FOCUS: INNOVATION

Innovation is the new black

Innovation mostly fails. It doesn’t need to. You shouldn’t let it. At the heart of your innovation process should lie a simple organising framework − an underlying structure and discipline governing what works and what fails’

If ‘Innovation’ were a person, they would most certainly be the most popular kid at school and almost always the coolest person in the room. It seems omnipresent, ever increasingly finding its way into our meeting rooms, bouncing its way down the corridors and jumping out at you in agendas, emails and to-do lists. Albeit such a hot topic these days, much like the popular kid waiting to be asked to the matric dance, there seems to be very few mustering up the courage to actually approaching it. For those brave few, exchanging tactics at the tuckshop, there seems to be very little agreement about how best to court and capture innovation.

Although the business impulse is strong, like in the schoolyard, the impetus to drive innovation appears to be lacking. This state of inaction can more than likely be ascribed to two very simple fundamental driving forces: the fear of failure and the lack of trying. These are underpinned by a simple truth – innovation mostly fails. In fact, statically within an innovation process if you are not failing, you are not unlocking your full innovation potential.

Although this ‘plan to fail’ seems counter-intuitive to us business leaders, it needs to be embraced. Top innovation transpires when we plan for a failure rate and in a disciplined and systematic manner progress our innovation ambition, through the failed attempts. We need to be the nerd in the schoolyard who systematically places letters in all the popular kids’ lockers and regardless of the number of no answers received, the one yes will bag a top date.

Like the structured dating approach, organisations need structured frameworks capable of increasing their odds of innovation success. At the heart of any new discipline, such as innovation, there often lies simple organising frameworks — underlying structures and disciplines governing what works and what fails. Consciously understanding these frameworks can make innovation easier and more effective. Doblin (the innovation practice of Monitor Deloitte) maintain innovation learnings and frameworks that have been developed by examining more than 5 000 innovations — successful and not — over the past 15 years. Below we briefly explore the possibility of increasing odds of success in an innovation process by understanding a selection of the key learnings and applying the structure and discipline of two of these frameworks.

A selection of the key learnings on innovation according to Doblin’s research:

Innovation mostly fails. It doesn’t need to. You shouldn’t let it.

Innovation almost never fails because of a lack of creativity. It’s almost always because of a lack of discipline.

While most people think about innovation in terms of product innovation, top innovators combine many different types of innovation to succeed.

Successful innovators analyse the patterns of innovation in their industry. Then they make conscious, deliberate choices to innovate in different ways.

Innovations can be broken down and analysed. When you do so, you will learn why most fail and a few succeed.

Innovations can be built up systematically. Doing so exponentially increases your odds of success.

With these key learnings as a backdrop, an initial step in the innovation process would be to define the organisation’s innovation imperative and ambition levels. This involves the application of the first framework, the Innovation Ambition Matrix (figure 1). Essentially your innovation ambition will be determined at the intersection of the answers to these two questions: Where should we play and how will we win? Core innovations optimise existing products for existing customers. Adjacent or incremental innovations expand existing business into ‘new to the company’ business. Transformational or new innovations are breakthroughs and inventions for markets that don’t yet exist.

Figure 1: Innovation Ambition Matrix®

This serves not only as a useful way to align activities with the goals and objectives that should be aspired to, but also as a framework to manage the innovation investment.  Doblin research suggests that the most successful innovators manage their innovation efforts and investments as a portfolio of activities that is balanced across the levels, as shown in figure 1. While every company’s circumstances are unique, the world’s leading industrial innovators have on average 70% of their innovation investments and activity occurring at the Core, 20% at the adjacent and 10% at the transformational level.

Once an organisation’s ambitions have been defined, a second diagnostic tool, the Doblin The Ten Types of Innovation framework, can be used to identify 10 distinct types of innovation across three categories (figure 2). The framework is structured into three colour-coded categories. The types on the left side of the framework are the most internally focused and distant from customers; as you move toward the right side, the types become increasingly apparent and obvious to end users. To use a theatrical metaphor, the left of the framework is backstage; the right is onstage.

