Digital Innovation

What is Digital Innovation?

Digital Innovation is the application of digital technologies and applications to improve business processes, enhance customer experience and introduce new products or business models. It involves the utilization of new technologies to existing business problems and practices in a process that takes place in phases. This process involves switching from analog to digital processes, implementing new software and platforms, developing new technology, cloud migration, automation, connectivity and data analytics, and more. Digital innovation is a disruptive and ongoing process that changes industries and helps organizations stay relevant and competitive. It allows organizations to improve operational efficiency, and customer engagement, and launch successful new products.

Digital Innovation initiatives can include:

  • Developing a new technology strategy in an existing business context
  • Choosing to adopt and implement new software or platforms
  • Deciding to evolve from analog to digital processes

Because the global marketplace is becoming more digital, businesses must also evolve in order to stay competitive.

Innovation plays a critical role in customer engagement, as it helps to create superior experiences that meet the expectations of modern and highly mobile customers. Through digital innovation, organizations are able to address customer/partner engagement, product/service innovation, and internal systems/processes to create new revenue streams, diversify offerings, and improve customer experience. Customers are expecting more and more from businesses, and organizations that prioritize digital innovation will be the ones that can best meet these expectations and provide a seamless customer experience. Digital innovation also provides organizations with a platform to introduce new products and services, making them more attractive to customers, while also improving internal processes. By embracing digital trends, organizations can stay competitive and engage customers in the most effective way possible.

Companies that innovate and transform see a number of benefits, such as:

  • Streamlined business processes that come as a result of automation, SaaS, and other integrated technology solutions
  • Digital solutions that cut costs, improve ROI, and boost revenue
  • A competitive advantage

Though digital innovation has its benefits, it also has its downsides.

Many business leaders are afraid that innovation could damage their core business. While fear of change is understandable, it can also hinder growth. There are numerous stories of businesses that failed as a result of their reluctance to innovate.

Types of Digital Innovation

There are three main types of digital innovation that create growth opportunities for organizations:

  • Building on traditional business models and processes
  • Improving an organization’s current business model and processes
  • Creating entirely new business models and processes[1]

Digital Innovation Vs. Digital Transformation

  • Digital Transformation (DX) is an ongoing process to transform and improve business performance by changing the way a company thinks and operates. Unlike common perception, digital transformation isn’t only about the technology you adopt, but also involves people, processes, and a portfolio.
  • Digital innovation (or digital business innovation) is that spark of creativity that leads to the development of new technology or innovative applications of existing digital tech. Digital innovation is often the precursor to digital transformation.

Let’s take the example of Domino’s Pizza. Back in 2017, the company started digitally innovating by building an omnichannel strategy that lets pizza lovers place orders on multiple platforms by utilizing chatbot technology and AI. Pretty neat, right? Now, all customers had to do was send a pizza emoji 🍕 through Facebook Messenger and Domino’s would receive their order.

Except, of course, there was more to it than that. In order to make the most of this technology, Domino’s had to digitally transform its internal processes. It had to integrate all of its databases — and therefore customer information — in order to save time and automate the process. While the customer may see only a pizza emoji (and then the real thing), there is so much more happening behind the scenes.[2]

How Does Digital Innovation Affect Businesses?

Digital Innovation has a major impact on businesses, both positively and negatively. On the one hand, businesses can benefit from increased efficiency, streamlined processes, improved ROI on technology investments, and a competitive advantage over competitors. By leveraging data and analytics, businesses can gain invaluable customer insights, enabling them to make informed decisions. Additionally, digital innovation can improve customer experience and provide a frictionless user experience across all facets of a business. On the other hand, businesses that fail to recognize the value of digital innovation might find themselves behind the competition, unable to keep up with technologically advanced competitors. Furthermore, remote working has fast-tracked digital transformation initiatives, forcing businesses to quickly adjust during global pandemics and other uncertain times. Ultimately, digital innovation has become essential for any company wanting to achieve long-term growth.

