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Reframing Metrics to Enable Innovation

According to the Gartner 2018 CEO and Senior Business Executive Survey, respondents who believe their company is an “innovation pioneer” reached a high last year of 41%, up from 27% in 2013.

Responders are taking some measure of credit for moving their organizations ahead of competitors in the race for growth and relevance. The Gartner survey findings further reveal that the priorities ranked two through five – including new partnerships and M&A (part of corporate development), new technologies, workforce capabilities and the customer – all presumably enable the No. 1 priority on the C-suite list, which is, no surprise, growth.

Add to the priority to-dos an additional leverage point that may be too buried to get well-deserved attention: to develop innovation metrics that monitor and accelerate the conversion of insights and ideas to sources of value for all stakeholders.

Neither attempts at defining surgically precise metrics nor peering into one’s crystal ball will lead to helpful innovation metrics.

Using legacy performance measures to assess concepts that may have little resemblance to established products and services, or treating innovation as an immeasurable, both turn out to undermine potential opportunities. Only the C-suite is empowered to assign new metrics that can nurture these investments and judge them appropriately, and that may not conform to the standards the entire organization has been taught are right. Choices should have rigor, be reasonable for the evaluation of potentially unprecedented products and services, and be able to hold their own even in zero-sum resource allocation processes.

See also: Innovation — or Just Innovative Thinking?  

Early in my career, an executive gave me valuable advice, more recently reinforced in conversations with corporate leaders, startup founders and investors as I undertook the research for my book, The Change Maker’s Playbook. Back then, my team and I were seeking seed funding for a new concept. In a presentation to this particular executive, we shared copious financial analyses, including five years’ worth of P&Ls carried out to the penny. He waved aside our spreadsheets and told us, “Don’t seek a level of precision that cannot be possible when you are looking at something so new.”

Growth opportunities are put at risk when overly precise and backward-looking metrics, from old business models, are applied to gauge potential impact and measure their worthiness to be moved forward.

Instead, executive teams can adopt common-sense approaches to ensure discipline – the right kind of discipline — for evaluating emerging business models.

For an early-stage, new-to-market concept, what is most important is to ask the right questions, rely on judgment where facts simply do not exist, seek metaphors from other sectors or markets and accept good enough data that can be refined along the way. Smart questions answered in fast test-and-learn cycles can lead to relevant metrics and keep innovation projects moving closer to success or the set-aside file.

Here are five suggested questions to find the right metrics for your innovation initiatives:

  1. How big is the addressable market? As soon as the team can characterize the potential audience for an innovation, it becomes possible to estimate how many users and buyers exist. How big is the audience, in your geography, of people who represent the demographics, have purchasing ability and are reachable by your brand? Once you have this estimate, take the 1% test, i.e., would a good result be to earn 1% of the market?
  2. What would you have to believe? In the absence of a rearview mirror’s worth of history, better to look forward and envision market, customer, operational and other basics that would need to exist for a concept to appear reasonable. A useful answer to this question assumes the team’s ability to avoid clouding the future view of what is possible with too much knowledge of past precedents that may now be irrelevant. What does the intensity of user reaction to prototypes reveal: Are you solving a functional problem, or are you also hitting an emotional chord with your audience, suggesting a willingness to buy? What breakthroughs can you discern by examining what is happening in other markets or sectors?
  3. What are the key drivers of revenue and expenses? In early iterations, set aside the spreadsheets and calculators. Think conceptually about your preliminary assumptions regarding the business model. What appears to be the primary revenue driver? And what do your assumptions suggest about potential expense drivers? Perhaps early on each of these will only be assigned “high” “medium” or “low” designations to indicate importance, but not be any more quantifiable.
  4. Can you figure out the unit profit model? Factor in early tests, as you refine your prototype and begin to engage potential users, gathering insight to determine the unit profit model and how comfortable the team is that it can be delivered.
  5. What is the potential to scale? With the confidence that you understand unit-level profitability dynamics, test for the path to scale. What will it take to attract each new customer or dollar of sales, for example, and how steep will the growth curve be?

See also: Digital Innovation: Down to Business  

“Reframing” is a popular innovation concept. Reframing is simply the ability to set aside beliefs and see concepts with a fresh eye. Executives who are able to reframe metrics stand to increase their organizations’ innovation effectiveness. They will energize members of the organization who are drawn to creating the future because the right metrics can themselves be powerful motivators and enablers.

Riding the Wave on Expense Management

While solutions to help employees manage their travel-related expenses have evolved steadily over the past two decades, innovation in the space has really accelerated in the last five years. Never have organizations of all sizes had so many options to choose from. As Gartner points out in its 2017 Market Guide for Travel Expense Management Software, organizations that are still processing expense reports manually can rapidly improve efficiency, accuracy and end-user satisfaction by moving to a modern expense management application.

