Digital Innovation: What it is and How to Create an Innovative Environment

Erika Flora
Written by Erika Flora

How well an organization innovates determines more than anything else how well it will compete and survive over the long-term.  The good news is, the possibilities for innovation in today’s digital world are limitless. There are opportunities all around us and the ability to learn to innovate is available to everyone. The not-so-great news is, most organizations don’t have a good understanding of what innovation truly is (much less, what digital innovation is), and those that do often don’t have a disciplined process around it. This quote is extremely telling:

“Every CEO will at least give lip service to the idea that the world is moving faster and that we need to do a better job at innovation. But if you go into an organization and ask people to describe their innovation system, you get blank looks. They have none.”

Gary Hamel, Harvard University.

To help bridge this gap, this article will discuss what innovation is (compared to invention), what digital innovation means, how to vet ideas to see whether they are good candidates for innovation, as well as provide some practical ideas on how to foster, manage, and bring more innovative products and services (digital or otherwise) to market.

What is innovation, and how is it different from invention?

When asked to define innovation, most people picture an inventor (or a team of inventors) working in some variation of a laboratory coming up with cool, new ideas, technology, etc.  (think Thomas Edison and the lightbulb). Invention – the act of creating something new, however, is not the same thing as innovation.  Let’s start by defining what we mean by the word “innovation”.

Innovation isn’t a cool gadget that may potentially be viable in the marketplace. Customers have to want (and actually buy) something for it to be an innovation.  Thus, an organization needs to not just have a great idea or create something new, but they must also develop and deliver that product or service to market, sell it, and make a sustainable profit.  One of the best definitions of innovation I’ve found is from Carlson and Wilmot’s book, “Innovation: The Five Disciplines for Creating what Customers Want”:

Innovation is the process of creating and delivering value in the marketplace.

Let’s talk about what that statement means.  If we return to the picture of the “inventor” for a moment, Thomas Edison is known for holding more than 1,000 patents (fun side note: He didn’t actually invent the lightbulb.  Turns out, more than 20 other people had invented lightbulbs before Edison), which made him a prolific inventor.  However, he was also innovative.  The reason?  He and his team improved upon the invention and built the infrastructure and a practical system to deliver light to customers at an affordable price, creating the model used today to distribute utility power.  Invention is necessary, however, bringing that invention to customers is what constitutes an innovation.  Said another way, innovation doesn’t stop at a great idea; it brings that solution to the marketplace.  (Interesting side note: Many argue that the innovation behind the light bulb was actually Tesla’s, however, Edison is attributed with the innovation, in large part, because he was the better businessman.)

An innovation can be small and incremental or large and transformative. Innovation not only includes a new or changed product or service, it can include changes to organizational structure, supply chain as in the case of Walmart (This article provides a good overview of their innovations in supply chain management and is worth a read), or customer experience, in which Walt Disney was a pioneer (This article provides great information on the importance of having robust processes, collaborating across teams, and responding to customer feedback).  Both of these companies are also good examples of modern “digital” innovators, so let’s talk about what that means.

What is digital innovation and how is it different?

Not all innovations are digital in nature. Here’s a definition that does a good job of describing the term:

Digital innovation: that spark of creativity that leads to the development of new technology or innovative applications of existing digital technology. Digital innovation is often the precursor to digital transformation.

Some examples of digital innovations include things like 3D printing, artificial intelligence (AI), big data, chatbots, and wearable devices.  However, we need to keep in mind, “Digital innovation isn’t about the technology itself, but rather about people’s ability to use digital technology to solve traditional problems. It is the process of leveraging advancements or innovating with technology to reimagine how business is done.”  The tools we use may be new, but the problems we’re solving are still fundamentally human.  So, what’s the right mindset to have when dealing with innovation, regardless of whether it’s a digital innovation?

When it comes to innovation, work to solve a need.

“Work on what’s important, not just what’s interesting – there’s an infinite supply of both”

Frank Guarnieri

Innovation begins with solving a problem for our customers, and it requires a customer focus and business / entrepreneurial mindset. Large organizations often have formal R&D or Innovation teams, but that’s not where the best ideas and innovations generally come from. In fact, studies show that the vast majority of industry-changing innovations are developed by entrepreneurs.

Why?  Authors Carlson and Wilmot argue that it’s because entrepreneurs focus on innovation that is important, not just interesting.  Entrepreneurs are hyper-focused on solving a customer need and building a profitable business around addressing that need, not just working on a technology or gadget that’s cool (you’ll run out of money and go out of business pretty quickly that way). Innovation is the result, but it’s not often the goal.  It still has to solve a need that people find valuable and are willing to pay for.

As a result, it’s vital that we help our teams and organizations understand that innovation is only viable if it fulfills an unmet need. To that end, innovation shouldn’t be limited to an organization’s R&D or Innovation teams. Some of the best ideas for innovation will come from our first-tier workers who regularly interface with our customers. They see the struggles, frustrations, and unsolved needs that customers deal with, and we need to make sure we have mechanisms in place to capture, nurture, and act on these ideas.