The COVID-19 pandemic has had a profound impact on digital innovation, as organizations across nearly all industries have been forced to virtually interact with customers, employees, partners, and suppliers. A survey released by McKinsey & Co. shows increased use of remote work and collaboration, advanced technologies in operations, and cloud computing as a result of the pandemic. Technology expert Paul Kirvan has observed more use of customer-friendly apps, self-service apps, advanced e-commerce platforms, AI-powered data analysis, and an evolution of the role of the CIO in this new era. Additionally, automation has improved total productivity and efficiency across departments such as marketing and human resources. As a result of the pandemic, companies have been forced to rapidly implement digital innovation, often with an edge over those who did not. All of this has had a significant impact on the digital transformation of businesses, making digital innovation an integral part of surviving and thriving in the new normal.

Putting Digital Innovation at the Heart of the Business

Successfully implementing a digital innovation strategy isn’t always straightforward, but there are some simple steps you can take to help you get started. A lot of larger enterprises create in-house accelerators, or innovation labs, allowing groups of employees to test out new ideas and processes without disrupting the business as a whole. This can also be done on a smaller scale, by simply allowing a proportion of staff the freedom to experiment.

  • Staff: Start by empowering 2-3 individuals who are passionate about driving your business forward to think creatively about how technology can solve your business challenges.
  • Process: Structure an agile process of experimentation that will allow you to show progress and collect feedback. Ensure that this takes place away from your day-to-day business function so that it doesn’t disrupt existing operations.
  • Technology: Adopt the right technology which will allow you the freedom to unify every element of your business needs. This will be unique to each company but may include team management, collaboration, cloud access or monitoring every part of a product’s lifecycle.
  • Review: Create a framework for reporting on quick wins and failures. This will allow you to evaluate what is working and which experiments are not worth implementing further.[3]

