Innovating in the digital age
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Innovating in the digital age –Successfully combining intelligence,
foresight and interaction
How digital technology will supercharge innovation,and how companies are responding
Michaël Kolk, Chandler Hatton, Heike C. Woerner, Shota Mitsuya

Accepted wisdom is that everything that can be digitalized,
will be. While this may be an oversimplification, there are few
limits to the march of digital technology. So what does all thismean for innovation management practices?
To answer this, Arthur D. Little
conducted an extensive study,
looking at which digital technologies
would have the greatest impact on
how innovation would get done,
now and in the future. The principle
finding is that change is happening
now and winners anticipate
enormous benefits, with a predicteddoubling of innovation success.
Secondly, laggards need get their act
together soon. If recent history hastaught us one thing about digital technology, it is that it does
not forgive those who are slow to act. This article not only
explores the research, but also provides strategic advice forsuccessful digitally enabled innovation.

Arthur D. Little’s digital innovation study
In 2017 Arthur D. Little launched a unique, global survey tounderstand which technologies would have the greatest
impact on how innovation would get done, now and in thefuture. Over 150 senior executives in innovation, R&D andtechnology shared their views, while the study also analyzed
over 300 tools and investigated hundreds of real-world
application cases of digitally enabled innovation.

Digital technologies
are poised to havefundamental impact oninnovation management.
Drawing on a uniqueglobal study carried out
by Arthur D. Little, thisarticle explains the threeareas where digitalization
will impact innovation
management, the stateof adoption, perceived
benefits, and the risks
to organizations that areleft behind.

Innovating in the digital age
What is digitally enabled innovation?
Until recently, businesses have focused their digitalization
efforts around disrupting business models and streamlining
processes. But what does it mean for internal innovation
activities? We can start with a definition. We see digitallyenabled innovation as the use of digital technology to improveinnovation (management) practices, for example, by changing
how development teams collaborate, or widening the data
available to them.
Our research found that while most companies were early inthe process, the vast majority anticipated a rapid and dramaticincrease in the degree of digitization in both their innovationengines and product offerings in the next three years. This isespecially noteworthy, given that a fully fledged overhaul ofa company’s innovation engine may take longer than a single
three-year planning cycle. Best practice is already emerging,including focused experimentation with digital solutions toincrease both the efficiency and effectiveness of innovation
management. This pace of change means those that are notinvestigating opportunities to digitize are likely to beleft behind.
The nine building blocks of digital innovation
Through our research and experience, we have identified
nine digital buildings blocks that are shaping digitally enabledinnovation. (See Figure 1.) These can be segmented into threegroups, according to the solution promise that they deliver:•	Intelligence: Knowing everything about anything,
any time•	Foresight: Visualizing and predicting anything better,
faster and sooner•	Interaction: Working seamlessly and effortlessly withanyone, anywhere.

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Digital technologies – key enablers for innovation management

Studyresults

Digital technologies with high potential to shapeinnovation management1

Intelligence

Knowing everything about
anything, any time

Foresight

Visualizing and predicting
anything better, faster andsooner

Interaction

Working seamlessly andeffortlessly with anyone,
anywhere

Legend (prevalence of responses):

Big data/advanced
analytics

Connected
thingsCognitive, self-learningsystems/bots

Augmentedreality

Virtual modeling/simulation

Additive
manufacturing

Virtual workplace/
workplace 4.0

Collective intelligence/
crowd-sourcing

e-learning

Very highHigh

Significant

Moderate1) Color indicates the relative potential of each technology Source: Arthur D. Little Innovating in the Digital Age survey; executive interviews

Figure 1: Nine digital building blocks shaping innovation management,
and their relative prevalence

An in-depth review of real-world use cases reveals that themost widely used digital building blocks are those that fallunder intelligence and foresight – the third area, interaction,is less prevalent. This is because concepts such as big data,
connected things and simulation are well known and provide
proven competitive advantage. Interaction technologies are
generally at an earlier stage of development, which means
their potential impact is less clear. This is not surprising, as
human interaction is inherently complex and the adoption oftechnologies to foster interaction requires behavioral change,
as described in our recent article on driving adoption in digitaltransformation (Issue 1, 2018). Nevertheless, based on oursurvey results, we expect digital technologies for interaction
to be the cutting edge of digitally enabled innovation in thenext five years.

