By definition, digital transformation means using digital technologies to do business differently and to create new digitally enabled products. That can only happen if the organization is willing to try new things, including many that won’t pan out. Room for experimentation should be part of your digital strategy and digital platform.
Sounds great in theory, but how do you make experiments happen?
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1. Find time and money for experimentation
To innovate, you must experiment. The catch: Where do you find the time and where do you find the budget for all these experiments?
“I don’t think you will find them,” laughs Martin Mocker, one of the co-authors of Designed for Digital from MIT Press. That’s a little like hoping to find money to pay the rent hidden in your couch cushions. If you want to make room for experimentation, you will have to budget and staff and plan for it. “You’ve got to make a decision to actually do that,” adds Mocker, a professor of information systems at ESB Business School in Germany and a research affiliate of the MIT Sloan School of Management.
Innovations aimed at improving an organization’s operational excellence are a little easier to work into the budget and justify with traditional ROI calculations, he says. However, creating possibilities for truly disruptive and transformative innovation requires taking more risk.
“Having separate budgets is probably more helpful,” Mocker notes. “You need to be able to say, ‘I can afford that amount of money, and I’m not expecting to get that money back.” This is investing for a payoff in the long run, not within the budget year.
[ Is your team tiring of transformation work? Read also: How to beat digital transformation fatigue. ]
2. Organize wisely: The trouble with innovation teams
Once you have budget, where do you spend it? Be careful how you organize and structure for experimentation, experts say. Making innovation the exclusive responsibility of an innovation labs team can be a mistake if the message people get is that they are not empowered to innovate unless they are on that team.
“It becomes the ivory tower, becomes divisive, becomes an isolated thing,” says Charles Araujo, an independent analyst and founder of The Institute for Digital Transformation. Besides discouraging innovation from elsewhere, a disconnected innovation team can be ineffective at bringing products to market.
One of the most famous examples is Kodak, where an innovation lab invented the digital camera but did so in isolation from the product teams that remained devoted to its analog product: photographic film. As a result, Kodak lagged others in bringing digital cameras to market, with big consequences.
An example of a better model is the U.S. Digital Service, which champions digital transformation within the federal government. “They come in as partners, enabling the folks on the ground. They work with all these agencies to prop them up and let them be the heroes while providing tools and resources to ensure they can be successful,” Araujo says.
Before it was acquired by AT&T, DirectTV had a similar model: Its innovation team was the instigator of new ideas but had a formal process for connecting innovations with the operating units that could benefit from them. The relationship would begin as a partnership, Araujo says, “but ownership would shift more and more to the operating unit so that when a project was green-lighted, they owned it.”
Making a similar point, Mocker points to his interview with Mattias Ulbrich, CIO of Porsche and CEO of its Porsche Digital business unit. “One of the things he said very explicitly when I talked with him is, ‘What I absolutely need to avoid is the idea that Porsche Digital is the only way innovation happens.’” Instead, Porsche Digital provides funding and resources, but innovation should be able to come from anywhere.
Another example: Philips's HealthSuite Labs, which is dedicated to co-creating healthcare innovations with various operational business units and with customers. Despite the “Labs” in its name, the group promotes a design thinking methodology rather than operating as an isolated research and development lab. One of the most important elements of a successful digital transformation process is identifying innovations customers will pay for, Mocker points out, and HealthSuite Labs helps Philips do that more efficiently.
3. Make time for generating new ideas
One of the most celebrated practices for fostering innovation is Google’s much-discussed 20 percent time policy, which allows employees to spend up to one-fifth of their time on side projects. The problem with focusing on that model? It seems impossibly out of reach for many resource-stretched businesses.
On the other hand, most organizations can make room for a hackathon to allow employees to experiment with new tools and technologies.
Prior to a wave of layoffs, Richard Polly was one of the IT leaders at OfficeDepot focused on e-commerce and the customer experience. Far from being able to carve out 20 percent of his or anyone else’s time for experimentation, “There wasn’t extra anything for me and my organization to fit that in,” he says.
Polly has spent most of his career in retail, with HSN and Circuit City as past employers, and retail is always a competitive business. The office supplies segment is in particular decline because of reduced demand for ink, toner, and paper, driven by the shift to digital processes as well as the advent of new competitors. Most of the experiments he could justify were at the level of A/B tests of different screen layouts and widgets on the company website.
Even so, OfficeDepot made time for hackathons. In Polly’s experience, the way to make those events more productive was to define some problem or set of problems for hackathon participants to train their fire on, rather making them completely free-form, where people could hack on any blue-sky idea.
“We want to solve a problem,” Polly says. “We’re not trying to stifle anyone’s creativity, but the goal should be to come up with an idea to serve a customer in a different way.”
While most hackathon projects never made it into production, Polly says, one that did was a chatbot that could help customers track an online order to wherever it was in the supply chain. But even when there was no immediate payoff, he adds, these events gave tech team members a creative outlet and were good for building muscles and providing experience with tools and technologies our people otherwise wouldn’t have gotten a chance to use.
A hackathon is one of the basic tools for encouraging more experimentation and becoming a more innovative company, Mocker says. There are many other variations for generating and testing ideas, such as internal “shark tank” events for proposing new business ventures or business models.
“None of those, by themselves, will be a silver bullet,” Mocker notes.
Leaders need their own time to think new thoughts, even though that can be tough within a typical executive’s schedule of back-to-back meetings. Araujo tells the story of one director-level client at a multibillion company who was trying to move up to VP.
“He was flying me out once a month for a one-day meeting with him, and we would spend time doing things like taking a walk around the lake to talk about possibilities or grabbing a conference room and spending the day brainstorming,” Araujo says. “While I’d like to think I added value, what I eventually figured out was that I was the excuse. He couldn’t put on his calendar, ‘Make time to think,’ but he could put ‘strategy session with Charlie.’ As leaders, it’s incumbent on us to make excuses, to find ways to make that time to think.”
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