Creating a Culture of Digital Innovation in the Organization

  • Invest in new software & technology: Investment in new software and technology can help create a culture of digital innovation in an organization by providing the necessary tools to unify business needs, such as team management, collaboration, cloud access, and product lifecycle monitoring. This can facilitate the breaking down of functional silos, which is often a barrier to change, and encourage experimentation and innovative ideas to flourish. Additionally, funding digital transformation as an investment enables organizations to self-fund innovation, optimize their technology investments, and remove roadblocks to change. Such investments can also help cultivate partner ecosystems and create in-house accelerators or innovation labs, allowing staff the freedom to experiment with new ideas. This helps organizations respond quickly to changes in the market and overall be more agile.
  • Customer engagement: Customer engagement can help create a culture of digital innovation in an organization in several ways. First, understanding customers' needs and preferences is key to developing solutions that are tailored to their needs and expectations. For example, understanding customer feedback on products or services can help companies develop digital solutions that make it easier for customers to access and use their products or services. Additionally, engaging customers through digital channels such as social media can help companies understand customer preferences and develop solutions that are more useful and effective. Finally, customer engagement helps companies identify opportunities to increase customer satisfaction through innovative digital solutions. By understanding customer needs and preferences and developing digital solutions to meet them, companies can create a culture of digital innovation that helps them better serve their customers.
  • Product and service innovation: Product and service innovation can help create a culture of digital innovation in an organization by empowering employees to think creatively about how technology can solve business challenges. By creating an agile process of experimentation and allowing staff the freedom to experiment, organizations can develop new ideas and processes without disrupting the existing business. Additionally, adopting the right technology and creating a framework for reporting on quick wins and failures can help the organization evaluate what is working and which experiments are not worth implementing further. Creating a culture of digital innovation will help organizations stay on top of current trends and technologies to stand out in the market, and bring teams together to create new revenue streams, diversify offerings, streamline internal processes, and improve customer experience.
  • Improve innovation productivity: Innovation and productivity growth bring vast benefits to consumers and businesses.
    • Empower 2-3 individuals with the freedom to experiment and explore how technology can solve business challenges.
    • Structure an agile process of experimentation that allows the team to show progress and collect feedback.
    • Adopt the right technology that can unify all aspects of your business needs.
    • Create a framework for reporting on quick wins and failures, so as to evaluate which experiments are worth implementing.
    • Access big data and analytics to transform data points into actionable insights.
    • Leverage automation to reduce human error and allow employees to focus on more strategic tasks.
    • Centralize systems to reduce information discovery time for employees.
    • Create innovation labs or fast-track teams to act as incubators within the enterprise.
    • Select the right people from across the business and IT teams who are passionate about delivering business value.
    • Leverage an agile, iterative process to drive innovation without disrupting existing operations.
    • Create a project portfolio of quick wins and high-value initiatives.
    • Find the right technology to empower people and reinforce the process.
  • Create an ROI or value-added system for prioritizing projects:
    • Assess the risk associated with each project and take a portfolio-level view of the digital transformation investments. Establish metrics in advance to measure the success of digital transformation efforts.
    • Develop micro-metrics for agile experiments to continuously iterate towards the perfect solution.
    • Incorporate business outcomes such as strategic, operational, and cost impacts in the evaluation of the projects.
    • Create a system to track quick wins and failures in order to determine which experiments are worth continuing and which are not.
    • Form fast-track teams across the business and IT teams to accelerate the delivery of digital applications.
    • Leverage an agile, iterative process to drive digital innovation without disrupting existing operations or development efforts.
  • Ask for feedback from various departments in your business
    • Begin by forming a cross-functional team of high-performing individuals from various departments. This team should have an understanding of the existing business processes and how digital innovation solutions can help to address any shortcomings.
    • Encourage your team to think creatively and collaboratively about how technology can help to solve business challenges.
    • Set up an agile experimentation process to monitor progress and receive feedback. This process should take place outside of regular business activities to avoid disrupting operations.
    • Adopt the right technologies that allow your team to unify all aspects of your company’s requirements. This could include team management, collaboration, cloud access, and product lifecycle monitoring.
    • Request feedback from various departments in your business by creating an open and welcoming environment for ideas. This can be done by introducing a collaboration tool or a communication platform and encouraging everyone to share their thoughts and suggestions.
    • Create a framework for reporting on quick wins and failures, to help you evaluate which experiments are worth further implementation.
  • Adopt an agile experimentation model: Adopting an agile experimentation model can help create a culture of digital innovation in an organization by providing staff with the freedom to experiment and test out new ideas and processes away from day-to-day business activities. This allows organizations to adapt to customer needs and challenges while fast-tracking their way to digital innovation. Furthermore, setting up in-house accelerators or innovation labs allows staff to brainstorm, accurately track progress, and receive feedback on experiments without disrupting operations. Finally, having the right technology in place allows them to unify their business needs and helps to create a process and framework to report on successes and failures. All of this together helps to create an environment of digital innovation and encourages staff to think outside the box.
  • Create a digital innovation team: Creating a digital innovation team is an important step toward driving digital transformation in your organization. Here are the steps you need to take to set up a successful digital innovation team in your organization:
    • Identify the existing business processes that need to be improved.
    • Create a small team consisting of highly-performing individuals from different departments who are passionate about driving the business forward.
    • Empower the team to think creatively about how technology can solve business challenges.
    • Structure an agile process of experimentation that will allow for progress to be measured and feedback to be collected.
    • Adopt the right technology that will unify every element of the business needs.
    • Create a framework for reporting on quick wins and failures.
    • Implement an in-house accelerator or innovation lab to allow for experimentation without disrupting the business.
    • Leverage an agile, iterative process to drive innovation.
    • Create a project portfolio of quick wins and high-value initiatives.
    • Find the right technology platform (such as a unified platform that manages the entire application lifecycle) to empower the team and reinforce the process.
  • Share best practices in digital innovation
    • Educate and inform employees on digital innovation: Developing an understanding of digital innovation and its potential benefits is the first step to creating a culture of innovation. To do this, it’s important to provide employees with learning and development opportunities so they can acquire the skills and knowledge that will allow them to effectively implement digital innovation. This could range from informal workshops to formal training and mentoring programs.
    • Encourage collaboration and experimentation: Create an environment that is conducive to collaboration and experimentation. Encourage team members to think outside the box and explore new ways of thinking and working. Introduce tools and processes that will facilitate this and make it easier for them to come up with new ideas.
    • Foster a culture of change: Embrace change and help employees understand the importance of adapting to the ever-changing digital landscape. Encourage employees to keep up with the latest trends and technology and to experiment with them.
    • Set up an innovation lab: Establish an innovation lab or an in-house accelerator that allows employees to test out new ideas and processes. Allow them to explore the use of technology and other digital means to create solutions that can improve the overall efficiency of the business.
    • Reward and recognize employees: Reward and recognize employees for their efforts in driving digital innovation. This could be in the form of awards, recognition, or even financial incentives. By doing this, you’ll show that you value their contributions and are willing to invest in their future.

