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Jul14

Innovation in the Internet Age

By Christopher Skinner

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By Christopher Skinner

Summary________________________________________________________________________

Few can argue with the idea that innovation is a fundamental requirement for building a sustainable organization. Think of the dominant brands today, and those that jump to mind are frequently those with a strong reputation for innovation. Brands like Apple, IBM, Google, and 3M are leaders in innovation,[1] not just for new products and services but also for renewing business processes and building new markets to meet customer need.

But innovating is not an easy task, and few organizations have built an innovation framework that fosters measured and economically-sound innovation.  As the Internet and subsequent globalization increase the volume and accessibility of new ideas, it has become even more important for companies to innovate intelligently, consistently, and quickly. The Internet is now at an age where its disruptive capability has reached critical mass, and it will only further amplify challenges for organizations not steadily engaged in innovation.

By leveraging Internet offerings, both as a vehicle for mass communication and a distributed application, companies can integrate the Internet as a means for innovation. But this transition can be a difficult one, especially for large organizations, and this article will discuss methods to deal with the challenges of disruptive change. Regardless of the complexity involved, Internet Integration has become critical to innovation and growth, and those that are unable to integrate will suffer quickly and dramatically.

Internet Integration_________________________________________________________________

Ten years ago, the Internet was leaving its initial chapter of development and on the cusp of change and innovation itself. There were technology limitations and user adoption was low.[2] The Internet was disconnected from daily life, from a consumer and a business standpoint.  A quick review of business magazines in 2000 reveal much less discussion of the Internet than they do today, and a scan of advertisements does not show many references to websites. The web was simply not considered as a fundamental part of the Customer Journey.

Today, we know that a customer will often perform Internet research before purchasing products either online or in stores.[3] While ecommerce lags, the Internet is still an important part of the overall retail economy, as a source of information and a vehicle for communication. With over 2.6 billion search queries per day in Google alone,[4] billions of emails sent,[5] and the astronomical rise in popularity of social networks like Facebook[6], it is clear that the Internet can offer more to businesses beyond ecommerce.

We will soon be in an age where ‘Internet Integrated’ organizations create massive upheaval to markets like never before. They will rapidly change consumer opinions, steal market share from their competitors, and grow exponentially, leaving stagnate organizations with less of everything. By performing Internet Integration, an organization can position itself to innovate and build a sustainable future.

At the most basic level, Internet Integration requires an acceptance of change. This may seem simplistic, but building a culture of change means being comfortable with alterations in resources, roles, technology, and processes. This can mean a fundamental shift in company values and culture.

There are examples of company's beginning to adopt this attitude. For example, when Volkswagen allowed the consumers voice to guide design for their new car in their "App my Ride" campaign, that was open innovation through Internet Integration.[7] By tracking and measuring feedback, the company can gauge the success of their efforts from early influence stages of Customer Engagement, to later-stage Loyalty phases. They can monitor brand value and product perception, which can help them innovate in the future.  This changes how the organization creates, builds, markets, evaluates, and refines their products. If we assume the organization has a defined process for refining automobile design based on past sales, this new method of directly involving the customer gives the company an improved, more dynamic, real time knowledge of demand.

By putting more choices in the hands of the consumer, brands can positively impact sales, but they must first install the underlying process to filter and execute consumer request, so that it works within their organizations economic framework.

Challenges of Disruptive Change________________________________________________________

Along with the acceptance of change, Internet Integration also requires a process to manage change. Ten years ago, Clayton Christensen and Michael Overdorf, wrote a paper entitled “Meeting the Challenges of Disruptive Change,” that ran in the Harvard Business Review.[8] Christensen’s paper still has significant value today, but needs to be updated to explain how the Internet has changed, and how it changes organizations.

The article examined the hardship that managers of established businesses have in innovating, to bring about change, or as a reaction to changes in the marketplace. The problem, the authors propose, is not the managers or resources themselves, who are often the best-of-the-best, but rather the process and values in place at the organization. These processes and values that allow the business to perform normal operations and even sustain innovation are the very factors that prevent the company from initiating or dealing with disruptive innovation. While their article is more about managing changes to the execution and production of products and services, the Internet has become an intrinsic part of the entire company, from resource and budget allocation, to workflow and distribution process and, as discussed before, the very values of the organization.

