Technology-Enabled Innovation is the New Source of Competitive Advantage

Everywhere you look technology-enabled innovation is the driving source of new competitive advantage for companies of all sizes across all industries:

From Uber redefining the taxi user experience by utilizing the GPS function on your smart phone to find you rather than you finding a cab and then billing you afterward so you don’t need cash or a credit card

To AirBnb redefining the lodging user experience by letting you “rent a room” through your PC or phone at far less than standard hotel rates

To major pizza chains significantly increasing their market share by letting you order and pay for your pizza delivery or pick up by phone

Technology-enabled innovation is not only disrupting the competitive landscape, it is redefining the user experience value proposition across a multitude of industries. It is also putting companies on notice that if you can’t successfully engage your customers in this new “digitally mediated world” you are on your way to your very own Kodak moment.

SMAC – Social, Mobile, Analytics, Cloud

These four disruptive models are completely altering how people connect, communicate and discover information. What these individuals are looking for are “friction-free” user experiences that delight and inspire them. These new tools affect how customers make decisions which affect their entire “customer journey” which ultimately affects their customer lifecycle. Simply put, it defines the differences between the traditional customer and the new connected customer.

Redefining IT as a source of innovation rather than a constraint to innovation

In a recent study on IT innovation, 90% of CIOs said that technology-driven innovation is crucial for achieving competitive advantage. Yet, on average, just 14% of IT budgets are earmarked for innovation and only 23% of companies report very positive results from their IT innovation efforts. Why the disconnect?

Historically IT has been viewed as a constraint to new ideas and innovations as CIO’s primary focus and responsibility was on building and maintaining secure and stable platforms and tools that “keep the lights on.” While it is still essential to securely maintain these systems of record, it is now a competitive imperative that IT evolves to a business enablement role that leverages technology innovations which deliver new revenues and profits for the company.

A Framework for Organizing and Implementing IT Innovations

In his recent book, Escape Velocity – Free Your Company’s Future From The Pull Of the Past, my brother, Geoffrey Moore, put forth a three part innovation framework that is designed to significantly increase the ROI on innovation investments. At the core of this framework are three distinct innovation playbooks (see chart below) that clearly define the mandate and desired outcome for each one. Here are the key diagnostic questions that clarify those mandates and outcomes:

• Have we differentiated our offer enough to gain real competitive separation?
  • Have we created a truly unmatchable offer?
• Have we neutralized offers with enhanced features from our reference competitors in a timely manner?
  • Have we gotten to good enough fast enough?
• Have we optimized our opportunities for gains in resource utilization and cost reduction?
  • Have we reclaimed unproductive resources and redeployed them against differentiation or neutralization opportunities?

Two Rules of Thumb
There are two key rules of thumb that can keep you from making the mistakes most companies make and result in most innovation initiatives not achieving their desired goals and outcomes (see chart below ).

1. Never tie differentiation and neutralization innovation programs to the same release schedule. Differentiation is all about how far while neutralization is all about how fast. Combining the two dumbs you down and slows you down.
2. Best in class is appropriate for optimization innovations only. It is too low a mark for differentiation (goal is beyond class) and too high a mark for neutralization (goal is good enough).

Some compelling examples

Here are some recent examples that caught my attention of how companies are trying to get better returns from their portfolios of technology-enabled innovation investments:

Burberry – When Angela Ahrendts took over as CEO in 2006, she envisioned how Burberry could remake itself into a digital brand. Her initiatives which tripled revenues during her tenure included:

-A new website (Art of the Trench.com) that featured customers as models
-A more robust e-commerce catalog that matched the company’s in-store inventory
-The digitization of retail stores using RFID tags

@Walmart Labs – Walmart set up a separate “idea incubator” as part of its eCommerce division in Silicon Valley which helped the company increase its online revenues by 30% last year.

P&G Decision Cockpit – To improve the “clock speed” for new innovations at P&G, they set up a single analytics portal called Decision Cockpit. This tool provides real time data across brands, products and regions to more than 50,000 employees globally.

Starbucks optimizing back-office functions – In 2013, 1/3rd of the 100 active IT projects at Starbucks were focused on customer or partner facing initiatives; 1/3rd were focused on improving efficiency and productivity away from the retail store; and 1/3rd were focused on improving resilience and security.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.