In a recent discussion with a founder of Anaxago, a crowdfunding startup, I was asked a seemingly simple question: what’s digital innovation? In what respect is digital innovation different from innovation alone? As we are entering an age of digital transformation where “software is eating everything”, I’d like to initiate a discussion on what this major industrial revolution is all about.
2 ways at looking at digital innovation
I would say that, to start out, there are really two ways at looking at digital innovation:
- first of all, one can look at digital innovation from the perspective of an established company with an existing value chain
- second of all, one can look at digital innovation from the perspective of the startup which aims at replacing established companies operating a free digital value chain
Understanding digital innovation from the perspective of established companies
As noted in my discussion with Luka Mucic, Chief Operating Officer of SAP, digital innovation is really a profound process of transforming a company’s existing value chain with digital equivalents. One looks at the entire value chain from resource acquisition to operations, marketing, sales, distribution and servicing. One would list every single production activity along this value chain and see how the same production output can be achieved using digital technology.
I’ll provide an extremely simple example to make my point: 30 years ago, individual contributors working in large companies used to correspond with one another in face-to-face meetings and paper envelopes. Now, they may use digital tools that can replace face-to-face meetings with Skype or telepresence. And they routinely use texting and emails in place of paper-based letters.
In addition, in a discussion I had with Bruno Delahaye, I learned that Dassault Systèmes, is developing an end-to-end solution which aims at optimizing companies existing value chain. I was particularly struck by the solutions features of organizing this online in order to get suppliers to bid and suggests the best resources at the lowest price.
So basically digital innovation from the perspective of an existing company is really meant to optimize the company’s operations by using digital technology.
Understanding the meaning of digital innovation from the perspective of the startup
Startups, as opposed to established companies, don’t have to compose with an existing value chain. They create their own value chain using digital technology from the very beginning. This allows them to focus their attention on creating more value for the customer based on digital technology. The example of Nest comes to my mind. It’s a connected thermostat which replaces the existing thermostat and is based on a different business model. Whereas in the past, a thermostat would cost approximately $250 which was broken into two different costs (the cost of the thermostat itself and the cost of installing the thermostat at home,Nest is a connected thermostat which requires no installation and no special expertise.
So the consumer is only paying for the price of the thermostat itself, which helps to lower the cost. In addition, the thermostat collects data on energy consumption and identifies patterns before suggesting ways to reduce the consumption bill, to reduce the energy bill. Also, consumers may program the thermostat to start before they make it home, which provides additional benefits to all of us who prefer walking in a heated room in cold wet weather.
Here, digital innovation not only replaces the existing thermostat but also provides additional features which both help to lower costs and accentuate product differentiation with a new value proposition.
These examples provide a definition of what digital innovation is all about. What’s your take on digital innovation?