The article brings to light that the values inherent in large companies especially, and those grown entirely through acquisition in particular, are preventing them from adapting and creating change. These values are the standards that enable employees to determine action items and set priorities; they reflect a cost structure and/or business model. In established organizations, acceptable gross margins and minimum threshold size of business opportunities differ greatly from that of a start-up. This is why larger, more established organizations are less likely to be true innovators- their values simply do not allow it.

When a massive company attempts change to accommodate fluctuations brought on by the Internet without a proper structure in place to support it, problems can arise. With Internet communication in particular, often special teams are designated within an existing department to manage the medium. More often than not, these teams fail to make real headway and to truly utilize the Internet to its full potential. This is due to several factors: processes and values. To put a fine point on it, the failure to adapt and thrive is not due to the resources, but rather the application of existing processes and values to the disruptive innovation. With disruptive innovations, expectations must be scaled to accommodate differences that may include longer gestation and lower initial profitability and sales volume. The same applies to Internet marketing: the budgets, sales volumes and overall direct-tracked profitability will not follow traditional marketing.

The solution to this can be to create new organizational structures within corporate boundaries, create independent organizations, or acquire another organization that possesses the capabilities to handle the type of innovation being pursued. Christensen's article suggests that managers need to approach innovation by first assessing whether their organization possesses the right resources, processes and values to innovate. Then they must determine the level of fit between the type of innovation necessary and the existing capabilities, in order to decide on the type of structure required to innovate.

Christensen correctly asserts that the best methods for change in 2000 are lightweight or heavyweight teams to change within the organization. Today, this option is less effective.  The entire organization, the spinoff or the acquisition, must all undergo Internet Integration to succeed.

In the past, a successful means to achieve innovation was via teams.

Figure 1.1: Christensen’s “Fit with Organization’s Values” Model

In terms of the Internet, the teams built internally often fail, as they are forced to compete with resources for projects within the mainstream of the company; in addition, the existing values prevent any real engagement in the online channel because the benefit is seen as too small. But if these teams can be held to new processes and values, then they can thrive, provided of course that these new processes and values are successful.

An organization can navigate the difficulties and leverage the innovation potential of the Internet, but the solution is not a modular product. Change must occur from within, as Internet Integration affects every aspect of an organization. For organizations that have treated the Internet as merely an additive sales source and ignored its real value as a distributed application, changing resources, process and values will be a real challenge.

Still, for now, businesses can absorb these changes more slowly and gradually, but very soon, those that have not fully integrated will see their market share decline and their sales decrease. Gone are the days where innovation is gained through mergers and acquisitions. Organizations that understand ‘Internet Integration’ will grasp how the Internet can foster an innovative environment. They will better adapt to external changes and have process in place to continually refine and improve.  By doing so, they will innovate constantly.

The Internet Integrated Innovative Company________________________________________________

Today, businesses move much faster and have access to more raw data and information that ever before. To borrow and adapt some terms from Peter F Drucker, in the age of Internet Integration, an organization must possess the ability to transform data into knowledge, and knowledge into decision, creating the evolution of the "Knowledge Worker," into what this author calls the "Decision Worker".[9] This means that the correct resources are empowered with the appropriate information for innovation.

The Internet Integrated organization will possess resources that are much more adaptable. The value system by which the organization functions, defined as “the standards by which employees set priorities”[10] will be more fluid, as employees conduct more independent decision making to meet strategic direction and outcomes.

The organization will adjust more easily to global fluctuation in capability and capacity. Thus, acceptable gross margins will adjust to follow sustainable profit volume goals. For example, when Digital Equipment Corporation did not pursue the PC market, or when Kodak failed to innovate in the digital realm, these were failures to predict, innovate, and most importantly, balance short-term profit goals with long-term growth objectives.  While their margins may have been temporarily smaller, the long-term benefits could have been lucrative. Today, we see Verizon making attempts to transition from a voice-driven offering to data.  Management teams are encouraging the use of Skype to communicate, indicating an understanding of the future. Only time will tell if others, such as Vodafone, O2, and Sprint can make this transition.