Box 1 - Digital technologies for intelligence
Application case: Open innovation driven by AI
Artificial intelligence (AI) is changing the way open innovation
takes place. AI enables more accurate evaluation of problem
root causes and identification of key areas to focus innovation
efforts, which helps companies to narrow down their focus
area for innovation. Moreover, AI can support the searchfor potential solutions to solve the identified causes bycollecting available information from scientific publications
or checking existing solutions in patent databases. Machinelearning enables potential solutions to be tailored to thecapabilities and preferences of the organization. This will help
companies to shift from crowd-suggested/crowd-scanned
open innovation strategies to ones that are more targeted
and tailored, ultimately boosting the efficiency of outside-inideation while keeping the advantages of open innovation.
This has a significant positive impact on the R&D costs
for innovation.
Digital technologies for foresightApplication case: Digital twins for innovation testing
A digital twin is a virtual representation of a physical system.
Digital twins enable companies to engage in product-centric,model-based innovation processes. Thanks to the usage of
IoT sensors, digital twins can receive real-time data, process
it and accurately simulate the results of physical interventions.
While the concept of a digital twin is not new, progress inhigh-performance cloud computing allows far more realistic
modeling, and AI enables twins to learn autonomously andrecommend interventions. Furthermore, the models can beexperienced within virtual reality, which enables developers,
designers and even early-stage customers to get sneakpeaks at to-be innovations purely created within digital twins.
This adds a second layer to the simulated results of physicalinterventions and extends the digital-twin application to
product design.

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Digital technologies for interaction
Application case: Decentralized collaboration platform forecosystem innovation
The combination of a decentralized collaboration platform
and the use of blockchain technology can enable companies
to cooperate and evaluate potential ecosystem partnershipsin the innovation process. Blockchain technology cancreate trust among partners that do not have trust-based
business relationships yet, but rely on exchanges of data
to validate potential use cases or new business models.
By using a blockchain-powered platform, sensible data canbe processed in use cases without the need to give accessto confidential data. Even after a collaboration decision has
been made, the partners do not have to give up their data
ownership, but can also connect and share data via a safe andtrusted decentralized platform. This solution therefore helps
companies to fulfill their need to cooperate for innovation,
while still protecting their intellectual property.

Where are we today?
What does digitally enabled innovation bring, and what isholding us back?
The potential of digitally enabled innovation is transformative.
Under current conditions, respondents believe it will directly
contribute to doubling of overall innovation success, including
the same growth in breakthrough innovation efforts.
What is more, interviews revealed that these anticipatedincreases in innovation success would not be due to betterdata (intelligence) or faster feedback (foresight). Instead,they indicated that company-wide alignment and learning,supported by digital tools (interaction), would be the key totransforming innovation performance.

Doubling of success may seem ambitious, but actual results
could be even higher. Under optimal conditions, companies
indicated that digital innovation could actually nearly triple
overall performance in both breakthrough innovation andoverall innovation success. (See Figure 2.)

Roadblocks for digital innovation

Studyresults

What is lacking today, % of responses:Digital thinkers

24%

Suitable capabilities

19%

45%

Clarity on benefits

18%

44%

Clear use cases

17%

34%

Support in the organization

17%

30%

47%

Ownership

11%

Strategic priority

11%

36%

Vision and strategy for DI

11%

32%

Incentives to execute9%

Governance and accountability 8%
Very significant

23%
29%

36%
Significant

8%

26%

11%

38%

11%

36%

42%

41%

6%

17%

31%
34%
35%
32%
36%
Partially significant

15%
19%
21%
18%
21%
Not significant

Source: Arthur D. Little Innovating in the digital age survey

Figure 2: Current roadblocks to digital innovation

Companies follow different routes to digital transformation
Analysis of company responses enables us to identify four
distinct approaches and archetypes when it comes todigital innovation:•	Digital natives are companies in which “digital” isalready in the DNA. They typically offer digital as partof their value propositions, providing their customers
with digital products and services. They frequently relyon digital technologies to develop innovations. Example
industries include IT, telecoms and media.

