Jens Niebuhr, Holger Röder, Jonas Seyfferth, David Eberle, Katrin Schwarz, Bernhard Skritek
March 14, 2019
We recently polled 50 chief information officers (CIOs) and chief digital officers (CDOs) across Germany, Switzerland and Austria (with additional samples from the US, Japan and the Netherlands). We found that barely 10% of companies were managing to grow revenue from digital initiatives to more than 5% of group revenue.
One of the main reasons is that companies that have set up digital units (DUs) to drive this are not getting the most from them, organizationally and in other ways.
The result? While DUs generate a lot of ideas, only 8% of companies with DUs have successfully scaled their ideas up into a launched product.
In general, companies are not sufficiently scaling up their innovation projects, or rolling out their minimal viable products properly, to generate growth. Many are stuck in what we call “scale-up gridlock”. Typical problems include the lack of integration with legacy business, lack of autonomy due to potential business cannibalization, and attracting the right talent to build scale.
There may also be over-reliance on spending on research and development (R&D) to drive innovation success. And there is insufficient recognition that to pursue digital innovation successfully, leaders need to align their innovation strategy with their overall vision.
We think much of this could be solved by setting up DUs in a better way. Specifically, they should be set up away from the core of the business, for the reasons we set out below.
Before setting up a DU, think about its purpose – in other words, the kind of innovation you want to push: is it close to your core and requiring deep integration with your existing business, or does it go beyond the core?
If close to the core: think about a holistic transformation of the main business and IT organization to avoid scale-up gridlock, rather than setting up a separate unit. If beyond the core: a separate DU is a promising format to push innovation, taking advantage of new technologies and the boost in time-to-market.
Finally, to shift successfully towards digital innovation, leaders need to align their innovation strategy with their overall vision. The operating model needs to be designed in a way that enables successful execution of that strategy. And the entire company culture needs to be transformed to enable agile ways of working.
If these factors are borne in mind from the early stages of establishing a DU, companies are sure to boost the prospect of their DUs delivering winning solutions.