How important is Innovation?

US$456 billion important.

That is how much the top 1000 Global companies spent on Innovation in 2017.

In fact between 2012 and 2017 they increased their innovation spend at a 6% CAGR.

Those stats would indicate that Innovation is incredibly important and the major companies are only seeing it as increasingly so.

A recent survey indicated that one third of executives expected their innovation spend to increase by 50% in the years 2017 to 2022.

87% of companies have a lab or space dedicated to innovation and there has been a 27% growth in innovation centers since 2016.

And the results of this spend?

No question that results are mixed.

Risk aversion, incrementalism, impatient capital, internal politics and misaligned incentives all hamper the effectiveness of innovation and innovation centers.

But those that are clear on the importance of Innovation, provide top leadership backing and can articulate what they want to achieve are having success.

Innovation can’t be a spray and pray exercise. It needs to be directed and result in tangible outcomes. Gone are the days where the view was that you just needed to spawn innovation everywhere and something of value would pop out.

Innovation is a process and there should be a clear objective in mind.

At Deloitte, we believe it should be about changing all or part of the organization’s business model to compete in a world of Industry 4.0 – a world where physical and digital collide.

Changing culture – repeat, repeat, repeat

I spent a few hours with the CEO of a major organization talking about changing the culture in an organization – something that is easy to say – but incredibly difficult to do.

In most organizations, the rules of how the organization works and how people treat each other and interact are not codified – by that I mean written down and standardized. But despite this, the cultural rules and norms are hard wired – people quickly pick up on ‘that’s how we behave around here’ or ‘that’s how we do it’.

Changing the culture is a step by step process – being very deliberate about what you want to change and demonstrating the change through actions, recognition and reinforcement.

A key component is repeat, repeat, repeat – telling the message again and again until you almost feel ill saying it again – and only then is it starting to sink in.

Without continued demonstration of what is required and repeating of the message, existing behavior quickly reverts.

There is no question that getting the culture right is vital. However, I don’t support the view that ‘culture eats strategy for breakfast’. If either strategy and culture are misaligned or either is poor, you will not be successful.

A great culture doesn’t make up for a poor strategy and a great strategy can’t be implemented if the culture is not aligned and positive.

Nike and all trying to create a platform


Today Gartner put out a story on Nike developing a new AI capability to enable people to get the right shoe size – apparently 3 out of 5 don’t have the right size. (See link below on Nike’s game changer)

Nike, like its competitor Under Amour, have invested heavily in technology to try to create a platform – get customers/users to connect and provide and receive data that enables them to offer services that go beyond shoes and apparel.

The sports companies are no different to every other major brand organization – the top 30 organizations by brand are, or are trying to be, platform organizations.

The likes of Apple, Google, Amazon, Facebook are obvious and all started out as platform organizations. And all are nearing the $1Trillion market capitalization due to their massive reach and flywheel model.

Others that may not be so obvious are the likes of:

  1. BMW, Mercedes Benz, Toyota and Honda – using the car as a platform, both receiving and transmitting data
  2. GE – with IoT technology and sensors, connecting up the huge base of installed engines and machinery
  3. Walmart – have invested heavily in technology to become a ‘smart technology enabled retailer’ to effectively fight the threat of Amazon on retail sales
  1. Disney- creating a digital linkage to customers on all their offerings

Platform businesses can create a leverage effect and spawn the ‘flywheel’ models that are all the latest rage (and the subject of a future post).

Automation should be an A

A lot of Executives ask ‘what should be a key priority for my Business?

I know they are generally concerned about high order issues – such as growth, sustainability of their business model, customer intimacy, disruption and transformation.

But my initial answer goes to a lower order fix – that saves money, creates capacity and helps set the base to tackle transformation and the higher order challenges.

The ‘fix’ I talk about is automation – ensuring that critical processes and activities in their business are streamlined, codified and automated.

Automation, and particularly refining and documenting the processes and activities to enable automation, ensures that the organization has a standard way of doing things. If done well, it eliminates unnecessary activity and duplication. Digitizing activities sets the base for transforming the organization to a more digital future and creating new online business models to create better customer knowledge and intimacy.

But to date, their is a surprising reluctance to really embrace automation in many organizations.

I hear a range of reasons:

1. A lack of understanding by senior personnel

2. A fear that it will eliminate roles and create people concerns

3. That documenting what is done will highlight the inefficiencies that sit within the current system

4. That people are so busy doing the everyday that capacity can’t be devoted to automation

5. That existing systems are old and creaking and their is concern to ‘tinker’

6. That the new systems we are putting in will have all that!

7. I don’t want to make investment right now.

A well structured approach to automation solves all these issues – with generally fast payback. Investing in additional capability to get going will create money and capability and staff generally respond well. They realize the flaws in existing processes and in the main are pleased to be part of an organization that is modernizing.

And both old and new systems are not a barrier or replacement for automation.

So to me, Automation should be a A priority issue for most.

AI – not for fast followers

AI has been spoken about for quite a while and you hear people say that ‘they have not yet seen the benefits’.

As with all new technologies, there is often a period of ‘over-hyping‘ – but for organizations that have been investing over a period of time, they have generally come through the period of disillusionment . To me there is no question that AI is starting to, and will continue to have a major impact on all businesses.

Below is a link to a great report by Deloitte colleagues looking at the State of AI by country.

A key thing for me is that in most situations, I don’t believe you can afford to be a fast follower when it comes to AI. Sure, for some of the simpler or ‘commoditized’ processes it might be ok to not be first.

But to truly gain competitive advantage in your core business from AI, there is a requirement for considerable investment of time and resources  – ensuring the right data structures, algorithms, evolution of machine learning and determining how the results can be applied.

And while I am not a fan of the word exponential , there is no question that there is an exponential improvement in the benefits that accrue once an organization ‘gets it right. An organization that has truly started to reap the benefits in their core business will be difficult to catch.

Money and mission

This week I gave a talk to 120 young people on strategy, innovation and purpose – all critical topics in today’s world.

A lot of the questions were around purpose – and what Deloitte was doing to ensure purpose and better the community across the globe.

The great thing is that we can be very proud of what we are doing – in terms of diversity and inclusion, improving the lives of 50 million underprivileged people through creating opportunities in education and providing money and expertise to help an array of ‘for purpose’ organizations.

However a lot of the questions were about why weren’t we doing more on this cause or that cause. And all of the causes were worthy.

However, I always return to my two key principles:

1. There is no mission without money – the businesses that can afford to do the most in terms of social license and the community are the businesses that are financially strong in the long term. So getting the basics right on financial performance is vital if you want to be a great social contributor

2. Like strategy and innovation, purpose and social license are about choices – being clear about what area and how you will make an impact – making sure you are not spreading your focus and capabilities (and money) too broad and wide. Just like strategy there are many initiatives you can back – but it really is about having clarity on the choices you make