How to recognise the 5 new patterns of innovation
Published 31 January 2014 11:57, Updated 31 January 2014 11:59
Rashik Parmar, Ian Mackenzie, David Cohn and David Gann
The data-trading relationship between Vodafone and TomTom is one example of new innovation patterns.
The search for new business ideas and new business models is hit-or-miss in most corporations. Management scholars have considered various reasons for this failure. One well-documented explanation: Managers who are skilled at executing clearly defined strategies are ill equipped for out-of-the-box thinking. In addition, when good ideas do emerge, they’re often doomed because the company is organized to support one way of doing business and doesn’t have the processes or metrics to support a new one.
Without a doubt, if you tackle business innovation systematically you improve the odds of success. Tested ways of framing the search for ideas exist, of course. One is competency-based: It asks, How can we build on the capabilities that already make us distinctive to enter new businesses and markets? Another is customer-focused: What does a close study of customers’ behavior tell us about their unmet needs? A third addresses changes in the business environment: If we follow “megatrends” to their logical conclusion, what future business opportunities will become clear?
We’d like to propose a fourth approach. It complements the existing frameworks but focuses on opportunities generated by the explosion in digital information and tools. Our approach asks: How can we create value for customers using data and analytic tools we own or could have access to? Over the past five years, we’ve explored that question with a broad range of IBM clients. In the course of that work, we’ve seen advances in information technology facilitate the hunt for new business value in five distinct – but often overlapping – patterns. We believe that by examining them methodically, managers in most industries can conceive solid ideas for new businesses.
PATTERN 1: AUGMENTING PRODUCTS TO GENERATE DATA
Because of advances in sensors, wireless communications and big data, it’s now feasible to gather and crunch enormous amounts of data in a variety of contexts, from wind turbines to intelligent scalpels. Those data can be used to improve the design and operation of assets or to enhance how an activity is carried out. Such capabilities, in turn, can become the basis of new services or new business models. A classic example is Rolls-Royce’s engine health management capability. In the mid-2000s new sensor technology and data management allowed Rolls-Royce to identify airplane engine problems at an early stage, thereby optimising maintenance and repair schedules, and to improve engine design. The ability to control costs encouraged the company to adopt a business model in which it retained ownership of the engines and provided maintenance and repairs, charging airlines an all-in fee based on actual hours flown, as part of a “power-by-the-hour” offering.
PATTERN 2: DIGITISING ASSETS
Over the past two decades, the digitisation of music, books and video has upended entertainment industries, spawning new models such as iTunes, streaming video services and e-readers. As mobile technologies continue to fuel this trend, businesses are tapping into it and generating their own enhanced services or new business models. For instance, sophisticated analytic and visualisation techniques have improved design in many manufacturing industries, from aerospace and automotive to clothing and furniture. And the digitisation of health records is expected to revolutionize the health care industry, making the treatment of patients more efficient and appropriate, and slashing hundreds of billions of dollars in costs.
PATTERN 3: COMBINING DATA WITHIN AND ACROSS INDUSTRIES
The science of big data, along with new IT standards that allow enhanced data integration, makes it possible to coordinate information across industries or sectors in new ways. Consider the city of Bolzano, Italy, where retired people account for almost a quarter of the population. That puts considerable strain on social and health services. Working with the city, IBM developed a network of sensors in the home that monitor not only conditions such as temperature, carbon dioxide level and water usage, but also what constitutes “normal” behavior patterns – for example, regular cooking times. Abnormalities trigger a call to a relative or a friend, who can check that all is well with the senior and alert the appropriate city service if necessary. Behind the scenes, a common IT system links all the relevant city agencies, enabling a highly coordinated response.
PATTERN 4: TRADING DATA
The ability to combine disparate data sets allows companies to develop a variety of new offerings for adjacent businesses. Take the recent partnership between Vodafone and TomTom, a provider of satellite navigation devices and services. With its mobile network, Vodafone can identify which of its subscribers are driving, where they are and how fast they’re moving. Such data can be used to pinpoint traffic jams – information that is extremely valuable to TomTom, which buys it from Vodafone.
PATTERN 5: CODIFYING A DISTINCTIVE SERVICE CAPABILITY
Ever since their invention, IT systems have helped automate business processes. Now companies have a practical way to take the processes they’ve perfected, standardize them and sell them to other parties. IBM’s Global Expense Reporting Solutions were originally developed to automate all the steps in the company’s internal travel booking and expense-reporting processes. IBM found that, in addition to reducing related administrative costs by 60 to 75 percent, the systems helped ensure that employees complied with corporate expense policies, lowering total expense spending by up to 4 percent. A few years later, realising that many of its customers would be interested in achieving comparable savings, IBM turned the systems into a service, which it has since sold to organizations worldwide.
COMBINING THE PATTERNS
The five patterns are a helpful way to structure a conversation about new business ideas, but actual initiatives often encompass two or three of the patterns. In addition, what begins as a relatively simple extension of an existing business often grows into a whole new business.
Take the smart energy meters being rolled out in nearly every developed country, which record the consumption of energy over the course of the day and communicate that information back to the energy provider. These devices started out by augmenting the utilities’ businesses along several dimensions: They made it possible to adopt intraday pricing that reflected demand patterns, to optimise operations and infrastructure usage, and to provide customers with the information needed to manage their own usage. But before long it became clear that the meters created opportunities for altogether new businesses. They could, for instance, gather data on the energy usage patterns of appliances, which could be sold back to their manufacturers.
The faster technology advances, the more opportunities seem to open up. It’s time companies took a structured, systematic approach to examining these advances, carefully considering how IT can enable not only better products and services but also innovative business models and platforms. By thinking through what implications the five patterns hold for their businesses, companies can find ways to engage more fully with the digital economy – and cash in on its promise.
(Rashik Parmar is the president of IBM’s Academy of Technology, Ian Mackenzie is a senior lecturer at Harvard Business School, David Cohn is a research scientist at IBM’s Thomas J. Watson Research Center, and David Gann is vice president of development and innovation at Imperial College London.)
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