Examples of Digital Innovation

The question now is, what does successful digital innovation look like? Below are some of the best digital innovation examples from world-renowned companies.

  • IKEA: Ikea has been featured in many publications for transforming into a tech company. Their digital innovation has made the business more attractive to consumers in this digital age with products and services that match the lifestyles and needs of consumers today. The 'IKEA Place app', has an augmented reality feature that enables customers to visualize furniture in their home before actually having to purchase it. In addition, to solve the frustration of the non-DIY customer, IKEA acquired TaskRabbit - a platform that connects customers with freelance labor. This move has boosted the company’s digital customer service capabilities.
  • WALMART: “The Walmart brand is at the center of a new ecosystem which integrates shopping, services, health and wellness, and first party and marketplace e-comm,” Oliver Chen, a managing director, and senior equity research analyst covering retail and luxury goods, wrote in a memo to investors. “Walmart is seizing the moment to transform through innovation and utilization of unique store, grocery, and people assets.” So why is Walmart doing all this? Because it knows that only those who embrace digital innovation to improve their services can survive Amazon. The 'Walmart mobile app' now blends e-commerce with traditional retail by allowing customers to add up the costs on their shopping lists before they get to the store and then guides them to items on their list once they get there. Walmart has also doubled down on robots, using them for various repeatable, predictable, and manual tasks, such as mopping up floors, identifying which items are low or out of stock, and even unloading boxes off delivery trucks. This will inevitably eradicate some jobs, but Walmart’s CEO Doug McMillon believes that more attractive jobs will be created to replace them.
  • UPS: The Logistics industry has undergone significant as a result of the evolution of digital technologies. UPS relied on digital technology when it started its digital transformation in logistics and operations. UPS wanted to:
    • speed up the delivery process and
    • introduce real-time package tracking.

      In 2012 UPS built a fleet management tool that used machine learning to set optimal routes for delivery drivers. The system significantly increased drivers’ productivity, decreased fuel costs, and reduced carbon footprint. As a result, UPS saved an estimated $300M-400M annually. In addition, UPS has also introduced multiple systems that leverage data to enhance its internal operations (such as sorting packages, loading trucks, etc.).