How do we know whether an idea is potentially a viable innovation?

In order to find great innovation, we need lots of ideas.  However, not all ideas are great candidates for bringing to market.  We must look at our ideas to determine their viability. A recent ACNielson study found that as many as 90% of all new products and services fail within the first two years. This appalling statistic often means customers didn’t really want those products or services in the first place. This result often happens because we jump ahead and focus on our approach (the solution itself and how we’re going to bring it to market) before we thoughtfully consider our customer and market needs. To avoid this pitfall, we must vet the idea before we invest in funding, designing, or building any new product or service. “Build it and they will come” is not the best approach here, despite Kevin Costner’s protests.

When approached with a good idea, the first question we need to answer is “Do we truly understand our customer, and is this something they care about?” We must spend time talking with and observing our customers, face-to-face as much as possible, to truly understand their needs and make sure there is a legitimate, unmet problem to be solved.

“Make sure your innovation is a pain killer and not just a vitamin.”

Davide Ladd

Other elements that matter when determining whether an idea is a potentially viable innovation include:

  • Size of and potential growth of the market
  • Alignment with organizational goals
  • Investment needed
  • Time to get the product or service to market
  • Return on Investment (ROI)

All innovations should be tested against these additional criteria, regardless of who in the organization has come up with the idea.

What information should our value proposition contain?

Authors Carlson and Wilmot have a simple and effective formula that any organization can use when defining their value proposition, the mnemonic NACB (as shown below along with the question answered by each letter).

Need – What are our customer and market needs?

Approach – What is our unique approach for addressing this need?

Benefit – What are the specific benefits for our stakeholders?

Competition – How are our benefits superior to the competition and the alternatives?

When we have a seemingly great idea, we tend to spend a great deal of time answering the Approach question, coming up with the perfect “solution” to our customer needs. However, we will be much more effective spending that time ensuring we thoroughly understand our customer needs and confirming that there is a viable need in the market. When we have those elements of our value proposition well defined, we should then take it to a wider audience within (or outside of) our organization for review, discussion, and refinement.  Carlson and Wilmot aptly call these types of reviews “watering holes” where a variety of individuals and teams come together to provide insights and feedback to help us further improve the idea.

How can we innovate without a large budget?

The great news is that any organization can innovate without spending a lot of money. Providing mock-ups or prototypes of a potential innovation at the start of any process can help promote discussions both internally and externally to refine and expand upon requirements, allow teams to rapidly iterate, and improve upon the products and services in development. The sooner we can provide a prototype or beta version that people can review, the sooner we can figure out whether our idea has market viability. If it doesn’t, it’s better to learn that lesson at the outset and avoid wasting further time, money, and energy trying to bring it to market.

To add to the idea of not needing a large budget (or hire and train lots of internal staff), we don’t need to stick to the bounds of our own organization for ideas. Plenty of organizations use experts and research outside of their organizations to come up with ideas – what’s termed open or crowd-sourced innovation. Bill Joy, former chief scientist at Sun Microsystems, says, “No matter how many smart people you have, most of the smartest people are never in your own company.” The more ideas we come up with and investigate, regardless of whether they originate within our own organization (or even our own industry), the better. Proctor & Gamble, for example, has 7,500 R&D researchers on staff and developed a “Connect and Develop” program that enlists the help of 1.5 million (non-employee) scientists globally to solve customer needs and come up with innovative solutions. It’s been so successful that, today, nearly half of P&G’s product development portfolio and products on the market have come from their C&D program.  So, knowing that we don’t have to spend a ton of money or hire a huge team of people, how can we improve our organization’s ability to innovate?  We will look at that topic next. 

What are some simple steps we can take to improve our ability to innovate?

There are two initial steps that can help us immediately start improving how our organizations approach innovation. First, it’s worth spending time with our teams to teach them the skills needed to actively listen to, understand, and collaborate with current and potential customers. When we spend time interacting with and observing our customers, it often leads to identifying unmet needs that can lead to innovation (which is how P&G created the Swiffer, resulting in $500 million of revenue each year).  We must also teach our teams how to vet good ideas, draft strong value propositions, create prototypes, and obtain regular feedback from a wide audience of stakeholders.

Second, it’s important to design a simple and straightforward system for taking these ideas and analyzing, developing, and delivering them to the marketplace.

“Whenever something – anything – is to be produced, there must be a systemized method of producing it.”

Toyota employee handbook

Innovation will not happen without a system for making it so. Asking people to be more creative won’t cut it. Contrary to what we may initially think, having a defined system and repeatable processes for innovation allows for more creativity within and across teams, not less. Creativity and innovation actually increases when there are constraints in place.

Equipping our teams with the skills to be successful and putting a transparent system in place to capture and develop ideas will not only energize those within our organization, we will excite and delight customers and ensure our organization’s long-term growth; and that’s a pretty great place to be.

Originally published August 08 2020, updated October 10 2020