Digital Marketplaces Unleashed

by Claudia Linnhoff-Popien

  The use of separate units to develop disruptive digital innovations circumvent the goal of integrating these emerging technologies in the core company. Iansiti, McFarlan, and Westermann [22] report that “spinoffs often enable faster action early on but later have difficulty achieving true staying power in the market. Even worse, by launching a spinoff, a company often creates conditions that make future integration very difficult”. Furthermore, the separate units do not leverage the existing capabilities of the large corporation that would be an advantage against other startups. Therefore, ability of these separate units to actually influence the core business with innovations seems limited, leaving the company with the existing innovation gap behind [5, 23, 24].

  The probability of success for company‐owned startups or separate units to develop significant digital disruptive innovations is very low, as most new startups usually fail. The probability of these company startups to actually develop innovations with a revenue and profit high enough to substitute the core business in case of its disruption (which must be the goal of disruptive separate units) is 1:117,000, according to a recent Brain study.1 Imagine a fin‐tech startup from a bank accelerator that substitutes the revenue of the entire private wealth management business with a mobile banking app or a startup in an energy company tech incubator that makes more profit by selling smart‐home services then the core business of selling energy as a quasi‐monopolist. Hard to imagine? Still, for many companies out there these are the biggest hopes against the digital disruption they have today.

  To actually close the innovation gap between startups and incumbents and solve the disruption paradox for the latter, a different managerial solution is necessary. To address the weaknesses of Christensen’s proposed separate units, a new innovation method should a) leverage the capabilities of large companies as an advantage against new entrants, b) work in the core business and restrictions of a company to actually influence it instead of ignoring it and c) lead to new business to bring the company forward.

  18.3 Efficient Innovation: Solving the Disruption Paradox

  The proposed new managerial solution aims to solve the disruption paradox for companies that want or need to participate in disruptive market changes as an opportunity, but have an existing successful profit model [17]2. These corporations can participate in the digital disruption race; they even have the best capabilities to win it – but they need to play the game differently than startups [17]. As long as they only act as startups with separate units or transformation approaches, they remain pale copies, while the existing core business “drags them down”. Dualism and the ambidextrous organization theory describe the problem as functioning efficiently today while innovating effectively for tomorrow [13, 16]. Here, scholars call for a managerial solution that keeps the innovation as close as possible to the core business. Thus, the goal for corporations should be to integrate disruptive innovations into the core assets [5] and leverage the company capabilities for new uses and new users [6, 24]. That way, they can manage the interplay between disruptive technologies and stay ahead of every new entrant due to their existing customers, capabilities, and resources [14]. These companies have operational needs and drivers that are more important than just hunting for the next big thing or a new disruptive technology [16].

  Consequently, to successfully “disrupt the disruptors with their own strengths” [17], the incumbents must develop innovations, which are as close to the core as possible and – in contrast to sustaining innovations – as disruptive as necessary. With these “efficient innovations”, incumbents can maximize the impact of the core business and defend themselves against disruptive startups (s. Fig. 18.2).3

  Fig. 18.2Sustaining, disruptive and efficient innovation

  Efficient innovations have the following characteristics: They bring a new technology to the existing business model or a new business model to the existing business or combine a new technology with a new business model

  match specific business goals/KPIs in terms of revenue/profit/costs/time/etc.

  fit into the restrictions of the core company to leverage its capabilities

  These characteristics are deducted from the theory mentioned above, but can actually be seen in many cases as well. To name two examples: The Apple Appstore disrupted the smartphone and software market (= as disruptive as necessary) with a new business model (platform) and new technology (mobile apps). However it still builds on the preexisting iPhone hardware (= as close to the core business as possible). Soon realizing that the apps would become more important than the phone itself, apps would only run on the iPhone within this controlled ecosystem. Thus users were limited to using iPhones, preventing Apple from disrupting itself in the existing market. Today, it is the largest appstore and Apple is the most profitable smartphone seller worldwide.

  The Daimler Car2Go carsharing disrupted the automotive market with a new business model (= as disruptive as necessary), but uses the existing Smart car model from Daimler (= as close to the core business as possible). Thus, Daimler can prevent itself from being disrupted as a car manufacturer, as their existing products are used to gain new market shares (additionally, potential car owners have the chance to experience a Smart car). Today, Car2Go is the world’s largest carsharing service and the Smart car model is selling better than ever before [25].