Well, things are about to accelerate even more. We are sitting on the cusp of the third wave of technology innovation, a wave that will transform the industry to the point where our kids and our grandkids will not even understand what “doing your expenses” means. When you explain to them how you used to do it in the old days, they will look at you in the same way that we would look at someone today if they described having to walk over to the TV and turn the dial to change the channel, or dialing a telephone number on a rotary phone.

The First Wave

How did we get here? The first wave of expense management innovation began in the late 1990s and lasted until the launch of the iPhone in 2007. The focus initially was automation and policy enforcement. The main players were the big enterprise resource planning (ERP) vendors, which built T&E applications as an extension to the ERP suite.

These “solutions” were better than the decentralized, Excel-based systems most companies had been using up until that point. Expense management became easier in the sense that there was now a central tool where the company could specify certain policies, and employees could input their expenses. If something was out of policy, it didn’t have to be reimbursed.

See also: Innovation Pivots: 10 Lessons Learned  

These early tools helped with policy enforcement and vastly reduced the number of Excel spreadsheets floating around, but they didn’t really go far enough. Employees found them extremely difficult to use. While they provided a user interface in name, it was clear that the vendors had not considered optimizing the user experience at all. What enabled this shocking lack of attention to the end user was the fact that ERP solutions were sold exclusively to finance and to IT, without any end users involved in the purchasing process. As the adage goes, “If you’re not at the table, you’re on the menu.” The frustration of end users would prove this to be true.

The Second Wave

Finally, in 2007, Apple launched the product that changed several industries: the iPhone. In expense management, the iPhone enabled a second wave of products that were not ERP-based, unleashing a classic wave of rapid innovation across the whole space. For the first time, we saw the rapid rise of cloud-based, pure-play expense management solutions.

These applications offered a more nuanced approach to everything from user experience to reporting to approvals. There was a much better marriage of the needs of the user and the needs of the company. The biggest breakthrough, of course, was giving travelers the ability to do many expense reporting and approval tasks on their mobile phones.

Today, as we pass the tenth anniversary of the iPhone launch, we can look back and say that, during this decade, we have succeeded in porting over the same old highly manual desktop-based processes into our mobile phones. Indeed, if we look at it simply from the perspective of being able to do everything on the phone that we can do on the computer, then it appears that we have tapped out all the innovation in this space. We’re done, right?

Nothing could be further from the truth.

We have been asking ourselves the wrong question this entire time. The question we were asking before was: How can we make this faster and easier? We’ve now done that in many ways that would have seemed futuristic just a few years ago. You can take a picture of your receipts on your phone, and they go right into an expense line. We can use GPS to automatically calculate your mileage. You can even speak your expense lines directly into your phone, on the go, when you’ve got a carry-on bag on one hand and you’re trying to catch your flight.

The first two waves were about simply transferring the same level of work to more convenient mediums, first from Excel to an ERP-based specialized tool, then from the desktop computer to the mobile phone. However, the third wave will be about eliminating the work altogether.

The Right Question

The right question, as it turns out, is: Why are we spending any time doing this manual work in the first place? If you’re traveling and expensing for work, chances are good that you are a highly paid and thus highly valued employee. Why would your company want you spending any time at all on an activity that adds no value?

Sure, there is a communication issue. Somebody needs to know exactly what has been expensed, and it has to be coded so that the finance team will understand and be able to approve it. But, in the not-too-distant future, employees will no longer have to take photos to communicate this information.

They won’t even have to speak into their phone, and they will certainly not be typing anything at all into their phones or computers. Their transactions will automatically be recognized as either business spending or personal spending based on artificial intelligence that understands their patterns as a user and as a mobile traveler. This is a future state that we can all embrace.

Following the Money

How will this happen? Here’s one possible way: payments. Today, we very rarely see cash payments any more, especially among millennial employees, who already represent the biggest demographic in most workplaces. Shifting to 100% electronic payments paves the way for a much bigger convergence between credit card and payment companies and expense management providers to share data.

We already have partnerships between credit card companies and expense management vendors where transactions through a credit card partner automatically go into the expense management system. I believe we will see this on a much larger scale. Expense management technology will evolve to where the tools will be able to look at all the payments an employee is making, identify those that are business expenses and bring them in for reimbursement, perhaps even immediately. The concept of an expense report will be as foreign in the future as the concept of a typewriter.

See also: Key Trends in Innovation (Part 7)  

Certainly, there may be privacy considerations about allowing your employer access to your spending data, but it seems that majority of us have proven ourselves willing to sacrifice privacy for convenience, and repeatedly. We did it with mobile phones, where we allow location tracking so that we can use our maps apps. We did it with web browsers, where we allow companies to track our browsing history and market to us directly with banner ads. We did it with online payments, where we willingly hand over confidential credit card data. Does anyone doubt that we will do it again with expense reports to enable faster, more accurate repayment with less hassle?