Innovating in the digital age
Prism / 2 / 201834/35•	Pioneers are characterized by general optimism about
the benefits of digitally enabled innovation, which
drives them to embrace new digital technologies
within innovation, albeit selectively. Example industries
include the process industry, transport and logistics, andconsumer electronics.
•	Traditionalists recognize digital as having minimal
immediate impact, yet are convinced of its potential
future benefits. They therefore stick to multi-yearplans to usher digitally enabled innovation into theirorganizations, often piloting technologies extensively
prior to implementation. Example industries include
utilities and financial services.
•	
Aspirants do not yet have complete visions for digitaltransformation. They tend to dabble in digitally enabledinnovation by selectively piloting new technologies.
Example industries include manufacturing, food &beverage and engineering.
Companies within strategic archetypes have different viewsof the importance of digital innovation. For example, digital
innovation is seen as more important than “conventional”
innovation by natives and pioneers, but less important by
the other two groups. All except for the natives say thatthey are still exploring its specific potential. When it comesto investments, digital pioneers are the largest spenders,investing 10 times more over the next three years than thelowest spending group, aspirants.

How companies can get started with digital
innovation
What it may bring – identifying distinct opportunities foryour company
Rather than investing in emerging technologies that provide
an unknown competitive impact, many companies wait until
best practices materialize and then buy relevant solutions
from established vendors. But when it comes to the nine
key digital building blocks, the inevitable lag resulting fromfollowership may turn out to be insurmountable.
The recommended starting point is therefore to identify thedigital building blocks with the potential to drive step-changetransformation, as well as those that can solve the specificissues with which your organization tends to struggle. This
will allow you to define a target picture for digital innovationthat is holistic enough to remain relevant beyond the first few
steps, and specific enough to drive concerted efforts. Thistarget picture is the first step on the path to digitally enabledinnovation. (See Figure 3.)

What it may bring
Develop target picture
for digital innovation

How it could be done
Map (digital) technology
application

How to make it work
Define and execute digital
innovation roadmap

Iterate	Potential for enhanced
innovation performance	Technology & use caseprevalence mapping	Potential for enhanced
business model offerings	Existing digitalization
programs	Target picture for digital
innovation

	Business case/logic for
digital innovation
1. Apply commerciallyavailable solutions
2.	Pilot new (“next practice”)
applications
3.	Monitor/experimentwith (potential)
disruptive technologies

Figure 3: A guide to jump-starting digital innovation

	Identifying internal and externalbarriers to digital innovationand developing a remediation
roadmap	Developing and delivering
a user-centric innovation
management solution
	Developing and delivering apiloting roadmap towards“next practice” innovation
	Strengthening the digital
ecosystem innovation
capabilities

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Making it work – moving from concept to real benefits
The key to practically moving to concrete benefits is not
to start with technology, but to start with business needs.
A thorough innovation diagnostic will reveal today’s main
bottlenecks and the value creation potential of innovation
in your company, with needs-based segmentation of yourcustomers revealing their true unmet needs. For example,
working with a specialty chemicals company, Arthur D. Little
revealed that its “must-win battles” in innovation were topredict technical and functional product performance betterand sooner, before starting expensive piloting experiments.
The company also learned that its main customers werelooking for functional solutions rather than the bare product,and “functionality” would come from in-depth understandingof the chemical processes involved. Together with theclient, we then identified a set of “transversal” (i.e., acrosssegments) innovation programs to realize these benefits
through digital technology – some of which were alreadyknown, and others were to be explored.