  These cases show that large companies have every means they need to “disrupt” better than any startup – but need to leverage them more “efficiently” [26]. But how can the companies develop these efficient innovations?

  18.4 Efficient Innovation with the 5C‐Process

  The theory mentioned above and the experience of more than 50 innovation projects in 20 different industries for large corporations in Germany provide the groundwork for the “5C‐process for efficient innovation”4. During six years of research, the authors combined findings from management, psychology and neuroscience literature with hands on project experience to develop an innovation method that suits the described challenges of large corporations. As a result, the systematic innovation process allows to develop efficient innovations in five steps. In contrast to other innovation processes (s. Fig. 18.3), the 5C‐process is designed to work on any restricted “brownfield” instead of starting blank on a greenfield: By starting with the goals and restrictions of the company instead of the customer need or technology opportunity, new ideas and innovations are developed within a specified “innovation space”5. The problem: People are not used to developing “disruptive” new ideas in a restricted innovation space, thus creativity techniques alone do not work here. Instead, a systematic process is necessary, which is a lot lengthier and more complex than simple brainstorming – but in return guarantees implementable, efficient innovations (s. Fig. 18.4). An overview of the different process steps is given in the following paragraph, and in more detail in the following subchapters.

  Fig. 18.3Model of innovation. (Adapted from Meyers and Marquis in [16])

  Fig. 18.4Model of 5C‐process

  18.4.1 Configuration: Defining the Innovation Setup

  Configuration is the first step in the 5C‐Process. Like an archaeologist who needs to first specify what he is looking for and why, the starting point here is to specify goals, criteria and the core business of the company [18].

  1. Which business goals do we want to reach? (revenue growth, market share, profit growth, better company image, higher employee satisfaction, etc.)

  2. Which criteria do we need to match? (timeframe, scalability, budget, etc.)

  3. What business are we in today? (the job to be done)

  The answers to these questions do not need to be concrete in terms of numbers, but they give a first direction to specify the innovation project and its desired outcome. These questions a
nd answers make sure that the right innovation field is chosen and resources are not wasted on innovation efforts aiming for “the next big thing” or follow the non‐concrete goals of “disruption” or “transformation” [18]. An accompanying workshop format the relevant project owners helps to further define the relevant goals, criteria and innovation fields.

  18.4.2 Customization: Setting the Innovation Space

  Customization is the second step in the 5C‐process. Continuing the metaphor of the archaeologist, he would now need to define where he wants to search for artifacts, depending on his rights, tools, and search goals. Similar, customization defines the concrete innovation space in which new innovations can emerge. It is based on specific KPIs (e. g. ROI, potential market size, NPS, costs) and criteria for implementation (e. g. physical and human resources, patents, processes, regulations) together with their degree of changeability. These are not only restrictions, but also advantages: As Scott Anthony [21] states, large companies have “many capabilities that entrants are racing to replicate, such as access to markets, technologies, and healthy balance sheets”. All these capabilities must be clear from the beginning in order to leverage these in the following steps.

  To make sure that all relevant KPIs and criteria are taken into account, information from every important stakeholder must be included, e. g. through interviews, documents or workshops. The whole checklist essentially works like a “functional specification” to make sure that the future innovations are implementable and as close to the core as possible. This step is significantly longer than the usual “project kick‐off” – but drastically simplifies the implementation in the end [14].

  18.4.3 Compilation: Scanning the Outside World

  Compilation describes the third step of the 5C‐process. Here, the archaeologist would divide his whole search space into different search fields and collect as much information as possible to increase his chance of success. In the innovation process, the innovation space can be divided into different search fields. In these specific fields, intelligence for customer needs, trends and technology can be collected. Due to the restricted search fields, it becomes possible to “dig” deeper instead of working rather broadly on a greenfield [16]. This step includes Insights of existing and potentially new customers and their needs e. g. through focus groups, visits and observations [12]. The key insights should then be used to define concrete search fields along a customer journey that answers the question, where innovation will have the biggest impact for the customer within the innovation space. Secondary research through studies and reports can further validate these insights.

