To drive digital innovation, IT leaders must cultivate new ways of thinking within their department
With the ever-present threat of digital disruption looming over established companies, it has never been more important for companies to be able to
innovate effectively
Digital technology has reduced the barriers to entry into all markets significantly and extended the reach of start-ups and other new market entrants. These companies, unburdened by legacy business practices, can offer new solutions, new customer experiences and lower costs.
Companies must therefore innovate just to preserve their current standing within their sectors. If they are to grow and thrive, they must innovate at a faster pace than their competitors.
This is especially true of industries such as the automotive sector or financial services, where recognised brand names face increasingly stiff competition from digitally native challengers. But it also applies to organisations and agencies in the public sector seeking new ways to deliver services to citizens. Just over one-quarter (28%) of the 812 executives who took part in a global survey, conducted by The Economist Intelligence Unit (EIU) and sponsored by SAP, say that the ability to identify opportunities to innovate using digital technology is one of the key success factors for their digital initiatives.
The desire for digital transformation is therefore an opportunity for the IT department to shine. In the past, IT was seen more as a driver for efficiency and cost reduction, but
companies now understand the potential of digital technology to upturn old markets and create new ones, and they are keen to be part of the action. Mastering the new commercial opportunities, business models and working practices that are emerging as a result of digital innovation requires mastery of the technology that underpins them.
Unfortunately, the IT function is rarely seen as a driver for innovation. Only 14% of survey respondents say that leading technology innovation is their IT department’s primary role.
(Interestingly, the IT executives included in the survey are less likely than respondents from other sectors to say that innovation is their primary function). Instead, one-third of respondents (32%) are more likely to report that managing outsourcing relationships
is their main function, while one-quarter (27%) say that maintaining and integrating legacy systems is the IT function’s core purpose.
Similarly, only a handful of respondents (7%) say their IT department currently plays a leadership role in identifying opportunities to innovate. The most common view, as cited by 46% of respondents, is that IT plays a passive supporting role in this capability, while an alarming 12% say it plays no role at all. And only one-third of respondents (34%) believe that their IT department is more focused on innovation than effi ciency.
Business leaders want this situation to change: 44% of IT executives and 47% of non-IT executives agree with the statement that “IT needs to increase its focus on innovation in order to drive our digital initiatives”. And over one-third of respondents (35%) believe that, in an ideal world, IT would take the lead in identifying opportunities for innovation.
Fresh thinking
One company where this is already happening is Volvo Cars. “I see my role as driving innovation in three areas,” says senior vice president and group CIO Klas Bendrik. “First, we have to deliver innovative digital solutions to our customers, to enhance the ownership journey of existing customers and to target future customers and owners of our core products.
Injecting innovation
Which of the following best describes the primary role of the IT departmentin your organisation? (% of respondents)
Operating as a service providerto the business
Leading technology innovationwithin the companys
Maintaining and integratinglegacy IT systems
Managing relationships withoutsourced IT providers 32%
“Second, we have to innovate in what we call ‘connected products’, exploring what digitalisation means in terms of what happens in our vehicles and the interactions they have with the surrounding world. And third, we need to innovate when it comes to internal processes and solutions.”
Arguably the thorniest challenge of driving innovation with an established company is nurturing fresh thinking. At Volvo Cars, Mr Bendrik tackles this by hiring staff from outside the industry. “In order to drive innovation in the automotive industry, I see real value in bringing people from other industries into our operations.”
“So, for example, in order to take advantage of new ideas from other industries, we’ve brought in people from the telecoms sector—people who are not accustomed to working in large companies like ours, but rather in small incubator fi rms and entrepreneurial start-ups,” he says. “People with those kinds of experiences and capabilities have a very interesting role and future in Volvo Cars these days.”
As Mr Bendrik’s remarks reveal, innovation requires new perspectives and new ways of working. Many IT leaders are creating new teams and building new skill sets within their department in order to support their companies’ digital initiatives. For example, 27% of IT executives included in the EIU survey have created digital teams within the IT department, and 21% have brought employees with skills and experience related to digital technology into the IT department.
There is an appetite for more of this external infl uence: 30% of IT executives and 33% of non-IT executives believe that hiring more digitally savvy employees would help the IT department make the ideal contribution to digital transformation.
Of course, there is more to innovation than simply having good ideas. IT departments are often limited in their ability to drive innovation by the infl exibility of legacy infrastructure and processes. IT leaders must also fi nd a way to introduce a greater degree of agility into their IT operations, so that new opportunities can be captured quickly and new ideas are given the resources they need.
The challenge that CIOs face in driving digital transformation through innovation is therefore twofold: they must cultivate new ideas within the IT function while also providing a technology platform that allows these ideas to fl ourish.
Injecting innovation
About this article:
Digitising IT is a research programme by The Economist Intelligence Unit, sponsored by SAP. This article draws on a multinational survey of 812 senior executives, conducted in March 2016. Just under half of the respondents (49%) are senior IT executives, while the remainder represent a range of other functions. Respondents are drawn from a range of industries and from countries in Europe, Asia, North America and Latin America.