Figure 2 Ten Types of Innovation


Configuration innovations (blue) apply to profit models, networks, structures and processes. This comprises the ‘backstage activities needed to develop the offering.

Offering innovations (amber) apply to product performance and product systems. This is what companies produce or how they produce their products and by-products in their core operations.

Experience innovations (orange) apply to services, channels, brand, and customer/stakeholder engagement. These are ‘onstage’ activities, determining how an offering is delivered to customers or stakeholders.

Most companies focus their innovation efforts on the amber offering category, centred on product performance and product system innovation, which generally only yield incremental windfalls. The greatest opportunities are anchored in the blue configuration and orange experience categories. The most successful business model innovations combine new ways of making money with innovative, great customer experiences.

To unlock maximum value generally a company must assemble six or more types of innovation, with at least one innovation type residing in each of the three major categories (configuration, offering, and experience). Airbnb, for instance, has disrupted the global hotel market by utilising six types of innovation. They effectively reconfigured the accepted profit model, network and process activities by making a minimal margin on each transaction performed by the network of independent (previously un-tapped) accommodation suppliers.

Through their internet and mobile app Airbnb disrupts existing channels and enable service enhancements enacted by the network of engaged stakeholders, which is in turn is self-reviewed and vetted through engaged customers reviewing the accommodation service. This self-sustaining eco system allows the clients to experience better authentic local accommodation experiences enhancing the quality of the core product performance.

An unequivocal innovation ambition with the full commitment of key stakeholders such as the board and chief executives will empower innovation champions to drive appropriate goal driven activities within innovation investment framework.

These activities completed with the discipline and structure to innovate in not only our offering, but also in our core configuration and client experience will increase the odds of success in our innovation process. Following a structured and disciplined approach we can convert our ‘fear of failure’ into a locker note plan for success and our ‘lack of trying’ into dominating the dancefloor whilst the rest of the kids huddle in awe, to lament our innovative brilliance.

Author: Paul Plummer CA(SA) is a senior manager at Monitor Deloitte driving business innovation, disruptive technology and rapid commercialisation for clients.

What is disruptive innovation?

The theory of disruptive innovation has proved to be a powerful way of thinking about innovation-driven growth. Many leaders of small companies praise it as their guiding star; so do many executives at large, well-established organisations

IDEA IN BRIEF 

The issue: The ideas summed up in the phrase ‘disruptive innovation’ have become a powerful part of business thinking − but they’re in danger of losing their usefulness because they’ve been misunderstood and misapplied.

The response: The leading authorities on disruptive innovation revisit the central tenets of disruptive theory, its development over the past 20 years and its limitations.

The bottom line: Does it matter whether Uber, say, is a disruptive innovation or something else entirely? It does: we can’t manage innovation effectively if we don’t grasp its true nature.

Unfortunately, disruption theory is in danger of becoming a victim of its own success. The theory’s core concepts have been widely misunderstood and its basic tenets frequently misapplied. Many researchers, writers and consultants use ‘disruptive innovation’ to describe any situation in which an industry is shaken up and previously successful incumbents stumble. But that’s much too broad a usage.

The problem with conflating a disruptive innovation with any breakthrough that changes an industry’s competitive patterns is that different types of innovation require different strategic approaches. To put it another way, the lessons we’ve learned about succeeding as a disruptive innovator will not apply to every company in a shifting market.

IS UBER A DISRUPTIVE INNOVATION?

Founded in 2009, the transportation company Uber has enjoyed fantastic growth, reported tremendous financial success and spawned a slew of imitators. Uber is clearly transforming the taxi business in the United States. But is it disrupting the taxi business?

According to the theory, the answer is no. Here are two reasons why.

Disruptive innovations originate in low-end or new-market footholds

Disruptive innovations are made possible because they get started in two types of markets that incumbents overlook. Low-end footholds exist because incumbents typically try to provide their most profitable and demanding customers with ever-improving products, and they pay less attention to less-demanding customers.

