Hopefully by now, as a manufacturing enterprise or business serving the global supply chain, you are into SaaS up to your knees. You have more flexibility, you are building capabilities in the market that are delighting your customers, so what’s next? Let’s tackle innovation!
One of the reasons that our discussion on innovation follows my previous articles on agility and capabilities is that they are precursors to innovation. New skills and flexibility within the organization gives us confidence that we can do more.
This was evidenced in our empirical research. Remember the story about the marketing manager at the OEM who used SaaS to identify and mitigate a major competitive action against his business area? Well, after that success, the SaaS administrator got a lot more attention. Others in the division came to her first to try and solve their problems because she was quicker than the IT department, and free. As the capabilities and the agility of the division improved, they began to think they could try new things and create more value for their customers. They started thinking “out of the box” because they had confidence that this new platform might be able to help them experiment inexpensively and without the time inherent in more traditional development “sandboxes”. Time is one of the biggest advantages of the SaaS platforms. When you are faced with a competitive action or opportunity, the last thing you have is time. You need to act or react effectively, so you need the right information and capabilities to respond quickly.
Defining Innovation
Before we go any further, let’s clarify what we are looking for in terms of innovation. Is it an invention – something completely new that we can patent? Is innovation making money from something that was already invented, or is it doing something different, better, more efficiently and more effectively? Most of the time, we are looking for something more modest than the official definition of innovation. We want to be innovative, open to new ideas and ways of doing things. No matter what your definition, the culture of the company is important. Getting people to accept new things (diffusion of innovation) is fraught with obstacles, so to be innovative, you must be open to experimentation and potential failure. Otherwise, innovation is too risky and employees will be resistant. We have spoken about this risk aversion and fear in previous writings. If the experiment doesn’t work out, employees fear humiliation or job loss. Sometimes success is scary, too, because of the potential shift in responsibility and power at management levels.
If your objective is innovation, you must embrace experimentation, its subsequent successes and failures at a cultural level.
A Correlation Between SaaS and Innovation
The great thing about a SaaS platform is it minimizes the cost of experimentation. The cloud-based platforms are built and running and oftentimes have tons of features that are not being used. They can be turned on and off to try out different things. The only loss/risk is the time it took to configure the platform, which might be a few hours or a few weeks depending on the experiment. No more starting from scratch; justifying and allocating capital, buying systems, deciding on software layers, months, and years of coding just to find out your idea isn’t right for the market. Now, like the Automotive OEM, you can take a little time to configure a new idea and launch it to your users and/or customers and see what sticks. If it works, you can further refine the innovation. If the idea doesn’t work out, you just turn off the feature and move on to the next.
Our research showed a significant relationship between Software as a Service implemented in the enterprise and innovation. There was also a corresponding increase in revenue and improved productivity because of the innovation.
The table below shows responses to the survey question; Software as a Service improves our ability to innovate.
The survey responses confirmed academic writing that goes back to 2007 and continues into this research published in 2022, which examined SaaS and Cloud innovation through new capabilities. Using Atlas ti the following research was coded for references to innovation and SaaS/Cloud use.
The research did not see a relationship between SaaS diffusion, innovation and reduced costs. We presume that this is because innovation and new projects are expensive. Generally speaking, it takes resources out of their usual jobs and assigns them to a new area to figure out a new solution. Sometimes new resources are needed to find new solutions, especially in more mature (specific phase) companies. The effort can be very worthwhile as successful new solutions increase revenue and improve productivity.
The Capitalist’s Dilemma
So, what might be holding you back from innovation? In addition to the risk tolerance of the organization, you might also be facing the Capitalist’s dilemma. Clay Christensen, who wrote the Innovator’s Dilemma, recorded The Capitalist’s Dilemma as well. In this 24-minute video, he talks about the cycle of innovation, how empowering innovations fuel the economy, but then how companies strive for the stability and yes, rigidity that produces profits. It is through a rigorous, repeatable process that companies are able to produce products at the highest profits. The ever elusive “cash cow” must be separated from the iconic innovation in order to facilitate further innovation.
When we produce something new, we are often looking for new and different customers. Henry Ford taught us that if you ask them what they want, they will tell you, a faster horse. Clay Christensen articulated a bit more elaborately that your existing customer base is the last place you want to go to try out a new idea. They like your existing products! They will tell you to ignore the shiny new object. Don’t pay any attention to that ridiculous digital camera, your film resolution is so much better!
And that is how it begins…finding a new market for a new idea. Successful new products typically serve a different market than the existing product. People who cannot afford the existing product are a good place to look. People looking for something simpler, less expensive and less complicated. Clay Christensen and James Utterback articulate this so clearly in their discussions of how new innovations diffuse.
They discuss how new ideas spread by first serving the underserved. People who are willing to accept less elaborate and less expensive solutions, like free productivity software from Google because they cannot afford Microsoft Word. How about a digital camera that allows you to see the picture before you develop the roll of film. Over time, the funding from the underserved or unserved audience provides the capital to improve the product, and eventually the less elegant new innovation overtakes the capability of the existing product and it becomes the standard or dominant design. Imagine when electric cars have the battery range to go 700 miles on a single charge (yes, that is possible today, it’s just not yet in production). What is the excuse then for staying with an internal combustion engine (ICE)? The fate of the ICE, the industry’s cash cow for decades, is almost certain.
Do you have a product or service that is vulnerable to disruption? What would you do to protect your cash cow?