Benefits of Digital Innovation

  • Increased customer satisfaction: Increased customer satisfaction from digital innovation comes from providing customers with a seamless user experience and making it easier for them to interact with products and services. Companies need to focus on digital innovation to ensure that their customer touchpoints deliver a quality experience. Data and analytics can be improved with digital innovation, which can capture and process information more effectively. This data can then be turned into insights and used to understand customer buying behavior and preferences. By taking this approach, companies can create personalized learning and training flows, perform A/B tests to content, and provide individualistic experiences to all customer types. Ultimately, this can lead to increased customer satisfaction as customers are provided with tailored experiences that meet their needs.
  • Higher profits: By investing in digital innovation, businesses can increase their profits by tapping into new customer expectations and leveraging data and analytics. Automation can reduce mundane tasks and enable employees to focus on more strategic ones, while centralized systems reduce information discovery time and offer customers a self-service experience. Additionally, digital innovation gives organizations the ability to gain valuable customer insights, identify new opportunities, and improve ROI. With improved data and analytics, businesses will be able to make more informed decisions and create innovative solutions to meet the ever-changing needs of their customers.
  • Improved efficiency: Digital innovation can improve efficiency by streamlining internal processes, automating certain tasks, and providing access to big data and analytics. Automation, such as artificial intelligence and machine learning, can reduce the chances of human error and free up employees to focus on more strategic tasks. Centralized systems can reduce information discovery time and enable self-service customer experiences. Additionally, digital innovation can facilitate home-working, allowing companies to access a global workforce while improving employee productivity.
  • Enhanced customer experience: Digital innovation has become increasingly important in order to provide customers with exceptional and personalized experiences. Implementing digital innovations can help ensure that customer touchpoints offer a quality experience, regardless of whether it is in the form of a mobile app or a website. This allows companies to analyze customer buying behavior and preferences, in order to tailor experiences that are individualized for different customer types. Furthermore, convenience is key to customer satisfaction, and digital applications such as advisement tools, fact-finding assistance for employees, and customer portals can help make the customer journey more seamless. Moreover, customers expect companies to be up-to-date with new technologies and are likely to be more satisfied when they have access to them. For instance, IBM found that 38% of customers want virtual assistants to help them with self-service tasks, and 75% of customers want to see new technologies incorporated into the companies they work with. Such digital innovations can set companies apart from their competitors, and help them to engage with customers in a more meaningful way. Therefore, digital innovation is an essential part of providing customers with a satisfying customer experience. It allows companies to analyze customer behaviors and preferences, as well as implement new technologies that can provide customers with a more convenient and personalized customer journey.
  • Increased employee productivity: Digital innovation can increase employee productivity by allowing access to big data and analytics, automating mundane tasks, and implementing centralized systems. Big data and analytics give businesses access to invaluable customer insights that can help make better-informed decisions. Automation technologies like artificial intelligence and machine learning can free up employee time and reduce human error. Centralized systems make information discovery faster, allowing employees to find all the necessary information in one place. Additionally, automation of core business functions such as HR can help streamline processes, allowing employees to focus on more strategic tasks. Finally, digital innovation also allows for working remotely, which has been shown to increase productivity for 77% of remote employees. Implementing digital innovation in the workplace is essential for any company wanting to achieve long-term growth.
  • Improved data and insight: Digital innovation can improve data and insight by allowing organizations to capture and process information that would otherwise be inaccessible and by giving them access to powerful analytical tools. With these tools, businesses can gain valuable insights into their customers, such as their preferences and mindset, which can then be used to optimize their marketing strategies and increase their return on investment. Furthermore, digital innovation can help automate mundane tasks, reduce the chances of human error, and create centralized systems where employees can quickly and easily access the information they need. Finally, they can use data and analytics to improve their operations and productivity, which can lead to greater overall revenue streams.
  • Improved cybersecurity: Digital innovation can help improve cybersecurity by providing new solutions such as AI-boosted, predictive cyber protection, self-protecting apps, and secure alternatives to passwords. AI and machine learning can be used to detect small vulnerabilities in large networks, while predictive analytics and AI can be used to diagnose and understand security in real time. Identity-as-a-Service (IDaaS) and Fast Identity Online (FIDO) offer biometric or vocal recognition as secure alternatives to passwords, allowing companies to protect their data more effectively. Digital innovation can also help companies become more efficient with their resources, allowing them to focus more on productivity and growth. By taking advantage of digital innovation, businesses can stay ahead of cybercriminals, creating a more secure online environment.
  • Increased company agility: Digital innovation increases company agility by allowing organizations to adapt to new customer needs, scale innovation through digital transformation, access big data and analytics to gain actionable insights, automate mundane tasks, and centralize systems with digital ecosystems. By investing in innovation, companies can also boost employee productivity, reduce operational costs, create lasting value, drive the customer self-service movement, and disrupt industries. All of these advantages enable a company to remain competitive, boost ROI, and save essential resources while providing customers with better services at a better price. Ultimately, digital innovation enables companies to be agile and stay ahead of market shifts, stay relevant, and add business value.
  • Increased business opportunities: Digital innovation can significantly increase business opportunities by providing a competitive advantage, improving ROI and boosting revenue, and streamlining processes. Companies that embrace digital innovation are able to leverage customer data, provide a superior customer experience, automate and integrate internal processes, and increase employee productivity. Furthermore, remote working has enabled businesses to access a global workforce and utilize the cloud for increased security. By prioritizing digital innovation, businesses can ensure that they stay relevant and remain competitive in the ever-changing technological landscape.
  • Improved innovation speed: Digital innovation can improve the speed of innovation by reducing the time it takes to ideate and develop new ideas, as well as providing organizations with a platform to quickly manage and launch projects. With digital innovation, organizations can leverage agile and iterative processes to drive innovation without disrupting existing operations or development efforts, as well as access big data and analytics to gain insights that can be quickly acted upon. Automation technologies powered by artificial intelligence and machine learning can also help automate mundane tasks, freeing up employees to focus on the more strategic ones and reducing the chances of human errors. In addition, digital innovation can lead to a more competitive market, allowing businesses to offer better facilities to customers at a lower price, while also increasing efficiencies and boosting their ROI.