In the case of new-market footholds, disrupters create a market where none existed. Put simply, they find a way to turn non-consumers into consumers.

A disruptive innovation, by definition, starts from one of those two footholds. But Uber did not originate in either one. It is difficult to claim that the company found a low-end opportunity: that would have meant taxi service providers had overshot the needs of a material number of customers by making cabs too plentiful and easy to use.

Neither did Uber primarily target non-consumers: Uber was launched in San Francisco (a well-served taxi market) and Uber’s customers were generally people already in the habit of hiring rides.

Disruptive innovations don’t catch on with mainstream customers until quality catches up to their standards

Disruption theory differentiates disruptive innovations from what are called ‘sustaining innovations’. The latter make good products better in the eyes of an incumbent’s existing customers: the fifth blade in a razor, the clearer TV picture. These improvements can be incremental advances or major breakthroughs, but they all enable firms to sell more products to their most profitable customers.

Disruptive innovations, on the other hand, are initially considered inferior by most of an incumbent’s customers. Typically, customers are not willing to switch to the new offering merely because it is less expensive. Instead, they wait until its quality rises enough to satisfy them. Once that’s happened, they adopt the new product and happily accept its lower price.

Most of the elements of Uber’s strategy seem to be sustaining innovations. Uber’s service has rarely been described as inferior to existing taxis; in fact, many would say it is better. Booking a ride requires just a few taps on a smartphone; payment is cashless; and passengers can rate their rides afterward, which helps ensure high standards. Furthermore, Uber delivers reliable service and its pricing is usually competitive with that of established taxi services. As a result, taxi companies are deploying competitive technologies, such as hailing apps, and contesting the legality of some of Uber’s services.

WHY GETTING IT RIGHT MATTERS

Why does it matter what words we use to describe Uber? The company has certainly thrown the taxi industry into disarray: isn’t that ‘disruptive’ enough? No. Applying the theory correctly is essential to realising its benefits. Even executives with a good understanding of disruption theory tend to forget some of its subtler aspects when making strategic decisions. We’ve observed four important points that get overlooked or misunderstood:

Disruption is a process. Almost every innovation — disruptive or not — begins as a small-scale experiment. Disrupters tend to focus on getting the business model, rather than merely the product, just right. When they succeed, their movement from the fringe (the low end of the market or a new market) to the mainstream erodes first the incumbents’ market share and then their profitability. This process can take time, and incumbents can get quite creative in the defence of their established franchises.

Disrupters often build business models that are very different from those of incumbents. One high-profile example of using an innovative business model to effect a disruption is Apple’s iPhone. The product that Apple debuted in 2007 was a sustaining innovation in the smartphone market: it targeted the same customers coveted by incumbents, and its initial success is likely explained by product superiority. The iPhone’s subsequent growth is better explained by disruption — not of other smartphones but of the laptop as the primary access point to the Internet. This was achieved not merely through product improvements but also through the introduction of a new business model. By building a facilitated network connecting application developers with phone users, Apple changed the game. The iPhone created a new market for Internet access and eventually was able to challenge laptops as mainstream users’ device of choice for going online.

Some disruptive innovations succeed; some don’t. A third common mistake is to focus on the results achieved — to claim that a company is disruptive by virtue of its success. But success is not built into the definition of disruption: Not every disruptive path leads to a triumph, and not every triumphant newcomer follows a disruptive path.

If we call every business success a ‘disruption’, then companies that rise to the top in very different ways will be seen as sources of insight into a common strategy for succeeding. This creates a danger: managers may mix and match behaviours that are very likely inconsistent with one another and thus unlikely to yield the hoped-for result.

The mantra ‘disrupt or be disrupted’ can misguide us. Incumbent companies do need to respond to disruption if it’s occurring, but they should not overreact by dismantling a still-profitable business. Instead, they should continue to strengthen relationships with core customers by investing in sustaining innovations.

In addition, they can create a new division focused solely on the growth opportunities that arise from the disruption.

