What makes a company successful at innovation?

Everyone loves a game-changing innovation. When a new product or service optimizes a market or a new process makes operations more efficient, everybody cheers. The problem is, making great ideas deliver lasting value can be incredibly hard.

The issue is scale, and many innovations—including 95% of new products—simply fail to make the grade. Giulia Carosella, IDC’s European digital transformation practice lead, says that while spending on digital transformation grew massively through the pandemic, reaching more than $480 billion worldwide in 2021, many organizations are struggling to generate value from those investments.

“Half have seen less than 10% improvement in financial results or haven’t been able to quantify the financial impact,” she says.

In IDC's view, coming up with better products and more striking designs isn't enough. For innovation to be meaningful, it must be continuous, with impacts that touch R&D, operations, services, support, supply chains, and even how customer and partner relationships are managed.

That’s what IDC calls “innovation at scale,” accelerating digital transformation to speed up time-to-value. As the economy continues toward its all-digital destiny, achieving this will be a central determinant of digital return on investment (ROI).

What does innovation at scale look like in practice? Sometimes, it arrives in the form of breakthrough new products. Other times, it takes looking under the hood.

Carosella points to the example of champion NASCAR team Stewart-Haas Racing using generative design to produce lighter and stiffer brake pedals in just two months, achieving a 32% reduction in weight and a 50% increase in stiffness that helped the team edge ahead of competitors. Having an innovation culture and embedded systems in place to incentivize new ideas is vital to achieving these results.

German automotive-engineering firm EDAG is developing an end-to-end “barrierless” process to formalize how team members submit new product, service, and process innovations for consideration.

Dr. Jan Leilich, head of innovations at EDAG, says the objective is to give every employee an easy entry point where dropping an idea into a virtual postbox is enough to add it to the R&D pipeline. “We’ve defined a three-gate triage process to move ideas through different stages of development,” Leilich says.

“It starts with adding an idea to the pool, elaborating a business model for the suggestion, then involving internal stakeholders to make a final ‘go’ or ‘no go’ decision,” he continues. “We consider current priorities and look at the expectation for return on investment. How much funding would be needed to get the idea to a product that we could sell, and what’s our market estimation of possible return? This new process will ensure those questions are answered.”

Leilich adds that the company always has at least 10 parallel projects in development. And while not every one will see the light of day, a continuous flow of new ideas is essential to the firm’s success. “Innovation is really one of our USPs,” he says. “EDAG is an engineering service provider. We don't do any hardware production, so how do we showcase our capabilities? Through our innovation projects.”

One of these is the Citybot driverless concept vehicle. It's an artificial-intelligence-driven prototype designed to operate inside a smart city, moving autonomously through complex urban environments to clean streets and even deliver goods and people cheaply, safely, and efficiently to their destinations. Of course, innovation doesn’t always manifest in futuristic new products. Sometimes, the output is a more positive impact on the environment.

In an article for PWC, Philippe Block, a professor at the ETH Zurich Department of Architecture, said the architecture, engineering, and construction (AEC) industry is responsible for 40% of carbon emissions, 40% of resource consumption, 40% of energy use, and 40% of waste production globally. AEC firms need to “build a better future,” he says. And the head of at least one major architecture and engineering firm agrees.

Christoph M. Achammer, chairman of Europe’s ATP architects engineers and a professor at the Vienna University of Technology, says that innovation in AEC has to be about improving sustainability. “As of January 2020, no preliminary design leaves our office that doesn’t offer an ideal zero-carbon solution,” he says. “That means zero carbon in both construction and operation. We also include a mobility solution for every new building’s operation."

This isn’t about parking, he explains, but about simulating the flow of people and goods in and out of a building throughout the day and then looking to low-carbon solutions like public transport and e-vehicles to facilitate it. “Innovation means constantly renewing and changing culture, processes, and operations with help from technology,” Achammer says. “Tools like BIM [Building Information Modeling] are helping us achieve that.”

How should businesses move toward innovation at scale? IDC says there are three key steps to follow:

• Develop quantifiable key performance indicators (KPIs) tied to use cases.

• Frequently monitor and communicate KPIs and value realization to relevant stakeholders.

• Explore new platforms and technologies for engaging with your customers, from virtual to omnichannel.

• Encourage internal and external collaboration as part of an innovation culture that extends from headquarters to the factory floor.

IDC projects that 65% of global GDP next year will be driven by digitally enabled revenues. Those will be backed by $6.8 trillion in direct digital-transformation investments by the end of 2023. To see lasting value from all that spending, businesses will need to address innovation with a combination of leadership and business purpose.

IDC says the process must be continuous, delivering value to the organization but also extending further to an ecosystem of supply chain and industry partners. That will need a systematic approach that maps the most profitable use cases to technologies that bring the biggest ROI improvement: AI-augmented design techniques, central data repositories, and the ability to deliver new customer experiences in weeks rather than quarters.

“Our research shows that the barriers keeping companies from generating digital ROI are less about technology and more about lack of leadership vision and support,” Carosella says. "CEOs need to be on the digital front line, taking direct responsibility for their firm’s innovation agenda.”