2.5 Digital Innovation Creation, Distribution, and Commercialization

Digital Innovation and Its Adoption

In management information systems (MIS) scholars have identified two main perspectives on innovation and its relation to IS. These perspectives offer valuable insights into how organizations adopt and leverage digital technologies to drive progress. The first perspective, known as “IT innovation,” focuses on how organizations integrate new IT-enabled business processes, products, and services. Simply put, this type of innovation refers to the adoption of an already-existing IT product or service that is new to an organization.

The second perspective, digital innovation, centers on a product-oriented approach that examines how the combination of physical and digital products leads to the creation of entirely new offerings (Figure 2.9).²⁰ This perspective also delves into the role of IT in facilitating or constraining the development of innovative products. By studying digital innovation, we gain insights into how organizations structure and manage their innovative endeavors more effectively.

Figure 2.9 The process of digital innovation follows distinct steps and is informed by the external competitive environment and the internal organizational environment to produce the desired outcomes. (attribution: Copyright Rice University, OpenStax, under CC BY 4.0 license)

Digital innovation encompasses a range of activities that include initiation, development, implementation, and exploitation. The first, initiation, involves the process of identifying and acquiring information on business processes and requirements from both internal and external sources within the organization. The goal is to find problems and opportunities that are well-suited for digital innovation—areas where implementing digital solutions can lead to significant improvements or create new opportunities for growth. For instance, there may be increasing demand for renewable energy sources and a need to reduce greenhouse gas emissions. This realization may prompt a company to explore opportunities in the renewable energy sector and invest in new digital technologies to address these challenges.

Development focuses on the creation and design of new information systems. It encompasses various activities such as building entirely new solutions from scratch, customizing existing systems to better fit an organization’s needs, or adopting preexisting solutions that have proven to be effective elsewhere. The development phase lays the foundation for digital innovation to be implemented successfully. For instance, a company might invest in research and development to create advanced digital monitoring systems for its offshore oil platforms. These systems should leverage cutting-edge technology to minimize environmental impact.

Once the digital innovation has been developed, the implementation phase begins. This involves the actual installation and deployment of the information system within the organization. Beyond the technical aspect of installation, it also includes ensuring that the new systems are integrated into the organization’s existing structure and processes. This may require setting up new governance systems, providing appropriate training to employees, and establishing new processes to support digital innovation. This may also involve installing digital systems in an organization’s satellite locations and providing the training its workforce needs to use the technologies effectively. The organization may also offer incentives to encourage employees to adopt and embrace the new digital tools.

Exploitation refers to maximizing the value derived from the existing information system. After implementation, organizations leverage these systems to their fullest potential. This may involve reusing existing systems and technologies for different purposes, finding innovative ways to utilize the data collected by these systems, and continuously extracting value from the digital innovations to drive growth and efficiency. For instance, after digital innovation has been implemented, a company’s new advanced monitoring systems may not only improve safety and efficiency but now also provide new data insights. The company could leverage this data to optimize its operations further, forecast maintenance needs, and enhance overall performance.

Other important aspects of digital innovation are the internal organizational environment, the external competitive environment, and the outcomes. The internal organizational environment refers to the organizational backdrop in which digital innovation takes place. It includes factors such as the organization’s business and data strategies, how data are managed and shared within the organization, and the established business processes for doing things. The internal organizational environment heavily influences how effectively digital innovation will be adopted and integrated into the organization. The external competitive environment encompasses the broader market in which the organization operates. It includes factors such as industry trends, market fads, the behavior of competitors, and the preferences of consumers. Understanding the external competitive environment is crucial for organizations to ensure their digital innovations align with market demands and offer a competitive advantage. The outcomes of digital innovation refer to the end results achieved by adopting and implementing digital solutions. These outcomes can be either projected or actual results. Projected outcomes are the anticipated benefits and improvements expected from the digital innovation, while actual outcomes represent the tangible results realized after the implementation. These outcomes often include new and improved business processes, innovative products, and more efficient services that contribute to the organization’s overall success.

It is essential to note that not all of these components are mandatory in every digital innovation effort, and they need not follow a prescribed order. In practice, these activities may intertwine to such an extent that it would be challenging to distinguish them.

Deploying Information Technologies to Innovate

Given that not every company starts with digital products and services, nor can every company benefit from them, the question arises: How should an organization pursue digital innovation or consider transforming its products in the digital age? The simple answer is that developing an understanding of the unique context of a business and adopting a well-defined framework can help the organization successfully leverage digital technologies to enhance its products and services, foster growth, and remain competitive in the digital age. A comprehensive framework that sheds light on how products and services can harness digital innovation consists of three popular approaches: opening the door to third parties, connecting customers, and connecting products in order to connect customers.²¹

Opening the door to third parties refers to creating an ecosystem that allows external developers and businesses to integrate their products or services into the primary platform, thereby expanding its functionality and value for end users. This approach can transform a traditional product into a robust platform that caters to a broader range of needs and attracts a larger user base. Gojek is an Indonesian technology company that initially started as a ride-hailing and courier service. Over time, the company recognized the opportunity to expand its platform beyond transportation and ventured into various other services, including food delivery, grocery delivery, parcel delivery, digital payments, and more. To achieve this expansion and provide diverse services to its users, Gojek adopted the “opening the door to third parties” strategy. It created an open platform that welcomes third-party service providers to offer their services through the Gojek app. For instance, local restaurants can partner with Gojek to offer food delivery services, and independent drivers can register to provide ride-hailing services through the Gojek platform.²² By integrating numerous third-party services into its app, Gojek has become an all-in-one super app, catering to a wide range of everyday needs for millions of users.

Connecting customers involves creating a platform that facilitates interactions and transactions between customers, essentially forming a marketplace where buyers and sellers can connect with each other directly. This approach transforms the product into a platform that not only serves customers directly but also enables them to engage with each other, leading to increased network value for all participants. Instagram, a popular social media platform owned by Meta, started out primarily as a photo-sharing app where users could post pictures and videos to share with their followers. As the platform grew in popularity, businesses and individual sellers recognized its potential as a marketing and e-commerce tool. To capitalize on this opportunity, Instagram introduced Instagram Shopping, which allows businesses and individual sellers to set up virtual shops directly on the platform, showcasing their products through photos and videos. Users can explore these shops, browse products, and make purchases without leaving the app. By enabling this direct connection between sellers and potential buyers, Instagram became more than just a social media platform—it became a thriving marketplace where businesses could reach a large audience and customers could discover and purchase products seamlessly.

Connecting products to connect customers involves creating a platform that connects various products or services to offer a comprehensive and seamless experience to customers. This approach aims to provide customers with a unified ecosystem where different products work together harmoniously, creating convenience and value for users. By connecting products, companies can strengthen customer loyalty, increase engagement, and establish a dominant position in their respective markets. Microsoft’s Windows operating system exemplifies the strategy of connecting products to connect customers. Windows is a platform that serves as the foundation for running a wide variety of software applications on personal computers. Microsoft recognized that by creating a unified ecosystem and connecting different software products to the Windows platform, it could increase its value and attract a larger user base. As a result, a vast array of applications, ranging from productivity tools to creative software and games, were made available to Windows users. This interconnected ecosystem made Windows an indispensable platform for PC users, as they could seamlessly install and use various software products for their specific needs. The availability of a diverse selection of software products contributed to the success and widespread adoption of the Windows operating system.