Of course, as the disruptive stand-alone business grows, it may eventually steal customers from the core. But corporate leaders should not try to solve this problem before it is a problem.

Authors: Clayton M Christensen is the Kim B Clark Professor of Business Administration at Harvard Business School. Michael E Raynor is a director at Deloitte Consulting LLP. Rory McDonald is an assistant professor at Harvard Business School

NOTES

© 2015 Harvard Business School Publishing Corp.

The digital disruption interview

This interview took place at Cape Town’s V&A Waterfront following the conclusion of the SAICA and Xero Business Roadshows in September. The breakfasts were hosted in Durban, Bloemfontein, Johannesburg and Cape Town.

We introduce to you:

INTERVIEWER:

Matt Knight, Project Director for Commercial Delivery and Business Development, SAICA

INTERVIEWEES:

Colin Timmis – Head of Accounting (South Africa), Xero
David New – Sales Director, Spotlight Reporting
Alex Clark – Account Manager (South Africa), Receipt Bank
SAICA First Impressions – Matt Knight

Hi guys, it was great to have spent some time with all of you this week and hear your thoughts on where technology is changing accountancy and how you’re playing an influential role in those changes. Nearly 1 500 joined us at the four events and the webcast, so we’re impressed with how it went. But what were your impressions?

COLIN TIMMIS:

We were really impressed. We found that members are hungry to know what’s going on. If you look at the Johannesburg event, it was full despite there being other events and expos that same week.

ALEX CLARK:

Yes, I was encouraged by the engagement. There was a lot of curiosity actually.

DAVID NEW:

I was blown away by the sheer attendance. Digital disruption is here; that much is pretty clear now.

SOUTH AFRICA’S CHALLENGES

MATT KNIGHT:

How about the four different regions we went to … Were the member responses quite similar or do the challenges differ quite significantly according to where you are?

COLIN TIMMIS:

The overall challenges are the same in that some members were looking at this for the first time while other members were looking to upscale or develop their cloud platforms so that they can offer a better service to their clients.

DAVID NEW:

I agree, and I think that the desire to change is the same. Most recognised the changes happening around them, and understood that it had implications for their work.

ALEX CLARK:

Yes, each of the four cities had different socio-economic environments but the responses were very similar.

COLIN TIMMIS

Also, I think if you look at the ages of the attendees, it was really diverse, young and old were there. That’s something quite unique and hard to find at different CPD level events, but in this case, I think that the content and discussions were helpful for all members of all ages because it’s current.

CLOUD: THE ACCOUNTING DISRUPTER

MATT KNIGHT:

Let’s discuss technology. It’s completely impacted and disrupted a number of industries when you look at the arrival of Airbnb in the hotel industry, or Uber in the taxi industry, Zillow in Real Estate, or the likes of Tesla in Energy and Utilities. What is the main opportunity you think that cloud applications present for accountants?

COLIN TIMMIS:

Well, it’s a hugely positive thing for accountants. CAs can now use the skills they have and the skills they have learnt more effectively and, mostly, more efficiently.

ALEX CLARK:

Working in the cloud also allows firms to work more intelligently so that they can add real value to their clients. It gives them the chance to enjoy what they’re doing. In other words, once you move your data to the cloud, it opens a whole world of opportunities: your clients’ data is available to view and analyse at anytime from anywhere and you can take advantage of new tools to save time processing that data.

COLIN TIMMIS:

It’s also changed some of the playing fields in that it is no longer about Big vs Small, but rather Fast vs Slow. Tech brings advantages, so it’s critical to add that to the technical CA expertise to ensure their skills and value proposition is positioned correctly.

DAVID NEW:

Yes, for me that need to be ‘relevant’ comes back to education. The surveys that Xero have done show that businesses want CAs to be the trusted accountant. Technology, then, simply enables that to happen even more. That then opens up efficiencies, so that time can be deployed elsewhere, more efficiently. If it can be automated, it should be automated.

