there has never been more pressure to come up with the next-generation product or service.
With a global playing field for industry that is highly competitive and constantly changing, innovation can lead to growth in productivity.
“Businesses operate in an increasingly volatile, uncertain, complex and ambiguous world,” says Brian Ruddle, managing director of Impact Innovation Group, which has helped create more than 50 innovation systems for companies and trained more than 5000 business leaders on how to embrace innovation and drive sustainable, profitable change.
“The challenge we are seeing is that many organisations are not focused on the changing operating environment and the associated changing buying behaviours,” he says.
“Globalisation is occurring at a rapid rate, and customers are becoming more comfortable buying anything online, whether it’s building materials, electrical goods, or services.
“That said, even in the traditional marketplace, in which services or products are not digitalised, there are enormous opportunities to develop new products or services or wrap innovative business models around existing products and services to drive profitability and growth.”
Finding the innovation sweet spot
Innovation doesn’t need to just be about a product or service.
It can be about a user experience, says innovation expert Evette Cordy, whose clients include National Australia Bank, Telstra, AGL and www.realestate.com.au.
Cordy, the author of Cultivating Curiosity, gives the example of the streaming service Netflix, which turned the video rental industry on its head by implementing the subscription model.
“Instead of profiting from penalising customers with late fees, Netflix innovated to profit through a subscription model,” she says.
Cordy believes every industry is ripe for disruption. “I am a strong believer in innovate or die, but innovation doesn’t necessarily start with an idea, it starts with a problem to solve.”
For example, when Apple, one of the world’s most successful companies with an annual revenue of US$265 billion, launched the iPhone 7, it didn’t try to reinvent the wheel.
Instead of overhauling the phone’s appearance, the company listened to phone users and invested in innovations that made it 40 per cent faster than the iPhone 6S, with an additional two hours of battery life.
“The sweet spot is the one that solves the customer’s problem or need and the organisation’s problem, for example, generating revenue,” Cordy says.
“As well as focusing on developing new products and services, innovation can also involve processes and efficiencies.”
Finance personnel may innovate around how the organisation operates and is configured, Cordy says. They are also needed for the crucial task of assessing the cost and profitability of a new or improved product or service.
Accountants have a good understanding of what information is required when designing validation, or proof-of-concept activities, or in mobilising internal resources.
It is this information that can help an organisation to make a sound investment decision.
“Some accountants feel that they are too conservative, but, at the same time, innovation costs and outcomes need to be embedded into business as usual,” Ruddle says.
“Creative solutions are about business, not just cool ideas.”
CPA Library resource
Implementing an innovation focus
At Insurance Australia Group Limited (IAG), partnering with businesses with the potential to reinvent insurance or stretch the business into new markets is an important part of innovation.
IAG is the parent company of businesses that underwrite more than A$11 billion of premiums a year, selling insurance under brands including NRMA Insurance, CGU, and AAMI.
In 2016, IAG set up IAG Firemark Ventures to invest in, and partner with, both start-ups and established businesses that have the potential to disrupt the insurance value chain.
“We know that how our customers live, work and get from A to B is changing,” says James Orchard, executive general manager innovation at IAG.
Orchard says to date, Firemark Ventures has invested in data and artificial intelligence businesses like Life360 and Hyper Anna, sharing economy platform Airtasker and cybersecurity firm UpGuard to “see how insurance and technology can help customers in new ways”.
In July 2019, IAG also acquired a stake in digital car subscription and trading platform Carbar. This investment reflects the company’s focus on emerging mobility trends, which include increased demand for flexible car subscription services.
IAG’s insurtech incubator, IAG Firemark Labs, established in 2017, works with start-ups and research and technology providers to develop customer-centric products and services.
Orchard says it is also a source for employees to tap into human-centred design, emerging technology and customer insights that will help to solve business problems and design new solutions. “Our people, particularly those who are connected to our customers every day, are also a source for innovative thinking,” Orchard says.
Internally and externally, digitisation has made it much easier to cast the net wider for ideas.
Staff and consumers can be pulled into the process by establishing platforms for collaboration and actively using them for research and development.
BT Group, one of the leading providers of communications solutions and services, operating in 170 countries with more than 100,000 employees worldwide, invested in innovation and management software from US-based Brightidea.
This enabled the company to leverage the creative minds of their employees, collect customer insights, and efficiently turn the most promising ideas into concrete projects with measurable returns.
On-demand idea management software was paired with an existing vendor to provide a rewards shop, giving the top submitter for an implemented idea 10 per cent of the idea’s bottom-line benefits of the first-year performance, up to a maximum limit set by the company.
BT employees all over the world were encouraged to submit their ideas into the system, as well as vote and comment on the posted submissions.
Cordy says that, before innovation begins, everyone needs to know the rules of playing the game.
“Staff may also need to be taught a process and process skills to help them innovate, and better innovation outcomes are achieved through cognitive and functional diversity, where stakeholders with different functions or roles within organisations and different problem-solving preferences are invited to contribute,” she says.
Avoiding system failure when innovating
Not all ideas are great, but not all innovations fail because of the ideas themselves. Rather, it is the execution and refinement of the initial idea.
“Many innovators take on a project without a detailed plan to measure and revise the return on investment projection as the product evolves,” Ruddle says.
Companies without innovation parameters or systems are more likely to see huge misses instead of possible large breakthroughs.
“At the start of building innovation teams, there is often a focus on creating a culture of innovation, but what we tend to find is that innovation culture can only be sustained when there are robust innovation systems that are driving outcomes.
“In fact, innovation systems are as important to a company’s success as HR and marketing.”
A successful innovation system clearly defines what the process is. It has a clearly defined strategy, targets and KPIs, and engages with staff so they feel they’re contributing.
Importantly, senior management should ensure staff have visibility of where ideas are up to, what the potential value of return on investment is, and how that feeds in to overall strategy.
“It includes points where management teams can assess whether to continue with an idea and design a more effective proof of concept, or to abandon it,” Ruddle says. Of course, all innovation has an element of risk and comes with the potential for failure: the aim is to manage failure by managing the allocation of resources to early stage ideas.
“The development of effective stage gates goes a long way to managing risk.
“Stage gates are designed in a range of ways, but the easiest way to think of it is as a decision point that is reached before resources are allocated.
“Early stage ideas are inherently risky as there are a lot of assumptions related to those ideas regarding revenue or cost-saving potential, market uptake, manufacturing and so on.
“It is important to understand assumptions and then develop validation plans to progressively replace assumptions with facts.”
Cordy agrees. “Some companies jump into solution development too quickly, spending $3 million to build an MVP [minimum viable product] that fails when they could have learned through prototyping it with customers for a far lower cost.”
She recommends Doblin’s Ten Types of Innovation framework to assess how a company is approaching innovation internally, analyse the competitive environment, and reveal gaps and potential market opportunities.
This framework includes a configuration profit model, network, structure and process; assessment of the offering – product performance and product system; and assessment of the experience – service, channel, brand and customer engagement.
5 ways to be more innovative
- Remember that products, services and tools tend to change, but the emotional and psychological needs they satisfy often remain.
- Look outside an industry or a category for inspiration.
- Sit on the other side of the argument.
- Prepare for and mitigate risk, i.e. imagine what might threaten your business model or replace you in the marketplace.
- Change the question and be willing to explore a different hypothesis or diagnoses.