The most successful companies of the next decade will be the ones who got a handle on the right approach to innovation. Richard Eagar has identified the hotspots to watch.
Futurologists queue up to give predictions about how innovation will change our lives in the years to come. But a more practical issue for businesses is how approaches and tools for the management of innovation will evolve over the next 10 years.
Our recent global study of the views of CTOs and CIOs identified a number of key trends that companies need to focus on. First we can expect the need for radical innovation to increase significantly: expect the proportion of revenues from new and adjacent business areas to double in the next decade.
Five interrelated innovation management concepts have emerged as the most important: customer-based innovation; proactive business model innovation; frugal innovation; high-speed/low-risk innovation; and integrated innovation.
Customer-based innovation is about finding more profound and creative ways to engage with customers. Take, for example, Lexus, Infiniti and BMW – vehicle manufacturers that explore ways of designing an 'ownership experience' rather than just a car. As technology allows manufacturers to deliver more functionality than a typical consumer can use, we will see manufacturers compete on style, design and emotional connection. Companies will need to be creative in how they interact with customers. We have seen this already in the smartphone and the app. We will see social networking tools used not only in B2C but in B2B sectors. The winners will cope best with shifting sector boundaries and new bases of competition.
Business model innovation – developing radically new ways to create value within a value chain – is not new. However, having a systematic approach to generate new business models is much more of a challenge, and it's this that defines the second innovation management concept: proactive business model innovation. We expect companies to focus on proactive approaches, including finding ways to deliver lasting 'thick value' to customers rather than short-term 'thin value' and using a more modular approach, to enable value creation to be optimised in a range of different market environments.
Frugal innovation is about originating and developing innovations in lower-income, emerging markets, and then transferring, adapting, applying and distributing them across developed markets. One example is the hand-held electrocardiogram machine, invented in GE's Bangalore laboratory, which drastically reduced test costs for local markets and is now being launched in the US. The challenge is to use the concept to rethink the nature of innovation, striving for 'less' rather than 'more' to rapidly globalise innovation resources to stay where the action is; and to use technology to create masterpieces of simplification.
High-speed/low-risk innovation is the drive to reduce time-to-market and increase product cycles. We expect to see development of approaches to drive fast, de-risked product and service innovation, including: more gradual rollouts of products and services using engaged customer communities and further maturation of the trend towards truly global decentralised innovation teams providing 24/7 product/service development.
Finally, integrated innovation is about taking approaches and tools that were once the domain of new product development and applying them more systematically. Companies are adopting team-based approaches to combine resources, enabling them to respond to the blurring of product and service, closer customer involvement and faster responsiveness.
Writer William Gibson wrote: 'The future is already here; it just isn't evenly distributed yet.' Companies that want to stay ahead will need to keep a close eye on the hotspots. The winners will be those able to integrate innovation systematically and manage innovation resources effectively. *