  Research of trends and innovation best practices in the market and especially in analogue markets to see how other companies and startups solve the customer needs. This research should be based on the previously customer‐defined search fields within the innovation space.

  Specific technology research through patent research, startup reviews, mapping and similar techniques [12]. Additionally, potentially disruptive new technologies and startups can be reviewed here to consider in future innovations or as investment and acquisition targets [27].

  The visualized results of the compilation will be used in the next step as inspirations to develop matching innovation concepts (see Sect. 18.4.4). Additionally, it can serve to focus the innovation efforts on the most promising search fields within the innovation space before even developing ideas and concepts. The identification of all relevant trends and technologies based on the needs of the customer make sure that the innovations will be as disruptive as necessary.

  18.4.4 Construction: Multidimensional Systematic Ideation

  Construction is the fourth step of the 5C‐process and the heart of the front end of the innovation process. For the archaeologist, this step would describe the actual search for valuable artifacts with special techniques and tools. In the 5C‐process, ideas are generated through a multidimensional ideation and conceptualization as described below. Hereby, the goal is to integrate new/disruptive technologies or mechanisms as efficiently as possible into the core business of the company with the following steps: 1. Define ideation tasks based on the defined search fields and overall innovation field. As each search field lies inside the innovation space and is based on customer insights, it is assured that ideas are as sustainable as possible. Although it might seem harder at first to find novel ideas in the very restricted spaces, experience shows that the possibilities are always infinite. In other words: The possibilities between 0 and 1 are as numerous as between 0 and ∞.

  2.Use inspiration from the compilation (see Sect. 18.4.1) in each search field to think about new applications for existing technology, new adaptions from best practices or new ways of integrating trends in the business [12]. This way, all relevant external factors are taken into account to make sure that ideas are as disruptive as necessary.

  3. Ideate to find a diverse set of new ideas and solutions for each task by taking different perspectives into account (e. g. different target groups, value propositions, profit models, product characteristics, and various triggers like roleplaying, doodling, group discussions, building, immersion, lateral thinking, etc.).

  4. Review & select all possible solutions based on their quality and fulfillment of criteria (as defined in the customization). During the review, promising ideas should be enhanced to evolve into concrete solutions.

  5. Conceptualize selected ideas into innovation concepts. They need to contain the solution and include a viable business model, defined KPIs, an implementation plan and other documents based on the specific project needs (e. g. marketing plan, communication concepts, potential partners, etc.). Furthermore, each concept should be checked for feasibility with experts (e. g. lawyers, engineers, agencies) and be validated by customers with focus groups and/or surveys. By doing this, each final concept can be implemented easily as it fulfills all goals and criteria (as defined in the configuration and customization) as well as being feasible and viable [16].

  6. Visualize the final concepts e. g. through images, video sketches, mockups, or prototypes allowing an instant understanding of each solution. Based on this, the decision board can select the best concepts for further testing and implementation.

  The ideation and conceptualization within the specific search fields in combination with the inspiration from external sources and the use of different perspectives and triggers helps to develop efficient solutions, that are simultaneously as close as possible to the core business and as disruptive as necessary to the outside world.

  18.4.5 Conversion: Lean Implementation

  Conversion is the fifth step in the 5C‐process and describes the translation of selected innovation concepts into actual innovations. In this step, the archaeologist would try to make sense of his artifacts to eventually be able to put them in a museum. In terms of the innovation process, the concrete procedures in this step are highly dependent on the type of organization and type of innovation project. Thus, this step needs to be planned more individually than the previous steps. In any case, the following factors should be considered: A knowledge transfer from the ideation team to the implementation team is necessary, if these differ from one another. Besides just handing over the concepts, this knowledge transfer should include detailed discussions, accompanying documents, and regular meetings to exchange problems and solutions during the implementation process.

  An ownership transfer from the ideation team to the implementation team is also necessary. As people tend to be more passionate about their own ideas, additional brainstorming sessions can kick off the conversion in which the concept can be enhanced with additional ideas by the implementation team.

  Viab
ility testing of the concepts should be done as fast as possible. Following the lean startup process a minimum viable product that can be tested inside the company and with potential customers is advisable [5, 16].