COLIN TIMMIS:

Exactly. Tools save time, and accounting is directly changing and benefitting because of that.

GLOBAL TRENDS AFFECTING SOUTH AFRICA

MATT KNIGHT:

Colin, you’re obviously very close to what Xero’s been doing in the UK and globally, and then David and Alex, you’ve both come all the way from Sydney and London respectively to be with us this week … So what do you think are the big global trends in the accounting profession that we can expect to see in South Africa soon?

ALEX CLARK:

Certainly in the UK and increasingly in South Africa, clients are looking for more from their accountants. It’s that advisory piece again that is so important, and which is enabled through accurate data and platforms – and a smart strategy that drives all that.

COLIN TIMMIS:

People want to be able to use good tech in their business, just like they have access to in their private life. Tech that is simple, saves time and brings enjoyment. Good accountancy software should offer all those things and Accountants in practice and business should ensure that they lead their clients in this area, rather than being led by them. Research shows that clients want tech savvy accountants, and will move if necessary.

DAVID NEW:

Absolutely. In Australia, the relationship between a motivated client and a good advisor has become a must-have relationship. Clients are all too aware about how much value an accountant — armed with all the necessary finance and tech skills — can bring to their business.

COLIN TIMMIS:

I think we will see more opportunities for CAs to assume their rightful position in their clients companies by becoming true advisors and forming advisory boards focused on business growth and strategy, as most CA’s have the experience and skills to fulfil this role but have become bogged down in compliance work.

“REAL CPD” IS INNOVATIVE LEARNING

MATT KNIGHT:

What advice would you give the firms?

ALEX CLARK:

I loved it when this question came up during the week. My immediate answer was, ‘don’t be afraid to take advice’. We’re facing constant change, and that means constant learning.

COLIN TIMMIS:

For sure, we’ve lost the essence of CPD! It’s become a tick-box exercise.

We need to get back to its roots – which is about having an attitude of willingness and submission to learning new things. It’s all about an attitude, a new outlook on learning and searching out resources that allow us to equip ourselves for a world being transformed by tech.

We need to get back to genuine learning which has less to do with hours logged and more to do with a desire to search for solutions and add value.

ALEX CLARK:

Yes, and hats off to SAICA for highlighting that through the roadshow and putting this ‘firm of the future’ discussion directly in front of the members.

A few more things I would add to what Colin said is that you need to be proud of the business you’ve built. And also to be careful not to isolate yourself. Those that can build a connected community are often the most successful.

DAVID NEW:

There was that slide that Colin showed [see slide right] during the roadshow about the shark and the fish. Essentially, it’s all about early adopters.

COLIN TIMMIS:

I couldn’t emphasis that point enough — it’s that need to be strategic in your own practice. You can’t advise a client about being strategic if you are not even strategic in your own practice.

DAVID NEW:

Purpose hiring is another trend …

COLIN TIMMIS: 

Yes, more hiring of staff with customer relationship skills — what some call a CSC or customer services consultant. People that are more front-facing and able to support clients and deal with any documentation logistics or process development.

We also see staff coming into practices that have a digital background or focus to ensure a client’s accounting platform is optimal.

YOU AND YOUR CLIENTS ARE STILL CENTRAL TO CLOUD TECH

MATT KNIGHT:

Is it any different for the smaller firms embarking on the cloud accounting journey? What’s your experience of those who have adopted current technology?

ALEX CLARK:

The messaging for SMPs has to be about what you want to achieve, and once you have that, you have to commit to it. You have to believe in it.

COLIN TIMMIS:

The question is what type of firm you want to be. As many have said, ‘You can’t be all things to all people’ and ‘Not everyone is your client’.

ALEX CLARK:

Agreed. You need to be asking ‘Who do you want to work with’, ‘who don’t you?’…What’s your ideal client?

DAVID NEW: 

Technology plays a huge part in that decision. Having clients who trust the decisions you will make on the best platforms and digital strategies for their businesses, will make for a much more enjoyable journey all round.