An Internet Integrated organization has a much better understanding of its customer base, realizing that their customer moves between traditional and online platforms to consume media and interact with a brand. They therefore have a clearer understanding of the true value and cost of their marketing efforts, as they do not isolate their media and brand endeavors into siloed data buckets. Instead, they can glean what media drives sales, and discern the appropriate attribution of cost to allow for proper optimization of value. In doing so, the organization can better develop new products and services.

An Internet optimized company has maximized profit volume by utilizing the Internet as a distributed application and global medium. By doing so, it has more resources available to it to further change and expand.

Most of all, an Internet Integrated organization has a process and value system in place and the framework to change the very organization itself.  An example of a successful innovation framework approach, through Internet Integration, is Google. While their traditional media model has some current limits in terms of growth, they realize the future of the organization involves a users proximity to the technology. Google understands that people will not be connected to an immobile device for much longer, so they cannot rely on use of search through desktops. To adapt the Google revenue model, they realize they must follow the customer into the non-wired world, through the mobile market.[11] By entering into the mobile operating system business, Google has a chance to survive and thrive. Google is currently absorbing change because the company has an innovation framework to self-audit and redefine itself. This culture originates with the leadership, and trickles all the way through its decentralized structure, to inspire innovation throughout the company. (If we adhere to the definition and benefits of a decentralized business model as described by Peter F. Drucker.)[12]

But innovation is not just developing marginally better products and services. The organizational structure must also absorb change. Developing another iPod or iPad is not the future of Apple. If Apple wants to remain viable, they must innovate far beyond their current position as a product and software company.

Managers and owners who think they are in good shape today need to challenge themselves with the core questions regarding change management, as defined by Christensen,[13] adjusted to consider the role of the Internet:

Does the organization have the resources in place to develop Internet Integration?

Does the organization have process in place that prevents or accepts the Internet into all parts of the organization and allow modification of process over time?

Can the organization’s values change over time as it learns what the customer wants and can it design products and services that the customer can’t even imagine today?

Will the organization’s culture support change that is healthy and self sustaining, allowing the organization to thrive long after we have all moved on?

Only a few will challenge themselves to these questions, but those that do will change the world for the rest.


[1] The World's Most Innovative Companies 2010, 2010, FastCompany, viewed 13 July 2010 (Online), Available at http://www.fastcompany.com/mic/2010

[2] Internet Usage Statistics, 2009, Internet World Stats, viewed 13 July 2010 (Online), Available at http://www.internetworldstats.com/stats.htm

[3] Sehgal, V. 2010, ' Forrester Research Web-Influenced Retail Sales Forecast, 12/09 (US)'

[4]comScore, 2010, 'comScore Reports Global Search Market Growth of 46 Percent in 2009' viewed 13 July 2010 (Online) http://www.comscore.com/Press_Events/Press_Releases/2010/1/Global_Search_Market_Grows_46_Percent_in_2009

[5] The Radicati Group Inc (May 6, 2009). "Email Statistics report, 2009 -2013". Press release. Retrieved 2010-07-14.

[6] Facebook, Press Room Statistics, viewed 14 July 2010 (Online) Available at http://www.facebook.com/press/info.php?statistics

[7] Volkswagen, Press Room Statistics, viewed 14 July 2010 (Online) Available at http://www.app-my-ride.com/jury-prizes-contest/contest/

[8] Christensen, C & Overdorf, M 2000 'Meeting the Challenge of Disruptive Change', Harvard Business Review, vol. 78. issue 2

[9] Drucker, Peter F. 1957, Landmarks of Tomorrow: A Report on the New 'Post-Modern' World, Harper & Row, New York

[10] Christensen, C & Overdorf, M 2000 'Meeting the Challenge of Disruptive Change', Harvard Business Review, vol. 78. issue 2

[11] Google, Google Mobile, viewed 14 July 2010 (Online) Available at http://www.google.com/mobile/android/

[12] Drucker, Peter F. 1946, Concept of the Corporation, John Day, New York

[13] Christensen, C & Overdorf, M 2000 'Meeting the Challenge of Disruptive Change', Harvard Business Review, vol. 78. issue

Posted July 14th, 2010 in


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