Innovative Companies Operate Within an Ecosystem

Which measures can companies already take today to be innovative and which hurdles have to be overcome? The following is an excerpt from an interview with Steffen Kuhn (Founder Detecon Digital Engineering Center) & Philipp Schett (form. Detecon Innovation Institute) from the study "Innovative Geschäftsmodelle, Produkte und Services - Wie Unternehmen neue Umsatzpotenziale im Rahmen der Digitalisierung erschließen" by the market research company Lünendonk & Hossenfelder.

Lünendonk: In this day and age of digitalization, innovation capability is seen as essential for survival. Why, then, do most innovation project still fail?

Philipp Schett: First of all — a company where innovation projects do not fail is almost certainly not innovative. Failure is a part of innovation — it happens constantly even in Silicon Valley. The more decisive point is a well thought out innovation portfolio. But when it comes to German companies, I see two patterns that are detrimental. The one group invests much too much money and time instead of learning quickly from small experiments and refining the benefits. The other group, in contrast, invests too little and is too quick to pull the plug.

What concrete obstacles are lurking in the shadows during the transfer from an idea to realization?

Steffen Kuhn: There are a number of relevant factors here. One elementary mistake is the lack of general governance defining how the overall process from the idea to market introduction, including the reporting lines, is supposed to function. This is always a major risk when an innovation department or innovation hub is supposed to be in charge of coming up with new business ideas, the IT department is expected to drive the realization, and the business units are tasked with putting the services on the market. It is always better instead to involve the relevant functions and experts at an early stage.

Often, however, the failure is not at all a consequence of lack of clarity in the processes, but rather a matter of culture and the question of whether there is acceptance of patience and mistakes. Are you agile enough to make progress iteratively? And do you even have the right experts?

Prototypes and proofs of concept have long been accepted as important preliminary stages in the innovation process. What must they encompass so they do not result in wrong decisions?

Kuhn: Digital as well as hardware prototypes must make the results of the previous deliberations visible and tangible. This makes a pragmatic assessment and further improvements possible. We talk here of user-centered design, whereby the user should be involved right from the beginning. The challenge in this process is to keep the complexity of the prototypes to an absolute minimum while at the same time mapping all the relevant functions. This means as well that the requirements must be defined as precisely as possible. The more solid this foundation, the more valid the prototype will be.

This is usually the critical question: Must innovations come from separate units, or should they be embedded in existing structures so that they do not dry up at the end of the long arm of corporate reality? What do you advise?

Schett: There should be room for both in the innovation portfolio. But truly disruptive ideas must arise in external units. For one thing, this will counter the usually irrational fear of cannibalizing your own products. For another, structures that have been designed to realize an existing business model as efficiently as possible are simply not suitable for identifying something new. Employees need other freedoms as well as other incentive systems for this — and perhaps even other investors are necessary.

A look at cyber hot spots such as Silicon Valley or Be’er Scheva in Israel gives rise to the impression that ecosystems involving corporate partners, universities, and startups are especially promising. How can companies determine which partners are the right ones for their own objectives?

Schett: The first prerequisite is clarity with respect to their own objectives. Good startups can in the meantime pick and choose good partners; many startups have become cautious, and rightly so. All too often, large corporations have performed only innovation theater, i.e., innovation for marketing purposes, or have entered into partnerships without having a distinct plan in mind. Once the objectives are clear, it must be clarified whether culture, planning horizon, and speed are congruent with one another.

Kuhn: In addition, it is important to approach startups and partners with concrete projects that offer benefits to all sides and to find your own modus operandi in the collaboration. Naturally, it is sexy for established companies to realize technological ideas with startups. From the viewpoint of the startup, whose margin for error is substantially narrower, life becomes more complex — the only attractive partners are the ones who come with short decision-making cycles, simple processes, and clear lines of responsibility. Laying your cards on the table is absolutely the sine qua non. We recommend always having a mix of industrial and research organizations as well as startups in the ecosystem. As in any good recipe, the right quantities of ingredients are what count.

The german-language study as well as the complete interview are available for Download here.