Challenges of Digital Innovation and their Solutions

Munich Re, a company with nearly 40,000 employees, recognized that digital initiatives were often set back by challenges related to three key resources: funding, expertise, and technological capabilities. These are all critical resources, and common challenges for companies trying to launch multiple innovations, the researchers said. After encountering these issues repeatedly, Munich Re came up with a systematic way to overcome each one.

  • Funding: Companies need to test digital initiatives to learn whether they are desirable, feasible, and viable enough to move forward. Risks include wasting money on innovations that won’t bring real benefits or failing to ensure that promising projects receive enough funding.

    To mitigate these risks, Munich Re created an innovation lab that provides funding for initiatives within the company. The lab aims to distribute 100 million euros annually (about $199 million in U.S. dollars) to about 30 initiatives. Employees can apply for a limited budget for an initiative through a relatively informal process by answering five questions. Funding has several stages, and if an initiative meets pre-determined goals, it becomes available for another, larger round of funding. The lab also provides mentoring and office space.
  • Expertise: Digital innovation requires experts in technology, data analytics, and agile design thinking. But talent alone isn’t enough. The experts need to be able to overcome siloed decision-making and drive the initiative through development. At Munich Re, the IT department was focused on internal systems, so project leaders often turned to external contractors — who might not be available or don’t know the company as well — for digital initiatives.

    To overcome this, Munich Re created a new unit within its information technology department called Business Technology, which is exclusively dedicated to innovation initiatives. The unit has experts including software developers, data scientists, and design thinking and agile coaches. Importantly, initiatives have dedicated dual leadership — one person from the business technology team serves as the chief technology officer for the initiative, and someone from the business side serves in a CEO function. Having two complementary leaders as co-founders of an initiative ensures buy-in and support from different stakeholders.
  • Technological capabilities: Digital offerings often offer functions that users can’t find elsewhere. Yet companies can end up dedicating significant resources to developing technological capabilities that provide only basic functionality instead of competitive advantage. Successful firms tend to create digital platforms that can be reused, but those platforms can be seen as burdensome tools, imposed by the company, that slow down innovation.

    Because different digital offerings often share the same technology needs, Munich Re created a digital platform called Excite which is a repository of shared software components that can be used by people working on different digital offerings. Instead of mandating its use, Munich Re lets teams decide whether they want to use the new platform. Many do because developing these capabilities is expensive and time-consuming otherwise.

    This method has been successful for his firm, Heiss said. For example, Munich Re’s recent partnership with Google to provide cyber insurance for Google Cloud was a product of its innovation protocol. “What we're trying to do is develop new technologies, develop new offerings, which were always linked back to our core business,” Heiss said. When working with a prominent company like Google, Munich Re needed its startup mindset, but also the grounding of its core business and its reputation. “We had the strength and the competence of Munich Re, combined with our digital offerings, that made that deal happen,” Heiss said. A new approach to digital initiatives also required adjustments in leadership and company mindset.[4]

See Also

Digital Innovation Strategy