Goals, drivers, and obstacles of digital innovation - I

What makes decision-makers invest in transformation and innovation, even in uncertain times?

The pandemic has highlighted the growing importance of digitalization. Companies with a highly digitized business model were the winners during the crisis, whereas more traditional organizations had to react quickly and had to transform themselves in a difficult economic environment. Today, more than ever, organizations are aware that they have to become more resilient, more agile, more responsible, more sustainable, more customer and employee-centric, and more efficient.

What drives innovation?

Most survey respondents consider digital innovation as a way to improve existing processes or products, the interaction with their ecosystem, and their business operations.

Improved customer experience (CX) remains a major goal for organizations when it comes to digital strategies. In view of a steadily growing number of contact points, some of which are beyond their control, organizations have to be able to sustain a consistent CX across all touchpoints to meet customers’ expectations. What’s more, CX is no longer just a B2C topic but is also gaining in importance in B2B markets. In the public sector, the development of digital public services can be considered as driven by the “customer” experience.

While customer insights have always been important, new approaches focus not only on quantitative, but also on qualitative aspects. Insights are required, for instance, into current and forecast future customer preferences and their use of products and services, as well as satisfaction with the customer service and brand perception.

Better use of data has been a central goal of organizations’ digital strategies. This is not surprising, as valid and trusted data is at the heart of any digital transformation and is an essential basis for many innovative topics, such as Internet of Things, artificial intelligence, and sustainability.

Increased resilience has been a major target for organizations since the pandemic; broken supply chains and the energy crisis have shown the vulnerability arising from unpredictability. More transparent and resilient supply chains as well as increased agility and flexibility have therefore been top priorities of organizations to deal with the massive and unexpected challenges, and will remain very important targets of strategic initiatives, given a highly uncertain future.

The need to protect digital supply chains, products, data, and workflows against both internal and external attacks has become a matter of course for most companies, as is clearly reflected in the great importance of cybersecurity-related objectives in our survey. Even though cybersecurity is usually considered as less differentiating than the customer experience, for instance, it is regarded as a must-have investment.

Digital projects are also strongly focused on efficiency goals related to internal processes. Increased automation cannot only help to increase efficiency and reduce failure rates, but also to deal with the omnipresent skill shortage.

Due to pressure from the economy, society, and regulations, corporate social responsibility and ecological sustainability are must-have investment areas for organizations. However, although only a few say that these topics are no objectives at all, it seems that investments are not yet associated with innovation to the extent you would expect. This is a surprise, as new technologies can help deal with sustainability-related issues in many ways, plus they can also support other, more frequently mentioned innovation targets, such as supply chain transparency, efficiency, and better use of data, which very often go hand in hand with sustainability-related objectives.

However, ESG is also not among the most frequently mentioned areas in which digital innovation plays a central role.

Who drives innovation?

In line with the stated major goals of digital strategies, the importance of innovation is considered much higher in areas such as customer service and support. Also, in line with goals such as reduced failure rates, better quality of products and services, more transparent and resilient supply chains, and increased efficiency, digital innovation plays a major part in products and services produced, in the production and operations processes themselves, as well as in supply chain management and logistics.

The IT department is also frequently mentioned as an important driver of innovation. However, although IT is certainly an enabler of most digitalization projects, and often also a driver, it should be noted that almost half of the experts surveyed are IT decision-makers and might not be fully impartial on this matter.

Unlike customer-centric investments, an improved employee experience is not among the most important goals of innovation. This is surprising, given the omnipresent skill shortage. However, in almost 75% of the organizations surveyed, digital innovation in areas such as workplace, collaboration, and training is a central or important goal.

What hampers digital innovation?

Generally speaking, the potential of further digitalization is hardly questioned. Only a minority of respondents complain about the lack of a digital business model or a convincing business case when asked about hampering factors for digital innovation. Moreover, lack of management support, organizational obstacles, and unrealistic stakeholder expectations are not among the most frequently mentioned concerns or challenges, although they are certainly considered to be a problem by a number of respondents. Also, the experts surveyed seem to be confident that the costs and the increased complexity of digital initiatives can be managed.

Nevertheless, there are various factors that hamper broader adoption of new technologies and digital strategies:

“Never change a running system” still seems to be common wisdom. Close to 90% of respondents have major or minor concerns about performance and/or availability when deploying new technologies. Also, security and compliance issues have always been among the biggest sticking points when it comes to comprehensive transformation; 46% consider them even as a major concern.

Where innovation projects are started, going live at scale is considered as a major challenge. Almost 90% of the surveyed decision-makers complain that moving projects out of the experimental or proof-of-concept stage and into production is an issue; almost 50% even see it as a major issue.

Omnipresent skill shortage, e.g., in IT areas such as cloud, AI, and data science, but also in the related business lines, has also been among the most pressing issues recently and has been among the most important limiting factors for broader innovation and transformation approaches.

Finally, the difficult economic environment and uncertainty about future trends are clearly considered as a challenge. While the Covid-19 pandemic tended to accelerate digital transformation, the currently highly uncertain, or even negative economic outlook might lead to generally more cautious investment behavior, which will also affect digital strategies.