In this new world, business travelers will simply live their lives. When travel is booked through the company booking system, perhaps automatically based on scanning your emails for coming meetings away from your base locations and with knowledge of your travel preferences based on your history, all the details of the trip will be instantly shared with your expense system. When your trip starts, the expense system will begin recording and populating the expense report using payment, GPS and other data, with no effort needed. Any non-compliant activities will be flagged before they happen. For example, in the late afternoon, you might get a push notification reminding you of the spending limits for dinner and suggesting some nearby restaurants that would fit the bill. When the trip ends, the traveler gets a completed report to approve for reimbursement.

That’s what the third wave of expense management solutions will do for corporate travelers. It’s an incredibly exciting time to be in this space.

Future of Digital Transformation

Senior management have to come to grips with the fact that digital transformation is not an event but rather the operating environment of 21st century business.

Like music, photos, TV, and data, once something becomes digital it becomes a consumable and moves from the domain of the specialized expert to a public commodity. As with Blockbuster, Borders, Capital Records and newspapers, businesses based on non-digital product are the hand-crafted hobbies of the 21st century.  Craft markets will exist into the future, but they are generally not profitable and rather a labor of love.

Changing the way we work

Here’s the kicker. Digital transformation is now looking at not just the things we sell, which includes services, by the way, but how we do business. From crowd funding to network marketing to blockchain (how Bitcoin works), the basic principles of how we have traditionally gone about business are changing.

Crowd funding, where a population at large is directly involved in the creation of products, also has ramifications for invention and design. Brainstorming on steroids. Network marketing has wiped out traditional sales channels from cold calling and direct mail to bricks and mortar retailing. And blockchain has the capability to render capital-intensive industries obsolete. What Bitcoin did to money, people are now looking to use to undermine energy, insurance and infrastructure oligarchies. One day, blockchain may even be capable of fixing our political system.

See also: 4 Rules for Digital Transformation  

Understanding Digital Transformation

What really is digital transformation? Gartner, a leading authority on such things, defines digital transformation as “to leverage digital technologies that enable the innovation of their entire business or elements of their business and operating models.

So innovating is not just what we do, but how we do it, our “operating models.” In my last article, “Misunderstanding Innovation,” I wrote on how innovation is not invention but rather the application of invention as a solution to a practical need. As such, innovation is the backbone of digital transformation, just as audit is to compliance or controls are to risk.

Digital Transformation as an Operating Model

Back to my opening statement that digital transformation should not be thought of as an event but rather an operating environment, just as industrialization in the 18th century was not a single event but a period of continual transformation. From the introduction of the weaving loom through production lines to mass production, the transformation fed change that has continued for 200 years.

Senior management have to stop thinking of digital transformation as a passing fad, and embrace the fact that the world has changed.  As in the 18th and 19th centuries, change will drive change, and as the management in those times developed process management models (see, PDCA is NOT Best Practice) to drive the development of automated production, so, too, managers now have to develop transformation models to take account that disruption and innovation will drive further disruption and innovation.

Transformation as a Lifestyle Choice

The fact that you have transformed your operation today is only a temporary reprieve. You need to redefine your business model to be an agile platform continually identifying and innovating to improve end-customer quality of life: That’s your customer’s customer.

Women as the Mothers of Innovation

The current beat-up of getting more women involved in STEM (science, technology, engineering, math) misses the understanding that innovation has at its root, a deep empathy for the quality of life of others. Developing and elevating women’s inherent intuition as to the plight of others will do more to foster innovation than a plethora of inventions. Hundreds of inventions never see the light of day, yet a handful of innovations have changed the world. Again, please re-read my previous article on Misunderstanding Innovation.

If Malcolm Turnbull truly wants Australia to develop an innovative culture, we should be promoting more people into psychology, sociology, anthropology and statistics. These are the strategic vocations of innovation, while STEM and invention are the tactical solutions. Yes, stats is math, but it allows us to understand bias as well as predictive analytics, which identifies and prioritizes targets for innovation.

See also: Why You Need a Digital Leader  

Where to From Here?

Accepting the need to transform your business model is in itself an inherent risk. Just as a window cleaner straps on a safety harness before scaling a building, so having an active risk and compliance system operational is a mandatory prerequisite before embarking on any transformation. You will need systems that alert you to emerging issues and to give you continual insight, throughout the transformation process, without the need to go and look for it. The business graveyard is as full of those who lost their footing on the way as those who did nothing. This is not a shameless plug for what I do but rather the reason I do it.

How to Move Into the On-Demand Economy

The rise of the on-demand economy is disrupting billion-dollar markets — from retail, travel and transportation to healthcare, financial services, insurance, cable and utilities. In fact, a recent survey by Pew Research Center found that 72% of American adults have used on-demand services.

