Innovation approaches shaping the digital tech industry

The zeitgeist of today’s tech industry has evolved substantially from Facebook co-founder Mark Zuckerberg’s original mantra: ‘move fast and break things’.

But that doesn’t mean companies are standing still.

A failure to innovate remains one of the biggest risks; not only to sustained growth but also to continued relevance in a world where consumer whims shift rapidly.

The fact that companies spanning multiple sectors have added the roles of Chief Technology Officer or Chief Innovation Officer in recent years, stands evidence to how seriously the threat is taken in the boardroom.

In the digital tech sector, however, the relative speed of product development and comparative ease of market entry creates a perfect storm for disruption like no other.

The idea that innovation stems from lightbulb moments of individual brilliance is more the stuff of inspirational anecdote, than grounded in reality.

And while big tech founders can boast of humble beginnings in dorm rooms, the approach established companies in the sector take to R&D is far less romantic.

Innovation strategy now sits with commercial, marketing, sustainability and HR. Multi-year plans with clearly defined objectives and barometers of progress ensure that innovation is plotted and appraised granularly.

But while structure exists to measure and manage this business-critical issue, tech companies go to great lengths to ensure it doesn’t stifle creativity.

Apple co-founder Steve Jobs once famously said: “It doesn't make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do.”

Fellow tech titan Google has a similarly open approach to innovation. Staff are encouraged to spend 20 per cent of their time focusing on individual passion projects, away from day-to-day core product development and delivery.

This strategy has paid off handsomely: Gmail and Google Maps, now ubiquitous applications relied upon around the world, both started as side projects.

But if the prize on offer for successful innovation is often best demonstrated by the existing FAANGs (Facebook Apple Amazon Netflix Google), the hard lessons of failing are equally well-evidenced by the companies left in their wake.

Blackberry once boasted half of the world’s smartphone market. Today it struggles to achieve one per cent and is instead focusing on software. Almost $2 billion of profit was turned into net losses of nearly triple that amount, a mere seven years from the launch of the iPhone.

The company’s senior executives were quick to disparage the iPhone, predicting a lack of physical keyboard would never catch on.

Perhaps even more galling is the example of Blockbuster. The now defunct bricks and mortar video rental company once had the chance to buy a plucky upstart scaleup, with ambitions to disrupt the home entertainment industry. The price was $50 million.

Originally a mail-order movie service, Netflix has of course grown to dominate the streaming market and revolutionised how we consume films and TV series. It’s now worth $142.2 billion.

Both of these case studies are examples of different types of innovation strategy. In Apple’s case it was radical product innovation; tearing up a design that had existed for decades and launching one that has dictated smartphone design ever since.

In Netflix’s example, it was complete architectural innovation. The company first harnessed a low-tech solution to disrupt a business model; before embracing advances in data storage and internet connectivity to launch a genuinely groundbreaking offering.

The chances of today’s tech giants making either Blockbuster or Blackberry’s mistakes are slim.

Facebook, Amazon, Apple, Alphabet and Microsoft now account for half the tech industry’s market value in the US.

Over the last decade, these same five have grown from accounting for a tenth of the sector’s investment in R&D, to more than a third.

Collectively they’re spending more on in-house innovation than anyone else. But they’re also hungrily acquiring potential rivals.

Facebook bought WhatsApp for $19bn in 2014. Its purchase of Instagram for $1 billion in 2012 looks positively shrewd in comparison. Today, the rich content-driven social network is estimated to be worth more than 100 times that fee.

Why risk being disrupted by a trending startup, when you buy them for a fraction of the cost and time it would take to develop a comparable offering in-house?

Indeed, attracting this kind of acquisition is top of the wish list for many founders in the tech sector, and their venture capital backers.

The industry enjoys comparatively more innovation, product launches and M&A activity, than, for example, the pharma industry.

There are several reasons for this. For one, there are far fewer barriers to entry. While skilled workers are a constant in both industries, working in digital technology doesn’t require the same level of academic achievement as in pharma.

There are also far fewer regulations. Trials in tech require beta phases and often harness open innovation approaches, with end-users regularly involved in shaping products and services . Drug development, by contrast, requires years of multi-stage clinical trials and is subject to much stricter governance.

But perhaps the most obvious differences, and those which in turn shape the intense fail-fast culture of digital tech, is both the upfront investment required, and the length of time it takes to turn a profit.

Developing a new drug and taking it to market is estimated to cost upwards of £2 billion and require a ten year lead time. There are no true overnight successes.

Innovating in the digital tech industry, in comparison, is a simpler and shorter process. The sector is awash with self-made young millionaires who have devised valuable code with few overheads in very little time. While burn rate is a consideration, it’s a far cry from the pharma funding valley of death.

With small startup costs and the potential for huge and timely payoffs, it’s no surprise that VC interest in the tech sector is white hot.

Access to this capital, in turn, allows tech companies to grow as a private company for far longer than those in any other sector. Arguably, this has enabled many of the industry’s transgressions. But it has also created an atmosphere where rapid and constant innovation is celebrated – and made possible due to the agility and responsiveness of private companies.

Ready access to startup funding also ensures the tech industry is far more entrepreneurial than most knowledge-intensive sectors. This has forced the industry to embrace more open approaches to innovation.

Why?

Because low barriers to entry, easy access to funding and an increasingly-mobile workforce has made the prospect of retaining intellectual property within an organisation far more difficult.

When it’s futile to remain insular, the alternative is to instead harness open innovation. Welcoming ideas from external sources, while sharing some of your own, even with potential competitors, can and does pay off.

Being first to market is no longer the ultimate goal for tech firms. Uber was the first of the digital ride hailing firms. Rival Lyft launched three years later but is catching up quickly. A similar rivalry is being fought between

Just Eat and Deliveroo in the online food ordering space.

With products and business models easier to copy in digital tech than in other knowledge-led industries, the emphasis is not on being first, but on being the best. And that is an ongoing process, greatly enabled by open innovation.

The trickle-down effect of this is something we harness across all of our campuses. Startups and scaleups thrive in the Bruntwood SciTech ecosystem, benefitting from co-location and collaboration with established blue-chip corporates.

From our Serendip incubator in Birmingham, to our Mi-IDEA accelerator in Manchester, an open approach to innovation underpins the way companies like online fitness and apparel leader, Gymshark, and global networking giant, Cisco, work with our growing community of early-stage businesses.

Open innovation is not a panacea for every industry. But in digital technology, convergent factors have created the perfect environment for it to be wholeheartedly embraced – and those which do are thriving.