Beyond the new: Innovating for long-term value

In a digital and connected world flooded with new technologies, businesses must shape their innovation strategies around meaningful outcomes.

Companies have always tried to innovate for competitive advantage. Yet in today’s world of hyper-rapid technology change, that challenge has become tougher. The question is not just how to keep abreast of technological advances, but how to do so in a way that creates enduring value—for customers as well as for the long-term health of the business?

“Technology and artificial intelligence have created a huge amount of uncertainty for companies,” says Sara Yamase, Partner and Head of the Software, Internet and Media practice at commercial growth specialists Simon-Kucher. “They are not sure how to organize for innovation, and they are not sure whether it should be a top-down process from the corporate leadership or a bottom-up process driven by the market. Above all, they are asking how they can ensure that there is a meaningful outcome in terms of value creation.”

A generation ago, the answer to the question ‘what is innovation?’ would most likely involve embedding new technology in a product or a service. Today, the innovation question is about something more fundamental, existential even. Technology has become ubiquitous, and ever-easier to acquire or build. Data is also a given: it is there to be captured whether companies use it or not. With some firms struggling to see the wood for the trees, what they need is a strategy that puts innovation at the heart of their commercial growth strategy to enable them to deliver long-term sustained value, profit, and revenue.

Innovating with purpose

Businesses are having to think hard about the very purpose of innovation, says Rowan Conway, professor of strategic design at the University College London Institute for Innovation and Public Purpose. This leads to what she terms ‘mission-oriented innovation.’

“You have to ask, who does innovation serve?” says Prof. Conway. “Mission-oriented innovation is about creating direction. It is not just the commercialization of new technologies like AI. It is also about innovating to meet wider challenges like decarbonization.”

Innovation with purpose is not a form of altruism. Without purpose and clear strategic direction, companies can end up adding features to products simply for the sake of it. This rarely creates a competitive advantage. It is costly and most likely unprofitable in the long term. Companies that want to thrive should be aiming for innovation that creates the sort of customer lifetime value that will bind customer and company in a long-lasting relationship.

“This actually requires a massive amount of coordination, of making sure cross-functional teams understand what they are innovating toward and working in a cohesive manner,” says Simon-Kucher’s Ms. Yamase.

“We see plenty of innovations that are either an answer to a question no one is asking, or else they are just the wrong answer,” she adds. “You really do need a lot of customer input to know whether this is something that people will actually care about in the future and be willing to pay for.”

Affordability is a necessary reality check, and that means factoring in price as part of the value analysis. Companies can never be absolutely certain that an innovation will be valued by customers, but using price as one measure increases the likelihood of success. Doing this can also help pinpoint propositions that have a lower chance of succeeding, allowing companies to ‘fail’ faster before new innovations progress to being tested in the market.

Ms Yamase adds: “One thing that is counter-intuitive for many companies is that you actually need to include price in your innovation strategy right at the beginning. Price is part of the story about whether what you are doing is viable or meaningful in the market. It needs to be part of the innovation process and not something you only think about when things are 90% built.”

Confronting difficult questions

Innovation strategy cannot depend on commercial certainty—by its very nature, there has to be an element of risk. The quest for greater operational and product sustainability, for example, frequently forces businesses to examine where their risks lie today and where they might do in the future. Collaborating with other companies on product innovation is a way for many firms to accelerate change, lower costs and spread risk.

“The first question I ask of any company seeking to broaden the way they innovate is about how they organize their design process, and whether they can create environments that enable collaborative risk-taking,” says Prof. Conway. She adds: “If there is no permission to fail, the business gets into ‘analysis paralysis’ and ends up doing nothing at all. Being collaborative is one way of breaking through that—for example, the vaccine innovations during the pandemic have shown just how effective collaboration can be at meeting the kinds of challenges we now face.”

That is just one instance of how putting humans at the center of innovation—where they can draw on and pull together the key commercial strands of technological possibility, data-driven insight and customer knowledge—helps to drive continuous improvement and maximize growth. Companies that put customer feedback and values at the heart of the AI revolution learn how to combine data and technology for outcomes that are more profitable for them, more valuable for customers and thus more sustainable in the long term.

“It’s no longer just about making something new because it is new,” says Ms. Yamase. “It’s about value creation. It may be creating value that customers recognize, it may be improving a business process, it may be something you cannot even describe before it exists, but the way you judge it is not in terms of newness or technology, but in terms of meaningful and sustainable outcomes. Outcomes are what people will value and pay for.”