ALEX CLARK:

There’s a guy called Michael Gerber who said that you ‘need to spend time working on your business, not in your business’. In other words, just by spending 10-15 minutes a day on how to make your business better will lead to remarkable improvements. Small practices are ideally placed to be more agile to make change, including incorporating new technology to do just that.

COLIN TIMMIS:

At the end of the day, software is simply the enabler. You’re still doing business with people – but software removes so much of the unwanted baggage.

Text box to be inserted

CLIENTS WHO DON’T WANT TO EMBRACE CLOUD

MATT KNIGHT:

What about those clients just not interested in making the move to the cloud when perhaps many or most of your other clients are already heading that way?

COLIN TIMMIS:

Generally people don’t want to go because they don’t know what they don’t know. Again, it’s about education.

ALEX CLARK:

People don’t know they have a ‘problem’ until you bring a solution. So, the reason behind the change – the benefits and so forth — must be explained clearly.

DAVID NEW:

Yes, and there must be internal buy-in, that both you and the client are clear around common objectives. There’s no point bringing a client kicking and screaming into cloud accounting if there’s no genuine buy-in and desire.

CAs(SA) GET BACK TO WHAT THEY’RE GOOD AT

MATT KNIGHT:

How have the most successful accounting firms made the transformation from being primarily a compliance house to one that’s offering advisory services to their clients?

DAVID NEW:

Ultimately, they’ve done it through adopting tech, and by bringing efficiencies into their business by adopting tools like Xero, Receipt Bank and Spotlight Reporting. To me, that has been the real significant change in the industry.

ALEX CLARK: 

I always talk about ‘work smarter, not harder’. Tech gets you back to doing what you’re good at.

DAVID NEW: 

It needs to be about a new service offering for all – or as many of your clients – as possible. This is not a band aid fix, this is about re-engineering your work processes for a far more beneficial service to your clients.

ALEX CLARK:

We have seen some significant trends in the industry recently that have been highlighted by some recent stats: 72% of clients move accountants because they’re not getting the services they want from their current one, and firms that have adopted cloud technology add, on average, five times more clients than those who don’t. In South Africa specifically, 49% of SMEs see technology as an essential component in their business. Even Accenture predicted that 40% of transactional accounting will be automated by 2020, so the more technology embraced by firms, the better equipped they will be to succeed.

CLOUD = AN ENERGISED WORKFORCE ENABLER

MATT KNIGHT:

Cloud accounting can assist in staff retention, but what about the other side of the coin. Automation might require less time capturing, etc. Won’t this lead to requiring less staff?

DAVID NEW:

On the staff retention side – sure, there’s increased work satisfaction because you’re giving people the opportunity to do the work they enjoy. But cloud also attracts staff. More and more graduates are heading to the cloud-based firms because it’s more attractive.

ALEX CLARK:

It also ties in with where SAICA are going with CA2025 – creating a new focus on training that matches where accounting is moving.

COLIN TIMMIS:

On the ‘less staff because of automation point’ – yes, the software frees up time and certain staff tasks because it’s automated – but that means a more client-facing staff, not highly skilled staff doing mundane data capturing and so forth. They can now use the software to solve many problems – and they don’t have to know the software intensely – it’s simply the enabler, and designed to be very user-friendly. All the solutions are designed to be low maintenance.

MATT KNIGHT:

Thanks for your time guys, great insights – and safe travels, David and Alex!

Technology has certainly played an important role in [supplying information based on real-time information]. Today, accountants can promptly access information in real-time: software connects directly to bank feeds, with receipt scanning tools facilitating access to a live ledger. They’re more agile and better informed than they’ve ever been before. This makes them especially well-placed to serve as business and management advisors – and SMEs are very willing for them to serve in this capacity. Some 62% of the SMEs we surveyed state that added value is an important factor in selecting an accountant for their company.

SOURCE:

South Africa: State of Accounts”, research piece by World Wide Worx in conjunction with Xero, where 600 accountants and small business owners were interviewed.

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