Looking to the future
While over 90 percent of survey participants told us that digitaltechnology would partly or fully transform their industries,
more than half said they were still discovering its full potential.
Evidently, there is widespread realization that “we ain’t seen
nothing yet”. Companies are therefore hesitating to limit
themselves to implementing the digital solutions that areavailable today. But how can they implement solutions that
do not yet exist, at least not in their companies? The answer
essentially boils down to “innovating your innovation engine”,
and is founded on three principles:•	Stay away from the solution; start with the potential.
Identify the areas where you see major opportunities
through new solutions, and evaluate their businesspotential and the risk that (new) competitors will findthem before you do.

•	Learn from today’s “art of the possible” digital solutions,but continue to think in terms of the big picture:unlimited intelligence, foresight and interaction. While
there are limitations with existing solutions, they may
not be as great as you think. Create a list of the typesof digital solutions that could be applied to these newareas of innovation performance, incorporate them into
your vision, and think of likely or preferred partners andmajor milestones.
•	And thirdly, start experimenting – not by following afixed implementation plan, but rather by launching alimited set of pilot projects. In the best case these willlead to replicable results, but even when unsuccessful
they will increase your knowledge and understandingof the must-win battles in digital innovation. Pilot afterpilot, your initial vision will improve in quality, robustness
and specificity.
Box 2 - Experimenting with digital technologies
This approach of piloting and experimenting worked
especially well for an Arthur D. Little client that embarked
on its digital journey through multiple projects that evaluatedthe potential of digital technologies to transform corebusiness processes. The company set up a “digital pilotfactory” where it tested the impact of digital technologies tosupport maintenance activities (e.g., data glasses to assist in
maintenance, exoskeletons to reduce the physical impact on
employees, and cameras to assist with checking vehicles andinfrastructure for potential damage). After several successful
proofs of concept, the company rolled out the technologies
to all maintenance facilities. Additionally, it piloted an internal
app development platform, selecting several pilot apps
developed by employees to validate the concept. In this way,
the company was able to identify central modules that could
speed up the development process and make the apps fulfill
corporate requirements, such as around security. This enabled
the company to learn, improve and achieve early buy-in fromkey stakeholders.

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Insight for the executive
If only half of the ambitions shared in our survey come true,
digitally enabled innovation will be key to all industries. At thesame time, current technology building blocks for digitallyenabled innovation differ significantly in terms of maturity. Yet,as with any family of new technologies, if you do not start
today, you will have a hard time catching up. Realizing the fullpotential of digitally enabled innovation therefore requires:•	
Needs-based digital thinking: Innovation in thedigital age will demand a new approach to managing
innovation that understands and anticipates the needsof your customers, and of your internal and externalinnovation communities. At the end of the day, digitaltechnology is still just technology, and will be useless if
it is not being used by the right people.
•	
Development of a target picture for digital
innovation: Inclusion of a digital innovation target
picture alongside technology strategy and productinnovation strategy will set the course for your digitaltransformation and ensure that activities target theright opportunities.
•	
Willingness to invest and experiment: You can’t waitfor digital innovation to become established and offer
replicable best practices – you’ll simply be too late,
at least regarding the factors that are critical for yourcompany and customers. You need a much faster, moreagile way to manage and execute digital innovation,
as well as willingness to invest in the development
of digital technologies that address the greatest
opportunities and risks to your organization’s
innovation engine.

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Michaël Kolk
is a Partner in Arthur D. Little’s Amsterdam office and amember of the Technology & Innovation ManagementPractice.
Chandler Hatton
is a Manager in Arthur D. Little’s Amsterdam office and amember of the Technology & Innovation Management andStrategy & Organization Practices.
Heike C. Woerner
is a Principal in Arthur D. Little’s Frankfurt office and amember of the Technology & Innovation Management andTravel & Transportation Practices.
Shota Mitsuya
is a Partner in Arthur D. Little’s Tokyo office and a memberof the Technology & Innovation Management andAutomotive & Manufacturing Practices.