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Suppliers in implementation of digital innovation

Digital Discovery made a survey in January-April 2018 about the digital processes and actions. The target was to find out what practices are used and useful. The total number of respondents was 45 mainly from services and manufacturing.

Almost all of the respondents has used external suppliers to extend the bandwidth in digital activities. Several companies said that there is not enough professional experts on the supplier side. Some of the respondents said that their are looking for smaller suppliers to find new resources. However, the collaboration with startups is often experiments, only 13  out of 45 organisations said they have continual collaboration with startups. Only a few of the respondents had a partnership programs with vendors. This remarkable finding because most of the respondents are big companies, over 72% had more than 1000 employees. Thes startup collaboration was seen positive as one respondent said, “Discussions with new startups have been fruitful”.  

IT seems to be the area where outsourcing exists a lot, 84% of  respondents said that they use a lot or quite a lot of suppliers. Another area where the majority of respondents used suppliers is service design (54% of respondents). It is an interesting that the most innovative companies used a lot of service design. Hardware is also often provided by externals. In this case, hardware refers to robots, drones and other new digital devices.

For process  consultancy (21%), business consultancy (21 %)  and project management (13 %) vendor support were used much less. However, there were organisations that used a lot of suppliers in all areas. So the variation between outsourced and internal managed operations changes between the studied organisations.

In general, almost half, 42% of the respondents were  satisfied on their current suppliers. However, many mentioned that partners and suppliers have challenges to understand the business. As one respondent said, it is not enough to facilitate the workshops, you need to have business and process knowledge to really assist us. 

I was wondering, how wise is it execute everything by internal staff. There is a lot of opportunities for widening the collaboration, especially with start-ups.  Lack of resources was impeding digital innovation for the most of the companies. The biggest challenge for 55% of respondents was the recruitment and availability of internal specialists was a challenge for 36% of the companies. 

How to start your digital business?

One says you should invest in the Internet of  Things ( IoT). Another consultant says you need to take agile methods in use. The third guy says it’s all about artificial intelligence (AI). Then comes a guru saying you need to take account the consumer experience.  And tomorrow there is an article that you should not listen to your customers because they do not know the opportunities (and then he refers to Steve Jobs) .You may also have heard about the culture of experimentation and fail-fast methods. It sounds nice but does not fit to your organisation. At least it requires an inspirational leader (which you are not).   And at the end of this, you continue to do business as usual. Because your boss expects you to make revenue and profit today and tomorrow. Why not bother to take risks of losing business today.

There is too much hassle about digitalisation and a lot of talk on various technologies. Sometimes it seems that the future is having only one ( hostile scenario) and only the organisations investing a lot of money are able to survive. We have interviewed many Finnish organisations from various industries and the positive message for you. Anyone can start developing and testing new digital business. It does not need all the fancy technologies. You can start with a small experiment, and this is even our recommendation.

The most critical things for the beginner is to identify the new ideas, then make pretos or protos and test them with potential customers.  You may make several testing before going to the investment phase. The positive side of this approach is that you may share the investment to various ideas instead of one. And you start to make the bigger investment after you know that the business case is valid. This could be done in weeks, not in years.  And the most critical is to have a vision and a business case. We have seen too many times that technical solutions are nice but the business case is either lacking or it is superimposed on a technical solution. It is always important to ask why we do this. However, you do not need to make a map of calculations, in many cases a light business model is enough.  

We encourage you to start to explore your business ideas, test and verify them with customers. Come and discover what we have for you and for your business.  

 

Agility- two approaches

We did a survey on digital innovations in January-March 2018. One of the findings was that most of the innovations were more or fewer results of an operational Agility. Operational Agility means making the existing products better, faster, cheaper for existing customers. For instance, you focus on developing cables and new features for them, but still, it is a cable. There’s nothing wrong with Operational Agility, but it usually doesn’t offer new markets for your products or services.

Quite seldom companies use strategic Agility which means creating new markets with new products or services that reach new customers or even market-creating innovation. To give you a concrete example, instead of making better DVD’s, we deliver web-based streaming such as Yle Areena or Netflix. Hence the whole ecosystem changes and there is an option to find new customers and markets.

Market-creating innovation deserves special attention because it is a result of cultural transformation on all levels. If a company is limiting its strategic thinking to what is happening only by top management it is unlikely to succeed. To be successful, it will need all capabilities and skills it can find—both inside and outside the organization. McKinsey (2018) reported that only 8 percent of companies they surveyed recently said their current business model would remain economically viable if their industry keeps digitising at its current speed and course. 

How to win this battle? The winners test and learn, launch early prototypes, and refine results in real time—cutting down the development time.  The organization needs to be ready to explore, discover, confirm and build them on all levels by teams, by business units, and by the management.  We believe that minimum viable products trump theoretical business cases.  

Steve Denning https://www.forbes.com/sites/stevedenning/2018/01/28/what-is-strategic-agility/

McKinsey https://www.mckinsey.com/business-functions/digital-mckinsey/our-insights/why-digital-strategies-fail

How to setup your organisation for digital business success?

There are several approaches to organise digital innovation and business development activities. In our study, we found various models and here we describe some of them. There are around 40 Chief Digital Officers in Finland. This is quite a limited number if we think about the number of companies in Finland, statistics vary between 400 000 to 1 million. Hence, a CDO is not a necessary role to be able to start creating new digital business and revenue. The organisational models vary from totally centralised to totally distributed ones.

For a digital newcomer, one organizational solution is a digital innovation program. Thus a certain amount of resources are allocated to the program and all businesses may participate in the program. There might be internal Lion Caves including pitching and competition. In this model, the inspiration for digitalisation is in business. They do not need to change if there is no need for digitalisation. This is a typical model  at very early stages of transformation phase. The challenge of this model is that does not necessarily change your core business and execute the transformation at the organization level. This model was found in services and training sector.

More permanent model is a digital center often managed by CDO. Top management has allocated a lump sum to be allocated to digital development and innovation. Digital center thus manages the portfolio and is responsible for running the programs or even in some cases all operations in digital area from service design to execution of digital products.  The business unit takes part in the projects and their resources are needed in implementation. The benefit of this model is that knowledge and skills develop around the organisation. It also enables implementation even bold ideas to find new digital business and profits. The success of this model is on the capability of this centralised to coordinate with business units. This model we found in manufacturing and in the financial sector.

Another option is to start to digitalise one unit and then extend the digital operations to others later on. In this model one business unit find new business and others may continue business as usual. This approach includes tight business orientation. The risk I see is that all the actions are with minimum risks and hence activities are more focused on improvement of current products and services, not to bold ideas. At least this model requires aspirational managers for execution and in a business unit. This model was used in one service sector company.

The latter means that business units are responsible for creating digital business and there is light or even no coordination on digital projects. This could be called everyone’s digital organisation. However, this model requires a strong vision and systematically building agility and a lot of new skills i.e. service design and change management in all business units.  Typically this is a model for digitally mature organisations. In Finland, we found this model in manufacturing and in media sectors.

In Germany, there are companies that use this approach and establish joint-ventures with companies start digital activities. I called this model in the two worlds. The positive side of this approach is that you may continue the current business and the digital business may develop on its own.  The challenge comes when you need to combine these two later on.

In summary, there are various models to organise digital execution. No model is better than the other. The organisational structure needs to reflect the strategic outlines of the company while business participation, agility, transformation and new capabilities are always needed.