While we’ve become accustomed to witnessing startups and digitally native companies launch on-demand services with relative ease, the reality is far different for established enterprises with legacy systems that they have to integrate. For many companies, adapting to an on-demand model requires organizational restructuring, not to mention disparate systems that need to be connected to make that possible. Often, it’s difficult for enterprises to keep pace with the changes to meaningfully transform their business for the on-demand economy.

By 2025, leading enterprises will operate entirely on-demand — using software and mobile devices to connect to global and distributed networks and using a combination of AI and chatbots to handle customer service, payment and transactions and other business processes. According to Gartner, three out of 10 jobs will be converted to software, robots or smart machines.

These realities both threaten and present opportunities for enterprises. But the biggest risk of all is for businesses is to pretend the changes aren’t happening. Enterprises need to embrace the change to both redefine their role and the value they bring their customers, all while automating key areas of their business, ensuring compliance and stimulating growth.

See also: On-Demand Insurance: Ultimately a Bust?  

The on-demand economy has raised consumer expectations across industries. It places the customer firmly at the center of a business. We’ve seen Amazon set a new standard for retail customer service. Uber and Lyft have used a distributed workforce to disrupt a $60 billion local transportation market, while Airbnb has changed the travel and vacation rental market, and Lemonade is changing the insurance industry. The elevated experiences provided by these companies, and those like them, combine to raise the customer expectations across all industries.

What’s even more interesting is what has become known as the “experience gap.” It’s based on the fact that 80% of CEOs believe they are delivering a superior experience, but only 8% of customers agree. And given that more than half of customers today say they’ve switched companies solely because of poor user experiences, it’s clear that companies that fail to embrace change and the shift to consumer-centric solutions are at a strategic disadvantage. This experience gap is the catalyst for a lot of disruption because it’s catching businesses off-guard because they’re not yet deploying the new tools that can close the gap.

As such, competition doesn’t manifest itself through traditional means. Instead, competitive differentiation stems from the quality of experiences businesses can deliver to their customers.

So that brings us to the question of “how” to deliver experiences consumers expect.

How can enterprises join the on-demand economy and deliver experiences that are synonymous with being always-on and personalized? In broad terms, there are elements or “steps” of digital transformation that enterprises can undertake to get them in the right place and ready to meet the needs of today’s demanding consumer. And, the process is not as complex as one might imagine.

Enterprise Transformation for the On-Demand Economy

1. Enabling messaging as a customer engagement channel

The first step is to enable a secure messaging system that can adequately serve the needs of consumers. This means it needs to offer all the necessary functionality that consumers experience in other channels such as payments, scheduling, CRM integrations, file transfers, customer service and marketing. In addition, the communication platform needs to meet security and privacy standards to ensure no breaches in compliance.

The fact is, traditional channels — such as telephone and email — are no longer the primary channels through which people communicate with each other. The adoption of messaging has been rapid, and it shows no signs of slowing down. With this in mind, businesses large and small need to follow suit and begin the transition to messaging by including it in their channel strategy.

The reason messaging is such a key part of the on-demand economy is that its very premise is on-demand. Messaging allows consumers to respond in their own time and send messages whenever they like. It harbors a strong sense of immediacy that’s unmatched on other channels. And it’s a channel that’s easily accessible through the smartphones that people carry with them everywhere they go.

2. Messaging across all devices and channels

This same messaging capability then needs to be plugged in effectively across all devices and channels to connect with customers in real time. So, whether the primary interface is a mobile app, website, social network or otherwise, it’s the same high-value messaging experience.

3. Scale through business process automation with chatbots and artificial intelligence.

The third step to entering the on-demand economy is scaling the always-on messaging experience through the use of chatbots and artificial intelligence (AI). These technologies work to automate the whole operation and provide a cost-effective solution for scaling 24/7 connectivity.

The future of business communication is firmly based in the on-demand economy. So enterprises must be focused on making processes easy to access and intuitive to move through. Despite all the extraneous features and services that will be enabled through technology, the biggest drivers of innovation will be utility and simplicity across the customer experience.

See also: Insuring a ‘Slice’ of the On-Demand Economy

What It Means for Businesses to be On-Demand

To be truly on-demand is to be at the beck and call of customers and consumers — to deliver experiences that provide consumers with access to information and services when and where they need it. It’s a simple concept with massive implications. Each day, consumers embark on an infinite number of journeys. For businesses to play a role in these consumer journeys, they need to meet them where they are along the way. And that is the the premise of the on-demand economy. Businesses no longer have the control — consumers are the ones who are empowered. It’s therefore essential that businesses adopt the on-demand model to retain and build their customer’s loyalty.